INTRODUCTION..........................................................................................................................................3
GENERAL INDEX IN ALPHABETICAL ORDER.................................................................................24
CLAUSE 1 : DEFINITION AND INTERPRETATION
........................................................................................................................................................................33
CLAUSE 2 : OBLIGATIONS OF THE ENGINEER...............................................................................44
CLAUSE 3 : ASSIGNMENT.......................................................................................................................52
CLAUSE 4 : SUB-CONTRACTING..........................................................................................................53
CLAUSE 5 : LANGUAGE OF THE CONTRACT...................................................................................56
CLAUSE 6 : DRAWINGS TO THE CONTRACTOR..............................................................................60
CLAUSE 7 : DRAWINGS AND INSTRUCTIONS...................................................................................63
CLAUSE 8 : GENERAL OBLIGATIONS OF THE CONTRACTOR...................................................66
CLAUSE 9 : FORMAL CONTRACT AGREEMENT.............................................................................70
CLAUSE 10 : PERFORMANCE SECURITY..........................................................................................72
CLAUSE 11 : INFORMATION REGARDING CONTRACT................................................................75
CLAUSE 12 : TENDER AND RATES.......................................................................................................78
CLAUSE 13 : INSTRUCTIONS FROM THE ENGINEER....................................................................82
CLAUSE 14 : WORK PROGRAMME......................................................................................................86
CLAUSE 15 : CONTRACTOR’S SUPERINTENDENCE......................................................................89
CLAUSE 16 : CONTRACTOR’S EMPLOYEES.....................................................................................91
CLAUSE 17 : SETTING OUT....................................................................................................................92
CLAUSE 18 : BOREHOLES AND EXPLORATORY EXCAVATION...................................................94
CLAUSE 19 : EMPLOYER’S RESPONSIBILITIES..............................................................................94
CLAUSE 20 : CONTRACTOR’S RESPONSIBILITIES.........................................................................95
CLAUSE 21 : INSURANCE OF WORKS...............................................................................................100
CLAUSE 22 : INDEMNITY......................................................................................................................105
CLAUSE 23. : INSURANCE LIABILITIES...........................................................................................107
CLAUSE 24 : ACCIDENT OR INJURY..................................................................................................108
CLAUSE 25 : TERMS OF INSURANCE................................................................................................109
CLAUSE 26 : LEGISLATIONS AND REGULATIONS........................................................................111
CLAUSE 27 : FOSSILS.............................................................................................................................113
CLAUSE 28 : PATENT RIGHTS..............................................................................................................114
CLAUSE 29 : INTERFERENCE AT WORK SITE................................................................................114
CLAUSE 30 : DAMAGE AT WORK SITE.............................................................................................115
CLAUSE 31 : OPPORTUNITIES FOR OTHER CONTRACTORS....................................................117
CLAUSE 32 : KEEP SITE CLEAR OF OBSTRUCTIONS...................................................................119
CLAUSE 33 : CLEARANCE OF SITE ON COMPLETION................................................................119
CLAUSE 34 : ENGAGEMENT OF STAFF AND LABOUR.................................................................120
CLAUSE 35 : RETURNS OF LABOUR AND EQUIPMENT...............................................................120
Page 1 of 264
CLAUSE 36 : FACILITIES FOR TESTING...........................................................................................121
CLAUSE 37 : INSPECTION AND TESTING........................................................................................124
CLAUSE 38 : INSPECTION OF PART OF WORKS............................................................................127
CLAUSE 39 : REMOVAL / REPLACEMENT OF MATERIAL / PLANT..........................................128
CLAUSE 40 : SUSPENSION OF WORKS..............................................................................................130
CLAUSE 41 : COMMENCEMENT OF WORKS..................................................................................134
CLAUSE 42 : HANDING OVER POSSESSION....................................................................................135
CLAUSE 43 : COMPLETION OF WORK ON TIME...........................................................................139
CLAUSE 44 : EXTENSION OF TIME....................................................................................................139
CLAUSE 45 : WORKING HOURS..........................................................................................................149
CLAUSE 46 : RATE OF PROGRESS......................................................................................................150
CLAUSE 47 : LIQUIDATED DAMAGES...............................................................................................152
CLAUSE 48 : TAKING OVER / SUBSTANTIAL COMPLETION......................................................156
CLAUSE 49 : DEFECTS LIABILITY PERIOD.....................................................................................161
CLAUSE 50 : SEARCH FOR CAUSE OF DEFECT.............................................................................165
CLAUSE 51 : VARIATION / ADDITIONS / OMISSIONS....................................................................166
CLAUSE 52 : VALUE OF VARIATIONS ...............................................................................................173
CLAUSE 53 : NOTICE FOR CLAIM......................................................................................................178
CLAUSE 54 : CONTRACTOR’S EQUIPMENT....................................................................................182
CLAUSE 55 : BILL OF QUANTITIES....................................................................................................185
CLAUSE 56 : MEASUREMENT OF WORKS.......................................................................................187
CLAUSE 57 : NET MEASUREMENT OF WORKS..............................................................................188
CLAUSE 58 : PROVISIONAL SUM........................................................................................................189
CLAUSE 59 : NOMINATED SUB-CONTRACTOR..............................................................................191
CLAUSE 60 : CERTIFICATES & PAYMENTS OF THE CONTRACTOR.......................................197
CLAUSE 61: DEFECTS LIABILITY CERTIFICATE..........................................................................216
CLAUSE 62 DEFECTS LIABILITY CERTIFICATE...........................................................................218
CLAUSE 63 : TERMINATION................................................................................................................220
CLAUSE 64 : REMEDIES........................................................................................................................232
CLAUSE 65 : SPECIAL RISKS...............................................................................................................233
CLAUSE 66 : RELEASE FROM PERFORMANCE.............................................................................238
CLAUSE 67 : SETTLEMENT OF DISPUTES.......................................................................................240
CLAUSE 68 : NOTICES............................................................................................................................250
CLAUSE 69 : DEFAULTS OF EMPLOYER..........................................................................................251
CLAUSE 70: CHANGES OF COSTS AND LEGISLATION................................................................260
CLAUSE 71: COMPENSATION TO CONTRACTOR.........................................................................262
CLAUSE 72: CURRENCY AND EXCHANGE RATES........................................................................263
MISCELLANEOUS AMENDMENTS.....................................................................................................264
Page 2 of 264
Introduction
PREFACE
This book is intended for anybody having dealings with FIDIC's "Red Book", the
4th Edition of the "Conditions of Contract for Works of Civil Engineering
Construction" published in 1987. Employers, engineers, contractors and their
respective advisors should all find something in this work to help them to
understand and make best use of these conditions of contract.
For those not familiar with the contract, the commentary to each clause starts
with a "plain English" paraphrase to enable the reader to understand the gist of
the clause as quickly as possible. Except where the meaning of the clause is
entirely obvious, each sub-clause is given a separate paragraph.
The volume also includes a set of some 94 "suggested forms" which may be
found useful by engineers, employers and contractors. These do not attempt to
anticipate particular situations but rather to use the wording of the clause to
produce a form of notice which would, it is hoped, leave no room for doubt or
debate as to whether a notice had been given, under which clause it had been
given or whether the notice was in a form which complies with the terms of the
contract. At the very least, the forms section will provide to the parties a
reference against which to check that the notice that they are giving has been
given and copied to the correct parties. There can be few types of disputes which
are as fruitless and frustrating as disputes over whether the correct form of notice
has been given in particular circumstances. Whilst there are often good reasons
for requiring notice to be given, it is rare that justice is done when an arbitrator is
forced by the contract to rule out a claim on the grounds that no or no adequate
notice has been given. In short, it is in everybody's interest that notices are given
properly. If parties wished to do so, they could agree at the outset that notices
which conform to those set out in this volume would not be open to challenges as
to form although they could of course be open to challenge in respect of their
timing, their appropriateness or indeed the manner in which the blanks have
been filled.
Although the masculine pronouns "he" and "him" have been used from time to
time as a shorthand for the Employer, the Contractor or the Engineer, this is for
convenience and is not based on any assumption that the parties involved with
civil engineering contracts are necessarily male. The author is well aware that the
contrary is increasingly true. The usage is also consistent with the language of
the conditions.
Readers may find it strange that references will be found in this work to both the
ICE's 5th and 6th Edition. The ICE 5th Edition is referred to because the
draftsman of FIDIC's 4th Edition was plainly heavily influenced by ICE's 5th
Edition and the points of departure are interesting in themselves as well as being
Page 3 of 264
useful to those readers familiar with the ICE Conditions. References to ICE 6th
Edition are included because of the history of the FIDIC form following in the
footsteps of ICE's drafting: it is therefore interesting to see which of the
innovations introduced by FIDIC in their 4th Edition have been adopted by the
ICE in their 6th. Knowledge of the ICE conditions is by no means necessary for
the user of this work, however.
As a user of commentaries of this sort, I am well aware that all too often the
particular practical problem, which a reader experiences is not, covered by the
commentary. As a writer, it is impossible to imagine all problems that might occur
even if time and the patience of the publisher would permit all problems to be
addressed. I should add that even in cases where the problem experienced by a
reader appears to have been addressed and an answer suggested, the reader
should take great care and should avoid any assumption that their particular
circumstances were being addressed. Discussion and submission in the absence
of particular facts is necessarily limited and the reader is urged to give careful
consideration and if necessary to take independent advice in relation to their
particular circumstances.
As this work is intended not only for lawyers but for the full dramatis personae of
a civil engineering project, it was decided that footnotes would be avoided and
references to legal cases given a firmly subordinate role. Given the range of legal
systems in which the FIDIC conditions are used, very often with the local law as
the law of the contract, an over-dependence on Commonwealth case-law would
not necessarily be helpful. Recent decisions and decisions from jurisdictions
other than England have been given priority.
It should be confessed at this early stage that the references to be found in Part
II, the Conditions of Particular Application, to dredging and reclamation have not
been the subject of any comment. Part II is however set out in full at the end of
this work.
Finally, the author wishes to thank FIDIC for permitting the reproduction of the
Red Book for the purposes of this work.
ECC - LONDON
1: INTRODUCTION
Origins of FIDIC 4th Edition
FIDIC is the Federation International Des Ingenieurs-Conseils and is an
association of national associations of Consulting Engineers. They have been in
Page 4 of 264
existence since 1913 and have their headquarters and secretariat in Lausanne in
Switzerland.
FIDIC have produced standard forms of contract for civil engineering projects
since 1957. The 2nd Edition was published in 1969 and the 3rd in 1977. As the
obvious comparison is between these conditions and those produced by the
Institute of Civil Engineers in the UK, known throughout this work as "ICE", it may
be helpful to record that the ICE 1st Edition was published in 1945 and the 4th
Edition in 1955. The 5th Edition was published in 1973 and it was upon this
Edition that the FIDIC 3rd Edition was closely modeled. FIDIC took the initiative
with their 4th Edition and it may be thought that ICE 6th Edition published in
January 1991 shows that FIDIC has repaid some part of its debt to the ICE. In
particular, FIDIC's ideas in relation to an express obligation upon the Engineer to
be impartial, the deemed obligation upon the Employer to disclose all information
concerning the ground conditions on site and the introduction of conciliation into
the disputes procedure after the Engineer's decision and before arbitration, may
well have influenced ICE's 6th Edition. To avoid confusion with FIDIC editions,
the ICE conditions are referred to in the commentary as ICE 5th and ICE 6th.
Nature of the Conditions
For those who are unfamiliar with FIDIC's Standard Form, it may assist if the
basic characteristics are set out:
It is a form very much in the traditional English mode with Bills of
Quantities and a named Engineer whose functions include making certification
and other determinations independently of the Employer and indeed impartially
as between the parties.
It is a re-measurement contract with the quantities in the bill treated as
approximate and the Contract Price having little relevance save as a means by
which the competing tenders might be judged.
The Employer may nominate subcontractors and has the power to make
direct payment in the event that the Contractor fails to do so. The Employer is not
made liable, as in some English forms, for delays by the nominated
subcontractors.
Risk is divided in line with the philosophy that the Employer is best placed
to take on those risks which experienced contractors could not reasonably be
expected to foresee, which are outside the control of the parties and which are
not readily capable of being covered by insurance. Unpredictable ground
conditions are at the risk of the Employer.
The earlier editions of the FIDIC Conditions have been extensively used and the
4th Edition is rooted firmly in the tried and tested formula. The changes are
generally sensible and conservative and the 4th Edition will no doubt do equally
well.
Page 5 of 264
The changes made from the 3rd Edition are referred to at the beginning of the
commentary under each clause. The principal changes are as follows:Clause 2.6 (Engineer to Act impartially): an express obligation upon the
Engineer to act impartially as between the parties.
The Engineer is required to consult with the parties under some 25
clauses prior to granting extensions of time, fixing rates or making an award of
costs. This consultation obligation is discussed further below.
Design by the Contractor or one of his subcontractors is catered for in
clause 7.2 (Permanent works designed by Contractor), clause 8.1 (Contractor's
general responsibility) and clause 59.3 (Design requirements to be expressly
stated).
Clause 44.1 (Extension of time for completion) now provides for an
extension for delays and prevention by the Employer.
The amount of variation required to trigger an adjustment has been
increased from 10% in clause 52.3 (Variations exceeding 15%).
A procedure for claims has been set out in new clause 53 (Procedure for
claims).
Clause 60 (Payment) has now been drafted in full whereas the 3rd Edition
left the matter entirely in the hands of the parties to deal with in Part II.
Under clause 67 (Settlement of disputes) an "amicable settlement"
procedure has been interposed between the Engineer's decision and arbitration.
If the Employer fails to pay on time, the Contractor is now given the option
of suspending work or reducing the rate of work as an alternative to
determination: clause 69.4 (Contractor's entitlement to suspend work).
In addition, there are numerous other material amendments and some changes
of vocabulary. Only 4 out of 185 sub-clauses escaped change altogether.
Amendment of FIDIC's 4th Edition
It is the author's experience and impression, quite unsupported by statistics, that
the FIDIC Conditions are used in an amended form, perhaps in a majority of
cases. Certainly, many of the major Employers in the Middle East adopt and
refine their own standard sets of amendments. These amendments are generally
aimed at adjusting the balance of risk in favour of the Employer rather than to
remedy any ambiguities, anomalies or discrepancies in the drafting. Clauses,
which it is suggested require attention in order to remove ambiguities, anomalies
and discrepancies and thereby to reduce the scope for conflict, are as set out
Page 6 of 264
below. For the detailed criticism, the reader is referred to the commentary under
the particular clause referred to.
-
Clause 2.1 (Engineer's duties and authority), inability to replace Engineer.
-
Clause 2.5 (Instructions in writing), anomaly as to date of instruction.
-
Clause 2.6 (Engineer to act impartially), breadth of item (d).
Clause 7.1 (Supplementary drawings and instructions), clause 13.1 (Work
to be in accordance with Contract) and clause 51.1 (Variations): clarify Engineer's
power to instruct.
Clause 37.4 (Rejection), clause 39.1 (Removal of improper work,
materials or plant) and clause 63.1 (Default of Contractor) item (c): remove
inconsistencies.
Clause 42.1 (Possession of site and access there to): clarify reference to
the clause 14 programme.
-
Clause 44.1 (Extension of time for completion): clarify item (b).
Clause 46.1 (Rate of progress) and clause 63.1 (Default of Contractor)
item (b) (ii): resolve discrepancy
Clause 49.2 (Completion of outstanding work and remedying defects):
clarify Engineer's apparent discretion to instruct remedial works.
Clause 51.2 (Instructions for variations): resolve finally that an increase or
decrease in quantities amounts to "varied work".
Clause 52.3 (Variations exceeding 15%): put beyond doubt the calculation
of the 15%.
Resolve relationship between clause 53.1 (Notice of Claim) and other
clauses with notice requirements.
Clause 59.1 (Definition of "nominated subcontractor"): this definition
appears to be excessively wide.
Clause 60.3 (Payment of retention money): clarify position after TakingOver Certificate.
Sub-clauses 60.5 to 60.8: establish consistent policy in relation to breach
of contract.
Sub-clauses 60.7 and 60.9 and clause 62.2 (Unfulfilled obligations): clarify
relationship between these clauses.
Page 7 of 264
Clause 63.1 (Default of Contractor): resolve doubt as to timing of the
Engineer's certificate and the Employer's notice and termination.
Clause 65.3 (Damage to Works by Special Risks): clarify the Contractor's
apparent right to complete the works.
Clause 67.1 (Engineer's decision): resolve relationship with clause 63.1
(Default of Contractor) and clause 69.1 (Default of Employer).
This list represents the headline items but other amendments are suggested in
the text and either party to the contract may wish to make further amendments in
their own interest. There is a further species of amendment, which might be of
benefit to both the parties such as amending clause 44 (Extension of time) and
clause 46 (Rate of progress) to enable the Employer to order acceleration in lieu
of extension of time or in circumstances where the Contractor's entitlement to
extension of time is a matter of dispute.
Generally, great care is needed when amending any standard form of contract.
These FIDIC conditions are generally well balanced and, as with any contract,
there are a great number of links and relationships between different clauses, not
all of which are express or otherwise obvious. With any amendment, therefore,
there is the danger of upsetting the balance or of creating unintended
consequential changes to related provisions. It is in the interests of all parties that
changes should be kept to a minimum.
2: THE ROLE OF THE ENGINEER
Clause 2.1 is entitled "Engineer's duties and authority" but it is necessary to look
right through the conditions to understand the full scope of his role. In the
absence of clause 2.6 (Engineer to act impartially) it would be apparent that the
Engineer has a number of different roles which may be enumerated as follows:1.
2.
3.
4.
Designer: clauses 6, 7 and 51
Quality Controller: clauses 7.2, 36-39, 49 and 50
Value and Certifier: especially under clauses 48, 52, 60 and 62
Adjudicator: clause 67.
From the above it is reasonably clear that the Engineer is intended to act both as
agent for the Employer in the process of obtaining for the Employer the project
required and as an independent person for the administration of the contract and
for the settlement of disputes.
Clause 2.6 (Engineer to act impartially) creates doubt over this dichotomy. The
clause requires the Engineer when acting in an independent role to be impartial.
This raises the difficult question as to when the Engineer is engaged in which
role. The draftsman has sought to address the question by the use of the general
Page 8 of 264
concept "wherever...the Engineer is required to exercise his discretion...” There is
no other reference in the contract to the Engineer's discretion. There follows a list
of actions, which the Engineer takes in his independent capacity. These actions
would not, it is submitted, always be undertaken in an independent capacity: for
example, consenting to subcontractors under clause 4.1 or approving the
Contractor's design under clause 7.2 would normally be considered to be
functions undertaken as the Employer's agent.
As suggested under clause 2.6, the presumed intention of the draftsman has,
very arguably, not been achieved. It is difficult to find a function of the Engineer
that does not involve discretion or does not "affect the rights and obligations" of
the parties. The notice to commence under clause 41.1 (Commencement of
Works) is to be given by the Engineer. Normally there would be little doubt that
the notice would be given when the Employer wished within the prescribed
period and is thus a clear example of an "agent" function. However, there is
discretion as to when to give the notice within the period and the parties' rights
are affected. Accordingly, it is certainly arguable that clause 2.6 applies unless it
is made clear, "under the Contract" that the Engineer is not "required to exercise
his discretion". In order to avoid such an argument, a solution similar to that
adopted by ICE 6th may be required.
Under ICE 6th the Engineer is required by clause 2(8) to act impartially in relation
to all matters other than those "requiring the specific approval of the Employer"
under the equivalent clause to 2.1 (Engineer's duty and authority) whereby any
actions requiring the Employer's approval are to be set out in Part II. It will
therefore be necessary for the parties under ICE 6th to list all those functions of
the Engineer which are to be undertaken as the Employer's agent and in the
Employer's interest.
Exactly the same provision is not recommended: it would be unwieldy if the
Engineer were obliged to obtain approval for every agent action. It would be
better to list in Part II to clause 2.6 those functions in respect of which the
Engineer is not to act impartially.
Table 1 sets out the functions of the Engineer and should assist the parties to
decide which decisions are to be taken as agent and listed in Part II. The table
advances a view on whether any given function should be considered for the
agency list or whether it is intended by the draftsman to be an independent
function. The column indicating where consultation is called for demonstrates
that consultation forms part of the Engineer's independent function although not
all the normal independent functions involve consultation.
ENGINEER'S ROLE - AGENT OR INDEPENDENT?
Clause No. Description Agent Independent Consultation
2.2,.4 Appointment of
Ö
Representative, assistants
Page 9 of 264
4.1
Consent to subcontractors Ö
5.2
Resolving discrepancies
Ö?
6.1
Consent to disclosure
Ö
6.4
Determination of time and cost
7.1
Drawings and instructions Ö
7.2
Approval of Contractor's
Drawings
12.2
Determination of time
And cost
Instructions Ö
13.1
Satisfaction
Instructions Ö?
14.1
Consent to programme
Ö
Ö
Ö
Ö?
Ö
14.2,.3
Request for revised Ö
Programme or cash flow
Estimate
15.1
Approval of Ö
Superintendence,
Retention on site
Ö
16.2
Objection/consent to
Employees
Ö
17.1
Request to rectify setting- Ö
Out error
Determination of
Ö
Additional cost-Clause 52
18.1
Instructing boreholes
19.1
Requiring security Ö
20.2
Satisfaction
20.3
Requiring rectification
Ö
Determination of costs Clause 52
Ö
Ö?
Ö
Page 10 of 264
Ö
Ö
27.1
Instructions re fossils
Ö
Determination of time
And cost
Ö
30.3
Determination of cost
Payable by Contractor to
Employer
Ö
31.1
Requirements on other
Contractors
31.2
Request for facilities
Ö
Determination of
Ö
Additional cost - Clause 52
33.1
Satisfaction
Ö?
35.1
Requiring labor return
Ö
36.1
Instructions and tests on
Materials
Ö
36.4
Satisfaction
36.5
Determination
Ö
37.2
Inspection and testing
Ö
37.4
Determination that Ö
Materials defective
Request for repeat test
Determination of
Employer's costs
Ö
Ö
Ö?
Ö
Ö
Ö
Ö
37.5
Delegation
38.1
Examination/approval of Ö
Work to be covered up
38.2
Instructing work to be
Opened up
Determining additional
Cost
39.1
Ö
Ö
Instructing removal of
Work etc, in his opinion,
Non-compliant
Ö
Ö?
Ö
Page 11 of 264
Ö
39.2
Determining Employer's
Costs
Ö
40.1
Instruction to suspend
Ö
Opinion on necessity to
Protect and secure work
40.2
Determination of time
And cost
Ö
40.3
Permission to resume work
Ö
41.1
Notice to commence
42.2
Determination of time
And cost
Ö
Ö
Ö
Ö
44.1,2,3
Determination of
Extension of time
45.1
Consent to extended
Working hours
46.1
Expedition notice/opinion Ö?
That work too slow
Consent to extend Ö?
Working
Determination of
Ö
Employer's costs
Ö
Ö
Ö
Ö
Ö?
Ö
48.1,.2
Instruction re outstanding Ö?
Work
Issue of Taking-Over
Ö
Certificate
Satisfaction Ö?
48.3
Issue of Taking-Over
Certificate
49.2
Satisfaction
49.3
Opinion re cause of defect
Determination of cost Clause 52
Ö
Opinion re liability for
Ö
49.4
Ö
Ö?
Instructing remedial work Ö?
Ö
Page 12 of 264
Defect
Determination of cost
50.1
51.1
52.1
52.2
52.3
52.4
53.2
Ö
Instruction to search
Ö
Determination of cost
Opinion as to necessity or Ö?
Appropriateness of
Variation
Instruction of variation
Valuation of variations Ö?
at rates and prices
Valuation of variations Ö?
Based on rates and prices
Opinion as to applicability
Ö
Agreement of rates or
Ö?
Prices
Fixing appropriate rates
Ö
And prices
Determination of
Provisional valuation
Opinion on
Ö
"Inappropriate or
Inapplicable"
Agreement of suitable
Ö?
Rates or prices
Fixing appropriate rates
And prices
Determination of
Ö
Provisional valuation
Ö
Notice of intention to
Ö?
Vary rate or prices
Determination of
Adjustment
Ö
Ö
Ö
Ö
Ö
Ö
Ö
Ö
Opinion/instruction re
Ö?
day work
Approval of quotations
Ö?
Signature/agreement of
Ö?
Day work schedule
Satisfaction that value
Reasonable
Ö?
Inspection of records
Ö
Ö?
Page 13 of 264
Ö
53.3
Requirement re intervals,
Copies
Ö?
53.4
Assessment of claim
Ö
53.5
Satisfaction and
Determination
Ö
54.1
Consent to removal of
Equipment
Ö?
56.1
Measurement
Ö?
57.2
Approval of breakdown
Ö?
58.1,.2
Instructing provisional
Sums
Determination of value Clause 52
59.1
Nomination, selection,
Approval of NSC
59.4
Instructions Ö
Determination of
Entitlement - Clause 52
59.5
Ö
Ö
Ö
Ö
Ö
Demanding proof of
Ö
Payment
Satisfaction/proof/
Ö?
Certificates
Deduction from certificate
Ö?
60.1
Prescribing form of statement
Ö
60.2
Interim certificate
60.3
Determination of
Ö
Proportion
Certification/withholding
Of retention/
60.4
Correction of certificate
60.5
Approval of form of
Statement
Certification
Ö
Ö
Ö
Ö
Ö
Page 14 of 264
60.6
Agreement of Final Ö?
Statement
60.8
Final Certificate
Ö
62.1
Defects Liability
Certificate
Ö?
63.1
Certificate of default
Ö
63.2
Certificate of value
Ö
63.3
Certificates of Employer's
Costs and balance
Ö
64.1
Opinion on need for and
Nature of urgent work
Determination of cost
Ö?
65.3
Requirement for repairs Ö
Determination of cost Clause 52
Ö
Ö
Ö
65.5
Determination of cost
Ö
Ö
65.8
Determination of payment
Ö
Ö
67.1
Decision
69.4
Determination of time
And cost
Ö
Ö
70.2
Determination of cost
Ö
Ö
Ö
Consultation by the Engineer
A new feature of the 4th Edition is the obligation upon the Engineer to consult
with the Employer and Contractor on some 25 occasions within the contract prior
to making decisions as to time and money. The consequence, FIDIC indicated at
the time of the launch of the Conditions, was to make the Employer "more
visible". FIDIC indicated that the consultation obligation reflected existing
practice. It may be that some employers will welcome a procedure, which
requires the Engineer to keep them more fully informed, and some contractors
will be glad of any entitlement to discuss their views with the Engineer. This
innovation raises three questions: (a)
What does "due consultation" mean?
Page 15 of 264
(b)
How does this obligation relate to the Engineer's obligations under clause
2.6 (Engineer to act impartially)?
(c)
What is the result if the Engineer fails to comply with this obligation?
Each of these issues is now addressed in turn:(a)
The phrase "after due consultation with the Employer and the Contractor"
recurs throughout the contract. No assistance is given, however as to the form
that this consultation should take. In particular, the question is raised as to what
is meant by "due". To "consult" is, according to the Concise Oxford Dictionary, to
"take counsel... seek information or advice from ... take into consideration”. The
concise Oxford Dictionary defines "due" in the present context as "rightful,
proper, and adequate". It must be probable that it also means in accordance with
any relevant law. This raises the possibility that in those countries in which the
law imposes certain bureaucratic procedures, which must be followed prior to the
authorization of additional payment, for example, it is quite possible to envisage
the Engineer being drawn into a round of discussions with a number of relevant
ministries as part of his consultation with a government employer. This, it must be
suspected, would be far removed from the intention of the draftsman, which was
presumably to introduce an express element of openness and natural justice into
the Engineer's decision-making. It was not intended to introduce a procedure,
which could cause long delays to important determinations under the contract.
Accordingly, the parties may wish either to delete the term "due" or to set out in
the contract a simple procedure allowing each party a meeting with the Engineer
to put his case.
As determination is to take place after the consultation, the question arises
as to whether one party is able to delay or prevent the determination be refusing
to take part in the consultation process. Plainly, it would be absurd if a party
could sabotage the contract in this way. In this context, the word "due" is helpful,
conveying the idea of giving the parties a fair opportunity for consultation so that
if one party did not co-operate, the Engineer would be free to make his
determination even though consultation had not taken place. A failure to
participate in the consultation procedure by either party, bearing in mind that in
some clauses such as clause 46.1 (Rate of progress) the consultation concerns
a deduction from the Contractor and is thus not always a procedure leading to
some benefit for the Contractor, would probably amount to a breach of contract.
If, as submitted, the Engineer is entitled to proceed to make his determination
regardless of such refusal, it is unlikely that loss will arise other than from any
delay caused by such refusal.
Alternative wording to address these potential difficulties would be: "after
having given to the Employer and Contractor a reasonable opportunity for
consultation in accordance with the procedure set out in Part II".
Page 16 of 264
(b)
Consultation is intended to be an outward and visible sign of the
Engineer's impartiality. Plainly it is no guarantee. As shown by Table 1 above,
consultation is firmly associated with those functions of the Engineer, which he
undertakes as an independent person rather than as agent for the Employer. At
the end of the day, impartiality depends upon the ability of the Engineer to
exclude from that part of his mind, which is making a determination under the
contract all considerations other than those, required achieving a fair decision in
accordance with the spirit of the contract.
(c)
If the Engineer purported to issue a determination without having
consulted with the parties, the question arises as to the validity of that
determination. This is an important question given the uncertainty surrounding
the precise meaning of "due consultation". A party wishing to disregard a
certificate or determination could seek to argue that the consultation undertaken
by the Engineer was inadequate or otherwise not in accordance with the
contract. The answer, it is submitted, lies in clause 67. In the event of a dispute,
the Engineer is obliged to make a decision reopening the disputed determination
without the need for any consultation. Furthermore, the Contractor is obliged to
proceed with the works while a decision is pending. The current question must
therefore be considered against the philosophy of the contract proceeding
regardless of dispute. It is submitted that the pragmatic answer, at least, is that
such determinations would be valid and binding but that the Employer would be
in breach of contract for failing to procure that his Engineer conducted himself as
required by the contract. Therefore, if the Employer sought to withhold or delay
payment on the strength of a lack of consultation, the Contractor could claim as
damages any losses that flowed from the non-payment. This approach is
supported by the difficulty of interpreting the requirement as a condition
precedent to the determination.
If the consultation was intended to precede a deduction by the Employer
from monies due to the Contractor, for example, under clause 64.1 (Urgent
remedial work), the result, it is submitted, is the same. To the extent that the
Contractor can show any loss flowing from the lack of consultation, that loss
would be recoverable as damages from the Employer.
3: COMMENCEMENT AND THE FINAL STAGES
Tables 2 and 3 illustrate the activities and time periods at the beginning and end
of the project. Table 2 demonstrates the significance of the letter of acceptance
as a trigger for time periods under five clauses. The discrepancy between the
Contractor's responsibility for the works under clause 20.1 (Care of Works) and
his obligation to insure those works under clause 21.2 (Scope of cover) is also
demonstrated.
Table 3 illustrates the complexity of the provisions governing the end of the
project and also the need to distinguish between the date of issue of the TakingPage 17 of 264
Over Certificate which governs various matters and the date stated within the
Certificate from which date the Defects Liability Period runs.
4: EXTENSION OF TIME, ADDITIONAL PAYMENT AND NOTICE
DELAYING EVENTS - TIME, COST
AND NOTICE PROVISIONS
Clause
Event
Ö
E.g.
Cost Notice
Ö
in advance
"Delay"
6.4
Late drawing
12.2
Adverse physical
Obstructions or
Conditions
Ö
Ö
"forthwith"
X
17
Incorrect setting
Out data
X
Ö
-
X
20.3
Damage to Works
Due to Employer's
Risks
X
Ö
-
X
27
Fossils - discovery
Ö
Ö
"immediately"
31.2
Facilities for other
Contractors
X
Ö
-
X
36.5
Test not provided for
Ö
Ö
-
X
38.2
Uncovering - no
Fault found
X
Ö
-
X
40.2
Suspension
Ö
-
42.2
Failure to give
possession
Ö
Ö
-
44.1
Extension of time
for completion
Ö
X
28 days
49.3
Cost of remedying
defects - no fault
of Contractor
n/a
Ö
-
n/a
50.1
Search - no fault
of Contractor
X
Ö
-
X
Ö
Ö
Ö
X
Page 18 of 264
Ö
Ö
51 &52
Variations
cl. 44 Ö
14 days
X
extra
or add.
work
58
Provisional sums
X
Ö
-
X
65.3
Damage to Works
by special risks
X
Ö
-
X
69.4
Contractor's
entitlement to
suspend works
Ö
in advance
70.2
Change to law
X
Ö
Ö
Ö
-
X
OTHER EVENTS GIVING RISE TO CLAIM FOR 'ADDITIONAL PAYMENT'
CLAUSE
TITLE
EVENT
NOTICE
4.2
Assignment of
subcontractor 's obligations
X
6.1
Custody and supply of
drawings and documents
9.1
Contract Agreement
execution
22.3
Indemnity by Employer
claim against
Contractor
30.3
Transport of materials and
indemnity for X
Plant
road damage
65.8
Payment if Contract
terminated
70.1
Increase or decrease in costs
extra drawings
X
X
X
X
X
Tables 4 and 5 are intended to assist in providing answers to the following
questions:(i)
Is there a discernable policy in the conditions as to which clauses
expressly require extension of time to be determined by the Engineer?
Page 19 of 264
(ii)
Where there is no express right to extension of time, is the Contractor
entitled to an extension under clause 44.1 (Extension of time for completion)?
(iii)
What does clause 44.1 item (b) "any cause of delay referred to in these
Conditions" refer to?
(iv)
How does clause 53.1 (Notice of claims) relate to notice provisions
contained in the clauses themselves?
(v)
How does the Contractor recover his prolongation costs and other loss
and expense resulting from delays to the progress of the works which were not
his responsibility?
Each of the above questions is now taken in turn:(i)
Is there a discernable policy in the conditions as to which clauses
expressly require extension of time to be determined by the Engineer?
If there is a policy, it is very difficult to ascertain. There are occasions of
consistency: for example, there is no express right to an extension of time at
either clause 20.3 (Loss or damage due to Employer's risks) or under clause 65.3
(Damage to Works by special risks). However, it is very difficult to see why an
extension of time should be available under clause 36.5 (Tests not provided for),
where the Engineer has required an extra test to be performed which has shown
the Contractor's materials to comply with the contract, whereas no such
extension is available under clause 38.2 (Uncovering and making openings),
when the Engineer has ordered work to be reopened but no fault has been
found. One hypothesis could be that the draftsman has not given an express
right of extension of time where clause 44.1 obviously applies: the provision of
incorrect data under clause 17.1 (Setting out) could be an "impediment or
prevention by the Employer" under clause 44.1 (d); the repair work under clauses
20.3 (Loss or damage due to Employer's risks) and 65.3 (Damage to Works by
special risks) would be "extra or additional work" within 44.1 item (a). This
hypothesis obviously does not explain the discrepancy between clause 36.5 and
clause 38.2; and a late drawing under clause 6.4 (Delays and cost of delay of
drawings) is as obviously an impediment by the Employer as incorrect data under
clause 17.1 (Setting out). If the conclusion to question (ii) below is correct and all
these causes of delay should give rise to extensions of time, one is forced to the
conclusion that there was no policy guiding the draftsman as to whether to put an
express extension of time entitlement into any given clause.
(ii)
Where there is no express right to extension of time, is the Contractor
entitled to an extension under clause 44.1 (Extension of time for completion)?
If there were no provision giving the Contractor an entitlement to an extension of
time where the Engineer had supplied incorrect data under clause 17.1 (Setting
out) or where the Engineer has ordered perfectly satisfactory work to be opened
up, then, under English law at least, time would be set "at large" meaning that the
Page 20 of 264
extension of time machinery of the contract would be treated as having broken
down. This is because English courts would not permit the Employer to benefit by
way of liquidated damages as a result of his own acts which have caused delay
to the Contractor. Indeed, there cannot be many legal systems in the world which
would permit an Employer to enrich himself in this way.
There is, however, no objection to a contract stipulating that particular risks,
whether within or beyond the control of the Employer, should be upon the
Contractor. This is the effect of clause 20.1 (Care of Works), subject to the
exceptions set out in clause 20.4 (Employer's risks) and 65.2 (Special risks).
Alternatively, the conditions may cause the losses flowing from an event to lie
where they fall. This is the case with exceptionally bad weather which is included
in clause 44.1 (Extension of time for completion) at item (c) but which is
expressly excluded from any financial recovery under clause 12.2 (Adverse
physical obstructions or conditions) and clause 40.1 (Suspension of work). There
are therefore three principal categories of allocation of risk:(a)
Entirely on the Employer: Contractor receives extension of time and costs;
(b)
and
Loss lies where it falls: Contractor receives extension of time but no costs;
(c)
Entirely on the Contractor: no provision for extension of time or costs;
liquidated damages deducted.
On the basis of table 4, there is room for an argument for a fourth category,
where the Contractor receives costs but no time. In fact, for most of the events
dealt with in the clauses which give cost but not time, an extension would in fact
be available under one or other of the headings of clause 44.1. There may be
argument however in relation to clause 31.2 (Facilities for other contractors) and
in relation to clause 58 (Provisional sums). See the commentary under those
clauses for discussion of those arguments.
(iii)
What does clause 44.1 item (b) "any cause of delay referred to in these
Conditions" refer to.
A restricted interpretation would limit these words either to those clauses in which
the word "delay" features or to those clauses which provide for extension of time
by reference to clause 44. Table 4 demonstrates that some four clauses other
than clause 44 use the word "delay" and a total of seven clauses provide for
extensions of time.
A more liberal interpretation would treat the item as referring to any delaying
event which is dealt with in the contract. As pointed out in the commentary under
clause 44.1 item (b), this would cover defaults of the Contractor as well as those
not his responsibility. This does not necessarily rule out such an interpretation as
the Contractor's defaults would be filtered out by the phrase "being such as fairly
to entitle the Contractor to an extension".
Page 21 of 264
As there is no scope for an intermediate interpretation of the phrase, it is
necessary to consider which of the two interpretations is correct. For the narrow
interpretation, it might be argued that it was intended as a cross-reference to
those clauses which refer to the clause 44 in the same manner as clause 52.1
(Valuation of variations) refers to matters "which are required to be determined in
accordance with clause 52". If there had been no such item within clause 44.1,
the Contractor might have been obliged both to demonstrate entitlement under,
for example, clause 12.2 which allows him "any extension of time to which the
Contractor is entitled under clause 44" and additionally to fit the delaying event
within one of the other grounds under clause 44.1.
An argument in favour of the broader interpretation would not dispute the
foregoing but would add that the need to cater for clauses such as clause 17.1
and other clauses shown by Table 4 not to provide expressly for extensions of
time means that 44.1(b) was intended to sweep up these causes of delay as well.
Otherwise, it is necessary to force them, perhaps artificially, into one of the other
grounds if an argument for time at large is to be avoided. For example, unless
there was express provision in the conditions, remedial works due to incorrect
data from the Engineer is plainly something for which the Contractor should
receive an extension of time as the Employer could not be entitled to liquidated
damages in respect of a delay caused by his Engineer, under English law at
least. Therefore, time would be set at large in the absence of a right to extension
of time. As neither delay nor clause 44 are referred to in clause 17.1, the
proponent of the narrow interpretation of item (b) would be obliged to bring such
delay within one of the other grounds. Item (a) "Extra or additional work" seems
inappropriate for work that was merely executed incorrectly and there is the
objection to item (d) "any delay... by the Employer" that servants or agents are
not included. This leaves the unsatisfactory "special circumstances" and the
objection that something catered for expressly by the contract such as incorrect
data supplied by the Engineer does not qualify as "special". It would therefore be
argued that a broad interpretation was intended.
It is submitted that as a matter of pragmatism, the broad interpretation must be
adopted to prevent strained interpretations of the other grounds for extension of
time and to prevent technical and unmeritorious claims that time has been set at
large.
(iv)
How does clause 53.1 (Notice of claims) relate to notice provisions
contained in the clauses themselves?
Table 4 sets out the notice requirements that are contained in the various
clauses. Thus in clause 12.2 (Adverse physical obstructions and conditions)
notice is required forthwith and under clause 27.1 (Fossils) the Contractor is to
give immediate notice. Clause 53.1 requires notice within 28 days to be given to
both Engineer and Employer if additional payment is to be claimed. It opens with
the words "notwithstanding any other provision of the Contract...". As mentioned
in the commentary under clause 53.1, this clause should probably be taken as an
Page 22 of 264
additional requirement but not a substitute for notice provisions given in a clause.
Thus, a failure to give notice forthwith under clause 12.2 to the Engineer and
Employer will not be repaired by giving notice within 28 days under clause 53.1.
Notice under clause 12.2 would however satisfy the requirements of clause 53.1.
Clause 27.1 (Fossils) only requires notice to be given to the Engineer so that
further notice under clause 53.1 copied to the Employer would be required.
Clause 53.1 is also relevant to the contents of the clause as a notice merely
indicating the presence of an obstruction or an article of interest would not
necessarily satisfy the requirement of notice that the Contractor "intends to claim
any additional payment".
Where notice of intention to claim extra payment for varied work is required
within 14 days under clause 52.2 (Power of Engineer to fix rates), a notice under
clause 53.1 within 28 days would not suffice.
The importance of complying with clause 53.1 is considerably reduced by the
ability of the Engineer or arbitrator to deal with the claim in the absence of notice
under clause 53.4 (Failure to comply).
(v)
How does the Contractor recover his prolongation costs and other loss
and expense resulting from delays to the progress of the works which were not
his responsibility?
Unlike some standard forms of building contract, there is no single clause which
addresses the issue of the Contractor's loss and expense. The right to recover
additional sums is scattered through the contract as illustrated by Tables 4 and 5.
Clause 44.1 (Extension of time completion) is not linked to any clause giving a
right to payment unlike the relationship between clause 51 (Variations) and
clause 52 (Valuation of variations). As can be seen from Table 4, all the clauses
(other than clause 44) giving an entitlement to extension of time also give a right
to payment of additional costs. It has been submitted that in most of the cases
where the Engineer is obliged to determine additional costs for the Contractor,
extension of time is in fact available. (The matters listed in Table 5 would not
normally be delaying events.)
As to the events set out in clause 44.1:(a)
"the amount or nature of extra or additional work". If the extra or additional
work has been ordered as a variation, then the Contractor may be able to
recover any resulting prolongation costs if he is able to demonstrate under clause
52 (Valuation of variations), either that there is no applicable rate or that the rate
has been rendered inappropriate by reason of the nature or amount of the extra
or additional work. It is arguable, however, as commented under clause 51.2 that
"extra" in clause 44.1 (a) includes "automatic" changes in quantities which result
from any inaccuracy in the bills of quantities. To obtain additional costs the
Contractor must either demonstrate under clause 52.3 (Variations exceeding
15%) that the "Effective Contract Price" has changed by 15%; or else must argue
that such changes in quantities fall within the definition of "varied work" within
Page 23 of 264
clause 52.2 (Power of Engineer to fix rates) with the result that the Engineer may
adjust the rates to take into account any additional costs incurred. For more on
this see under clause 51.2.
(b)
"any cause of delay referred to in these conditions". As discussed above,
this effectively refers to events of delay for which provision is made so that the
Contractor will recover his prolongation costs under the individual clauses. Thus
for example, under clause 40.2 (Engineer's determination following suspension)
the Contractor is granted an extension of time and "the amount...of the cost
incurred by the Contractor by reason of such suspension".
(c)
"exceptionally adverse climatic conditions". There is no provision for
payment of prolongation costs in the event of extremely bad weather. These
conditions, in common with most standard forms, cause the risk to be shared
between the parties so that the Employer recovers no liquidated damages and
the Contractor recovers no prolongation costs.
(d)
"any delay, impediment or prevention by the Employer". There is no
express provision in the contract for reimbursement of prolongation costs flowing
from the Employer's default. Various failures by the Engineer are catered for in
clauses such as clause 6.4 (Delays and cost of delay of drawings) and 17.1
(Setting out). However as is mentioned in the commentary under clause 44.1 (d),
it is arguable that the Engineer's defaults are not covered by the current grounds.
To the extent that delays etc by the Employer are not covered by an express
term, the Contractor is left to recover his prolongation costs as damages for
breach of contract. The action of the Employer which invokes this ground for
extension need not be a breach. The ordering of a substantial variation which
delayed the works would be an example of a delay by the Employer if not also an
impediment and a prevention. The Contractor's prolongation costs in this event
are plainly covered by the variation clause.
(e)
"other special circumstances". Generally, it is submitted, this ground will
not refer to matters dealt with in the contract so that recovery of prolongation
costs will depend upon the Contractor's ability to demonstrate breach of contract
by the Employer.
GENERAL INDEX IN ALPHABETICAL ORDER
Index
Clause
Access to site
Access to works, Engineer
Access, Contractor to Satisfy Himself
Accident or Injury to Workmen - Insurance Against
Accident or Injury to Workmen - Liability for
Address, Change of
Adequacy of Insurance
42.1
37.1
11.1
24.2
24.1
68.3
25.2
Page 24 of 264
Adjustment of Contract Price if Variations Exceed 15% of Tender Sum
52.3
Agreement
9.1
Alterations, Additions and Omissions
51 & 52
Ambiguities in Contract Documents
5.2
Amicable Settlement of Disputes
67.2
Appointment of Assistants to Engineer
2.4
Approval by the Engineer
7.3
Approval of Materials not Implied
54.8
Approval Only by Defects Liability Certificate
61.1
Arbitration
67.3
Assignment of Contract
3.1
Avoidance of Damage to Roads
30.1
Bills of Quantities - Estimated Only
Boreholes and Exploratory Excavation
Breakdown of Lump Sum Items
55.1
18.1
57.2
Care of Works
Cash Flow Estimate to be Submitted
Certificate, Final Payment
Certificates and Payment, Monthly Statements
Certificates, Correction of
Certificate, Taking over
Certification of Completion of Works
Certification of Completion of Sections or Parts
Cessation of Employers Liability
Change of Address, Notice of
Claims, Contemporary Records
Claims, Notice of
Claims, Payment of
Claims, Substantiation of
Claims Under Performance Security
Clearance of Site on Completion
Commencement of Works
Completion of Works, Time for
Completion of Works, Time for, Extension of
Completion, Statement at
Compliance with Insurance Policy Conditions
Compliance with Statutes and Regulations
Contemporary Records for Claims
Contract Agreement
Contractor not Relieved of Duties or Responsibilities
Contractor's Employees
Contractor's Employees, Engineer at Liberty to Object
Contractor's Entitlement to Suspend Work for Employer's Default
Contractor's Equipment, Conditions of Hire
Contractor's Equipment, Employer not Liable for Damage
Contractor's Equipment, Insurance of
20.1
14.3
60.8
60.1
60.4
48.1
48.1
48.2
60.9
68.3
53.2
53.1
53.5
53.3
10.3
33.1
41.1
43.1
44.1
60.5
25.4
26.1
53.2
9.1
14.4
16.1
16.2
69.4
54.5
54.2
21.1
Page 25 of 264
Contractor's Equipment, Reference in Subcontracts
54.7
Contractor's Equipment, Temporary Works & Materials Exclusive Use for the
Works
54.1
Contractor's Equipment, Transport of
30.2
Contractor's Failure to Carry Out Instructions
49.4
Contractor's Failure to Insure, Remedy
25.3
Contractor's General Responsibilities
8.1
Contractor's Superintendence
15.1
Contractor to Keep Site Clear
32.1
Contractor to Search
50.1
Correction of Certificates
60.4
Cost of Remedying Defects
49.3
Cost of Samples
36.2
Cost of Tests
36.3
Cost of Tests not Provided for
36.4
Covering up Work, Examination Before
38.1
Cross Liabilities
23.3
Currencies of Payment for Provisional Sums
72.3
Currencies, Rates of Exchange
72.1
Currency Restrictions
71.1
Custody and Supply of Drawings and Documents
6.1
Customs Clearance
54.3
Damage to Persons and Property
22.1
Damage to Roads, Avoidance of
30.1
Damage to Works, Special Risks
65.3
Damages, Liquidated
47.1
Dates for Inspection and Testing
37.3
Daywork
52.4
Decrease or Increase of Costs
70.1
Default of Contractor in Compliance with Instructions on Improper Work
Default of Contractor, Remedies for
63.1
Default of Employer
69.1
Defective Materials and Work
39.1
Defects, Contractor to Search for, if Required
50.1
Defects, Cost of Remedying
49.3
Defects Liability Certificate
62.1
Defects Liability Period
49.1
Defects, Remedying of
49.2
Definitions
1.1
Delay, Liquidated Damages for
47.1
Delays and Cost of Delay of Drawings
6.4
Design by Nominated Subcontractors
59.3
Discharge
60.7
Discrepancies in Documents
5.2
Dismissal of Contractor's Employees
16.2
Disorderly Conduct etc
34.1
Disputes, Engineer's Decision
67.1
Page 26 of 264
39.2
Disruption of Progress
Documents Mutually Explanatory
Drawings
Drawings and Documents - Custody and Supply of
Drawings and Instructions - Supplementary
Drawings, Copy to be Kept on Site
Drawings, Delays and Cost of Delay of Drawings
Drawings, Failure by Contractor to Submit
6.3
5.2
6&7
6.1
7.1
6.2
6.4
6.5
Employer not Liable for Damage to Contractor's Equipment etc
54.2
Employer's Liability, Cessation of
60.9
Employer's Responsibilities
19.2
Employer's Risks
20.4
Engagement of Staff and Labour
34.1
Engineer's Authority to Delegate
2.3
Engineer's Determination Where Tests not Provided for
36.5
Engineer's Duties and Authority
2.1
Engineer to Act Impartially
2.6
Environment - Protection of
19.1
Errors in Setting Out
17.1
Evidence and Terms of Insurance
25.1
Examination of Work before Covering Up
8.1
Exceptions
22.2
Exchange, Rates of
72.1
Exclusions
21.4
Extension of Time, due to Employer's Failure to give Possession of Site
Extension of Time for Completion
44.1
Extension of Time for Completion, Contractor's Claim
44.2
Extension of Time for Completion, Engineer's Determination
44.3
Extraordinary Traffic
30.
Facilities for Other Contractors
Facilities - Rights of Way and
Failure by Contractor to Submit Drawings
Failure to Comply with Claims Procedure
Failure to Comply with Engineer's Decision
Failure to Give Possession of Site
Faulty Work, Removal of
Fees and Notices
Fencing, Watching, Lighting etc
Final Payment Certificate
Final Statement
Foreign Currencies, Payment in
Fossils
Foundations, Examination of
31.2
42.3
6.5
53.4
67.4
42.2
39.1
26.1
19.1
60.8
60.6
72.
27.1
38.1
General Responsibilities of Contractor
Giving of Notices - Payment of Fees
8.1
26.1
Page 27 of 264
42.2
Headings and Marginal Notes
1.2
Improper Work and Materials, Removal of
Increase or Decrease of Costs
Indemnity by Contractor
24.1
Indemnity by Employer
Independent Inspection
Injury to Persons - Damage to Property
Injury to Workmen
Inspection and Testing
Inspection and Testing, Dates for
Inspection of Foundations, etc
Inspection of Operations
Inspection of Site by Contractor
Instructions for Variations
Instructions in Writing
Instructions, Supplementary
Insurance, Adequacy of
Insurance, Evidence and Terms of
Insurance, Minimum Amount of
Insurance of Works and Contractor's Equipment
Insurance, Remedy on Failure to Insure
Insurance, Responsibility for Amounts not Recovered
Insurance, Scope of Cover
Insurance, Third Party
Insurance, Workmen
Interference with Traffic and Adjoining Properties
Interim Determination of Extension
Interpretations
39.1
70.1
22.1
Labour, Engagement of
Language/s and Law
Law to which Contract Subject
Legislation, Subsequent
Lighting, Fencing, Watching, etc.
Liquidated Damages for Delay
Liquidated Damages, Reduction of
Loss or Damage due to Employer's Risks
Loss or Damage - Responsibility to Rectify
Lump Sum Items - Breakdown of
34.1
5.1
5.1
70.2
19.1
47.1
47.2
20.3
20.2
57.2
Materials and Plant, Transport of
Materials - Approval of, etc, not Implied
Materials, Improper - Removal of
Materials, Quality of
Materials, Supply of
30.3
54.8
39.1
36.1
8.1
Page 28 of 264
22.3
37.5
22.1
24.1
37.2
37.3
38.1
37.1
11.1
51.2
2.5
7.1
25.2
25.1
23.2
21.1
25.3
21.3
21.2
23.1
24.2
29.1
44.3
1.3
and
Measurement by Engineer
Measurement, Methods of
Measurement, Quantities Estimated Only
Methods of Construction
Minimum Amount of Insurance
Monthly Payments
56.1
57.1
55.1
8.2
23.2
60.2
Nominated Subcontractors, Certification of Payments to
Nominated Subcontractors, Definition
Nominated Subcontractors, Design by
Nominated Subcontractors, Objection to Nomination
Nominated Subcontractors, Payment to
Not Foreseeable Physical Obstructions or Conditions
Notice of Claims
Notices and Fees, Payment of
Notices, Consents and Approvals
Notice to Contractor
Notice to Employer and Engineer
59.5
59.1
59.3
59.2
59.4
12.2
53.1
26.1
1.5
68.1
68.2
Objections to Contractor's Employees
Obstructions or Conditions - Not Foreseeable Physical
Omissions, Alterations, and Additions
Openings, Uncovering and Making
Operations, Inspection of
Order of Work, Contractor to Furnish Programme
Other Contractors, Opportunities for
16.2
12.2
59.
38.2
37.1
14.1
31.1
Patent Rights
Payment if Contract Terminated for Contractor's Default
Payment if Contract Terminated for Employer's Default
Payment of Claims
Payment, Time for
Performance Security
Performance Security - Claims Under
Performance Security - Period of Validity
Period of Defects Liability
Permanent Works Designed by Contractor
Physical Obstructions or Conditions - Not Foreseeable
Physical Obstructions or Conditions - Engineers Determination
Plant and Materials, Transport of
Plant, Conditions of Hire
Plant, Customs Clearance
Plant, Employer not Liable for damage to
Plant, etc - Exclusive Use for Works
Plant, Quality of
Plant, Re-export of
Plant, Removal of
Policy of Insurance - Compliance with Conditions
28.1
63.3
69.3
53.5
60.10
10.1
10.3
10.2
49.1
7.2
12.2
12.3
30.3
54.5
54.3
54.2
54.1
36.1
54.4
39.1
25.4
Page 29 of 264
Possession of Site
Possession of Site, Failure to Give
Power of Engineer to Fix Rates
Priority of Contract Documents
Programme to be Submitted
Progress - Disruption of
Progress - Rate of
Protection of Environment
Provision to Indemnify Contractor
Provision to Indemnify Employer
Provisional Sums, Currencies of Payment
Provisional Sums, Definition
Provisional Sums, Production of Vouchers
Provisional Sums, Use of
42.1
42.2
52.2
5.2
14.1
6.3
46.1
19.1
22.3
22.2
72.3
58.1
58.3
58.2
Quality of Materials and Workmanship
Quantities
36.1
55.1
Rate of Progress
Rates of Exchange
Rates, Power of Engineer to Fix
Rectification of Loss or Damage
Reduction of Liquidated Damages
Re-export of Plant
Regulations, Statutes, etc, Compliance with
Rejection
Release from Performance
Remedies for Default of Contractor
Remedying of Defects
Remedying of Defects, Cost of
Remedy on Contractor's Failure to Insure
Removal of Contractor's Employees
Removal of Contractor's Equipment
Removal of Improper Work, Materials or Plant
Removal of Plant, etc
Responsibility to Rectify Loss or Damage
Responsibility Unaffected by Approval
Restriction on Working Hours
Resumption of Work
Retention Money, Payment of
Returns of Labour and Contractor's Equipment
Revised Programme
Rights of Way and Facilities
Risks, Employer's
Risks, Special
Roads, etc - Damage by Extraordinary Traffic
Roads, Interference with Access to
Royalties
46.1
72.1
52.2
20.2
47.2
54.4
26.1
37.4
66.1
63.1
49.2
49.3
25.3
16.2
69.2
39.1
65.7
20.2
7.3
45.1
69.5
60.3
35.1
14.2
42.3
20.4
65.
30.1
29.1
28.2
Page 30 of 264
Safety, Security and Protection of the Environment
19.1
Samples, Cost of
36.2
Security, Safety and Protection of the Environment
19.1
Setting-Out
17.1
Singular and Plural
1.4
Site, Clearance on Completion
33.1
Site, Contractor to Keep Clear
32.1
Site, Inspection of by Contractor
11.1
Site Operations and Methods of Construction
8.2
Site, Possession of
42.1
Special Risks
65.
Staff, Engagement of
34.1
Statement at Completion
60.5
Statement, Final
60.6
Statutes, Regulations, etc, - Compliance with
26.1
Subcontracting
4.1
Subcontractors, Nominated
59.
Subcontractors, Responsibility of the Contractor for Acts and Default of
Subsequent Legislation
70.2
Substantial Completion of Sections or Parts
48.3
Sufficiency of Tender
12.1
Supply of Plant, Materials and Labour
8.1
Surfaces Requiring Reinstatement
48.4
Suspension, Engineer's Determination
40.2
Suspension lasting more than 84 days
40.3
Suspension of Work
40.1
Taking Over Certificate
Taking Over of Sections or Parts
Tender Documents
Tender, Sufficiency of
Termination of Contract by Employer
Termination of Contract by Employer, Assignment of Benefit
Terms of Insurance
Tests, Cost of
Tests not Provided for - Cost of
Third Party Insurance
Time for Completion
Time for Completion, Extension of
Time for Payment
Traffic, Extraordinary
Traffic, Interference with
Traffic, Waterborne
Transport of Contractor's Equipment and Temporary Works
Transport of Materials and Plant
48.1
48.2
11.1
12.1
63.1
63.4
25.1
36.3
36.4
23.1
43.1
44.1
60.10
30.1
29.1
30.4
30.2
30.3
Uncovering Work and Making Openings
38.2
Page 31 of 264
4.1
Unfulfilled Obligations
Urgent Remedial Work
62.2
64.1
Valuation at Date of Termination by the Employer
Variations
Variations, Daywork Basis
Variations, Exceeding 15%
Variations, Instructions for
Variations, Power of the Engineer to Fix Rates
Vouchers, Production of
63.2
51.1
52.4
52.3
51.2
52.2
58.3
War, Outbreak of
Watching and Lighting etc
Waterborne Traffic
Work, Examination of Before Covering Up
Work, Improper, Removal of
Working Hours, Restriction of
Workmanship, Quality of
Workmen, Accident or Injury to
Works, Care of
Works, Completion of ( Defects Liability Certificate)
Works, Commencement of
Works, Insurance of
Works, Remedying of Defects
Works, Time for Completion of
Works to be Measured
Work, Suspension of
Work to be in Accordance with the Contract
20.4
19.1
30.4
38.1
39.1
45.1
36.1
24.1
20.1
62.1
41.1
21.1
49.2
43.1
56.1
40.1
13.1
Page 32 of 264
CLAUSE 1 : Definition and Interpretation
This clause sets out the meanings of almost all the terms in the contract which
are given capital letters. The definitions of "Defects Liability Period" and
"nominated Subcontractor" are to be found in clause 49.1 and clause 59.1
respectively. In addition, four terms which have not been given capital letters are
also defined.
The headings and marginal notes are to be ignored when interpreting the
Contract.
The references to individuals include firms, corporations and other legal
organizations.
Singular words and plural words may be interchangeable where the context so
requires.
Notices, consents, approvals, certificates and determinations must be given in
writing and, with the exception of notices, must not be unreasonably withheld or
delayed.
The following definitions are new to the 4th Edition: Subcontractor, Bill of
Quantities, Tender, Letter of Acceptance, Contract Agreement, Appendix to
Tender, Commencement Date, Time for Completion, Tests on Completion,
Retention Money, Plant, Section, day, foreign currency and writing. What in the
3rd Edition was referred to (but not defined as) "Certificate of Completion", is now
defined as the Taking-Over Certificate. "Constructional Plant" has now become
Contractor's Equipment. The only definition that has not been repeated in the 4th
Edition is "Approved". This definition has essentially been overtaken by clause
1.5 (Notices, Consents etc) which requires approvals to be in writing. It should be
noted that all the definitions are subject to the opening words "except where the
context otherwise requires".
Sub-clauses 1.2 and 1.4 are taken from the 3rd Edition; sub-clauses 1.3 and 1.5
are new.
1.1
(a)(i) "Employer" and "Contractor" - If the Contract Agreement has
(a)(ii) Been entered into, "Employer" and "Contractor" are already defined in that
Agreement and thus in these conditions. Naturally, the parties must ensure that
the entries in Part II and the Agreement are identical.
The Contractor's ability to assign is restricted by clause 3.1 (Assignment of
contract) whereby no part of the contract may be assigned without the prior
consent of the Employer. Under that clause, the consent "shall be at the sole
Page 33 of 264
discretion of the Employer". Thus, the Employer has the right to refuse an
assignment on any grounds. The Contractor's consent to an assignment is
however subject to clause 1.5 (Notices, consents etc) whereby "any such
consent ... shall not be unreasonably withheld or delayed". Thus, the Employer's
ability to assign is greater than that of a Contractor. It is submitted that bona fide
concern over the financial standing of the Employer's proposed assignee would
be reasonable grounds for refusing consent. It is undoubtedly right that having
carefully selected a Contractor to execute the works, the Employer should have a
right of veto over any proposed assignment.
An attempted assignment without the requisite consent would, in English law at
least, be ineffective. Again under English law, an assignment by an Employer
with consent would not relieve that Employer of a primary obligation to pay the
Contractor. The Engineer's contract of engagement would also normally need to
be assigned or novated to the new Employer.
(a)(iii) "Subcontractor" - Under clause 4.1 (Subcontracting), it should be noted
that the Contractor is not required to obtain consent for the provision of labour.
Thus, a labour-only subcontractor does not fall within the definition.
(a)(iv) "Engineer" - By clause 1.3 (Interpretation), the Engineer may be a firm, a
corporation or other organisation having legal capacity. The Engineer must be
named in Part II. It is a new feature of the 4th Edition that there is no ability in the
Employer to replace the Engineer. In the 3rd Edition and ICE 5th and 6th, there
is defined the "Engineer appointed from time to time by the Employer". The
present definition will not be a problem if the Engineer is named as a firm;
however, the Engineer will often be a named individual. According to the Guide
issued by FIDIC on the 4th Edition, the reason for this change from the 3rd
Edition is that the identity of the Engineer (and his reputation) has been a factor
in the calculation of the Contractor's tender. This, it is submitted, is a mistake.
Whilst it is certainly true that a Contractor might well price work differently if the
Engineer is a respected independent professional on the one hand rather than a
government department's Chief Engineer on the other, the functioning of the
contract is so dependent upon the existence of an Engineer there must be a
substantial risk of the project falling apart if its survival is dependent upon the
parties' ability to agree a replacement Engineer in the event that the named
Engineer died or otherwise ceased to act. If the parties were in dispute at the
time, the prospects for agreement must be limited.
In theory, a dispute over the replacement Engineer would be one capable of
resolution under the arbitration clause. However, in the absence of an Engineer,
it is difficult to see how the disputes procedure can commence. It may be
possible to draw a distinction between situations where the Engineer has died
and other circumstances where he is simply failing or refusing to act. In the latter
circumstances, the Engineer is still in existence and the disputes procedure can
advance by default. If he is dead, there does not seem to be any way forward
without agreement between the parties. The Employer is obliged to try to replace
him and obtain the Contractor's agreement, it is submitted. For a case on the
Page 34 of 264
more traditional position, see Croudace v Lambeth (1986) 33 BLR 20, where the
Court of Appeal held the Employer liable in damages for failing to replace the
certifier after the retirement of the named person.
A similar distinction may be made with regard to the powers delegated to the
Engineer's Representative under clause 2.3 (Engineer's authority to delegate). If
the Engineer is alive, it is arguable that the Engineer's Representative's powers
are unimpaired. However, the Contractor's ability to question any communication
of the Engineer's Representative by reference to the Engineer under clause
2.3(b) could effectively bring the Engineer's Representative's powers to an end.
If the Engineer died or otherwise ceased to act and the parties are unable to
agree to a replacement, the effects, it is submitted, would be as follows:(1)
The Employer would not be in breach of his obligation to ensure that the
Engineer exercises his functions provided that he has taken reasonable steps to
propose an alternative Engineer and has not been unreasonable in refusing any
nominee of the Contractor. Compare clause 69.1 (Default of Employer) item (b)
"interfering with or obstructing ...any such certificate".
(2)
Nor would the Employer be in breach for failing to pay the Contractor in
the absence of interim certificates. The obligation would probably be to pay when
the works were complete.
(3)
Clause 66.1 (Release from Performance) is not appropriate as any
impossibility is not "outside the control of both parties". Thus, it may be arguable
that the fundamental obligations of the parties remain intact:(i)
the Contractor's obligation under clause 8.1 (Contractor's general
responsibilities) to execute and complete the works survives; and
(ii)
the obligation of the Employer to pay for those works as expressed in
Article 4 of the Contract Agreement or as stated in the Letter of Acceptance or by
implication will also survive. The Employer may, however, have no obligation to
make any payment until the works are complete.
(4)
In the event of any delay which is not the responsibility of the Contractor,
time would be at large because of the absence of the Engineer to grant
extensions of time. If all the delay was the Contractor's responsibility, it may be
arguable that clause 47 (Liquidated damages for delay) would continue to
operate as it is not dependent upon the existence of the Engineer, who is not
mentioned in the clause. However, substantial completion is certified by the
Engineer. The Contractor could be liable for breach of an obligation to complete
within a reasonable time, once time was set at large.
Thus it is just conceivable that a project could limp onwards without an Engineer.
Plainly, it is most unsatisfactory and an Employer might be well advised, having
exhausted attempts to agree a new Engineer simply to appoint one and
Page 35 of 264
thereafter argue, when the Contractor accepts interim payment as certified by the
Engineer, that the Contractor has effectively consented to the new Engineer.
For a discussion on when the Engineer's role comes to an end and he is functus
officio, see under clause 2.1 (Engineer's duties and authority). See also the
comments under clause 67.1 (Engineer's decision).
(a)(v) "Engineer's Representative" - The Engineer's Representative is referred to
in only three other clauses: clause 2 (Engineer and Engineer's Representative)
which deals with the delegation of powers by the Engineer to his Representative;
clause 13.1 (Work to be in accordance with contract) whereby the Contractor is
obliged to take instructions from the Engineer's Representative and clause 15.1
(Contractor's superintendence) on the same subject. In view of the delegation
provision, express mention of the Engineer's Representative is unnecessary.
(b)(i) "Contract" - There is no significance in the order of contract documents
given here. See clause 5.2 (Priority of contract documents). The reference in
earlier editions to a "Schedule of Rates and Prices, if any" has not been repeated
in this edition. It should be noted that the term "Contract" includes the Drawings
and it is therefore arguable that the term includes future drawings. In order to
make sense of expressions such as "increase or decrease the quantity of any
work included in the Contract" in clause 51.1 (Variations), it is necessary to apply
the exception in the opening words of the current sub-clause: "except where the
context otherwise requires".
(b)(ii) "Specification" - As the specification includes any variations and as the
specification is part of the contract, the contract is itself variable. Thus, strictly
speaking, the expression "increase or decrease the quantity of any work included
in the Contract" in clause 51.1 (Variations) is somewhat circular. Equally, the
definition of Works is defined by reference to the contract and thus incorporates
variability. It must be doubted that this point is ultimately of great significance.
(b)(iii) "Drawings" - The term is very widely defined. The inclusion of samples,
patents and models is perhaps surprising and produces curious results if taken
literally. For example, under clause 6.1 (Custody and supply of drawings and
documents), the Contractor is to provide for copies. This is one of the occasions
when the opening words of this sub-clause, "except where the context otherwise
requires", will be most relevant. It is also important to appreciate that this
definition is not limited to drawings etc in existence at the time time the Contract
is entered into but refers to all future drawings.
(b)(iv) "Bill of Quantities" - Surprisingly, the only other reference to the prices in
the Bill of Quantities is in clause 12.1 (Sufficiency of Tender): there is no express
indication at all that the prices are to be used for valuation other than in relation
to variations. See in particular clause 55 (Quantities) and clause 56 (Works to be
measured). The 4th Edition no longer contains a reference to the Schedule of
Rates.
Page 36 of 264
(b)(v) "Tender" - It is important to note that the Tender is a document "as
accepted by the Letter of Acceptance". Thus, it is not necessarily the tender as
submitted by the Contractor but the result of any negotiation prior to the placing
of the order. Any programme included in the tender will become part of the
contract as the tender is a contract document: for diccussion of this see under
clause 14.1 (Programme to be submitted).
(b)(vi) "Letter of Acceptance" - There is no specified form for the Letter of
Acceptance and careful attention must be paid to its contents, particularly in view
of the priority given to the Letter of Acceptance by clause 5.2 (Priority of contract
documents). It is second only to the Contract Agreement which is an optional
document. It is important to ensure that the Letter of Acceptance matches the
tender or, if there have been subsequent negotiations, an amended version of
that tender. Otherwise, the Letter of Acceptance would be no more than a
counter-offer which would require a further acceptance from the Contractor
before a contract was formed. As "the Tender" is a contract document, conflict
would result if the tender was not amended. It is also important to ensure that, if
a Contract Agreement is used, the Letter of Acceptance and Contract Agreement
also match. There are no terms in the contract which govern the Letter of
Acceptance but it is used extensively as a trigger for periods of time by which
certain activities have to be performed. These are as follows:Clause 10.1 (Performance security) - 28 days
Clause 14.1 (Programme to be submitted) - period prescribed in Part II
Clause 14.3 (Cashflow estimate to be submitted) - period prescibed in Part II
Clause 41.1 (Commencement of Works) - period stated in the Appendix to
Tender
Clause 57.2 (Breakdown of lump sum item) - 28 days
The importance of the Letter of Acceptance as a starting point in the conditions of
contract reinforces the importance of ensuring that the Letter of Acceptance is an
acceptance and not a counter-offer. It would make a nonsense of the various
time periods if they were running before a contract had been entered into.
(b)(vii) "Contract Agreement" - A form of Agreement is provided and referred to at
clause 9.1 (Contract Agreement). Both the definition of Contract at clause
1.1(b)(i) and clause 5.2 (Priority of contract documents) allow for further
documents to be incorporated as contract documents. The Contract Agreement
should be amended to record such further documents.
(b)(viii)
"Appendix to Tender" - As commented under the definition of
Tender above, there may be negotiations which alter the contents of the Tender
and the Appendix to Tender before the contract is entered into. This definition
therefore refers to the Appendix as amended.
(c)(i) "Commencement Date" - This definition determines the date upon which
time begins to run on the project. The notice to commence is not in a specified
form. See generally the commentary to clause 41 (Commencement of Works).
Page 37 of 264
(c)(ii) "Time for Completion" - This is the contractual completion date as set out
in the contract subject to any extensions under clause 44. Substantial completion
must be achieved under clause 48.1 (Taking-over certificate) by this date, failing
which liquidated damages will be payable under clause 47.1 (Liquidated
damages for delay).
(d)(i) "Tests on Completion" - These tests will often include commissioning and
are referred to in clause 48 (Taking-Over) as being a prerequisite to substantial
completion and the issue of a Taking-over certificate for the whole or any part of
the works for which such a test is prescribed.
(d)(ii) "Taking-Over Certificate" - No form is prescribed for this certificate: clause
48.1 (Taking-Over Certificate) only specifies that it should state the date on
which, in the Engineer's opinion, the works were substantially completed.
(e)(i) "Contract Price" - It is important to appreciate that the Contract Price is a
fixed sum as stated in the Letter of Acceptance and the term does not include
any adjustments to the contract price for variations etc. For more on this point,
see the commentary under clause 69.4 (Contractor's entitlement to suspend
work).
(e)(ii) "Retention Money" - For commentary on the uncertainty of the retention
provisions, see under clause 60.3 (Payment of Retention money).
(f)(i) "Works" - This term is given an adjusted meaning under clause 49.1
(Defects Liability Period). The definition of Temporary Works is not without
difficulty as set out under (f)(iii) below. As there are dangers in including
Temporary Works in the definition of Works, the draftsman has taken the
precaution of putting flexibility ahead of certainty with the words "or either of them
as appropriate". This reinforces the opening words of the sub-clause "except
where the context otherwise requires".
(f)(ii) "Permanent Works" - This definition now includes express reference to
Plant, a recognition of the growing amount of machinery etc. included in civil
engineering projects.
(f)(iii) "Temporary Works" - This definition is circular with the definition of
Contractor's Equipment.
As noted in the commentary to clause 41
(Commencement of Works), this is unfortunate as the failure to commence the
Works is a ground for determination under clause 63.1 (Default of Contractor).
See clause 31.2 (Facilities for other contractors) for the obligation to make the
temporary works available to other contractors and clause 32.1 (Contractor to
keep site clear) and 33.1 (Clearance of site on completion) for the obligation to
remove temporary work. It should be borne in mind that temporary works are not
always removed, for example temporary linings to tunnels or temporary roads.
By clause 54 (Contractor's Equipment, Temporary Works and materials) there is
Page 38 of 264
an obligation upon the Contractor to provide temporary works exclusively for the
project.
(f)(iv) "Plant" - This is a new definition not found in the 3rd Edition or ICE 5th or
6th. It might be confusing as plant is normally regarded as meaning Contractor's
machinery. Instead, this means the plant to be installed as part of the permanent
works. The Contractor's machinery is now defined as Contractor's Equipment.
(f)(v) "Contractor's Equipment" - In the 3rd Edition and ICE 5th, the Contractor's
machinery is called "Constructional Plant". The current definition is circular with
the definition of Temporary Works. As noted in the commentary to clause 41
(Commencement of Works), this is unfortunate as the failure to commence the
Works is a ground for determination under clause 63.1 (Default of Contractor).
ICE 6th has adopted the term Contractor's Equipment.
(f)(vi) "Section" - The Works may be broken down into Sections and parts. The
difference is that a Section is specifically identified in the contract whereas a part,
which is not defined, seems to be any other sub-division including a sub-division
of a Section. See this distinction in operation in clause 47.2 (Reduction of
liquidated damages), clause 48.2 (Taking over of sections or parts) and clause
48.3 (Substantial completion of parts).
(f)(vii) "Site" - This definition is a variant upon the form used in the 3rd Edition
and ICE 5th. This definition falls into two parts:(a)
and
Places provided by the Employer where the Works are to be executed;
(b)
Other places which are specifically designated in the contract as forming
part of the site.
Compare 3rd Edition and ICE 5th which break down as follows:(a)
places on, under in or through which works are to be executed; and
(b)
places provided by the Employer or specifically designated in the contract
as forming part of the site.
The essential difference is that (a) is qualified by the words "provided by the
Employer" in this Edition but (b) contains those words in the 3rd Edition and ICE
5th. One significance of this is that the Employer cannot be in breach of clause
42.1 (Possession of site and access thereto) by failing to give possession of the
site if the site is itself defined as places provided by the Employer. As the Site
will normally be defined in the contract, this should not normally give rise to
problems. Nor, it is submitted, should the omission of the words "on, under, in or
through" create difficulties. If the failure to give possession is the failure of the
Employer to organise the removal, for example, of an underground pipe or cable
conduit, even though the possession of the surface has been given to the
Page 39 of 264
Contractor, the Contractor's claim under clause 42.2 (Failure to give possession)
should not be hampered by the absence of these words. See also the
commentary under clause 42.1 (Possession of Site and access thereto). See the
comments under clause 42.1 for further discussion of the term "Site". ICE 6th has
added the "other places...designated" formula to the ICE 5th definition.
(g)(i) "cost" - This definition for the first time expressly excludes profit. Thus, the
only occasion on which the Contractor is allowed his profit by the contract is
under clause 69.3 (Payment on termination) where, upon the default of the
Employer, he is entitled to claim "the amount of any loss or damage". This
definition has been adopted with minor amendments by ICE 6th. However ICE
6th expressly permits profit on three occasions in the contract in relation to any
additional temporary or permanent works.
(g)(ii) "day" - This edition has adopted a policy of giving periods of time in
multiples of seven days whereas the 3rd Edition used units of 30 days for longer
periods. Compare, for example, clause 67 (Settlement of disputes) in the two
editions.
(g)(iii) "foreign currency" - It is important to note that foreign currency does not
mean a currency other than the currency in which the Contract Price is
expressed but any other currency than the local currency. Thus, the Contract
Price could itself be expressed in a foreign currency. Part II provides various
amendments to clause 60 and clause 72.2 in relation to currencies.
(g)(iv) "writing" - This definition is of particular relevance to clause 1.5 (Notices,
consents etc) which must be in writing.
CLAUSE 1.1 (Definitions)
The following definitions are new to the 1992 re-print:(e)(iii) "Interim Payment Certificate" means any certificate of payment issued by
the Engineer other than the Final Payment Certificate.
(iv) "Final Payment Certificate" means the certificate of payment issued by the
Engineer pursuant to Sub-Clause 60.8.
Whilst it is no doubt a good idea to have defined terms for interim and final
certificates, the definition of Interim Payment Certificate raises the question as to
which clauses other than clause 60.2 (Monthly payments) will give rise to interim
payment certificates. The definition could and, it is submitted, should simply
have referred to certificates issued under sub-clause 60.2.
Other certificates to be issued by the Engineer include the Taking-Over
Certificate under clause 48 for the whole or part of the works, a certificate of the
Contractor's default under clause 63.1 (Default of Contractor) and the Defects
Liability Certificate under clause 62.1. These all lead to payments being made
Page 40 of 264
but are not the certificates for payment themselves. Under clause 59.5
(Certification of payments to nominated Subcontractors), the Engineer certifies
payment to nominated subcontractors where the Contractor fails to supply proof
that previous sums certified in relation to nominated subcontractors' work have
been passed on. Such certificates fall within the definition of Interim Payment
Certificates. The certificate under 63.2 (Valuation at date of termination) is a
certificate of value only and not a certificate for payment. In contrast, the
certificate under sub-clause 63.3 (Payment after termination) is a certificate of
payment and falls within the definition of Interim Payment Certificate despite
being final in nature. Curiously, a certificate under Sub-Clause 63.3 could show
a balance in favour of the Employer. However, such a certificate is deemed to be
a debt and is not strictly therefore a certificate for payment.
Within clause 60 (Certificates and payment) there are certificates under subclause 60.3 (Payment of retention money), sub-clause 60.5 (Statement at
completion) and under sub-clause 60.6 (Final statement) where part only of the
Contractor's draft final statement is not in dispute.
Clause 60.3(a) has always raised the question whether the release of the first
half of the Retention Money following the issue of the taking-over certificate
should be the subject of a special payment certificate or included in the next
monthly interim certificate. Practice varies but more often than not, the first
moiety of retention is released in the next interim certificate. The fact that the
certification falls within the definition of Interim Payment Certificate, does not
resolve the issue.
In one respect, Contractors are ill-served by this amendment. Where the
practice would otherwise have been to issue a special certificate for the release
of retention, the Contractor was able to argue that he was entitled to immediate
payment by the Employer. Now, such a certificate is an Interim Payment
Certificate and the Employer is given 28 days under Clause 60.10 (Time for
payment).
The entry in the Appendix for the "minimum amount of interim payment
certificates" applies only to clause 60.2 and does not therefore restrict small
payments under other payment clauses despite the application of the definition.
As is plain from the list of the amendments contained in the 1992 re-print, and
the extracts set out later in this supplement, the definition has not been used
wherever it is applicable. The term is now used in sub-clauses 60.2, 60.4
(Correction of certificates) and 60.10 (Time for payment).
Perhaps surprisingly, the result is that three interim payment certificates could be
issued in the same month under clauses 60.2, 60.3 (Payment of Retention
Money) and 59.5 (Certification of payments to nominated Subcontractors).
Under clause 69.1 (Default of Employer), interference with the issuing of certain
certificates is a ground for the Contractor to terminate his employment. The
Page 41 of 264
relevant certificates are those for which time-limits for payment are given under
clause 60.10 (Time for payment). The effect of the definition of Interim Payment
Certificate and the application of that definition to a number of certificates other
than monthly certificates under clause 60.2 (Monthly payments) has been the
extention of the scope of the interference ground for termination. For example,
interference with a certificate under clause 59.5 (Certification of payment to
nominated Subcontractors) would not have been a ground for determination
hitherto. Whilst interference with any form of certification is plainly contrary to the
spirit of the contract, it is unlikely that the draftsman intended to enlarge the
ground for termination to such an extent.
1.2: This rule of interpretation will on occasion be signficant. For example,
clause 12.2 is entitled "Adverse physical obstructions or conditions" but the word
"adverse" does not feature in the clause. Similarly, the titles of clause 63 (Default
of Contractor) and clause 69 (Default of Employer) both include the word
"default" which is not found in either clause. This may be just as well given the
fact that "default" is used as an alternative to breach of contract in clause 40.1
(Suspension of work), clause 44.1 (Extension of time for completion) and clause
51.1 (Variations). It is always questionable whether any tribunal is capable of
entirely ignoring such clear evidence of the intentions of the draftsman.
1.3: Clause 1.1(a)(iv) defines the Engineer as "the person appointed...". This
sub-clause is a reminder in relation to the Engineer that the Employer may name
a firm of Engineers as distinct from an individual. In view of the lack of any
provision for the replacement of an Engineer who dies or retires, this course may
be adopted more often.
1.4:
5th.
This is a standard clause and was contained in the 3rd Edition and ICE
1.5: This clause is new and puts beyond doubt what may have been implicit
from clause 68 (Notices) that notices, consents etc must be in writing. Writing is
also required by the following clauses:clause 2.3
Engineer's delegation to Engineer's Representative
clause 2.5
Engineer's instructions
clause 6.1
Engineer's requests for further drawings
clause 6.2
Authorisation of persons to inspect drawings
clause 14.1 Contractor's general description of methods etc
clause 17.1 Setting out
clause 31.2 Engineer's request for facilities for other Contractors.
Page 42 of 264
clause 48.1 Undertaking to finish outstanding work
clause 54.5 Requests regarding hire of Contractor's Equipment
clause 56.1 Request for Contractor to attend
clause 59.5 Contractor's statement of cause for withholding payment from
nominated Subcontractor and notification by Contractor to nominated
Subcontractor.
clause 60.7 Contractor's discharge.
clause 63.1 Warning to Contractor.
clause 67.1 Reference of dispute to Engineer.
There are additional references to written instructions but clause 2.5 (Instructions
in writing) makes this plain.
A comparison of this clause with clause 2.6 (Engineer to act impartially), clause
67.1 (Engineer's decision), clause 67.3 (Arbitration) and clause 68 (Notices)
reveals an inconsistency in the use of terms such as notices, consents etc.
Table 6 indicates the clauses in which the various terms appear.
"Any such consent, approval, certificate or determination shall not unreasonably
be withheld or delayed." Notices are excluded from this list. Notices are given
under some 37 clauses by the Employer, the Engineer and the Contractor. Most
commonly, it is the Engineer notifying the Contractor of a determination of costs
and/or extension of time. A determination is covered by this clause and thus may
not unreasonably be withheld or delayed.
Neither the notices nor the
determinations are directly covered by clause 2.6 (Engineer to act impartially) but
they are plainly actions affecting the rights of the parties and are thus covered by
clause 2.6(d). Notices by the Contractor or the Employer are normally given in
their own best interest, and if no time frame is specified, none is normally
necessary. As this part of the clause refers as much to the Employer and the
Contractor as to the Engineer, it is significant in relation to clauses such as
clause 10.1 (Performance security) as the right of the Employer to withhold his
approval is subject to the test of reasonableness.
Under clause 3.1 (Assignment of contract), the Employer is given an absolute
discretion to withhold his consent "notwithstanding the provisions of sub-clause
1.5".
Page 43 of 264
CLAUSE 2 : Obligations of the Engineer
This clause sets out the powers and obligations of the Engineer and his team.
The Engineer will carry out his duties and exercise the authority given to him by
the contract but is to obtain the prior approval of the Employer before exercising
his authority in relation to the list of items in Part II. The Contractor does not
have to check that the necessary approval has been given. The Engineer has no
general authority to relieve the Contractor of any of his obligations.
The Engineer may appoint and delegate duties and/or authority to the Engineer's
Representative.
Delegation to the Engineer's Representative must be in writing and must be
copied to the Employer and the Contractor before it takes effect. Instructions, etc
given by the Engineer's Representative after powers have been delegated will
have the same effect as if given by the Engineer. However, the Engineer may
reject work despite the failure of the Engineer's Representative to do so. The
Contractor may query any action of the Engineer's Representative with the
Engineer who may vary or overrule it.
The Engineer and his representative may appoint assistants
Contractor of their duties and authorities. The assistants
instructions necessarily within the scope of their duties and
acceptance of work, material etc. Such instructions are treated
given by the Engineer's Representative.
and inform the
may only give
to record their
as having been
Instructions must be in writing unless the Engineer finds it necessary to give an
instruction orally. Such an oral instruction will only be treated as an instruction if
either the Engineer confirms it in writing or the Contractor confirms it in writing
within 7 days and the Engineer does not object within a further 7 days.
The Engineer must act impartially in exercising his discretion. His decisions may
be reviewed by an arbitrator.
This clause has been substantially re-cast and reorganised. Sub-clauses 2.4 and
2.6 are wholly new to the 4th Edition.
2.1: It is a novel feature of the 4th Edition that the Employer is unable to
replace the Engineer should he die or for any other reason cease to carry out his
duties. For a discussion of this, see the commentary to clause 1.1(a)(iv).
(a)
As the Engineer is not a party to the contract, this clause must impose
upon the Employer an obligation to ensure that the Engineer duly performs.
Under English law, this duty is taken to be to ensure that the Engineer certifies
where the contract requires a certificate or makes decisions where the contract
gives the Engineer a choice whether to act or not. The Employer is not held
responsible for the contents of the decision i.e. he has no obligation to ensure
Page 44 of 264
that the Engineer acts correctly. He must, however, ensure that the Engineer is
free to act fairly and correctly. Thus there will not be a breach of contract on the
part of the Employer on every occasion where an arbitrator reverses a decision
of the Engineer. For a discussion of one practical consequence of this, see the
commentary under clause 63.1 concerning the consequences if an Employer
terminates on the strength of a certificate of default by the Contractor given by
the Engineer where that certificate is found to be incorrect by an arbitrator.
The express requirement in sub-clause 2.6 that the Engineer act impartially adds
to the Employer's duty in relation to procuring proper certification. As the
Engineer is not a party to the contract, the clause must impose an obligation
upon the Engineer's employer. It is therefore submitted that the Employer is given
the additional responsibility of ensuring that the Engineer is not only free to act
impartially but that he does so. A distinction has to be drawn between fairness or
correctness and impartiality. Because so many of the Engineer's decisions are
discretionary, there is often no objectively correct decision. A decision will
ultimately be correct if it goes unchallenged or if an arbitrator does not feel it
necessary to overturn that decision. Impartiality is more concerned with the
means by which the Engineer arrives at his decision. He is obliged to approach
the matter in an even-handed way, an obligation reinforced by the requirement
for due consultation. He must weigh in his mind the interests both of the
Contractor and the Employer without regard to the fact of engagement by the
Employer and leaving out of account any pressure brought to bear either by the
Employer directly or by the potential consequences of a particular decision under
his terms of engagement. It is submitted that the Employer will be in breach of his
obligation not only if he endeavours to cause the Engineer to favour his interests
over those of the Contractor but also if the Engineer is obviously doing so and
the Employer fails to take steps to remedy the position. Technically, the Employer
would also be in breach if he failed to take steps if the Engineer was favouring
the Contractor. Such a state of affairs would be very unlikely to last long and is
equally unlikely to be the subject of complaint by the Contractor.
The liability of a certifier such as the Engineer directly to the Contractor has been
the subject of consideration by the Courts over the years. The House of Lords in
Sutcliffe v Thackrah (1974) AC 727 held that a certifying Architect did not have
the sort of immunity against a disgruntled contractor that a judge or arbitrator
would enjoy. More recently, the Court of Appeal in Pacific Associates Inc v Baxter
(1989) 3 WLR 1150 held that the Engineer under a much-amended form of FIDIC
did not owe a duty of care to the contractor. Although that decision may have
been influenced by the particular wording of the contract under consideration, a
Hong Kong court in Leon Engineering and Construction v Ka Duk Investment Co.
Ltd (1989) 47 BLR 139 came to the same conclusion on a standard form with no
unusual wording. In both cases, the court was influenced by the existence of an
arbitration procedure, the purpose of which was to enable the contractor to obtain
redress in the event that the certifier made a mistake.
Leading cases relevant to the Employer's duty in relation to the Engineer include
Perini Corporation v Commonwealth of Australia (1969) 12 BLR 82 when the
Page 45 of 264
Supreme Court of New South Wales found implied terms that the Employer must
not interfere with the proper performance by the certifier of the duties imposed
upon him by the contract and that the Employer is bound to ensure that the
certifier performs those duties. The English Court of Appeal came to similar
decisions in Croudace v Lambeth (1986) 33 BLR 20 and Lubenham Fidelities v
South Pembrokeshire District Council (1986) 33 BLR 39. In the latter case, the
Court of Appeal expressed the opinion that a certifier acting in bad faith would
probably make himself directly liable to the contractor. The Perini and Lubenham
cases are also authority for the view that the Employer does not warrant the
correctness of the certifier's decisions.
(b)
It is right for the Employer to make known to the Contractor from the
outset any terms in the Engineer's terms of engagement which could impact
upon the Contractor. Thus, this clause provides for disclosure in Part II of any
prior approvals that the Engineer needs in order to act. This clause should not
however be treated as an encouragement for such obstacles to be placed in the
Engineer's way. These conditions do not encourage the requirement of prior
approval as clause 69.1 (Default of Employer) makes a refusal of such an
approval in relation to a certificate, a ground for termination by the Contractor. It
is also sensible that the Contractor is not obliged to check that necessary
approvals have been obtained for any given action by the Engineer. If the
Engineer acts without such prior approval, that will be a matter between the
Engineer and the Employer and may well amount to a breach of the Engineer's
terms of engagement.
It is an innovation of these conditions that the Engineer is obliged to consult with
the Employer and the Contractor under some 21 clauses: such consultation does
not in any way relieve the Engineer of his obligation to act impartially under
clause 2.6 (Engineer to act impartially). Part II provides an optional clause to deal
with emergency situations allowing the Engineer to instruct without obtaining the
prior approval of the Employer. This clause is not, it is submitted, necessary and
indeed runs counter to the important principle that the Contractor need not
concern himself with whether the Engineer has in fact obtained approval. In this
context, see clause 64.1 (Urgent remedial work).
A question raised by this approvals procedure is whether the absence of a
requirement for approval may be taken as evidence that the Engineer is
authorised to act as agent for the Employer in all other respects. The answer, it is
submitted, is in the negative. The purpose of the inclusion in Part II of any
restraints upon the Engineer is by way of warning to the Contractor and is
confined to limits upon "the authority specified in or necessarily to be implied
from the Contract". The lack of any general agency is emphasised by item (c) of
this sub-clause. So, for example, the Engineer would not have authority to order
acceleration by the Contractor other than in accordance with clause 46.1 (Rate of
Progress). Accordingly, the Contractor must be careful to ensure that any action
by the Engineer is either within the authority specified in or necessarily to be
implied from the contract or expressly authorised by the Employer.
Page 46 of 264
This clause has been adapted by ICE 6th which has made the list of matters
requiring approval determinative of the matters in respect of which the Engineer
must act impartially. Clause 2(8) of ICE 6th requires the Engineer to act
impartially in respect of all matters which are not so listed.
(c)
As the Engineer is normally considered to have a dual function under the
contract, to act as the Employer's agent in certain respects as well as certifier,
potential problems may always arise as to the extent of the Engineer's authority
as agent. For example, if the Engineer were to ask or order the Contractor to
accelerate other than in accordance with clause 46.1 (Rate of progress), the
Contractor would be unwise to comply with such order or request without
checking with the Employer that the Engineer was duly authorised to make such
request on the Employer's behalf. Thus, in this clause, it is made clear that the
Engineer has no authority to waive any obligation of the Contractor. See also
clause 7.3 (Responsibility unaffected by approval), clause 14.4 (Contractor not
relieved of duties or responsibilities), clause 17.1 (Setting-out) and clause 54.8
(Approval of materials not implied) for other examples. See also clause 61.1
(Approval only by Defects Liability Certificate).
"Except as expressly stated in the Contract...". If the Engineer purports to waive
strict compliance with the letter of the specification, for example under clause
17.1 (Setting-out) or clause 49.2 (Completion of outstanding work and remedying
defects), the Contractor has to decide whether, by gratefully accepting the
offered short-cut, he remains exposed to a claim for breach of contract by the
Employer, due to a lack of authority in the Engineer. The question is, therefore,
whether any express right to waive is granted. Under clause 7.1 (Supplementary
Drawings and Instructions) , the Engineer is given authority to issue instructions
as necessary for the "proper and adequate execution and completion of the
Works". Whilst the use of the word "adequate" may lend some support to an
argument that an Engineer is intended to have a discretion to approve works
which do not comply strictly with the specification, it is doubtful that a Contractor
could demonstrate that any proposed short-cut was "necessary". The Contractor
would, it is submitted, require a variation to be certain that the acceptance of substandard work could not be challenged later. The power to omit work is a clear
example of an express exception: the Engineer is empowered to vary the work to
set a lower standard than that set out in the specification and it is submitted that
the Contractor may generally rely on such an instruction. See under clause 51.1
(Variations), however, for comment on the ability of the Employer to challenge
variations. For further discussion on this subject, see under clause 13.1 (Work to
be in accordance with Contract). See also the clauses dealing with the
rectification of defects and damage such as clause 17.1 (Setting-out), clause
20.3 (Loss or damage due to Employer's risks) and clause 49.2 (Completion of
outstanding work and remedying defects).
Under English law, there is a distinction to be drawn between obligations and
liabilities. There comes a point in the degree of performance by the Contractor
when he has sufficiently fulfilled the requirements of the contract that the
"obligation" is replaced, in the event that 100% compliance does not occur, with a
Page 47 of 264
secondary "liability" to pay damages for the shortfall. It may therefore be argued
by a Contractor accused of breach of contract in respect of work approved by the
Engineer that, in allowing a short-cut, the Engineer was not relieving the
Contractor of any obligation. It must be recognised that this is a lawyer's point
and one that would not necessarily find favour with arbitrators, even in England.
Under all the standard forms of construction contract, it is difficult to determine at
what point the Engineer or equivalent becomes "functus officio" or redundant.
The answers may well be different for each of the Engineer's roles. As the
Employer's agent, his power to issue instructions ceases at the latest when the
Defects Liability Certificate is issued pursuant to clause 62.1 (Defect's liability
certificate). It is argued in the commentary under clause 13.1 (Work to be in
accordance with the contract) that the Engineer's power to order variations
should come to an end at substantial completion.
As certifier, the Engineer's obligations continue through to the Final Certificate
under clause 60.8 (Final certificate) which may not be issued for three months
after the Defects Liability Certificate.
As adjudicator, giving decisions under clause 67.1 (Engineer's decision), it seems
that the Engineer has a role for as long as disputes may arise under the contract.
This could mean for as long as any applicable law permits disputes to arise to the
full extent of the relevant limitation periods. Thus, for example, a defect arising in
the works 5 years after completion could cause the Employer to seek to recover
damages for breach of contract from the Contractor. The Contractor could
defend himself on the grounds that the defect arose from an error in design and
the dispute should, according to clause 67.1, be referred to the Engineer for his
decision. If the Engineer refuses to become involved, the mechanism of clause
67 allows the dispute to go forward to arbitration by default.
It is therefore submitted that there is no one moment in time at which the
Engineer becomes functus but three or more. Each function of the Engineer
must be considered individually.
2.2: On many projects, particularly where the Employer is a government
department, it is the Engineer's Representative who is the real decision-maker
and the effective Engineer under the project although he will report to and obtain
signatures from the Engineer named in the contract, who may be a Government
official or employee. The delegation must be in writing. Apart from clause 1.1
(Definitions), the Engineer's Representative is referred to in only two other
clauses: clause 13 (Work to be in accordance with contract) whereby the
Contractor is obliged to take instructions from the Engineer's Representative and
clause 15 (Contractor's superintendance) on the same subject.
These
references appear to be superfluous as the Engineer's Representative has no
power without delegated authority under clause 2.3 and power thus delegated is
not dependent upon an express mention in the relevant clause.
Page 48 of 264
It is implicit that the duty of impartiality under sub-clause 2.6 applies to the
Engineer's Representative and that the powers to open up decisions contained in
clause 67 (Disputes) apply to his decisions. These conclusions, it is submitted,
follow from the nature of delegation: the actions of the Engineer's Representative
are treated as being the actions of the Engineer. See also the right to query the
Engineer's Representative's decisions under sub-clause 2.3.
2.3: Normally, the Engineer retains powers to grant extensions of time, order
acceleration, value variations over a particular figure and issue certificates of
default. He will also retain the power to make decisions normally under clause
67.1 (Engineer's decision). Other items not usually delegated include the notice
to commence, substantial completion, the Defects Liability Certificate, clause 60
(Payment) and clause 65 (Special Risks). A Contractor may be well advised to
require a list of non-delegable powers to be included in Part II if he wishes to
know that the crucial decisions will remain with the Engineer named in the tender.
FIDIC's Guide suggests that any restriction on delegation in the Engineer's terms
of engagement should be disclosed. It is submitted that the Contractor is not
entitled to assume that authority has been delegated as notice to the Contractor
is essential before a delegation takes effect. Contractors are therefore obliged to
satisfy themselves on this point before acting on instructions from the Engineer's
Representative.
If the Engineer disagrees with a decision delegated to the Engineer's
Representative, there is no power under the contract for the Engineer to
countermand the decision unless the decision is questioned by the Contractor
under item (b) of this sub-clause or either the Employer or Contractor requests a
decision under clause 67.1 in which case the matter may be reviewed. The
Engineer may, however, disapprove work etc which his representative did not
disapprove. The draftsman is at pains not to use the term "approve" in clause
2.3(a) and thereby raises the question of whether an approval or expression of
satisfaction by the Employer's Representative would disentitle the Engineer from
instructing the Contractor to rectify work.
In item (b), it is not clear to whom the word "he" refers i.e. whether it is the
Contractor or the Engineer's Representative who has the power to refer a
decision of the Engineer's Representative to the Engineer for reconsideration.
This is unfortunate as it is only this sub-clause and clause 67 (Settlement of
disputes) which allow decisions to be altered, other perhaps than by variations or
with the agreement of the Contractor. The Engineer is obliged to respond but no
time limit is given nor is such confirmation etc within the terms of clause 1.5
(Notices, Consents etc) which prohibit unreasonable delay. As discussed in
clause 2.4 below, this could cause delay to the project for which there is no
obvious category of extension of time under clause 44.1 (Extension of time for
completion). Reference to the Engineer under this sub-clause will not amount to
a request for a decision under clause 67.1 (Engineer's Decision) because a party
requiring such a decision must make express reference to clause 67.1.
Page 49 of 264
Clause 61.1 (Approval only by Defects Liability Certificate) indicates that any
approval by the Employer's Representative is not in any event effective. Clause
13.1 (Work to be in accordance with contract) requires the Contractor to execute
the works in strict accordance with the contract to the satisfaction of the
Engineer.
If clause 13.1 has not been delegated to the Engineer's
Representative, again his expression of satisfaction will not be effective. If it has
been delegated, then the position is unclear. It is submitted that if the work was
demonstrably not in accordance with the contract, then the Engineer's
Representative would have no power to express such satisfaction as it would be
relieving the Contractor of one of his obligations under the contract contrary to
clause 2.1(c) above.
2.4: There is a perhaps inevitable uncertainty about the scope of the power of
assistants to issue instructions.
The Contractor has to decide whether
instructions given by an assistant are "necessary to enable them to carry out their
duties", or "necessary ... to secure their acceptance of materials ...". The
meaning of the second circumstance is particularly obscure. Thus, a Contractor
will be well advised if in any doubt to seek the Engineer's confirmation pursuant
to clause 2.3(b). The Engineer is obliged to respond but no time limit is
specified. This could put the Contractor in the awkward position of having to
decide between the risk of delay whilst an instruction is queried against the risk
that the cost of complying with the instruction could be irrecoverable if the
instruction is held to be unauthorised.
An independent inspector nominated under clause 37.5 (Independent inspection)
is to be considered as an assistant under this sub-clause.
2.5: This clause supplements clause 1.5 (Notices, consents etc) by adding
instructions to the list of items which must be in writing. There is scope for
confusion however with regard to oral instructions. The Contractor has an
obligation to comply with such oral instructions but they are not deemed by the
sub-clause to be instructions until confirmed. Whilst it is obviously necessary to
have a regime which prevents unscrupulous Contractors claiming payment for
oral instructions not given, this sub-clause requires the Contractor obeying the
instructions to run the risk that confirmation will not be forthcoming or that his
own confirmation will be contradicted by the Engineer. There is also an anomaly
whereby confirmation given by the Engineer results in the written confirmation
amounting to the instruction whereas an uncontradicted confirmation by the
Contractor results in the original oral instruction being "deemed to be an
instruction of the Engineer". This could be significant, for example, in relation to
the time limits in clause 52.2 (Power of Engineer to fix rates) or clause 53
(Procedure for claims). In the former case, the failure to give notice of a claim
within 14 days of an instruction varying the work could be fatal to the Contractor's
claim. Under this clause, if an oral instruction is given varying the work and the
Contractor writes seeking confirmation of the instruction, but awaits that
confirmation before giving notice of his claim, the Engineer could put the
Contractor into difficulties by failing to contradict the Contractor's confirmation of
Page 50 of 264
oral instruction with the result that the instruction will date back to the original oral
instruction, possibly putting the Contractor out of time.
For the other provisions dealing with instructions, see clause 7.1 (Supplementary
drawings and instructions), clause 13.1 (Work to be in accordance with the
contract) and clause 51.1 (Variations).
2.6: This clause, which is entirely new to the 4th Edition, makes express what
is otherwise generally accepted as an implied term of the contract, namely that
the Engineer must act impartially when performing his role as independent
certifier. The difficulty confronting the draftsman was defining that role and
distinguishing it from the Engineer's role as the Employer's agent. The table set
out under clause 1.5 will demonstrate that all of the Engineer's functions are not
specifically included in this list. In particular, notices, certificates, determinations
(other than of value) and instructions are not mentioned although they are
undoubtedly covered by (d) "taking action which may affect the rights and
obligations of the Employer or the Contractor". The key word which the
draftsman has used to distinguish between the Engineer's roles is "discretion".
The draftsman appears to have assumed that the Engineer has no discretion
whilst acting as the Employer's agent. This assumption may be incorrect.
"(a) giving his decision, opinion or consent". The term "decision" is reserved
exclusively for the Engineer's role in the disputes procedure under clause 67.1
(Engineer's decision). The Engineer's opinion is used throughout the contract to
decide whether a state of affairs exists, such as whether the Contractor has
defaulted under, for example, clause 39.1 (Removal of improper work, materials
or plant) or whether rates and prices are no longer applicable under clause 52.2
(Power of Engineer to fix rates). The most important consents required from the
Engineer are required under clause 4.1 (Sub-contracting), clause 14.1
(Programme to be submitted) and clause 46.1 (Rate of progress).
"(b) expressing his satisfaction or approval". In relation to the term "satisfaction",
see the commentary under clause 13.1 (Work to be in accordance with Contract).
See clause 61.1 (Approval only by Defects Liability Certificate) in relation to the
term "approval".
"(c) determining value". The Engineer is required to determine value under
clause 52 (Valuation of variations), clause 56.1 (Works to be measured), clause
60 (Payment) and clause 63.2 (Valuation at date of termination). In addition a
number of clauses such as clause 65.3 (Damage to Works by special risks)
require the Engineer to value in accordance with clause 52.
"Any such decision...may be opened up, reviewed or revised as provided in
clause 67." As will be seen from the table under clause 1.5 (Notices, consents
etc) there is a mismatch between this list and the lists given under clause 67.
The terms "open up, review and revise" are to be found in clause 67.3
(Arbitration) but, it is submitted, the Engineer also has power to review his
decisions when asked for a decision under clause 67.1 (Engineer's decision). As
Page 51 of 264
decisions of assistants under clause 2.4 (Appointment of assistants) are deemed
to have been given by the Engineer's Representative and communications by the
Engineer's Representative are stated in clause 2.3 (Engineer's authority to
delegate) to have the same effect as though given by the Engineer, this subclause applies equally to the exercise of discretion by the Engineer's
Representative and assistants.
The existence in the contract of an obligation that the Engineer be impartial may
give rise to an argument that the Employer is thereby obliged to nominate as
Engineer someone who is capable of such impartiality. Accordingly, the
nomination of an employee of the Employer who was obliged to report proposed
decisions to the Employer and take instructions would not be in accordance with
the contract. The argument may be largely academic given that the Engineer will
invariably be named in the tender documentation and in view of the absence of
any power permitting the Employer to renominate in the event of an Engineer
ceasing to act: see under clause 1.1 (a)(iv). If an Employer did fail to propose a
replacement candidate capable of impartiality, the Contractor might have grounds
for complaint under clause 69.1 (Default of Employer) item (b) "interfering with or
obstructing... the issue of any such certificate". For further comment on the effect
of this clause on the duties of the Employer in relation to the Engineer, see under
sub-clause 2.1 above.
FIDIC's concept of an express obligation to be impartial has been adopted by
ICE 6th at clause 2(8). However, instead of attempting a general definition of the
Engineer's functions undertaken as an independent person, ICE 6th obliges him
to be impartial in respect of all matters which are not listed as matters requiring
the prior approval of the Employer under the clause equivalent to sub-clause
2.1(b) above. There is, however, no equivalent in ICE 6th to clause 69.1 item (b)
permitting the Contractor to terminate in the event of the Employer "interfering
with or obstructing... any such certificate".
On the wording of this sub-clause, it is not difficult to mount an argument that
every function of the Engineer under the contract involves a discretion and
affects the rights and obligations of the parties. Accordingly, every function of the
Engineer could be subject to the impartiality obligation with the result that the
Engineer would not be able to function as agent for the Employer serving only
the Employer's interest. The Employer would therefore be obliged to specify in
the contract that the Engineer is not "required to exercise his discretion" in
certain instances. This might be achieved by listing certain functions required to
be agency functions in Part II. This then becomes similar to the ICE 6th.
For further commentary on this subject, see the section on the role of the
Engineer.
CLAUSE 3 : Assignment
Page 52 of 264
The Contractor may not assign any part of its contract unless the Employer
agrees. The Contractor may however, give his bankers a charge over monies
due under the contract. The clause does not affect an insurer's right of
subrogation whereby the insurer seeks to recover from another party sums paid
out to the Contractor.
Item (b) is new to this edition, as is the reference to clause 1.5 (Notices, consents
etc). The main thrust of the clause remains, however.
Owing to the general requirement in clause 1.5 that consent shall not be
unreasonably withheld or delayed, it is necessary in this clause to give the
Employer an unfettered right to withhold his consent from an assignment. Any
purported assignment would be invalid under English law and give the purported
assignee no rights without the prior consent of the Employer. The two exceptions
recognise the realities of the Contractor's financing and insurance arrangements.
For further commentary in relation to assignment by the Contractor, see the
commentary under clause 1.1(a)(ii).
CLAUSE 4 : Sub-Contracting
This clause prohibits the sub-contracting of the whole or any part of the Works
unless the contract expressly permits it or specifies the name of a subcontractor
or the Engineer gives his consent. The Contractor does not require consent for
labour and the purchase of specified materials. Regardless of any consent, the
Contractor will be fully liable for the defaults of the subcontractor as if they were
the defaults of the Contractor himself.
The Employer may require and pay for the assignment to himself of any
guarantee or warranty or other continuing obligation undertaken by a
subcontractor to the Contractor which lasts beyond the Defects Liability Period.
Sub-clause 4.1 is largely taken from the 3rd Edition but items (b) and (c) are new.
Sub-clause 4.2 is derived from clause 59(6) of the 3rd Edition.
4.1: This sub-clause is given considerable importance by the fact that clause
63.1(e) (Default of Contractor) makes contravention a ground for termination by
the Employer. In contrast with the 3rd Edition and ICE 5th, there is no
requirement in clause 63.1 that unauthorised sub-letting should be "to the
detriment of good workmanship or in defiance of Engineer's instructions to the
contrary" before the Employer may terminate. Thus, any technical breach of
clause 4.1 could be disastrous.
The consent of the Engineer is subject to clause 1.5 (Notices, consents etc) and
may not be unreasonably withheld or delayed. Under clause 2.6 (Engineer to act
Page 53 of 264
impartially), the Engineer must make his decision impartially having regard to all
the circumstances.
"Any such consent shall not relieve the Contractor from any liability ...". This
provision is intended to make it plain that the Engineer's agreement to a
particular subcontractor will be given without any responsibility being taken for
the subcontractor's competence and ability to perform. It is made plain that
subcontractors will be treated as if they were part of the Contractor's organisation
for the purposes of responsibility. No distinction with regard to responsiblity is
made between subcontractors nominated pursuant to clause 59 (Nominated
Subcontractors) and the Contractor's own subcontractors. Unlike some English
standard forms, there is no extension of time available for the defaults of the
nominated subcontractors unless the selection of the nominated subcontractor
was so bad as to amount to "delay, impediment or prevention by the Employer"
within clause 44.1 (Extension of time for completion) item (d). Similarly, if the
nominated subcontractor has any design obligations under clause 59.3 (Design
requirements to be expressly stated), the Contractor is to be given an indemnity
under the nominated sub-contract but remains liable to the Employer. The
position in contract is to be contrasted with the position in tort under English law
whereby a contractor is only liable for the defaults of his independent
subcontractors if the contractor was negligent in their appointment or, possibly,
their supervision: see the decision of the House of Lords in D & F Estates v
Church Commissioners (1988) 3 WLR 368.
Because of the danger imposed by clause 63.1 (Default of Contractor), a
Contractor should be sure of his ground before relying upon one of the
exceptions (a) to (c) for which no consent is needed. These exceptions are new
to the 4th Edition save that "the provision of labour on a piecework basis" was an
exception contained both in the 3rd Edition and ICE 5th. It is submitted that a
subcontractor who provides nothing but labour falls within exception (a).
Arguably, a subcontractor who provides labour and purchases materials which
accord with the specification is also an exception. However, this would seem to
go beyond the intention of the draftsman and it would be extremely dangerous for
a Contractor to proceed on that basis. Equally dangerous would be to proceed
with the purchase of materials without the specific consent of the Engineer
because if, through no fault of the Contractor or any subcontractor, the materials
delivered did not comply with the specification, the exception would no longer
apply and the Contractor would be in default.
Exception (b) could apply equally to the purchase of materials directly from the
manufacturer by the Contractor or to the purchase through a supplier. In the
former case, the element of sub-contracting would be in the manufacture itself.
Presumably, (a) should be read restrictively so that consent would be required for
a subcontractor who supplied materials and provided labour to install such
materials.
As to (c), the naming of such a subcontractor within the contract would entitle the
Contractor to use that subcontractor. It is not apparently necessary for the
Page 54 of 264
subcontractor to be a "nominated Subcontractor" as clause 59.1 (Definition of
"nominated Subcontractors") does not include the word "named". Thus,
exception (c) may apply equally to the nominated Subcontractors and other
subcontractors named in the contract. Contractors are often required to list in
their tender their proposed subcontractors. If the Contractor receives no adverse
comment and his tender is accepted, it is obviously sensible that the Contractor
should have to seek no further consent. The definition of nominated
Subcontractor is itself very wide: see the commentary under clause 59.1.
In general, the Contractor will be well advised to obtain consent for his every
action in connection with sub-contracting.
4.2: This sub-clause is intended to secure the transfer to the Employer of
guarantees given to the Contractor by subcontractors. Thus, if there is a need to
claim on the guarantee, the Employer can deal directly and is not dependent
upon the survival or willing co-operation of the Contractor. The difficulty with this
sub-clause is that virtually every subcontractor has, by entering into his subcontract "undertaken ... [a] continuing obligation extending for a period exceeding
that of the Defects Liability Period". Whilst the subcontractor's right or obligation
to remedy defects in his works expires with the Defects Liability Period, he has a
continuing obligation to pay damages for breach of contract for defects in his
works until the expiry of the limitation period. Thus, if the clause was taken
literally, the Employer would be entitled to the assignment of all sub-contracts.
Accordingly, a Contractor would be well advised to seek to amend this clause to
limit the obligations to be assigned to guarantees and obligations other than the
basic contractual obligations and/or to prohibit the Employer from pursuing the
Contractor in relation to any defects emerging from the subcontractors' works.
It may be important to appreciate the distinction, in English law at least, between
assignment and other transfers of rights such as novations. An assignment will
not give the Employer the same rights as if the contract was directly between the
Employer and the subcontractor. The Employer will only have the same rights
against the subcontractor as the Contractor would have had. Thus, if for any
reason the Contractor has suffered no loss as a result of some breach by the
subcontractor, the Employer would be unable to recover against the
subcontractor regardless of the loss which he had incurred. Assignments are also
subject to any rights the Contractor may have against the subcontractor, for
example, a defence of set-off. By contrast, under a novation, the original contract
comes to an end and a new contract is formed between Employer and
subcontractor. Novations can be implied but normally are agreed expressly
between Employer, Contractor and subcontractor. This is necessary as, under a
true novation, the Contractor is released by the subcontractor from any liability.
Assignments can only transfer the benefit of the contract and not the burden.
Novation can transfer the burden but this requires careful drafting.
This clause should be read with clause 54.5 (Conditions of hire of Contractor's
Equipment), clause 54.7 (Incorporation of clause in subcontracts) and clause
63.4 (Assignment of benefit of agreement) which seek to secure for the Employer
Page 55 of 264
the benefit of subcontractor, hire and supply agreements in the event of the
termination of the Contractor's employment under clause 63.1 (Default of
Contractor). Terms for inclusion in nominated sub-contracts are specified by
clause 59.2 (Nominated subcontractors; objection to nomination).
In English law, the potential liability of subcontractors to the Employer in the
absence of a contractual link is in a state of some uncertainty. The minimum
requirement seems to be that the subcontractor must either have caused
physical damage to some property of the Employer other than that upon which
the subcontractor was working or have been in a special relationship with the
Employer. This effectively means that the subcontractor should be a specialist
subcontractor upon whom the Employer is relying for particular expertise or
design. See the House of Lords in Junior Books v Veitchi (1983) 1 AC 520; 21
BLR 66 and the Court of Appeal's decision in Simaan General Contracting v
Pilkington Glass (1988) 40 BLR 28. For an Australian view, in a case brought by
a subcontractor against an Employer, see the Supreme Court of ACT decision in
S.W. Neilsen (Canterbury) v PTC Constructions (1987) B&CL 387.
CLAUSE 5 : Language of the Contract
This clause requires the language or languages of the contract to be stated and,
in the case of more than one language, it requires the Ruling Language to be
agreed. The law of the contract is also to be set down.
If, when all the contract documents are read together, there is any ambiguity or
discrepancy, the Engineer is to issue an instruction explaining it and adjusting the
documents as necessary. In reaching such decision, he is to treat the contract
documents as having priority in the order set out in the clause.
Sub-clause 5.1 is essentially the same as the 3rd Edition but clause 5.2 has been
substantially amended to provide a full priority listing for the contract documents.
5.1: With the exception of references in Part II to required language ability in
clause 15.1 (Contractor's superintendence) and clause 16.1 (Contractor's
employees), there are no references to language or the Ruling Language in any
other part of these conditions. Thus, a Ruling Language is established by the
completion of Part II but no use is made of it. There is no requirement that
communication between the parties or at least notices, certificates etc should be
in a particular language nor, significantly, is there any statement of the language
in which any arbitration is to be conducted. Although there is room for argument
that the mere existence of a Ruling Language carries with it an implication that
communications should be in that language, it is very difficult to identify the limits
of the application of such a term. The silence of this clause could lead to
considerable confusion and, in a dispute, could be an important factor in
complicating the appointment of arbitrators and greatly increasing the costs of
Page 56 of 264
the proceedings. Parties would therefore be well advised to spell out their
intentions. For example, they could agree that all communications between the
parties and with the Engineer should be in the specified language as should
certain categories of records which are likely to be scrutinised for purposes such
as for valuation or in a dispute.
Similarly, although the law of the contract is to be nominated in Part II, the law of
the procedure of an arbitration is not specified. Thus, if an ICC arbitration takes
place in Paris, it will be French procedural law that will apply and would be
enforced, if necessary, by the French courts. The parties may wish to make a
conscious decision and agree where arbitrations should take place and/or the
procedural law to apply with an amendment either to this sub-clause or to clause
67 (Settlement of disputes).
The nominated law of the contract does not exclude the local or other countries'
laws entirely. The following lists are not exhaustive:(a) Local laws may impinge in the following areas:Working days and hours
Employment rules
Import and export of plant, materials etc
Taxes and duties
Planning
Clause 26 (Compliance with statutes, regulations)
(b) The laws of other countries may impinge in these areas:Insurance, for example, decennial liability
Performance security
Arbitration procedural law
Off-site manufacture
Goods in transit
In addition, rules adopted such as a Standard Method of Measurement or the
ICC rules of arbitration will govern areas of the contract. In clause 63.1 (Default
of Contractor), the expression "deemed by law" appears. The above
demonstrates that such an expression is imprecise.
Difficulties may be encountered if the specified law is not recognised by a country
whose courts are being asked to enforce a contractual remedy or an arbitrator's
award. In DST v Raknoc (1988) 2 AllER 833, the English Court of Appeal refused
to recognise the existence of lex mercatoria. A party had sought to persuade the
court that there existed a transnational body of commercial law but the court
remained sceptical. Nevertheless, the English courts will normally enforce such
an award.
"...the law of which shall apply to the Contract...". The boundary between the law
of the contract and other laws is made no easier to draw by these words. It
Page 57 of 264
appears to be intended that the influence of the named law should reach beyond
the construction and interpretation of the contract.
In countries with civil law systems such as France and a number of Middle
Eastern countries which have modelled their systems on France, the civil code, a
part of private law, will apply to many projects undertaken in those countries. If
the project is a public works project, however, the contract will be an
administrative contract and certain specific public law rules apply in the public
interest, in many cases regardless of the terms of the contract. If the contract is a
private law contract certain terms are also imposed or implied.
In such a civil law country, a choice of the law of the contract other than the law
of the country would be impracticable, even if legal. In many cases an arbitration
award based on a foreign law might not be enforceable in the civil law country for
reasons of public policy. In any event considerable difficulties would result from
the application of two relevant laws to the whole of a single contract. All countries
require that the local law or lex situs governs rights of property and many
countries have extended this to matters such as employment law. Some civil
code countries have extended this to personal obligations relating to property so
that there would be virtually no scope for a different nominated law of the
contract. Points of similarity and dissimilarity with civil code principles common to
many countries are noted in the comments under the following clauses:
clause 12.2 (Adverse physical obstructions or conditions) - Theorie des
sujetions imprevues;
clause 20.4 (Employer's risks) - Theorie de l'imprevision;
clause 47.1 (Liquidated damages for delay) - civil and administrative law
treatment of penalties;
clause 51.1 (Variations) - Power of Administration to vary contract or
Fait du Prince;
clause 52.1 (Valuation of variations) - Power of Administration to vary
contract or Fait du Prince;
clause 65 (Special risks) - Theorie de l'imprevision;
clause 70.1 (Increase or decrease of cost) - Theorie de l'imprevision;
clause 70.2 (Subsequent legislation) - Fait du Prince;
clause 71.1 (Currency restrictions) - Fait du Prince;
clause 72.1 (Rates of Exchange) - Theorie de l'imprevision.
Briefly, Theorie des sujetions imprevues (literally the theory of unforeseen
constraints) permits compensation of a Contractor who encounters an
exceptional physical constraint which is not due to any act of the administration
and was not foreseen at the time of the contract. Theorie de l'imprevision
(literally, theory of want of foresight) compensates the Contractor in the event of
unforeseeable financial, economic and political circumstances. Fait du Prince,
meaning act of state, provides an opportunity for the Contractor to obtain full
reimbursement where the administration has somehow intervened by changing
the law or acting in a way that alters the economic balance of the contract. In this
context, it is worthy of note that normally for the purposes of Fait du Prince, the
Page 58 of 264
government is regarded as one and indivisible so that an action of one ministry
which affected a Contractor in contract with another ministry would be a ground
upon which the Contractor would be entitled to rely to obtain compensation. See
the comment under clause 26.1 (Compliance with statutes, regulations). An
extreme expression of Fait du Prince is the power of the administration to
terminate the contract unilaterally.
This clause should be read with clause 26 (Compliance with statutes,
regulations) and clause 70.2 (Subsequent legislation). The difficulty of
distinguishing the roles of arbitration and the administrative courts is mentioned
under clause 67.3 (Arbitration).
5.2: Under the 3rd Edition, the conditions Part I and II were given priority over
the remainder of the contract documents which were to be taken as mutually
explanatory.
Reasonably unforeseen costs flowing from the Engineer's
instructions were recoverable but no time. In this edition, all the documents are
initially to be taken as mutually explanatory but the Engineer is given a full order
of priority to assist him in the resolution of discrepancies. Parts I and II are
substantially demoted in the order. There is no provision for time or costs and
the Contractor would have to endeavour to bring any consequences of the
Engineer's instruction within clause 44.1 (Extension of time for completion)
and/or clause 51.1 (Variations). The ICE, in their 5th and 6th Editions, decline to
give a list of priority of the documents, requiring all the contract documents to be
read as mutually explanatory.
Although the prescribed order is consistent with the principle of giving particular
clauses precedence over general Standard Form clauses, there is a danger for
the parties that the familiar and desired terms of these conditions could be
overridden by one or other of the four preceding documents. Thus, the parties
must check the preceding documents very carefully for anything which could be
inconsistent with the conditions that they require. In particular, there is a danger
that documents intended to be subordinate to the conditions will be incorporated
by reference into the documents having priority. For example, clause 2 of the
Contract Agreement incorporates all of the particular documents listed in this
sub-clause as well as the Specification, the Drawings and the bill of quantities.
That incorporation is a necessary part of the Agreement which may be the only
document signed by the parties and must therefore be comprehensive.
Nevertheless, if it is used, it does not assist in the interpretation of clause 5.2. It
is submitted that the correct approach is to disregard that particular incorporation
as it brings in all contract documents and does not advance the priority issue. If
however, the Letter of Acceptance, for example, was to incorporate by reference
the Specification, then the Specification would have to be studied with extreme
care to ensure that the conditions were not accidentally overruled.
In the event of an ambiguity or discrepancy in the contract documents, the
Engineer is obliged to issue an instruction. The clause does not specify who may
trigger this action nor, unusually for this edition, is there any notice provision. It is
submitted that either the Contractor or the Employer must have pointed out an
Page 59 of 264
alleged ambiguity or discrepancy and that the Engineer should not issue
instructions under this clause uninvited. The existence or otherwise of ambiguity
or discrepancy will be of considerable significance as, in the absence of such a
problem, the documents are to be taken as mutually explanatory. For example,
the Contractor may consider that wording included in his tender is more
advantageous to him than a condition in Part I: if he can demonstrate an
ambiguity or discrepancy between the clauses, his tender would take priority.
It seems clear that the Engineer is to instruct on matters of interpretation as well
as discrepancies in relation to the physical work. This is plainly sensible as a
contract could otherwise run into difficulties in the absence of a decision on a
point of interpretation. This is reinforced by the fact that the Engineer is obliged
by clause 67.1 (Engineer's decision) to settle matters of interpretation which are
the subject of dispute between the parties.
It is submitted that the Engineer is to instruct on ambiguities and discrepancies
not only between the various contract documents but also within documents.
Thus, it would be possible to ask the Engineer to instruct, for example, to resolve
the discrepancy between the time limits for claims set out in clause 52.2 (Power
of Engineer to fix rates) and clause 53.1 (Notice of claims). To achieve maximum
clarity, any of the ambiguities referred to in this commentary which are not
resolved by amendment to the contract, should be resolved by instruction of the
Engineer at the outset. Often, however, the parties may decide it to be in their
respective interests to maintain an element of ambiguity in the hope that it will
give them either flexibility during the work or room for negotiation at the
conclusion of the works.
The Engineer's instruction would not normally entitle the Contractor to additional
payment directly as it is merely interpreting the existing contractual obligations
between the parties and thus cannot itself amount to a variation. The instruction
may however mean that work executed or to be executed by the Contractor was
not part of the original contract works and thus must be paid for as a variation.
Part II provides alternative clauses, either prescribing an alternative order of
priority or stating that the various documents are to be taken as mutually
explanatory.
CLAUSE 6 : Drawings to the Contractor
The Engineer is to provide two free copies of the drawings to the Contractor. The
Contractor will have to make any further copies himself. The Contractor must
keep the drawings and specification confidential and use them or show them to a
third party only when strictly necessary for the project. When the project is
complete, the Contractor must return all such documents to the Engineer. The
Contractor should provide the Engineer with four copies of all drawings,
specifications etc prepared by him and approved by the Engineer. Further copies
should be supplied at the request of the Engineer at the Employer's cost.
Page 60 of 264
The Contractor should keep one copy of the drawings on site and available for
inspection and for use at any reasonable time by the Engineer or anyone with the
Engineer's written authorisation.
If the Works are likely to be delayed or disrupted unless a drawing or instruction
is issued by the Engineer within a reasonable time, the Contractor must give a
notice to the Engineer and a copy to the Employer, giving the details.
If, despite the notice, the drawing or instruction is late and the Contractor suffers
delay or incurs costs, the Engineer must consult the parties and grant time and
costs.
In considering a grant of time and costs to the Contractor, the Engineer must take
into account any contributory delay by the Contractor in his production of
drawings.
The principles and much of the wording of the 3rd Edition have been retained for
the 4th Edition but sub-clause 6.1 has been considerably expanded and subclause 6.5 is entirely new.
6.1: When reading this clause it is to be borne in mind that the definition of
Drawings at 1.1(b)(iii) is very broad and includes not only the Engineer's
drawings, calculations and technical information but also "all drawings,
calculations, samples, patterns, models, operation and maintenance manuals
and other technical information" submitted by the Contractor and approved by the
Engineer. The definition covers not only the documents in existence at the time
of the contract but also documents brought into being during the course of the
contract. In addition, it covers items other than documents such as samples,
patterns and models which are obviously not capable of being readily
reproduced.
The first sentence seems to apply only to drawings supplied by the Engineer:
where drawings are to be provided by the Contractor, it is the Contractor that
provides copies. The obligation to keep the Drawings confidential is especially
limited to those provided by the Employer or Engineer. As to the documents to
be returned, it is submitted that this obligation is also limited to those provided by
the Engineer as this clause uses the term "provided" for documents supplied by
the Engineer to the Contractor and "supplied" for those from the Contractor to the
Engineer. Contractors should have in mind that the confidentiality duty seems to
include subcontractors by the reference to "a third party". Although the Employer
would normally have difficulty demonstrating loss from a breach of the clause,
subcontractors should not be given more than they need without the Engineer's
approval.
"... four copies of all Drawings, Specification and other documents". It is
submitted that a reasonable reading of this obligation will be that the words "other
Page 61 of 264
documents" limit the obligation to provide four copies to those items within the
definition of Drawings which are themselves documents. Thus, it is not
necessary to produce four copies of the models, samples etc.
6.2: In view of the broad definition of the term "Drawings" at clause 1.1(b)(iii),
this obligation is apparently not limited to documents but includes samples,
patterns and models.
6.3
The failure by the Engineer to give drawings or instructions on and time
is generally regarded as being a breach of contract by the
6.4
Employer who has an implied duty to ensure that the Engineer provides
such documents without causing delay. It is further generally accepted that in the
absence of provision for such delays in the extension of time clause, late
drawings would set time at large. These sub-clauses provide for extension of
time and costs to be given where a drawing or instruction is late despite the
Contractor having given notice of the potential delay. In the event that no such
notice was given, it would, it is submitted, be possible for the Contractor to
comply with the notice provision under clause 44.2 (Contractor to provide
notification and detailed particulars) and claim an extension of time under clause
44.1(d) for "any delay, impediment or prevention by the Employer", at least where
the need for the drawing or instruction by a particular time was obvious.
It is submitted that the Contractor's notice need not have specified the delay that
in fact occurs. Sub-clause 6.4 does not refer the "delay and/or...costs" back to
the "delay or disruption" in sub-clause 6.3, so the Engineer would be wrong to
refuse an extension on the ground that the forecast consequence had not
materialised.
There is scope for debate as to whether the requirements of clause 6.3 would be
satisfied by a programme marked up with the critical dates for information and
annotated to provide the details required by the sub-clause. The programme
under clause 14.1 (Programme to be submitted) is not normally sent to the
Employer, but to comply with this sub-clause it must be copied to the Employer in
compliance with clause 68 (Notices). Whilst it is reasonably clear that this was
not the intention of the draftsman, it is submitted that such a programme could be
capable of complying with the sub-clause's requirements. See L B Merton v
Leach (1985) 32 BLR 51 for the position on an English standard form of contract.
"... within a time reasonable in all the circumstances". The draftsman has not
created a direct tie between the reasonable time specified by the Contractor in
sub-clause 6.3 and the definition of a failure in sub-clause 6.4. The function of
"within a reasonable time" in sub-clause 6.3 is presumably to ensure that the
Contractor's notice is given a reasonable time in advance of the critical date.
However, the Engineer or arbitrator is entitled to take into account all
circumstances in deciding whether or not a failure has occurred. The mere fact
that the Engineer has not complied with the Contractor's notice is not enough to
give the Contractor an entitlement to time and costs.
Page 62 of 264
These sub-clauses refer only to "any further drawing or instruction". Thus, this
does not refer to all the other items contained in the definition of Drawings but
does refer to instructions which are not contained within that definition.
6.5: This sub-clause has been included to forestall an argument by a
Contractor that clause 6.4 gives the Contractor an entitlement to time and costs
as a consequence of the late issue of drawings or instructions regardless of the
cause of that late issue. The delay, the Contractor would argue, would otherwise
be caused by the "failure or inability" of the Engineer to issue the drawing and the
clause does not enquire into the reasons for that failure or inability. Faced with
such an argument, the Engineer would otherwise have to fall back on clause 44.1
(Extension of time for completion) and the requirement to grant only such
extensions as the Contractor is "fairly" entitled to. As to the costs, the Engineer
would be in more difficulty. It is in the interests of avoiding such arguments that
clause 6.5 puts the matter beyond doubt.
CLAUSE 7 : Drawings and Instructions
The Engineer may issue further drawings and instructions necessary for the
project. The Contractor is to comply with them.
Where any part of the Works is to be designed by the Contractor, he shall submit
his proposed design and back-up information for the Engineer's approval and
after the Works have been constructed, all necessary operation and maintenance
manuals, drawings etc. Substantial completion will not be achieved until such
manuals and drawings have been submitted and approved by the Engineer.
The Engineer's approval does not relieve the Contractor of his design or other
responsibilities.
Sub-clause 7.1 is taken from the 3rd Edition with amendments mainly of
vocabulary but sub-clauses 7.2 and 7.3 are entirely new and have been adopted
in principle by ICE 6th as sub-clauses 7(6) and 7(7).
7.1
This clause is, with clause 13.1 (Work to be in accordance with the
contract) and clause 51.1 (Variations), one of the most important clauses
authorising the Engineer to issue instructions.
There are some 19 clauses
overall giving the Engineer power to instruct but the remainder are specific, such
as the power to instruct in regard to ambiguities at clause 5.2 (Priority of contract
documents). The power under this clause is limited to such instructions "as shall
be necessary for the purpose of the proper and adequate execution and
completion of the Works". Thus, there is no power to order variations unless they
are necessary. Clause 51.1 (Variations) provides the power to instruct changes
that are only "appropriate". For a discussion of the Engineer's power to instruct
variations, see under clause 51.1.
Page 63 of 264
"The Contractor shall carry out and be bound by the same." This is subject to
review by the Engineer under clause 67.1 (Engineer's decision) and an arbitrator
under clause 67.3 (Arbitration).
If instructions are issued late, the provisions of clause 6.4 (Delays and cost of
delay of drawings) may apply. For discussion on whether the Engineer may issue
variation instructions after substantial completion, see the commentary under
clause 13.1 (Work to be in accordance with the contract).
The broad definition of Drawings in clause 1.1(b)(iii) should be noted as this
includes matters other than drawings and indeed other than documents.
Patterns, samples and models are included.
7.2: This is not a design and build form of contract and, indeed, FIDIC do not
publish such a form for general civil engineering, (although the "Yellow Book",
FIDIC's Conditions of Contract for Electrical and Mechanical Works assumes that
the contractor will usually accept design responsibility) . Nevertheless it is
recognised that a part of the Works may be designed by the Contractor or a
subcontractor on his behalf in which case provision must be made for the
submission of the design for the Engineer's approval.
A Contractor will be well advised to scrutinise all the contract documents carefully
to identify the exact extent of any design obligation imposed upon him. Whilst
there is a general statement in clause 8.2 (Site operations and methods of
construction) that "the Contractor shall not be responsible...for the design or
specification of Permanent Works", a note on a drawing or a paragraph in an
obscure corner of the specification could nevertheless "expressly provide" a
design obligation.
A Contractor wishing to protect the copyright or confidentiality in his drawings
must make special provision. In this connection, see clause 28.1 (Patent rights)
which places responsibility for any infringement of patent rights, design
trademarks etc upon the Contractor regardless of whether infringement occurred
by reason of the Contractor's design or that of the Engineer.
The obligation to provide operation and maintenance manuals appears to be
limited to circumstances in which the Contractor has a design responsibility. It
will often be necessary, wherever the contract includes plant and machinery, for
the Contractor to be obliged to provide the operation and maintenance manuals
for that plant and machinery regardless of who designed it. Whilst it is recognised
that the obtaining of operation and maintenance manuals and as-built drawings is
often difficult at the end of a project, the practicality of making the submission of
such manuals and drawings a condition precedent to the grant of substantial
completion is to be doubted. The Employer will be keen to take over the works
and the Contractor will be facing the possibility of liquidated damages. One
questions whether the handing over of the entire project will really depend on
these manuals and drawings. It is submitted that the powers given to the
Page 64 of 264
Engineer and the Employer during the Defects Liability Period and with regard to
the retention monies would prove sufficient to ensure that these matters are
resolved.
The Engineer is apparently given no discretion to dispense with this obligation
and indeed clause 2.1(c) (Engineer's duties and/or authority), states that the
Engineer has no authority to relieve the Contractor of any obligation. Only the
Employer could do so.
The requirement for manuals and drawings to be submitted prior to substantial
completion appears to be referrable to the whole of the Works and is not limited
to the Section or part which contains the Contractor's design. Thus, it may be
argued that there is no prohibition against the granting of taking-over certificates
in respect of Sections or parts, only against certifying in respect of the whole of
the Works. If this is correct, it is somewhat illogical but mitigates the
impracticality referred to above.
7.3
This sub-clause makes it clear that, where the design obligation is placed
upon the Contractor, responsibility will not be affected by the procedure whereby
the Engineer considers and approves such design. Whilst it is no doubt arguable
that this clause is unnecessary, it helpfully removes a source of dispute. This
theme is found throughout the contract, from clause 2.1 (Engineer's duties and
responsibilities), which prohibits the Engineer from relieving the Contractor of any
of his responsibilities, to clause 61.1 (Approval only by Defects Liability
Certificate), which attempts to say that no action of the Engineer, or indeed of the
Employer, will relieve the Contractor of any part of his full contractual burden.
See also clause 14.4 (Contractor not relieved of duties or responsibilities), clause
17 (Setting-out), clause 37.2 (Inspection and testing) and clause 54.8 (Approval
of materials not implied) for examples. The powers to order the opening up of
work and the removal of anything sub-standard contained in clause 38.2
(Uncovering and making openings) and clause 39 (Removal of improper work,
materials and plant) are very wide and a Contractor wishing to argue that the
Engineer is not entitled to exercise them will need compelling evidence. A written
instruction might suffice but, as discussed under clause 13, the Employer could
challenge its validity in the light of clause 2.1. The written sanction of the
Employer, amounting in effect to a variation of the contract, would give the
Contractor the necessary security.
The responsibility of the Contractor under the contract for design executed by
him, it is submitted, is to be limited to a duty to carry out the design with due care
and diligence. There are three relevant sub-clauses:sub-clause 7.2 which requires the subcontractor to submit "such
drawings... as shall be necessary to satisfy the Engineer as to the suitability and
adequacy of that design";
clause 8.1 (Contractor's general responsibility) which requires the
Contractor to design etc "with due care and diligence"; and
Page 65 of 264
clause 8.2 (Site operations and methods of construction) which makes the
Contractor "fully responsible" where the contract expressly provides that part of
the works are to be designed by him.
It is submitted that references in sub-clause 7.2 to "suitability and adequacy"
relate to the obligation to satisfy the Engineer and do not amount to an absolute
obligation to provide a suitable and adequate design. As to clause 8.2, the
responsibility must be read in the context of "the adequacy, stability and safety of
all Site operations and methods of construction". A normal reading of that clause
would not suggest that the responsibility was intended to go further. Accordingly,
one is left with clause 8.1 and a due care and diligence obligation. Thus, if an
element of design failed but the Contractor was able to demonstrate that he had
used due care and diligence, for example by having state-of-the-art design
techniques or specifications, he would not be liable. In this context, see
Eckersley v Binnie and Partners (1988) CILL 388 and the Court of Appeal's
judgement in relation to the Abbeystead disaster. This level of responsibility
conforms to the normal responsibility imposed on the Engineer by his terms of
engagement. It might be thought peculiar if the Contractor's design duty was
more onerous than that of the Engineer. In this context, it should be noted that
the Contractor's liability for the selection of materials, which itself might properly
be considered a design function, is an absolute one: see clause 36.1 (Quality of
materials, Plant and workmanship).
Two English cases in which the designer's liability was held to be an absolute
one, namely to ensure that the works were fit for their purpose were IBA v EMI
and BICC (1980) 14 BLR 1, a decision of the House of Lords, and Greaves v
Baynham Meikle (1975) 2 Ll R 325. For a case on the Contractor's liability for
design carried out by subcontractors, see Cable (1956) Limited v Hutcherson
Bros (1969) 43 ALJR 321. For a recent consideration, by the Supreme Court of
Queensland, of the standard of responsibility taken by a contractor, see Doug
Rea Enterprises v Hymix Australia (1988) B&CL67.
CLAUSE 8 : General Obligations of the Contractor
This clause sets out the Contractor's general obligation to carry out his duties
carefully and in accordance with the contract. The Contractor is also obliged to
provide all labour, supervision materials etc necessary to carry out and complete
the project.
The Contractor is fully responsible for site operations and methods of
construction but is not responsible for the design or specification of the
permanent works or for temporary work not designed by him. If the contract
requires the Contractor to undertake any of the design, he shall be fully
responsible for that design even if the Engineer approves it.
Page 66 of 264
The principle and much of the wording of clause 8 of the 3rd Edition has been
retained but rearrangements and additions have occurred. The reference to
design in sub-clause 8.1 is new as is the final sentence of sub-clause 8.2.
8.1: This clause adds detail to the basic obligation set out in the Contract
Agreement clause 3 whereby "the Contractor ... covenants with the Employer to
execute and complete the Works and remedy any defect therein ...".
In common with the 3rd Edition but unlike the ICE 5th or 6th, the words "with due
care and diligence" are used. It would, however, be no defence to an allegation of
breach of a contract which provides strict liability, for the Contractor to
demonstrate that he used due care and diligence, for example in the selection
and ordering of a material which proved to be defective. The purpose of the
words may be to make it clear to the Contractor that the Employer is not
concerned solely with the result but with the means whereby the Contractor
achieves that result. Under clause 41.1 (Commencement of Works) the
Contractor is obliged to proceed after the commencement of the works "with due
expedition and without delay". Thus, a Contractor is obliged not only to complete
the works on time but to work diligently throughout. Some U.K. contracts express
this as an obligation to proceed "regularly and diligently". This obligation is
reflected in clause 46 (Rate of progress) which gives the Engineer power to order
the Contractor to expedite the works.
The reference to design poses a danger to the Contractor. As the contract
includes the specification, drawings and bills of quantities, the Contractor would
be well advised to check carefully that there is no design obligation hidden away
in any of these documents. There is some comfort in clause 8.2 with its general
statement that the Contractor is not responsible for design and the requirement
for express provision of the Contractor's design obligation. For a comment on the
level of design responsibility imposed, see clause 7.3 (Responsibility unaffected
by approval).
The second sentence of clause 8.1 should be read in conjunction with clause
11.1 (Inspection of Site) and clause 12.1 (Sufficiency of Tender). Naturally, it is
impossible for a specification or the Bills of Quantities to specify every nut, bolt
and screw-driver that may be required. See, however, clause 51.1 (Variations)
item (e) "execute additional work of any kind necessary for the completion of the
Works".
CLAUSE 8.1 (Contractor's general responsibilities)
The following additional paragraph has been added:"The Contractor shall give prompt notice to the Engineer, with a copy to the
Employer, of any error, omission, fault or other defect in the design of or
Specification for the Works which he discovers when reviewing the Contract or
executing the Works."
The wording closely follows a recommendation contained in the World Bank's
Sample Bidding Documents published in December 1991.
Page 67 of 264
The first question raised by this addition is whether a Contractor will be liable for
breach of this clause if he should, and any reasonably diligent Contractor would
have discovered the error. In other words, is the test purely subjective?
It would normally be very difficult to prove that a Contractor knew of but failed to
report a design error. The Employer will therefore no doubt turn to the opening
words of the clause which require the Contractor "with due care and diligence (to)
.... execute and complete the Works". The Employer will argue that this duty of
care applies to the new obligation imposed by the additional paragraph.
It is submitted that such an argument should not succeed. As stated in the
commentary to Clause 8 in the main work, the English courts have not
established a policy in relation to an implied obligation to warn the Employer of a
defect actually found. The English courts have therefore been unwilling even to
entertain an argument that a Contractor without design responsibility should be
required by implication to perform a check of the design.
The wording of the additional paragraph supports the view that it is only design
errors actually discovered that give rise to the duty, particularly because it would
be difficult to argue that the discovery of faults is embraced within the meaning of
the "Works" which have to be executed and completed with due care and
diligence.
The second question raised by the wording is whether there is any obligation
upon a tenderer who discovers design errors during his review of the tender
documentation either to disclose the error at that stage or immediately upon
signature of the contract. The inclusion of the conditions in the tender
documents does not of itself impose obligations upon the tenderer who only
submits to those conditions and the obligations contained therein when he signs
the contract. If an Employer wishes to impose such an obligation upon a
tenderer, he must require tenderers expressly to disclose any errors found and to
include within the tender form a declaration that no such errors have been found.
It will of course be appreciated that the identification of errors is a part of the
estimator's art as it enables the tenderer to reduce his overall price in anticipation
of additional payment for the variations that are necessitated by the errors.
If the error has been discovered during the tender process, it was no doubt the
intention of the draftsman that such errors should be disclosed immediately after
the signature of the contract if not before. If this was indeed the intention, it must
be doubted whether it is reflected in the wording which is more consistent with a
discovery after the date when the contract is entered into.
Clause 1.5 (Notices, consents etc) requires that notices such as the one to be
given under this paragraph be in writing.
".... any error , omission, fault or other defect in the design ...". This wording is
wide enough to cover conceptual defects as well as errors in detailed design.
Page 68 of 264
Thus, a Contractor may be obliged to give notice if, for example, he considers
that the design of a structural element gives an inadequate factor of safety.
Equally, he could be obliged to notify if he considered that the design of the
works did not make proper allowance for the integration of a subsequent phase
of the project. The damages that could flow from breach of such a wide-ranging
obligation could be considerable and would come as a great surprise to any
Contractor from whom they were claimed.
Although it is by no means beyond dispute, it is submitted that the Contractor
must not only discover the error but also recognise it as such. It may very well
be the case that design error is a matter of opinion in which case it is submitted
that the Contractor must form the requisite opinion. This places an even greater
burden upon any Employer seeking to claim from a Contractor under this clause.
Notification under this paragraph will generally lead to a review of the element of
design in question and, where appropriate, a variation would be ordered under
clause 51.1 (Variations). However, this wording is not limited to design executed
by the Engineer but also calls upon a Contractor to notify defects in his own
design. In these cases, notification will lead to the submission of revised
drawings for approval under clause 7.2 (Permanent works designed by
Contractor).
8.2: The Contractor's responsibility for site operations and methods of
construction is reflected in clause 12.2 (Adverse physical obstructions or
conditions) where the Engineer may choose to leave the Contractor to suggest
means of overcoming the obstacles. Under clause 14.1 (Programme to be
submitted) the Engineer may require the Contractor to provide a written general
description of the arrangements and methods which the Contractor proposes to
use for the execution of the works. Clause 14.4 (Contractor not relieved of duties
or responsibilities) makes plain that showing the Engineer does not relieve the
Contractor of his responsibility for his methods. An exception to the principle of
leaving method to the Contractor is found in clause 46 (Rate of progress) which
gives the Engineer the right to withhold consent to the Contractor's proposed
acceleration measures.
The Contractor's responsibility under this clause is qualified by clause 20.4
(Employer's risks) which gives to the Employer responsibility for a number of
circumstances causing loss or damage including item (g) which makes "loss or
damage to the extent that it is due to the design of the Works" by the Engineer a
risk upon the Employer.
FIDIC does not produce a design and build form of contract. However, design by
the Contractor is referred to in four other clauses namely:clause 7.2.
clause 20.4
clause 39.1
clause 49.3
Permanent Works designed by Contractor
Employers Risks
Removal of improper work, materials or plant
Cost of remedying defects
Page 69 of 264
A Contractor concerned at the number of references to design by the Contractor
contained in the conditions will find some reassurance in the statement in this
sub-clause that he is not responsible for the design and the references to
express provision in the final sentence of this clause, clause 7.2 (Permanent
work designed by Contractor) and, in relation to nominated subcontractors,
clause 59.3 (Design requirements to be expressly stated). For a comment on the
level of design responsibility imposed, see clause 7.3 (Responsibility unaffected
by approval). A difficult question arises as to the responsibilities of a contractor
without design responsibility. In McQuade v Solchek Pty Limited (1989) B&CL
131, it was held by the Supreme Court of South Australia that there was no
implied warranty by the contractor that a steeply sloping driveway, the design and
location of which was specified by the owner, would be fit for its intended use.
However the Supreme Court of Canada in Brunswick Construction v Nowlan
(1974) 49 DLR(3d) 93 held that where the Employer had obtained a design from
a professional but had not retained the designer to supervise, the contractor was
liable where the design was found to be defective as he should have warned the
Employer of the design defects. The duty to warn principle is not settled or well
established in the English courts. One Official Referee in Edac v Moss (1984) 30
BLR 141 expressed the view that a contractor who finds a defect in the design
given to him is under an implied obligation to warn the Employer of the defect,
whilst another, in University of Glasgow v Whitfield (1988) 42 BLR 66, considered
a duty to warn would only exist if the contractor had voluntarily assumed such a
duty. See also Investors in Industry Commercial Properties v South Bedfordshire
(1986) 1 QB 1034 where the Court of Appeal held that an architect has a duty to
warn in relation to structural design defects even where an engineer had been
appointed.
CLAUSE 9 : Formal Contract Agreement
This clause provides for the preparation and signing of the formal Contract
Agreement which is to be prepared, modified as necessary and completed at the
Employer's cost.
This clause is virtually unchanged from the 3rd Edition.
The parties will have concluded a contract as soon as the offer comprised in the
Tender, which may have been adjusted during negotiations, is unequivocally
accepted by the Employer in his Letter of Acceptance. After a negotiation,
however, the existence and terms of the contract may not be beyond doubt and
the Employer is given the option of requiring the Contractor to enter into the
Agreement. In some countries, however, a formal agreement is required by law
or highly advisable politically. As pointed out by FIDIC in their Guide, the parties
should also bear in mind the need for counter-signature or ratification, the
obligation to pay stamp duty and other respects in which local law or practice
may impinge upon the signing of the Agreement.
Page 70 of 264
It should also be borne in mind that the Letter of Acceptance is used extensively
as the starting point for various periods of time under the contract. For a list of
the relevant clauses, see under clause 1.1(b)(vi). Conflict and confusion could
therefore be created if the law or practice applicable to the project dictated that a
contract would only come into existence once the Contract Agreement had been
signed if that Contract Agreement was not signed simultaneously with or very
soon after the Letter of Acceptance had been sent. In those cases, the relevant
clauses should perhaps be amended to make the periods of time run from the
signature of the Contract Agreement.
If any modification to the Agreement is required other than the completion of the
blanks, which should not be controversial, there may be scope for disputes. For
example, if the Employer adds a number of documents to the list of documents
which are to comprise the contract, this may give rise to objections.
Furthermore, under English law, an agreement imposing an obligation upon a
party to sign a document, the terms of which are not yet agreed, is
unenforceable: this is because the English courts do not consider it their role to
create agreements between the parties.
If the English courts' dislike of "an agreement to agree" did not nullify the
existence of a contract, a dispute over the necessity for proposed modifications
would fall within the scope of clause 67 (Settlement of disputes). Thus, the
necessity for such modifications could be the subject of a decision by the
Engineer and possibly by an arbitrator. The result of such procedure could be an
award specifying the necessary modifications and a direction to the Contractor to
execute the document.
If the Contractor refused to execute a modified document provided by an
Employer, and the court or arbitrator decided that the refusal was a breach of
clause 9, it is not immediately obvious what loss or damage the Employer would
have suffered as a consequence.
As the Agreement is given the highest priority under clause 5.2 (Priority of
contract documents) its terms and any modifications thereto are very important.
It is envisaged by clause 1.1(b)(i), in the definition of "Contract", that further
documents may be expressly incorporated into the Agreement. For clarity, it may
well be advantageous to list all contract documents under Article 2 but it is not
strictly necessary as such further documents that are expressly incorporated in
the Letter of Acceptance will fall within the definition of Contract. The
incorporation into the Agreement of all the contract documents could potentially
disrupt the intended order of priority of the contract documents: for a discussion
of this point, see the commentary under clause 5.2.
As "the Employer" and "the Contractor" are defined both in the Agreement and in
clause 1.1 (Definitions), the parties should ensure there is no mismatch between
the two.
The Agreement is in very similar form to the 3rd Edition and ICE 5th.
Page 71 of 264
CLAUSE 10 : Performance Security
If a bond is called for by the contract, the Contractor must supply it to the
Employer at his own cost within 28 days of his receipt of the Letter of
Acceptance, simultaneously informing the Engineer. The amount must be as
stated in the Appendix and the form and bondsman must be agreed by the
Employer.
The bond must be valid until the issue of the Defects Liability Certificate
whereupon it must be returned to the Contractor within 14 days.
Before claiming on the bond, the Employer must inform the Contractor of the
grounds for the claim.
Sub-clause 10.1 is a re-worded version of clause 10 of the 3rd Edition. Subclauses 10.2 and 10.3 are entirely new.
Part II provides two example forms of performance security and provides optional
additional wording to specify the currency or source of the security. The type of
performance guarantee suggested by FIDIC was the subject of scrutiny by the
Hong Kong Court of Appeal in Tins Industrial v Kono Insurance (1987) 42 BLR
110, who held that the bond is indeed conditional on proof of breach and
damage.
10.1 It would normally be preferable for both the form and institution providing
security to be agreed prior to the issue of a Letter of Acceptance. Otherwise, the
Contractor is given a period of 28 days in which to agree these matters and to
negotiate with the institution and provide the bond. Four weeks will often be
insufficient for this exercise. More fundamentally, if the Contractor is informed
after the contract has been entered into that the Employer requires the form of
bond to be, for example, "on-demand", agreement on the form may never be
achieved. As commented in relation to clause 9.1 (Contract Agreement), an
agreement to agree something in the future is not readily enforceable in English
courts and difficult to enforce under any circumstances. Therefore the Employer
runs the risk that if the form is not agreed in advance of the Letter of Acceptance,
he will lose his right to security altogether. It may even be arguable that, as
agreement on an important term has not been achieved, no contract exists at all.
As to the Employer's approval of the institution, clause 1.5 (Notices, consents
etc) states that such approval "shall not unreasonably be withheld or delayed".
Again, a protracted dispute could arise out of whether a refusal of approval was
unreasonable which would once again endanger the Employer's security. The
sensible course is for the Employer's requirements and indeed the Contractor's
proposed institution, to be defined as far as possible in the tender documents.
Page 72 of 264
An effective sanction is provided by clause 60.2 (Monthly payments) which
prohibits interim certification until the performance security has been duly
provided. The effectiveness of the sanction is negated, however, if the form of the
bond is still the subject of debate when the first interim payment is due. The
Engineer may have no power to certify but the Contractor may have no obligation
to perform due to the absence of a concluded contract. In English law, the
Contractor would be entitled to be paid a reasonable sum for the work done in
the absence of a contract.
The forms of security set out in Part II are a performance and a surety bond.
FIDIC do not encourage the use of on-demand bonds because of the premium
that tenderers add to their bids on account of the risk of abuse of such bonds. As
the English Court of Appeal pointed out in Edward Owen Engineering v Barclays
Bank (1977) 3 WLR 764; 6 BLR 58, a properly documented call on an ondemand bond must be honoured unless there is clear evidence of fraud. Other
forms of bond that the Employer may seek include:- tender or bid bond
- advance payment bond
- retention money bond
- maintenance bond, to ensure compliance with Defects Liability Period
obligations.
Other security provided to the Employer under the contract includes: retention,
whereby up to 10% of the value of the work is not paid for by the Employer until
the project is successfully completed; payment in arrears, whereby the Employer
pays for works at least two months after they have been executed; the ability of
the Employer to make use of the Contractor's equipment, temporary works and
materials following the termination of the Contractor's employment under clause
63.1 (Default of Contractor); the right to deduct damages for delay under clause
47.1 (Liquidated damages for delay); and the insurance provisions to be found in
clauses 21, 23 and 24.
10.2 This clause cannot of itself influence the terms of an existing bond but is
intended to be part of the form to be agreed between the Employer and the
Contractor.
In the event of a default by the Contractor such that he does not complete the
works, this sub-clause would theoretically require the performance security to
remain valid indefinitely. If a performance bond is paid, then it is defunct and,
similarly, if the surety either completes the work itself, or by another contractor or
pays the amount of the bond, the surety bond will also be defunct.
Performance security is not available to an Employer in respect of defects
emerging after the issue of the Defects Liability Certificate.
The return of the bond within 2 weeks of the issue of the Defects Liability
Certificate is particularly important in relation to on-demand bonds. It is not
unknown for institutions to consider it necessary for the sake of their reputations
Page 73 of 264
to honour on-demand bonds if they remain in the hands of an Employer
regardless of a claim by the Contractor that its validity has expired or that it is too
late under the contract to make a claim under it. The attitude may be that they
will not become party to such disputes but will treat the bond as the equivalent to
a banker's draft. Thus, it is only by securing the return of the bond to the
institution itself that a Contractor can be sure that no claim will be honoured.
10.3 Again, the real significance of this clause is in relation to on-demand
bonds. Given prior notification, the Contractor will be better placed to attempt to
remedy the default, to dissuade the Employer from proceeding or to dissuade the
institution from honouring the demand by demonstrating, for example, that the
bond was invalid or had expired or that any claim against the bond would be
fraudulent. Alternatively, the Contractor could attempt to obtain an injunction to
prevent the payment under the bond on such grounds. However, as no period is
specified or of necessity to be implied, the Employer is entitled to call the bond
immediately upon giving the notice in accordance with clause 68 (Notices).
The failure of the Employer to give the requisite notice would not normally
prevent payment under the bond. Unless the terms of the bond expressly
required the Employer to provide proof of notification, the payer would not be
concerned with the terms of this sub-clause. Such a failure would amount to a
breach of contract on the part of the Employer for which he would be liable in
damages. In the case of a typical on-demand bond, the Contractor would
probably be unable to show any loss as he would not have been able to prevent
payment unless one of the exceptional grounds referred to above existed. With
other forms of security, the bondsman or insurer would consult the Contractor in
any event before paying.
This sub-clause raises the issue of the respective rights and liabilities of the
Contractor and Employer after the Employer has successfully called an ondemand bond where either the call was unjustified or the sum thereby recovered
exceeded any loss or damage incurred by the Employer. There is no express
term dealing with the matter nor does this sub-clause address the matter directly.
Its relevance may be in the support that it gives to the argument that there is an
implied term that the Employer will only call the bond where there has been a
genuine default and will repay to the Contractor any sum received by the
Employer which exceeds the amount of his loss and damage flowing from the
default. An argument for such an implied term rests on the assumption that the
Contractor is bound by agreement with the institution to indemnify the institution
in respect of the sums paid out, as is normally the case.
The terms of clause 67 (Settlement of Disputes) are wide enough in principle to
cover a dispute over a bond and the financial consequences of a call upon it. In
the absence of such an implied term, it would be a very difficult question whether
the arbitrator would have power to make an award directing the Employer to
repay to the Contractor all or part of the sums paid out by the institution under the
bond. See on this the discussion under clause 67.3 (Arbitration).
Page 74 of 264
The use of the term "default" in this sub-clause reflects the use of that term in the
two sample bonds in Part II. In this context, the term means any material breach
of contract and it is therefore submitted that the use of the term in this clause is
not limited to the defaults listed in clause 63.1 (Default of Contractor).
CLAUSE 11 : Information regarding Contract
The Employer is to hand over to the Contractor at tender stage all information in
his possession relevant to the site. The Contractor is responsible for interpreting
the information. The Contractor will be taken to have inspected the site and
examined available information relating to the ground conditions, weather, the
necessary work and materials and the access and accommodation that he will
need. Generally, he will have considered all the risks which may affect his tender.
The Contractor will be taken to have based his tender on such information and
inspections.
Clause 11 is essentially similar to the 3rd Edition although "so far as is
practicable" is now qualified by cost and time considerations and, more
importantly, the addition of the final sentence means that the Tender is deemed to
be based both on the data and upon the Contractor's inspection and examination
whereas, under the 3rd Edition, the deeming referred only to the data.
This clause provides for the Employer to provide "data" as distinct from
interpretation. Thus an Employer may be well advised to remove the opinions
and conclusions expressed in the reports and surveys that he obtains. If an
incorrect or negligent opinion was passed to the Contractor and he relied upon it,
he could well argue under clause 12.2 (Adverse physical obstructions or
conditions) that any experienced Contractor would accept the views of the
specialist who prepared the report and that therefore the actual conditions could
not reasonably have been foreseen. The Employer should, however, err on the
side of inclusion where the line between data and opinion cannot clearly be
drawn. If an Employer is found to have withheld data, he will have been in
breach of contract and the damages would, in principle, be the difference if any
that the information would have made to the contract price. Alternatively, the
missing information could affect what an experienced Contractor could
reasonably have foreseen within clause 12.2. In this context, see the Federal
Court of Australia's decision in Phillip & Anton Homes v Commonwealth of
Australia (1988) 7 ACLR 39 in which the court held the Employer liable for the
misleading impression created by the documents about the sub-surface
conditions and discounted a general disclaimer of responsibility.
This clause clearly shows the difficulty of reconciling the commercial realities of
tendering with a desire to place risks upon the Contractor. It would make
tendering prohibitively expensive if each tenderer was obliged to conduct his own
ground investigation so the Employer carries out the survey and makes it
available to the tenderers. On the other hand, the tenderers are deemed to have
satisfied themselves as to the form and nature of the site including the subPage 75 of 264
surface conditions. Nevertheless, commercial reality is reflected in that such
inspections and examinations are limited to what is practicable in terms of cost
and time. This limit of practicability seems to qualify only the obligation for the
Contractor to satisfy himself and not the deemed obligation to inspect and
examine: this may not be material as the limitation is repeated, somewhat
ambiguously, by the words "subject as above mentioned" in the general deemed
obligation to make due allowance for all information gleaned from such
inspections and examinations.
The third deeming provision that the tender is based on the Employer's data as
well as on the Contractor's own inspection and examination could give rise to
curious results as the Contractor's inspection and examination may lead him to
conclusions quite different to those suggested by the Employer's data. For
example, if the data showed the water table to be at a sufficient depth so that it
would not interfere with the works in any way, but the Contractor's own
information was that the water table was normally much higher with the result
that either the data was incorrect or readings were taken at a moment when the
water table was unusually low, what is the effect of this provision? If there is an
item for pumping in the bills, the Contractor is quite possibly going to make a
fortune! However, he will get no recovery under clause 12.2 as the conditions
could have been "reasonably foreseen by an experienced Contractor". The
difficulty comes with his entitlement to extension of time. The answer may lie in
the difference between data and interpretation. Any conclusion drawn that the
water table was not a problem could be held to be interpretation and thus the
responsibility of the Contractor. In this way, it is possible to reconcile the tender
being based both on the data and on the Contractor's inspection and
examination. A further consequence of this deeming provision is that the
Employer will not be able to argue that the Contractor did not rely on any
incorrect information supplied under this clause by the Employer.
In the absence of an express obligation to provide the data, the common law has
considerable difficulty in deciding whether the Employer has any duty in relation
to the provision of information and, if so, the extent of that duty. In the Supreme
Court of New South Wales, the matter arose in Dillingham Construction v Downs
(1972) 2 NSWLR 49. It was held that a duty of care might exist in pre-contractual
negotiations depending on whether the Employer assumes the task of providing
full and accurate information on site conditions and whether the Contractor relied
upon the Employer providing such accurate information. It was held that there
was no general duty to provide information. The High Court of Australia also
discussed this issue in Morrison-Knudsen International v Commonwealth of
Australia (1972) 46ALJR265; 13 BLR 114.
This clause should be read with clause 12.1 (Sufficiency of tender) which also
seeks to deem matters to be included in the Contractor's tender. See the
commentary under that clause for discussion of the extent of the Contractor's
obligation to overcome difficulties and complete the works.
Page 76 of 264
In the 3rd Edition, the tender was deemed to be based only on the Employer's
data and not expressly the Contractor's inspection and examination. ICE 5th
makes the supply of information by the Employer optional; while ICE 6th,
unbelievably, deems that the Employer has made available all his information on
the site.
"(a) the form and nature thereof, including the sub-surface conditions". See
clause 12.2 (Adverse physical obstructions or conditions) which places the risk of
unforeseeable ground conditions on the Employer. As commented above and
under clause 12.2, the data provided and available to the Contractor will
influence whether the conditions found are held to be unforeseeable.
"(b) the hydrological and climatic conditions". See clause 44.1 (Extension of time
for completion) where "exceptionally adverse climatic conditions" are grounds for
an extension of time. Whilst there is an apparent mismatch in that weather may
be exceptionally adverse despite the fact that the information indicating the
probability of such weather was available to the Contractor at tender stage, this
clause may have the effect of imposing an additional requirement before an
extension of time is granted. For circumstances "fairly to entitle the Contractor to
an extension", he must presumably demonstrate that such conditions were not
allowed for nor deemed to have been allowed for in his tender and thus his
programme. See also clause 12.2 (Adverse physical obstructions or conditions)
and clause 40.1 (Suspension of work) for other references to climatic conditions
and clause 20.4 (Employer's risks) for the phrase "any operation of the forces of
nature".
"(c) the extent and nature of work and materials...". The purpose of this subclause is to forestall claims for variations under clause 51.1 (Variations) on the
grounds that the Contractor did not know that such work was necessary. This is
to be read in conjunction with clause 8.1 (Contractor's general responsibilities)
which requires that "the Contractor shall provide...all other things...required...so
far as the necessity for providing the same is specified in or is reasonably to be
inferred from the Contract" and clause 12.1 (Sufficiency of tender). See also
clauses 55 to 57 (Measurement). These clause in combination make it very
difficult to argue that if a type of work is not covered by the bill of quantities, a
variation should be granted to the Contractor.
"(d) the means of access to the Site and the accommodation he may require".
This item is to be read in conjunction with clause 42.1 (Possession of site and
access thereto) and clause 42.3 (Wayleaves and facilities).
The term
"accommodation" occurs only here: clause 42.3 was amended for the 4th Edition
and "accommodation" was replaced with "facilities". It is necessary to distinguish
between access which the contract requires the Employer to make available and
the residual obligation upon the Contractor to make his own arrangements.
Part II provides an optional additional clause for circumstances where the data
cannot be provided with the Tender documents. The clause is not strictly
necessary as the present wording "made available" covers data open for
Page 77 of 264
inspection at specified places as well as information provided with Tender
documentation.
CLAUSE 12 : Tender and Rates
This clause states that the Contractor will be taken to have satisfied himself that
his tender and the rates and prices stated in the Bill of Quantities are correct and
sufficient and that they cover everything that the Contractor has to do to
complete the contract.
If the Contractor encounters physical obstructions or conditions (other than bad
weather) which an experienced Contractor could not have foreseen, he may give
notice to the Engineer. If after consultation with the Employer and the Contractor,
the Engineer agrees, he grants an extension of time and costs including in
respect of any instruction or other action taken by the Contractor to overcome the
obstacle.
In the 4th Edition, clause 12 is divided into two sub-clauses. Sub-clause 12.1 is
very similar to the first sentence of the 3rd Edition but the words in parentheses
are additional. Sub-clause 12.2 retains the same basic structure as the second
part of clause 12 of the 3rd Edition but refers to "physical obstructions or physical
conditions" instead of "physical conditions ... or artificial obstructions".
12.1 This sub-clause, which logic and, indeed, the ICE would place in the
previous clause, has to be read in conjunction with clauses 55 to 57
(Measurement). This clause does not deem the Contractor to have satisfied
himself as to the quantities in the Bill which clause 55.1 (Quantities) states are
estimated and "not to be taken as the actual and correct quantities". This clause
provides a defence to the Employer against a claim by the Contractor for
variations and extra payment on the grounds that items of work were not covered
within the Bills of Quantities. The Employer will say that the Contractor has to
satisfy himself that the tender covers all his obligations under the contract and
that if the work the subject of the claim was reasonably to be inferred from the
drawings, specification etc the Contractor is entitled to no further payments. For
more on this area, see the commentary to clauses 55 to 57.
It may be relevant to note that the Tender is defined at clause 1.1(b)(v) as the
Contractor's offer "as accepted by the Letter of Acceptance". Thus the Tender will
often be the result of a course of negotiation and changed from the document
originally submitted.
Under clause 5.2 (Priority of contract documents), it is stated that whilst the
contract documents, of which the Tender is one, are to be taken as mutually
explanatory, "in case of ambiguities or discrepancies the same shall be explained
or adjusted by the Engineer". Thus it may be possible for an error in the tender
which amounts to a discrepancy or causes an ambiguity, to be rectified. It is not
Page 78 of 264
necessary for the ambiguity or discrepancy to be between the various contract
documents but may be limited to the Tender. Errors in carrying forward the rates
and prices in order to achieve the Contract Price should be irrelevant to the
Contractor's recovery which will be based on the remeasured quantities and the
rates only. Thus, the unscrupulous Contractor may try to increase his prospects
of succeeding in the competitive tender by introducing such errors in order to
reduce his tender price. Thus, the first task of the Employer's Quantity Surveyors
will be to check the mathematics of the Bill of Quantities.
"...except insofar as it is otherwise provided in the Contract...". Taken in isolation,
clause 11.1 (Inspection of Site) and this clause seem to suggest that the
Contractor must allow for whatever steps are necessary in order to complete the
project. This position would be in accordance with English common law which,
subject to numerous qualifications, imposes the same obligation. This contract
has a number of provisions which produce a fairer result with the benefit to the
Employer that the Contractor will not have to include large contingency sums in
his tender to cover a wide range of largely unpredictable risks:-clause 12.2 (Adverse physical obstructions or conditions) releases the
Contractor from responsibility for physical obstructions or conditions not
reasonably foreseen;
-clause 13.1 (Work to be in accordance with contract) releases the Contractor in
the event of legal or physical impossibility;
-clause 20.4 passes responsibility to the Employer for a list of "Employer's Risks"
including design and "any operation of the forces of nature";
-clauses 55 to 57 (Measurement), which make this form of contract a
remeasurement contract, give the Contractor a right to be paid for additional
quantities of work executed by reason, for example, of an unexpectedly high
degree of unsuitable material found in excavations unless the contract expressly
places responsibility on the Contractor's shoulders;
-clause 65 (Special risks) further protects the Contractor from liability in the event
of war and certain of the Employer's risks under clause 20.4;
-clause 66 (Release from performance) releases the Contractor from
performance in the event that any circumstance outside the control of both
parties renders performance impossible or unlawful; and
-clause 70 (Changes in cost and legislation) reimburses the Contractor for
additional costs arising from price fluctuations or changes in the law.
The foregoing clauses represent a distribution of risk within the contract in line
with the philosophy that it is better for the Employer to take on those risks which
cannot readily be ascertained or priced. To do otherwise means that the lowest
tenderer is likely to be the Contractor who has most severely under-estimated the
Page 79 of 264
possible problems with the project or who has taken the greatest risks. The
Employer will not be well served if his Contractor is forced out of business should
the risk eventuate. Nevertheless, an Employer on a large project which would
attract major international contractors and large performance bonds could well
decide that risks should be re-aligned in the Employer's favour.
In addition to the clauses listed above, the Engineer is empowered to order the
Contractor to "execute additional work of any kind necessary for the completion
of the Works" under clause 51.1 (Variations) item (e).
12.2 This edition departs from the 3rd Edition and ICE 5th by dispensing with
the word "artificial" to describe the obstructions which now need only to be
"physical". This plainly widens the scope beyond man-made obstructions to
anything material. The question of what is reasonably forseeable by an
experienced Contractor is a difficult question of fact which has and will continue
to occupy the attention of arbitrators worldwide.
Contractors bidding for a contract containing this clause have to decide which of
the most common risks to price for: the fewer allowed for, the lower their price
and the better their chance of winning the contract. Rock is a common example:
an everyday risk in civil engineering but slow and expensive to remove. If the
contract is silent, is the Contractor entitled to assume that no rock will be
encountered? Clause 11.1 (Inspection of site) would require the Contractor to
include in his tender for anything that practicable investigations should have
disclosed. Disputes are perhaps inevitable when the contractor to win the job
may be the contractor who has made the least allowance and thus is the most
dependant on a claim under this clause.
Notice must be given in writing in accordance with clause 1.5 (Notices, consents
etc) and must be correctly addressed in accordance with clause 68 (Notices).
Such notice must be given "forthwith", that is immediately. The only other
circumstances requiring such an instant reaction are clause 27 (Fossils) and
clause 65.5 (Increased costs arising from Special Risks). However a failure to
give such notice is not expressed to be a condition precedent to the Contractor's
recovery and the notice requirement may be contrasted with clause 52.2 (Power
of Engineer to fix rates) and with clause 44.2 (Contractor to provide notification
and detailed particulars).
The lack of procedure following the discovery of a physical obstruction or
condition may give rise to difficulties. The question as to who is to decide what
steps should be taken to overcome the obstruction or condition is not answered.
The Contractor may ask for instructions of the designer of the project who will
doubtless reply that it is not for him to dictate to the Contractor his method of
working. In view of the likely critical nature of the problem, this impasse should
perhaps have been avoided by the draftsman, despite the wide variety of
possible circumstances giving rise to a claim under this clause. It is argued in the
commentary under clause 51.1 (Variations) that, although the Engineer is given a
Page 80 of 264
broad discretion, when excercising that discretion as to whether or not to instruct,
he is subject to clause 2.6 (Engineer to act impartially), particularly when the
instruction would amount to a variation.
"...during the execution of the Works...": A Contractor who has received his Letter
of Acceptance but has not yet received his notice to commence under clause
41.1 (Commencement of works) would be well advised to avoid carrying out any
digging of trial pits or drilling of boreholes. If the unforeseen physical condition or
obstruction is discovered prior to the commencement of the execution of the
Works, the Employer may well be entitled to argue that clause 12.2 does not
apply. The Contractor would have to fall back upon clause 44.1 (Extension of
time for completion) and claim that the problem amounted to "special
circumstances". Whilst the Contractor would probably have the sympathy of the
arbitrator, his argument may well not succeed.
"...other than climatic conditions on the Site". For the other references to the
weather, see clause 11.1 (Inspection of Site), clause 40.1 (Suspension of work)
and clause 44.1 (Extension of time for completion); and see clause 20.4
(Employer's risks) for the phrase "any operation of the forces of nature". Clauses
20.4 and 44.1 are not limited to climatic conditions "on Site".
This is another example of a clause where the marginal note, "Adverse physical
obstructions..." is not reflected in the clause. The word "adverse" does not
feature in the clause and the obligation to give notice is not confined to adverse
conditions: the discovery of soil where rock was expected would technically
require notification. The Engineer may be reluctant to grant time or costs for such
good fortune but if the Contractor had to bring to site different equipment to
replace the rock-blasting arrangements he had prepared, there may nevertheless
be a claim. Clause 1.2 (Headings and marginal notes) makes it clear that
marginal notes are not to be considered when construing the contract.
In civil law countries, with systems based on the French model, administrative
contracts including public works contracts would incorporate the Theorie des
sujetions imprevues.By this doctrine, a Contractor encountering an exceptional
and unforeseen physical obstruction which had not been caused by the relevant
Administration, might be entitled to compensation under administrative law. In
such a contract, therefore, clause 12.2 may not be strictly necessary. A questionmark remains, however, as to whether compensation will be reduced or refused if
clause 11.1 (Inspection of site) is interpreted to mean that the Contractor has
agreed to take on the risk of ground conditions. For an outline of the major
administrative law provisions, see under clause 5.1 (Languages and law).
CLAUSE 12.2 (Not foreseeable physical obstructions or conditions)
In the title of this sub-clause, the word "adverse" has been replaced with "not
foreseeable". It was a peculiarity of both the 3rd and 4th Editions that the word
"adverse" appeared in the title but not in the text of the sub-clause. It is only a
peculiarity as clause 1.2 (Headings and marginal notes) makes it plain that
Page 81 of 264
headings and marginal notes shall not be taken into consideration in the
interpretation of the contract.
CLAUSE 13 : Instructions from the Engineer
The Contractor shall complete the project in strict accordance with the contract to
the satisfaction of the Engineer unless it is legally or physically impossible to do
so. The Contractor is to obey Engineer's instructions on any matter relevant to
the works but shall only take instructions from the Engineer or the Engineer's
Representative.
This clause is effectively the same as the 3rd Edition.
In relation to impossibility, this clause should be read in conjunction with clause
65 (Special risks) and clause 66 (Release from performance). Under clause 65,
the Contractor is released from performing, at the Employer's option, in the event
of war but otherwise is obliged to continue to use his best endeavours to
complete the works. If the works are damaged by one of the special risks such
as a bomb, the Contractor may be obliged to repair and replace the works at the
cost of the Employer. Thus, it is only where war or special risks render it legally
or physically impossible to carry on that the Contractor is released without the
Employer's consent. Clause 66 deals with any circumstance outside the control
of both parties "which renders it impossible or unlawful for either party to fulfil his
contractual obligations".
Legal impossibility would include an injunction or a change in the local legislation
which prevented the Contractor working at all or otherwise prevented the project
from proceeding. In this context, see clause 26.1 (Compliance with statutes,
regulations) and clause 70.2 (Subsequent legislation) which deals with local
legislation causing changes to the cost of the works.
There is a spectrum of physical impossibility: at one extreme, there is something
akin to frustration whereby circumstances beyond the control of either party
prevent further performance such as the permanent flooding of the site due to
some natural phenomenon. In the middle of the spectrum there would be projects
which are physically impossible to build: for example, ground conditions might
render the bridging of a river physically impossible so that the project would have
to be aborted in favour of a tunnel. At the other end of the spectrum, a part of the
particular design may be physically impossible to build. For example, it may be
impossible to fit the specified reinforcement within a column of the size required.
It is submitted that all these types of physical impossibility to some degree relieve
the Contractor of his underlying obligation. In the third example, he is relieved
from complying strictly with the drawings and specifications and the Engineer will
be obliged to instruct pursuant to clause 51.1 (Variations) as a variation would
"in his opinion, be necessary". Unless the element of works had been designed
by the Contractor, the variation would be valued under clause 52.1 (Valuation of
variations).
Page 82 of 264
Physical impossibility could also include circumstances where the site was too
small for the works designed or where clause 12.2 (Adverse physical
obstructions or conditions) circumstances were encountered that were so severe
as to prevent the completion of the works. It is submitted that this clause does
not cover circumstances where the completion of the works is simply more
difficult or expensive than anticipated; nor circumstances where methods or
machinery which the Contractor did not allow for in his tender are found to be
necessary. This situation is to be contrasted with the circumstances where the
relevant method or machinery is specified in the contract with the result that the
Contractor would be entitled to a variation if the relevant method or machinery
proved physically impossible. See the commentary under clause 14.1
(Programme to be submitted) in relation to specified methods of working.
If the Engineer's design is incapable of being built, for example, because
structural elements as designed would be incapable of withstanding the loads to
be imposed upon them by other elements of the works, this could amount to
physical impossibility. The Contractor would be entitled to seek and obtain
instructions from the Engineer which would amount to variations under clause
51.1 (Variations). This situation is to be contrasted with a case such as Sharpe v
San Paulo Railway (1873) 8 Ch. App. 597 where a Contractor undertook to
construct a railway for a lump sum. When it turned out that the quantities stated
in the contract were substantially underestimated, it was held that, in the absence
of fraud, the contractor had taken that risk when tendering a lump sum.
"...in strict accordance with the Contract to the satisfaction of the Engineer". In
National Coal Board v William Neill & Sons (1985) QB 300; (1984) 26 BLR 81, an
English Court considered a similar phrase, "executed in the manner set out in the
specification, if any, and to the reasonable satisfaction of the Engineer". It was
concluded that these words imposed a two-fold obligation upon the Contractor to
achieve compliance with the specification and to obtain the reasonable
satisfaction of the Engineer. Both the ICE and FIDIC have removed the "and" but,
it is submitted, the obligation remains two-fold. The two requirements contained
in this phrase are not always easy to reconcile. If the Contractor has complied
with the letter of the contract but has not satisfied the Engineer, is he in breach or
is he entitled to a variation to cover the additional work required by the Engineer?
If the Contractor has not fulfilled the letter of the contract but the Engineer
indicates that he is satisfied with a lesser standard, is the Contractor open to
criticism? It must be borne in mind that the decisions of the Engineer are open to
review by an arbitrator under clause 67.3 (Arbitration) at the instance of both
Employer and Contractor. As the Engineer is to give or withhold his satisfaction
impartially in accordance with clause 2.6 (Engineer to act impartially), it is
submitted that the Engineer is not acting as agent for the Employer in the event
that he expresses satisfaction in relation to works not strictly in accordance with
the contract. The Contractor is therefore not able to argue that the Employer
has, through his agent, waived or varied the contract. See also clause 2.1
(Engineer's duties and authority) at item (c) which states that the Engineer does
Page 83 of 264
not have authority to relieve the Contractor of any of his contractual obligations,
"except as expressly stated in the contract".
The practical working interpretation should be that the Engineer is to be taken as
the arbiter of what amounts to "strict accordance with the Contract". Compare the
role of the Engineer as arbiter under clause 5.2 (Priority of contract documents)
in relation to ambiguities and discrepancies. How ever there is little support for
such an approach in the contract. The Contractor appears to be entitled to
execute the works to the letter of the contract and dispute at arbitration if
necessary the Engineer's decision to withhold his satisfaction. Similarly, a
Contractor would be unwise to act upon an Engineer's expression of satisfaction
where the works fall short of strict compliance with the contract as the Employer
would be equally entitled to challenge the expression of satisfaction before an
arbitrator and recover from the Contractor for breach of contract. It is therefore
necessary for a Contractor wishing to be secure to obtain an instruction
amounting to a variation or an indication that the Engineer, in waiving strict
compliance, is doing so as authorised agent for the Employer despite clause
2.1(c).
Elsewhere in the contract, the Engineer's satisfaction recurs most frequently in
relation to the rectification of defects and damage and in relation to the readiness
of the works or any part of the works for a Taking-Over Certificate. See for
example, clause 17.1 (Setting out) and clause 49.2 (Completion of outstanding
work and remedying defects).
The Engineer's power to instruct is very, perhaps absurdly, broad, limited only by
the requirement that such instructions must touch or concern the works. The
provisions in the contract covering instructions are widely dispersed and this
clause should be read in conjunction with clause 2.5 (Instructions in writing),
clause 7.1 (Supplementary drawings and instructions) and clause 51.1
(Variations). For a discussion of the Engineer's power to instruct variations, see
under clause 51.1.
The question arises as to the power of the Engineer to issue instructions after
substantial completion. There is no express limitation under clauses 2.5 or 7.1 or
under this clause or clause 51.1. On the contrary, clause 7.1 refers to the
remedying of defects and clause 49.2 (Completion of outstanding work and
remedying defects) and clause 50.1 (Contractor to search) contain express
references to instructions during the Defects Liability Period. Nevertheless, it
would come as a surprise to most people involved in a civil engineering project if
the Engineer sought to issue an instruction amounting to a variation after
substantial completion. This is because the project will generally be occupied by
the Employer and in use and the Contractor will have been permitted pursuant to
clause 54.1 (Contractor's equipment, temporary works and materials; exclusive
use for the works) to demobilise all his equipment and labour save to the extent
necessary to complete outstanding works and remedy defects. Finding support
for this commonly held and common-sense view in the terms of the contract is
difficult. Perhaps the best argument is that clauses 7.1 and 51.1 refer
Page 84 of 264
respectively to instructions and variations that are "necessary". It might be
argued that once the project is substantially completed, variations could not be
necessary unless to overcome a fault not caused by the Contractor in which case
clause 49.2 applies. The problem with such an argument is that "necessary" in
clause 51.1 is entirely unqualified. If it appears during the Defects Liability Period
that some part of the design is inadequate and needs to be amended in order to
achieve the purpose of the project, it would be difficult to resist the variation on
grounds of necessity.
It is submitted that this issue needs to be resolved: this could be achieved either
by making it clear that variations may not be instructed after the issue of the
taking-over certificate or by way of a provision that instructions may not be issued
after substantial completion where the Contractor has removed from the site, with
the consent of the Engineer pursuant to clause 54.1, the equipment, temporary
works or materials which would have been necessary to carry out the variations.
Although a Contractor who had removed equipment could no doubt claim for the
cost of remobilising in order to execute such a variation, this would often mean
serious disruption to the Contractor's plans and other projects and is thus
undesirable. If the Engineer does not have power to order variations, the
Employer is still at liberty to negotiate with the Contractor for the execution of the
additional works.
Clause 2.3 (Engineer's authority to delegate) makes provision for the delegation
of powers to the Engineer's Representative and enables the Contractor to
question any communication from the Engineer's Representative and to receive
the Engineer's confirmation or otherwise. Clause 2.5 (Instructions in writing) also
governs the Engineer's own instructions, for example in requiring such
instructions to be in writing or, if oral, confirmed within the time limit specified.
Clause 2.4 (Appointment of assistants) permits assistants to issue instructions
under limited circumstances. In conformity with this clause, such instructions are
deemed to have been given by the Engineer's Representative. The reference in
the current clause to the Engineer's Representative is superfluous and after
clause 15.1 (Contractor's superintendence), no more is heard about him.
If the instructions are given late, the Contractor may have a claim under clause
6.4 (Delays and cost of delay of drawings).
CLAUSE 13.1 (Work to be in accordance with Contract)
The final sentence of this clause has been changed from :"The Contractor shall take instructions only from the Engineer or, subject to the
provisions of clause 2, from the Engineer's Representative."
to:"The Contractor shall take instructions only from the Engineer (or his delegate)."
In the main work, it was commented that the references to the Engineer's
Representative in clauses 13.1 and 15.1 (Contractor's superintendence) were
unnecessary given that the Engineer has power under clause 2.3 (Engineer's
authority to delegate) to delegate to the Engineer's Representative any of his
Page 85 of 264
duties and authorities. Those responsible for the 1992 amendments obviously
did not consider that they could simply delete the superfluous words. No doubt
they feared that he emphatic language, "shall take instructions only from the
Engineer", could be taken to override the effect of an Engineer's delegation
under clause 2.3 of his authority to issue instructions. As this sentence is the
only occasion that purports specifically to restrict an action to the Engineer
himself, the draftsman's caution is perhaps not inappropriate. Contrast clause
15.1 (Contractor's superintendence), where a simple deletion of the reference to
the Engineer's Representative was considered sufficient.
CLAUSE 14 : Work Programme
Within a set time of the Letter of Acceptance the Contractor is to submit for
approval his programme in the form required by the Engineer. He is also to
provide a written method statement as and when required by the Engineer.
If the Engineer considers that progress does not match the approved
programme, he may require the Contractor to produce a revised programme
showing how the works are to be completed on time.
Within a set time of the Letter of Acceptance, the Contractor is to submit a
detailed cash flow estimate of payments due to the Contractor and will revise the
estimate quarterly if the Engineer so requires.
The Engineer's consent to programmes, method statements or cash flow
estimates will not relieve the Contractor of any of his contractual responsibilities.
Sub-clauses 14.1, 14.2 and 14.4 are taken, with changes mainly of vocabulary,
from the 3rd Edition. Sub-clause 14.3 is entirely new.
14.1 It is a feature of this contract that the Employer and the Engineer take a
close interest in the intentions of the Contractor. Compare for example a turn-key
contract where the Employer may have no representative and is not overly
interested in how the Contractor achieves the desired result provided that on the
due date the required product is supplied. Such an approach is not always
appropriate in civil engineering where ongoing quality control is often necessary
due, at least in part, to the high proportion of the works which are covered up by
subsequent operations. This clause requires the Contractor to tell the Engineer in
what order and, if so requested, by what methods the works are to be executed.
From a practical point of view, this enables the Engineer to programme his
detailed design and the Employer will need information to plan the giving of
possession of the various parts of the site to the Contractor. The programme
supplied pursuant to this clause will define the Employer's duty to give
possession pursuant to clause 42.1 (Possession of site and access thereto).
Failure to give possession in accordance with the programme could result in the
Contractor being entitled to an extension of time and costs. In contrast, under
Page 86 of 264
clause 6.4 (Delays and cost of delay of drawings), a further notice to the
Engineer making a specific request for a particular drawing or instruction is
almost certainly required before time and costs may be obtained. See the
commentary under sub-clauses 6.3 and 6.4 as to whether a marked-up
programme could amount to sufficient notice. The degree of detail to be provided
is to be determined by the Engineer: this could be important. For the Employer a
detailed programme will define closely his duties in relation to giving possession
of the site and in relation to the provision of drawings by the Engineer. It will be
more obvious when a breach of those duties has occurred. For the Contractor, it
must be appreciated that he not is bound by his programme: he may call for
drawings under clause 6.3 (Disruption of progress) as he wishes and may
proceed with any part of the site of which he has possession. The constraint is
that the Employer's obligation to give possession is governed by the programme
(or 'reasonable proposals'). He will have no claim for late possession if he has
not signalled his change of plan with a revised programme under sub-clause 14.2
or revised proposals under clause 42.1.
If the Contractor's programme or method statement is a contractual document,
any inability to execute the works in accordance with that programme or method
could give rise to a claim by the Contractor for a variation and costs. See for
example the case of Yorkshire Water Authority v Sir Alfred McAlpine (1985) 32
BLR 5 where the contract incorporated the Contractor's proposed method of
upstream working which proved impossible: it was held that the Contractor was
entitled to a variation and payment for the change to downstream working.
Tenderers will invariably be asked for an outline programme to be submitted with
their tenders. Clause 42.1 (Possession of site and access thereto) reflects the
Employer's ability to specify the parts of the site of which the Contractor is to be
given possession and the order in which such parts are to be given to him. The
Employer would be unwise to impose such limitations unless absolutely
necessary as the order of the release of parts of the site may amount to the
Employer dictating the programme of the works which will cause the Employer to
be responsible in the event that the Contractor, through no fault of his own, is
unable to work to that programme.
If the Contractor submitted a programme with his tender, that programme may
well form part of the contract as "the Tender" is one of the documents contained
in the definition of Contract. This could give rise to the argument that the tender
programme is a contract programme with the consequences set out above. As
this is clearly not the purpose or intention behind a tender programme, the
parties, particularly the Employer, would be well advised to ensure that the
version of the tender that is accepted by the Letter of Acceptance is one which
excludes the tender programme.
In relation to methods, an Employer may well choose his Contractor on the
strength of the types of machinery and methods proposed by the individual
tenderers. Having selected a tenderer on that basis, an Employer may well wish
to ensure that the tendered methods and machines are used on site and will
therefore include the tender method statement in the contract document. Again,
Page 87 of 264
the result is that the Employer takes the risk if, through no fault of the Contractor,
the method or those machines are not capable of executing the works. It is
submitted that clause 8.2 (Site operations and methods of construction), which
seeks to place full responsibility for methods of construction on the Contractor,
does not affect this situation where the method is part of the contract.
For commentary on the effect of the submission of an optimistic programme, see
under clause 47 (Liquidated damages for delay).
Under clause 51.1 (Variations), the Engineer is entitled to order a change to "any
specified sequence or timing of construction". Thus, if the programme was part
of the contract, it would represent a specified sequence or timing and any change
to that could entitle the Contractor to a variation and payment. As to a change of
method, clause 51.1(c) deals with changes to "the character or quality or kind of
any such work". Alternatively, a change in method could be covered by an
omission and an addition of alternative work under items (b) and (e). The
Contractor is unlikely to object, provided he is paid, as the greater responsibility
taken on by the Employer for method, the less the risk remaining on him.
The ultimate sanction ensuring compliance with this clause is determination
under clause 63.1 (Default of Contractor) item (d) for a flagrant neglect to comply
with an obligation. More immediately, where the contract is silent as to
possession of the site, the Employer will not be under an obligation to give
possession under clause 42.1 (Possession of Site and access thereto) without
such a programme, or the 'reasonable proposals' referred to in that clause.
Compare the sanction provided in relation to clause 10.1 (Performance security)
by clause 60.2 (Monthly payment) whereby no interim payment may be made
until the security has been supplied.
It is a serious criticism of this clause that there is no provision addressing a
refusal of consent by the Engineer to the Contractor's programme. In view of the
importance of the programme under clause 42 (Possession of Site) and implicitly
under clause 46.1 (Rate of Progress) and generally, there should be a procedure
or timetable or, as a minimum, recognition of the possibility of consent being
refused. Clause 42.1 should refer to the programme as approved. Overmuch
reliance should not be placed on the 'honeymoon' period at the start of the
project. For a provision dealing with rejection by the Engineer, see ICE 6th clause
14(1)(c).
The time for submission of the programme is to be inserted in Part II.
14.2 This clause should be read together with clause 46.1 (Rate of progress)
whereby the Engineer may require a Contractor in culpable delay to accelerate in
order to complete on time. Under the current sub-clause, the fact that progress
does not conform to the programme could be due to any reason whether or not it
entitles the Contractor to an extension of time. If the Contractor had been
granted an extension of time, the Engineer would require a programme showing
the new completion date. If the Contractor is in culpable delay, the Engineer
Page 88 of 264
would require a programme showing what steps the Contractor would have to
take in order to complete on time. In order to oblige the Contractor to work to the
accelerated programme, notification under clause 46.1 would be necessary.
The wording of this clause would allow an Engineer to call for a revised
programme in the event that the Contractor was substantially ahead of the
approved programme. As discussed under clause 47.1 (Liquidated damages for
delay), in English law, a Contractor is not entitled to impose greater obligations
upon the Employer by way of the granting of possession of the site or upon the
design team in their production of drawings by accelerating the work, for
example, in order to obtain a bonus. Thus, an Engineer could call for a revised
programme where a Contractor was substantially ahead and threatening to make
claims under clause 6.4 (Delays and cost of delay of drawings) in order to
ascertain what would amount to a reasonable time-table for the production of
drawings.
14.3 Cash-flow estimates are normally essential to the Employer to enable him
to plan the funding of the works. The Contractor is best placed to carry out this
exercise as the programme of works is within his control. There is no obvious
sanction if the estimate is inaccurate, even if the estimate was designed to
mislead the Employer. The time for submission of the estimate is to be inserted in
Part II
14.4 This clause is consistent with clause 2.1(c) (Engineer's duties and
authority) whereby the Engineer "shall have no authority to relieve the Contractor
of any of his obligations". It is also consistent with the scheme of the contract
whereby the Employer takes no responsibility for the practicability of the
Contractor's programme and methods of work. See also clause 7.3
(Responsibility unaffected by approval), clause 17 (Setting-out) and clause 54.8
(Approval of materials not implied) for other examples. See also clause 61.1
(Approval only by Defects Liability Certificate).
CLAUSE 15 : Contractor’s Superintendence
The Contractor shall provide all necessary management and supervision
throughout the project and for as long as the Engineer may consider necessary
including a full time competent and authorised representative approved by the
Engineer. The representative will receive instructions from the Engineer and the
Engineer's Representative.
If the Engineer withdraws his approval, the
Contractor is to remove the representative from the works permanently and
replace him with a representative approved by the Engineer.
This clause, although somewhat re-arranged, is essentially the same as the 3rd
Edition.
This clause is designed to tackle the problem of ensuring that the Contractor
maintains on site good quality management right to the end of the project and
Page 89 of 264
throughout the defects liability period. Indeed, the clause may provide additional
incentive for the Contractor to achieve a speedy submission of final account
documentation. However, the Engineer's view of the superintendence necessary
could be challenged and there is little obvious sanction should the Contractor
wish to remove his most experienced management to more rewarding work than
the remedying of defects.
The withdrawal of approval of a manager during the course of the works could,
however, be very disruptive to the Contractor. The Engineer must exercise his
discretion in relation to the approval of the Contractor's authorised representative
in accordance with clause 1.5 (Notices, consents etc) and clause 2.6 (Engineer
to act impartially). Thus, approval shall not be unreasonably withheld and the
Engineer must exercise his discretion impartially. FIDIC, in their Guide, seek to
discourage delegation of the Engineer's power under this clause.
The Contractor's ability to challenge the withdrawal of the Engineer's approval is
of little practical assistance as the representative must be replaced "as soon as is
practicable". An arbitrator could in due course rule that the withdrawal of the
approval was unreasonable whereupon the Contractor may be entitled to
whatever damages he could demonstrate. It must be doubted whether the
arbitrator has power to order the reinstatement of such a representative, even if
an arbitration could be completed in time.
As clause 62.2 (Unfulfilled obligations) contemplates the existence of obligations
beyond the Defects Liability Certificate, the Engineer could seek to require the
Contractor to maintain superintendence well beyond the defects liability period if
he considered it necessary.
"... which approval may at any time be withdrawn ...". This expression does not,
it is submitted, free the Engineer from the constraints placed upon him by clause
1.5 (Notices, consents etc.) and clause 2.6 (Engineer to act impartially).
Compare the words used in clause 3.1 (Assignment of contract) where the
draftsman sought to give the Employer an unfettered right to withhold his consent
to the assignment of the contract. In contrast with assignments, it is plainly right
that the Contractor's top management on site should be left undisturbed unless
the Engineer has good reason to withdraw his approval.
There is a conflict between this clause and clause 68 (Notices) which requires all
certificates, notices or instructions to be sent to the Contractor's principal place of
business or other nominated address by post, telex, etc. Here, instructions may
be handed to the Contractor's authorised representative on site. Whilst it is
obviously sensible that day to day instructions should not be sent to the
Contractor's head office alone, this conflict should be resolved, preferably by the
requirement that copies of all instructions which are handed over on site should
be sent to the head office or nominated address. That would remove any
possibility of debate as to whether an instruction had in fact been given.
Page 90 of 264
The reference in the current clause to the Engineer's Representative is
superfluous given clause 2 (Engineer and Engineer's Representative). After this
clause, no more is heard about him.
Part II provides an optional clause requiring the Contractor's representative to be
fluent in a particular language and/or for the Contractor to provide a competent
interpreter. ICE 5th and 6th require the contractor's superintendents to be
knowledgeable in safety matters and makes the authorised representative
expressly responsible for safety on site. FIDIC's 4th Edition leaves these matters
to clause 8.2 (Site operations and methods of construction) and clause 19.1
(Safety, security and protection of the environment).
CLAUSE 15.1 (Contractor's superintendence)
The final sentence of the first paragraph in this clause read as follows:"Such authorised representative shall receive, on behalf of the Contractor,
instructions from the Engineer or subject to the provisions of clause 2, the
Engineer's representative"
The words in italics have now been deleted. In view of the broad delegation
powers given to the Engineer by clause 2.3 (Engineer's authority to delegate) the
words were unnecessary.
Contrast clause 13.1 (Work to be in accordance with the Contract), referred to
above, where it was not felt safe simply to amend these words.
CLAUSE 16 : Contractor’s Employees
The Contractor shall bring to site for the project skilled and experienced technical
assistants, competent foremen and leading hands to supervise the works and all
necessary labour for the proper execution of the project.
The Engineer shall be entitled to object to anybody he considers has misbehaved
or is incompetent or negligent or otherwise undesirable. The Contractor shall
remove any such person permanently and shall replace him as soon as possible.
This clause is essentially similar to the 3rd Edition subject to a number of
changes in the vocabulary.
This clause imposes upon the Contractor obligations and gives the Engineer
powers with a view to ensuring the quality of the works. The general obligation is
set out at clause 8.1 (Contractor's general responsibilities) where "the Contractor
shall provide all superintendence, labour...". The Engineer's power must be
exercised impartially as the removal of assistants and labour is action which
"may affect the rights and obligations" of the Contractor under clause 2.6
(Engineer to act impartially).
Page 91 of 264
The Engineer's entitlement to object is not necessarily limited to the categories of
person set out at 16.1 (a) and (b) as he can require the removal of "any person
provided by the Contractor". Thus, management, consultants and subcontractors
could fall within this clause. Clause 1.3 (Interpretation) states that the term
'person' includes firms, corporations and other organisations.
"...otherwise considered by the Engineer to be undesirable...". The duty to act
impartially is an important qualification of an otherwise extremely broad term.
From the Employer's point of view, the Contractor's claims team could be
considered undesirable as could experts brought on to site to look into, for
example, deficiencies in the Engineer's design. As "undesirable" does not cover
misbehaviour, incompetence or negligence, which are specifically referred to, the
term is presumably aimed at trouble-makers or people who disregard site safety.
As with clause 15.1 (Contractor's superintendence), Part II provides an optional
clause whereby the Contractor's superintending staff should have a reasonable
proportion of people with a working knowledge of a given language.
Alternatively, competent interpreters are to be provided.
Part II also provides a clause encouraging the Contractor to employ local staff
and labour. FIDIC, in their Guide, seek to discourage delegation of the Engineer's
power under this clause and clause 15.1.
CLAUSE 17 : Setting out
Once the Engineer has stated in writing the original points, lines and levels of
reference, the Contractor is responsible for the accurate setting-out of all parts of
the work and providing labour and equipment for the purposes of setting out.
The Contractor shall rectify any setting-out error that appears, if required to do so
by the Engineer, at his own cost unless the error is based on incorrect written
data supplied by the Engineer, in which case the Contractor will be reimbursed.
The Contractor will not be relieved of his responsibility if the Engineer checks any
setting-out. The Contractor must protect all bench-marks, site-rails, pegs etc.
This clause uses the vocabulary of the 4th Edition but the principles of the 3rd
Edition are retained.
This clause, like clause 39.1 (Removal of improper work, materials or plant),
gives the Engineer wide power to cause the Contractor to rectify errors
regardless of their significance. In practice, parties would normally agree to a
reduction in the valuation of the work if a minor defect would be
disproportionately expensive to remedy. At common law, the Employer would be
under an obligation to mitigate his loss, but the terms of this clause and clause
39 seem to negate any such duty. For discussion of the Engineer's power to
waive strict compliance with the specification, see the commentary under clause
2.1 (Engineer's duties and authority) and clause 13 (Work to be in accordance
with contract).
Page 92 of 264
This clause envisages the Engineer giving reference points and data in writing
which is obviously sensible for the avoidance of disputes. However, it is easy to
imagine site conditions in which writing would not assist and the Engineer would
be obliged to provide a physical datum point. In these circumstances, the
Contractor would be well advised to request the Engineer to confirm with
whatever description was appropriate the nature and location of the marker. In
any situation where there is a physical datum point, there is risk that it would be
moved or damaged by heavy machinery hence the obligation upon the
Contractor to protect and preserve it. As the physical datum point would be the
best evidence of the setting out error upon which the Contractor may be seeking
to rely, it is plainly in his interests to do so.
If the Engineer supplies incorrect data, and admits the error, he is given the
choice of requiring the Contractor to rectify the error, whereupon the Contractor is
entitled to be paid in accordance with clause 52 (Valuation of variations); or of
disregarding the error. However as clause 2.1(c) (Engineer's duties and authority)
makes it clear that the Engineer has "no authority to relieve the Contractor of any
of his obligations", the Contractor must obtain evidence that the Employer has
approved the Engineer's decision. As commented under clause 2.1, it is unlikely
that a written instruction is sufficient evidence.
The use by the draftsman of the expression "subject as above mentioned" here
and in clause 11.1 (Inspection of site) is an unhelpful practice as in both cases it
far from obvious what is being referred to. Here it presumably refers to "in
relation to original points, lines ... given by the Engineer...".
"The checking of any setting-out ... shall not ... relieve the Contractor of his
responsibility ...". Whilst the Contractor should not be entitled to escape his
liability for inaccurate setting out due to the fact that one of the Engineer's team
was on hand when the setting out was done, it would be equally wrong if some
crucial element of setting out, which the Contractor specifically arranged for the
Engineer to check and verify, could then be held to be inaccurate with the result
that the Contractor is obliged to rectify all work carried out at his own cost. The
Contractor could endeavour to protect himself by requesting that the Engineer
confirm in writing that the setting out is accurate and correct or alternatively he
could treat the approval of the setting out as an oral instruction and write
pursuant to clause 2.5 (Instructions in writing) confirming the instruction.
However, neither of these steps overcome the express words of the clause, it is
submitted. As a last resort, the Contractor could challenge the Engineer's
decision to require rectification as being unreasonable and contrary to clause 2.6
(Engineer to act impartially). This clause continues a theme in the contract of
maintaining the Contractor's responsibility, regardless of the actions of the
Engineer. See also clause 7.3 (Responsibility unaffected by approval), clause
14.4 (Contractor not relieved of duties or responsibilities), clause 37.2 (Inspection
and testing), and clause 54.8 (Approval of materials not implied) for other
examples. See also clause 61.1 (Approval only by Defects Liability Certificate).
Page 93 of 264
Although this clause provides for additional money, extension of time is not dealt
with. Delay caused by an error by the Engineer must be capable of an extension
of time or else time would be set at large. Clause 44.1 item (d), "any delay,
impediment or prevention by the Employer" could apply, failing which the error
could amount to "special circumstances" under item (e).
Clause 53.1 (Notice of claims) applies to claims under this sub-clause so that the
Contractor has 28 days of the event to notify the Engineer of an intention to
claim. The notice requirement of clause 52.2 (Power of Engineer to fix rates)
does not, it is submitted, apply for the reasons set out under that sub-clause.
CLAUSE 18 : Boreholes and Exploratory Excavation
The Engineer may instruct the Contractor to make boreholes or to carry out
exploratory excavation at any time during the execution of the works. Such
instructions will be dealt with under clause 51 unless an item or a provisional sum
is included in the Bill of Quantities.
This clause is not significantly different from the 3rd Edition although it caters for
the possibility that items will be included in the Bill of Quantities for boreholes or
excavation and are not just dealt with as provisional sums.
The Engineer's right to instruct boreholes or carry out exploratory excavation only
starts, it is submitted, when the Contractor chooses to start on site. Under clause
41.1 (Commencement of works) the Contractor is obliged to start "as soon as is
reasonably possible" after the notice to commence. Thus is may be that the
Contractor is entitled to refuse such an instruction during his mobilisation. As the
Engineer may well require such excavation at a very early stage, it may be
preferable to give the Engineer the right to give such instructions at any time from
the notice to commence until the end of the Defects Liability Period. See also
clause 50.1 (Contractor to search) for a right to require the Contractor to explore
the cause of defects.
If an item for boreholes or exploratory excavation is included in the Bill of
Quantities, clause 58 (Provisional sums) will apply and the work will be valued in
accordance with clause 52 (Valuation of variations). Thus the Contractor's
recovery will be the same whether an instruction is issued in accordance with
clause 51 (Variations) or clause 58.
CLAUSE 19 : Employer’s Responsibilities
Throughout the project, the Contractor is it be careful to keep the site safe and
orderly including by providing guards, fencing etc., and will take reasonable steps
to protect the environment and avoid nuisance and pollution.
Page 94 of 264
The Employer will have corresponding duties if he employs his own workmen or
other contractors.
In the 4th Edition, clause 19 has been much expanded. Clause 19 of the 3rd
Edition was entitled "Watching and Lighting" and is now contained in clause
19.1(b) with some amendments. The rest of sub-clause 19.1 and the whole of
sub-clause 19.2 are new.
19.1 The part of this clause requiring reasonable steps to protect the
environment is a new and welcome addition to the 4th Edition. The question it
raises is whether the Engineer is empowered to instruct the Contractor, for
example, to modify his machinery in order to render it more environmentally
friendly or in order to avoid damage or nuisance and, if the Engineer has such
powers, whether such instructions would entitle the Contractor to any
compensation. The Engineer is entitled to issue instructions which touch or
concern the works under clause 13.1 (Work to be in accordance with contract). It
would seem to be clear that an instruction in relation to machinery to be used on
the site would fall within the Engineer's powers, but if the instruction requires the
Contractor to remedy a breach of this clause of the contract, then there can be
no question of payment. Otherwise, the instruction would be a variation within
clause 51 (Variations)
"Site" is defined to include areas where works are to be carried out but which are
not yet in the possession of the Contractor. For comment on the definition of Site
see under clause 1.1(f)(vii) and under clause 42.1 (Possession of Site and
access thereto). Similarly, "Works" covers the entirety of the works whether
handed over or not.
Damage to persons or property of third parties is also dealt with under clause
22.1 (Damage to persons and property), whereby the Contractor indemnifies the
Employer against losses and claims resulting from such damage.
19.2 As always when an Employer insists upon using his right under clauses
such as clause 31 (Opportunities for other contractors), there is ample scope for
difficulty and a clash of duties and responsibilities in practice. The concurrent
obligations of the Employer, his other contractors and the Contractor for safety
and the maintenance of the site in an orderly state is a potential source of
difficulty. Other clauses permitting the Employer to use other contractors are
clause 39.2 (Default of Contractor in compliance) and clause 49.4 (Contractor's
failure to carry out instructions).
CLAUSE 20 : Contractor’s Responsibilities
The Contractor is fully responsible for the care of the works, from the
commencement date until the works or any section or part is taken over by the
Page 95 of 264
Employer. The Contractor will also take responsibility for any outstanding works
which he undertakes to finish during the Defects Liability Period.
The Contractor is to rectify at his own cost any damage to the works before they
are taken over unless caused by one of the Employer's risks. He will also rectify
any damage done by him during the Defects Liability Period including damage
done during a search.
If the damage is due to one of the Employer's risks, the Engineer will decide what
rectification should take place and will determine the Contractor's costs. If the
damage was only partly due to an Employer's risk, the Contractor will be paid a
proportion only.
The list of Employer's risks is set out.
Although reorganised, re-worded and clarified, this clause is not fundamentally
changed in principle from the 3rd Edition but note the significant changes to subclause 20.4, particularly items (g) and (h).
This clause contains an allocation of risk between Contractor and Employer and
clause 21 (Insurance of Works and Contractor's Equipment) contains the
obligation to insure those risks. Similarly clause 22 (Damage to persons and
property) deals with the risk and clause 23 (Third party insurance) covers the
obligation to insure.
Clauses 20 to 25 and clause 65 (Special risks) impose risk and insurance
liabilities in layers as follows:(a)
responsibility is allocated to the Contractor by clauses 20, 22 and 24,
subject to exceptions in sub-clause 20.4 (Employer's risks) and clause 65
(Special risks);
(b)
liability to insure is imposed by clauses 21, 23 and 24;
(c)
if full recovery is not achieved from insurers, liability reverts to (a) above
pursuant to clause 21.3 (Responsibility for amounts not recovered); and
(d)
if either party is in breach of its insurance obligations under the contract or
its obligations under the contracts of insurance, they become liable for any
consequential loss pursuant to clause 25.3 (Remedy on Contractor's failure to
insure) and clause 25.4 (Compliance with policy conditions).
20.1 Greater clarity would be achieved in sub-clause (b) if the reference was to
outstanding "work" rather than "Works". This would conform with the usage in
clause 48 (Taking-over certificate) and clause 49 (Defects liability). There should
be no outstanding Works as the entirety of the Works would have been taken
over by the Employer. The use of the term "Works" is a change from the 3rd
Page 96 of 264
Edition where "work" was used. It is presumed that the draftsman had in mind
the final phrase of sub-clause 49.1 whereby "the Works" are obliquely redefined.
It should be noted that it is the issue of the Taking-over certificate that is
significant for insurance purposes and not any date stated in it. The Contractor
must maintain his policies regardless of any agreement on site that substantial
completion has been achieved.
There will be an overlap of responsibility when the Contractor is returning to part
of the Works taken over by the Employer in order to complete some perhaps
minor element of outstanding works. It is submitted that the formula used in subclause 20.2 rendering the Contractor liable "for any loss or damage to Works
occasioned by him in the course of any operations ... under clauses 49 and 50"
would be more satisfactory.
Contractors should bear in mind that the duty to care for the works includes
Plant. This may mean a duty to insure machinery that is to be obtained by the
Employer, perhaps from its own factories, that may be transported by the
Employer, and that may be subject to testing off-site by technicians employed by
the Employer. Altogether, the Contractor's responsibility may extend far beyond
matters within his control, a factor to be taken into account in arranging insurance
for the project.
20.2/20.3
If the Works are damaged by, for example, an explosion of
materials stored by the Contractor, then the Contractor is obliged to rectify and
rebuild the works. If however, the explosion was due to war or insurrection or
one of the other Employer's risks, the Employer through the Engineer is given the
choice as to whether to rebuild or not. Thus, the Employer's use of the insurance
money and the Contractor's right to execute the works depends on whether an
event falls within clause 20.4 (Employer's risks) or not.
"...from any cause whatsoever...". The breadth of this phrase has the curious
result that if the damage is done by the Employer other than by his use or
occupation or if it is done by the Engineer other than by his design of the works,
the Contractor is liable for the cost of any rectification work instructed. The same
applies for damage by "other contractors" of the Employer. This allocation of risk
is not too objectionable in the context of insurance but, as clause 21.3
(Responsibility for amounts not recovered) makes clear, the Contractor would
bear these losses if for any reason the insurance did not cover them.
An innovation in the 4th Edition is the way in which clause 20.3 deals with
circumstances where the loss or damage derives from a combination of
Employer's risks and other risks.
The underlying obligation of the Contractor is to complete the works. This
obligation is subject to any applicable law of frustration or force majeure as well
as to a number of clauses such as clause 13 (Work to be in accordance with the
contract) and clause 66.1 (Payment in event of release from performance). If the
Page 97 of 264
works are damaged by the Contractor or by a cause for which he is responsible,
the Contractor's obligation to complete is unaffected. If the event of damage for
which the Employer is responsible, the Contractor's obligation and, indeed, right
to complete the works is qualified by the right of the Engineer to dictate the
extent of the rectification required. The remedial works would effectively be
treated as a variation entitling the Contractor to the valuation of his work under
clause 52. The delay consequent upon the damage would qualify either as
"delay, impediment or prevention by the Employer" under clause 44.1 (Extension
of time for completion), as (a) additional work or (e) special circumstances.
Conversely, it follows from the "full responsibility" taken by the Contractor for the
care of the works other than in relation to Employer's risks, that no extension of
time will be granted for loss or damage to the Works from risks other than
Employer's risks. Thus the Contractor will be well advised to ensure that the
relevant insurance cover includes his liability for liquidated damages, if such
cover is available.
Clause 53.1 (Notice of claims) applies to claims under this sub-clause so that the
Contractor has 28 days of the event to notify the Engineer of an intention to
claim. The notice requirement of clause 52.2 (Power of Engineer to fix rates)
does not, it is submitted, apply for the reasons set out under that sub-clause.
"...during the period for which the Contractor is responsible for the care
thereof...". The Contractor's obligation to rectify loss and damage is limited to the
period prior to the issue of the Taking-Over Certificate. It would obviously be
unsatisfactory if the Contractor was obliged to re-mobilise in order to repair
damage caused by the Employer's risks. However, "the period" is less than
precise due to clause 20.1(b) which places responsibility for care on the
Contractor during the Defects Liability Period for the work which he is completing
or remedying. The effect of clause 20.2 seems to be that if the loss or damage
happens to a part of the works for which the Contractor has a continuing
responsibility, then he is obliged to rectify it but not otherwise. In this context, it
should be borne in mind that if a defect emerges in any part of the works, the
Contractor would be obliged to re-mobilise all necessary equipment and
manpower to search for the cause of the defect under clause 50.1 (Contractor to
search) and clause 49.2 (Completion of outstanding work and remedying
defects). This re-mobilisation obligation is so even if the costs are not ultimately
payable by the Contractor because, for example, the defect is found to be a
design problem.
For discussion of the Engineer's power to waive strict compliance with the
specification, see the commentary under clause 2.1 (Engineer's duties and
authority) and clause 13.1 (Work to be in accordance with the contract).
20.4 This clause should be read in conjunction with clause 65 (Special risks),
which are defined as Employer's risks (a), (c), (d) and (e) as well as (b) provided
that the rebellion etc relates to the country in which the Works are to be
executed. Clause 65 makes it clear that the Contractor is not liable for the
consequences of special risks upon the Works or other property nor for injury or
Page 98 of 264
loss of life. However, there is a conflict between sub-clause 20.3 and clause 65.3
(Damage to Works by special risks). Under 20.3, the Contractor is obliged to
rectify the damage caused by the Employer's risks at the Employer's expense
only if required by the Engineer to do so. Similarly, clause 49.2 (Completion of
outstanding work and remedying defects) requires the Contractor to carry out
such remedial works as the Engineer instructs. Clause 65.3 on the other hand,
expressly entitles the Contractor to payment for rectifying the damage "so far as
may be required by the Engineer or as may be necessary for the completion of
the Works" (underlining added). Thus, despite the fact that four of the five
special risks may well be uninsured, the Employer is obliged to pay for such of
the Contractor's repair works as are necessary for the completion of the Works.
An exception to this is if the risk concerned is the outbreak of war which would
entitle the Employer to determine the contract under clause 65.6 (Outbreak of
war). Alternatively, either party could seek to rely upon clause 66.1 (Release from
performance) in the event that they thought the contract to be frustrated; or the
Employer could give an "economic dislocation" notice under clause 69.1 (Default
of Employer) bringing about the termination of the contract by the Contractor.
It is submitted that the conflict should be resolved in favour of the Contractor's
right and obligation to complete the works and that the Engineer's role is confined
to instructing the Contractor which portions of the damaged work he requires to
be rectified in order to achieve the completion of the works to his satisfaction. In
the 3rd Edition, the equivalent words to those in 20.3 were "if and to the extent
required by the Engineer and subject always to the provisions of clause 65
hereof ...". Such conflict only arises where the works have been damaged in
such a way or to such extent that completion would be impossible without repair.
If the damage is to a peripheral part of the works, it is right that the Employer and
Engineer should have the option to omit the work.
"(e) riot...". Insurance for riot is not readily available but the Contractor is obliged
by clause 21 (Insurance of Works) and possibly clause 23 (Third party insurance)
to cover this risk.
"(f)...due to the use or occupation by the Employer...". As the risk passes to the
Employer on the issue of a Taking-Over Certificate, which the Engineer is obliged
by clause 48.2 (Taking over of Sections or parts) to issue upon the occupation or
use by the Employer, this clause only covers limited circumstances. However,
clause 48 is far from straightforward and needs careful reading.
"(g) loss or damage to the extent that it is due to the design...". In the 3rd Edition,
loss or damage had to be "solely" due to design so that if it could be shown that,
for example, poor workmanship contributed to any extent to the loss or damage,
the risk would remain upon the Contractor. As amended, the clause will relieve
the Contractor of responsibility to the extent that the Engineer's design was
causative.
"(h) any operation of the forces of nature...". Whereas the 3rd Edition required
the forces of nature to be such that "an experienced Contractor could not
Page 99 of 264
foresee... or insure against", this edition refers to forces "against which an
experienced Contractor could not reasonably have been expected to take
precautions". Foreseeability has been shown by clause12.2 (Adverse physical
obstructions or conditions) to be a source of much dispute; and insurability is a
difficult test as cover is sometimes available but only at an exorbitant price. The
present wording may represent an improvement. For example, the Contractor's
information concerning a particular site could show that flooding occurs from time
to time for two reasons: firstly, because of a local river breaching its banks at a
particular point and, secondly, due to occasional flash floods following torrential
rain in the region. It may be that an experienced Contractor would build up and
reinforce the bank of the river but that nothing could realistically be done to avoid
the damage that a flash flood would cause. The Employer takes the risk of the
latter. Inevitably, there will be many borderline cases and it is submitted that the
present test will have much in common with the foreseeability test of the 3rd
Edition.
In civil law countries, where administrative law based on the French model
applies, this clause reflects the Theorie de l'imprevision whereby if exceptional
and unforeseen events render the Contractor's obligation excessively onerous
threatening him with exorbitant loss, then the Contractor's excessive losses may
be reduced to reasonable limits by way of compensation by the Employer. In
certain countries, notably Egypt, this doctrine has been extended to private law
contracts as well. This clause is in fact more generous than the administrative
law doctrine as it provides for the Contractor to be completely relieved of
responsibility, whereas the Theorie only provides for the reduction of the
Contractor's losses. For a brief overview of administrative law based on the
French model, see clause 5.1 (Languages and law).
CLAUSE 21 : Insurance of Works
The Contractor is to insure 115% of the full replacement value of the works to
cover reinstatement as well as professional fees, demolition etc and will also
insure the replacement value of his own equipment.
The insurance is to be in the joint names of the Contractor and the Employer and
is to cover all risks other than Employer's risks (a) - (d) from the start of work on
site until taking-over of the works. It must also cover the Contractor's operations
in the Defects Liability Period and when searching.
The Contractor and the Employer will bear losses in relation to their own risks to
the extent that their losses are not paid for by the insurer.
This clause has been fundamentally reorganised for the 4th Edition including at
sub-clause 21.4 a wholly unnecessary repetition of items (a) to (d) of clause 20.4
(Employer's Risks).
Page 100 of 264
21.1 "(a)...full replacement cost". This may not be necessary where the site is
spread out making total destruction very unlikely. In these circumstances, the
clause should be amended to require insurance to be obtained for a lesser
amount.
"(c) the Contractor's Equipment...". This equipment is not referred to in clause 20
but clause 54.2 (Employer not liable for damage) makes it clear that damage
caused other than by Employer's or Special risks is the Contractor's
responsibility.
Part II provides optional additional wording for sub-clause 21.1 if insurance
payments are to be in a certain currency or if the Employer wishes to specify a
ceiling upon the deductible limits or excess provided for by the policy.
There is as yet no recognition in FIDIC of the increased use of decennial
insurance. Decennial liability is imposed by many civil law countries and renders
architects, engineers and contractors liable for the safety and stability of
structures. Any defect threatening the safety or stability of the structure or its
fitness for its purpose appearing within 10 years would render the designers and
builders liable to the Employer without proof of fault. Insurance of this liability is
now compulsory in France following the Spinetta Law of 1978 and there are
signs, certainly in the UK, that it will become more widespread.
CLAUSE 21.1 (Insurance of Works)
Sub-clause 21.1 (Insurance of Works and Contractor's Equipment)
"The Contractor shall, without limiting his or the Employer's obligations and
responsibilities under clause 20, ensure that:(a)
The Works together with materials and Plant for incorporation therein, the
full replacement cost (the term "cost" in this context shall include profit), ..."
The additional words are needed because the definition at clause 1.1(g)(i) states
that
""cost" means all expenditure properly incurred or to be incurred, whether on or
off the Site, including overhead and other charges properly allocable thereto, but
does not include any allowance for profit."
If profit was excluded from the amount insured, the Employer could not be
confident that there would be sufficient cover in the event of the total loss of the
project. Even with an additional sum of 15% which might well be absorbed with
demolition costs and professional fees, the obligation upon a Contractor to rebuild with no profit recovery could be sufficient to drive a Contractor at least to a
consideration of abandoning the project if not into financial difficulties. It would
certainly be difficult to attract an alternative contractor to undertake the rebuilding.
Page 101 of 264
It should be recalled that the insurance of the works is in respect of all risks other
than those risks set out at clause 20.4 (Employer's risks) items (a) to (d). The
Employer may try to insure those risks himself if such insurance is available on
the market. Under clause 20.2 (Responsibility to rectify loss or damage), in the
event that there is loss or damage to the works, the Contractor is obliged, at his
own cost, to re-build. He is dependent upon the insurance to pay him to do so.
Whether the insurance policy will pay out any element of profit to the Contractor
undertaking such remedial works, [ is to be doubted].
If for any reason, the Contractor is not prepared to undertake the remedial works,
the Employer will be the claimant under the insurance policy whose claim would
comprise primarily the cost of obtaining an alternative contractor to undertaken
the re-building works. That cost would include paying the alternative Contractor
an amount in respect of profit.
Sub-clause 21.1 is not the only provision requiring amendment in relation to
profit. The main source of the difficulty is that the bar on profit is not limited in the
definition to profit recovery by the Contractor. In arriving at the global definition, it
appears that the draftsmen did not consider each and every use of the term
"cost" to see whether the definition given was actually appropriate. Too much
reliance has been placed on the opening words of clause 1.1 which gives words
and expressions certain meanings "except where the context otherwise
requires". One only has to look at clause 21.1(b) to see the term "costs" referring
to professional fees and demolition. It cannot have been the intention of the
draftsman to exclude the professionals' profit element nor that of the demolition
contractor. Nor is the exclusion of profit appropriate in the indemnity clauses
some of which are listed in the commentary to clause 60.9 in the main work. For
example, in clause 22.2 (Exceptions), a Contractor is not responsible for damage
to persons and property arising from any act or neglect of the Employer "or in
respect of any claims, proceedings, damages, costs, charges and expenses in
respect thereof". This context obviously requires the definition not to apply.
Perhaps the most striking examples of the inappropriateness of the definition of
"costs" are in clauses 39.2 (Default of Contractor in compliance) and 49.4
(Contractor's failure to carry out instructions). In both cases, failure of the
Contractor to carry out certain instructions entitles the Employer to employ and
pay another contractor to execute the works concerned. "All costs consequent
thereon or incidential thereto" are recoverable from the Contractor. Clearly it is
intended that the Employer should recover the element of profit which the
alternative Contractor has charged. Again, in clause 46.1 (Rate of progress), it is
the Employer's additional supervision costs incurred as a result of the Contractor
having to accelerate that are to be deducted from sums otherwise due to the
Contractor. Without doubt, it is not intended that the supervisor's profit should
not be recoverable.
The purpose of the definition is to resolve a recurrent problem, namely whether a
Contractor entitled to loss and expense under the Contract is entitled to claim a
loss of profit as part of that loss and expense claim. Arbitrators both in England
Page 102 of 264
and internationally have differed on this point. Has it been resolved in the 4th
Edition? It is submitted that a Contractor would find it almost impossible to argue
that a loss of profit on the turn-over
If an attempt is made to reconcile the definition of cost and the clear intention of
the draftsmen in clauses such as 39.2 (Default of Contractor in compliance) and
49.4 (Contractor's failure to carry out instructions), a distinction must be drawn
between profit in the hands of the Contractor or the Employer on the one hand
and their professionals, alternative contractors and sub-contractors on the other.
If that is the case, then those elements of the Contractor's loss and expense
claims which relate to subcontractors could probably include elements by way of
profit. This may indeed be the intention of the draftsman. If so, the definition
should be clarified.
Sub-clause 21.4 (Exclusions)
The first category of causes of loss or damage for which the Contractor has no
obligation to ensure is now :"war, hostilities (whether war be declared or not), invasion, act of foreign
enemies..."
The previous wording "(where war be declared or not)" was presumably a
typographical error. Recent events have demonstrated the importance of these
words and the extent to which hostilities can escalate without a formal
declaration of war. The words in parentheses could usefully qualify all four of the
items and not just hostilities.
21.2 There is a mis-match between the requirement in clause 21.2 for the
insurance to run from "the start of work at the site" and the date from which the
Contractor takes full responsibility for the works under clause 20.1 (Care of
Works) which is from the Commencement Date. There may be a period of
several months between the date upon which the Employer gives notice under
clause 41.1 (Commencement of Works) and the date that the Contractor actually
mobilises and commences. The Contractor's obligation is to commence "as soon
as it is reasonably possible" after the notice to commence. There may be a very
considerable procurement and mobilisation period. It may be preferable to have
the insurance run "from the Commencement Date or as soon thereafter as is
practicable". A simple obligation to insure from the Commencement Date might
not be practicable as the Contractor could receive the Engineer's notice under
clause 41.1 (Commencement of Works) at any time after the Letter of
Acceptance, within the period specified.
The Contractor would normally be present on site after taking-over for one of four
reasons:i.
in pursuance of his undertaking to finish outstanding work pursuant to
clause 48.1 (Taking-over certificate), clause 48.4 (Surfaces requiring
Page 103 of 264
reinstatement) and clause 49.2 (Completion of outstanding work and remedying
defects);
ii.
remedying defects during the Defects Liability Period under clause 49
(Defects Liability);
iii.
searching for the cause of defects pursuant to clause 50 (Contractor to
search); or
iv.
demobilising and complying with clause 33 (Clearance of site on
completion).
The insurance obligation covers (i) to (iii) but not (iv).
The benefits to the Employer of requiring the insurance to be in joint names
include a greater control over the maintenance of the insurance in relation to
clause 25 (Evidence and terms of insurances), control over the claims process
and, importantly, a right to be paid directly by the insurance company in respect
of the Employer's losses. If the insurance was in the name of the Contractor
alone, the Contractor's insurers could pursue the Employer in relation to loss and
damage for example resulting from the Engineer's design.
21.3 It is in the interests of both parties to the contract to make sure that there
is adequate insurance in place. It is little comfort to an Employer to know that a
Contractor takes responsibility for a risk if, should that risk occur, the Contractor
would be driven out of business by the cost of rectifying the consequent loss.
The priority for both parties is to ensure that in the event that the works are
damaged or destroyed, funds will be available to enable the project to be
completed. As such risks will invariably cause delay to the works, it is also of
importance that the insurance will cover on the one hand the Contractor's
prolongation costs and, on the other, the Employer's losses flowing from the
delay. Although clause 21.3 may state no more than is clear from the preceding
clauses, it serves as a reminder to the parties to ensure that the insurance cover
is adequate. As this clause is equally applicable to the insurances under clauses
23 and 24, it could usefully have been placed in clause 25 (Evidence and terms
of insurances) which applies to all the insurance provisions.
The Employer may obtain some measure of protection from the Contractor's
financial vulnerability to uninsured losses from a bond obtained under clause 10
(Performance security). However, these rarely exceed 10% of the contract value
and it will be a question for interpretation of the wording of each bond whether
the loss itself or the lack of relevant insurance cover amounts to a failure of due
performance allowing the Employer to claim on the bond.
Any lack of recovery from insurers could result from one of the following causes:(i) no obligation to insure;
(ii) breach of obligation to insure or procure insurance;
Page 104 of 264
(iii) non-disclosure or breach of term of insurance policy;
(iv) excess;
(v) loss exceeds maximum cover; or
(vi) reduced payment due to scaling-down or negotiation.
Under item (iii), breach is covered by clause 25.4 (Compliance with policy
conditions): whoever breaches the policy is liable for any non-recovery. Under
English law, non-disclosure of any information relevant to the risk to be
undertaken by the insurer is treated as rendering the policy void and as if never
effected. In some European jurisdictions, the same is true if the failure of
disclosure was in bad faith. A difficult question arises as to whether an avoided
policy should be treated as a failure to insure under clause 25.3 (Remedy on
Contractor's failure to insure) or a failure to comply under clause 25.4. In view of
the ineffectiveness of the prescribed remedy under clause 25.3 in situations
where a claim has arisen and the insurer has refused liability on the ground of
non-disclosure, the practical solution must be to treat the case as one of breach.
If the uninsured loss is the result of a breach by the Contractor of the duty to
insure, and falls within clause 20.4 (Employer's risks) items (e) to (g), the
question arises whether this sub-clause means that the Employer must bear the
loss or whether he can pursue the Contractor for the breach. It is submitted that
the Employer's remedy for the failure of the Contractor is set out in clause 25.3
(Remedy on Contractor's failure to insure) and that it is intended to be the
exclusive remedy. If it had been intended that the Employer could sue for the
breach, the draftsman would, it is submitted, have so indicated in this sub-clause
or in clause 25.4 (Compliance with policy conditions).
The 4th Edition for the first time divides the Employer's risks into those to be
insured and those which need not be insured. Employer's risks (a) to (d) cannot
normally be insured against and thus are excluded from the insurance obligations
upon the Contractor. If the Employer is able to obtain insurance for some or all of
these risks, he is free to do so.
Obligations in relation to insurance are also imposed by clause 23 (Third party
insurance), clause 24.2 (Insurance against accidents to workmen) and clause 25
(Evidence and terms of insurances).
As with clause 23.1 (Third Party Insurance) and clause 25 (Evidence and terms
of insurances), Part II provides for this clause alternative wording in the event
that the Employer decides to insure the works and the third party risks himself.
CLAUSE 22 : Indemnity
The Contractor is to indemnify the Employer in respect of the death or injury of
any person or damage to the property of any third party resulting from the
execution of the project subject to certain exceptions.
The exceptions are listed in clause 22.2.
Page 105 of 264
The Employer shall indemnify the Contractor against claims in respect of the
exceptions.
This edition is similar to the 3rd Edition although there have been changes to the
vocabulary and the exceptions are now set out in a separate sub-clause.
22.1 The drafting of this clause obscures the meaning of this clause. Why it is
necessary to have two lists of items against which the Contractor should
indemnify the Employer i.e., "losses and claims" as well as "claims, proceedings
etc" is a mystery and raises the suspicion that the exception qualifies only the
second list and not the first. This, however, cannot be right.
"...except if and so far as the Contract provides otherwise..." The principal
provision which the contract makes in relation to the indemnity is the insurance
required by clause 23.1 (Third party insurance) which is in the joint names of the
Contractor and the Employer in respect of these risks. Thus, the Employer will
recover directly from the insurer and neither the Employer nor the insurers will be
entitled to seek to recover from the Contractor in respect of sums paid out under
the insurance policy.
Clause 65 (Special risks) provides further exceptions, protecting the Contractor
from liability for items (a) to (e) of clause 20.4 (Employer's risks), provided in the
case of item (b) that the rebellion etc occurs in the country where the Works are
taking place.
"(b) loss of or damage to any property (other that the Works)". This covers
property of the Employer other than the project itself. The corresponding
insurance obligation puts the matter beyond doubt as clause 23.1 (Third party
insurance - including Employer's property) expressly covers such property.
An equivalent version of this indemnity was considered in Richardson v
Buckinghamshire County Council (1971) 1 Ll R 533; 6 BLR 58 when the Court of
Appeal considered the ICE 4th Edition clause 22(1). There the Employer had
incurred legal and other costs in successfully defending a personal injury action .
He sought to recover those costs from the Contractor who had been joined into
the action as a co-defendant. The Court of Appeal decided that the Employer's
costs did not fall within the terms of the indemnity.
22.2 Items (a), (b) and (c) could arise, for example, in the claims that might be
made by an adjoining owner who considered the value of his property to be
adversely affected by the construction activity and the presence of the completed
project close to his land or if there was a disputed boundary between his property
and the site. In particular, an injunction or other order of court could be obtained
bringing all or part of the works to a halt.
Page 106 of 264
Item (d) injury or damage caused or contributed to by the Employer or those
employed by him is the most important exception. It is submitted that the
Engineer would be the servant or agent of the Employer for these purposes with
the result that injury or damage caused by the Engineer's design would be
covered. Compare the wording of clause 44.1 (Extension of time for completion)
item (d) and the commentary thereunder.
"...other contractors not being employed by the Contractor..." could create
difficulties in relation to contractors employed by subcontractors. The intention is
clear however, even without an express reference to clause 31 (Other
contractors).
22.3 It may be worthy of note that where damage to the works results from
risks which are the Employer's responsibility, the Engineer is empowered to
ascertain the cost of rectification under clause 52 (Valuation of variations). With
risks that may be termed "off-site", the Engineer and the contractual payment
machinery have no part to play. Nevertheless, a dispute as to the contractor's
entitlement to indemnity would have to be referred to the Engineer for a decision
and to an arbitrator pursuant to clause 67 (Settlement of disputes).
CLAUSE 23. : Insurance Liabilities
The Contractor is to obtain joint insurance for death or injury to persons other
than workmen and loss or damage to property other than the Works subject to
certain exceptions.
The minimum amount of insurance is stated in the Appendix.
The insurance policy shall treat the Contractor and Employer as separate
insureds.
This clause has been changed for the 4th Edition and introduces insurance in the
joint names of the Employer and the Contractor, whereas the Contractor took out
the insurance in his sole name in the 3rd Edition.
The exceptions relevant to the requirement for third party insurance are items (a),
(b) and (c) in clause 22.2 (Exceptions) which refer to claims and damage which
arise from the mere fact of the existence and execution of the project. It must be
doubtful whether insurance is available to cover those matters. Insurance for item
(d) should be readily obtainable.
This insurance only excludes the works so that other property belonging to the
Employer is intended to be covered as the clause title of sub-clause 23.1 (Third
party insurance - including Employer's property) indicates. This insurance is to
be in joint names, but is to include a cross-liability clause. The effect of these
provisions is that the Employer and the Contractor may act individually in respect
of a claim, despite the insurance being in joint names.
Page 107 of 264
Other obligations in relation to insurance are imposed by clause 21 (Insurance of
works and Contractors Equipment). Clause 24.2 (Insurance against accident to
workmen) and clause 25 (Evidence and terms of insurances).
Part II provides alternative wording in the event that the Employer decides to take
out the insurance himself. See also Part II for clause 21 (Insurance of Works)
and clause 25 (Evidence and Terms of Insurances).
CLAUSE 24 : Accident or Injury
The Contractor is to indemnify the Employer against all damages or
compensation payable to any workman employed by the Contractor or any
subcontractor unless his death or injury results from an act or default of the
Employer.
The Contractor shall maintain insurance against accident or injury to workmen or
shall procure that subcontractors maintain insurance indemnifying the Employer
and that the subcontractors produce to the Employer on demand proof that the
insurance is current.
The rather strange wording of this clause is taken, with minor amendments, from
the 3rd Edition. As with all the insurance clauses, the requirements for the
insurance to be approved by and produced to the Employer have been removed
to clause 25 (Evidence and Terms of Insurance).
24.1 This contract cannot regulate the Employer's liability to third parties which
are likely to be governed by local laws. The ineffectiveness of the first sentence
is recognised by the second in which the Contractor agrees to indemnify the
Employer in respect of the same liability. This indemnity is qualified by clause 65
(Special risks) which protects the Contractor from liability for damage, injury or
loss of life arising from items (a) to (d) of clause 20.4 (Employer's risks), provided
that the rebellion etc. referred in in item (b) takes place in the country where the
works are taking place.
It is important to note that, despite the clause title, the terms of the clause go
beyond accidents or injuries and cover any damages or compensation payable.
Thus any payment upon the dismissal of an employee would be covered, for
example where the Engineer required the removal of a person under clause 15.1
(Contractor's superintendence) or clause 16.2 (Engineer at liberty to object).
Equally the clause title is misleading in its reference to workmen as the provision
covers all employees.
"...the Employer, his agents or servants". As in clause 22.2 (Exceptions), it is
submitted that the Engineer, and thus his design, is covered by this phrase. See
Page 108 of 264
the commentary under clause 44.1 (Extension of time for completion) item (d) on
this point.
24.2 The immediate difficulty with this clause is to ascertain exactly what "such
liability" refers to. At first sight it seems to refer only to the Employer's liability for
its acts or defaults as that is the only context in which the word "liable" is used in
clause 24.1. Whilst that interpretation would satisfy the immediate concern of the
Employer, the draftsman probably intended to oblige the Contractor to go further.
If so, two options remain: either that the insurance is to cover the Contractor's
liability; or that all accidents and injuries to workmen are to be insured.
Presumably, as the Employer is concerned to see evidence of the existence of
such insurance, it is intended that the Employer's liability for its acts and defaults
is intended to be covered as well. It is further presumed that "such liability" does
not infer an obligation to insure against liability to pay damages or compensation
to employees due to their dismissal from the site or otherwise in relation to their
contracts of employment. It must be doubted that such insurance would be
available on the market.
There is no express minimum or limit to the amount of insurance required under
this clause. Local laws could impose additional obligations in relation to the
insurance of the workforce, however.
For the subcontractors' insurance to indemnify the Employer it would normally
mean that the Employer would have to be named in the policy.
Other obligations are imposed in respect of insurance by clause 21 (Insurance of
Works and Contractor's Equipment), clause 23 (Third party insurance) and
clause 25 (Evidence and terms of insurances).
"... any persons are employed by him on the Works". If the last workmen on site
are employed by a subcontractor, the Contractor's insurance is permitted to
lapse. If the workmen are not covered by a subcontractor's insurance, this could
represent a gap in the insurance protection given to the Employer. Problems are
frequently generated by the definition of employment which may well be
governed by local law. For example, employees of the Employer will often be in
training with the Contractor in relation to the operation of the project. This training
may be full-time and the trainees may be under the control and supervision of the
Contractor: the question of who is their employer for the purposes of this clause
will not necessarily be straight-forward.
CLAUSE 25 : Terms of Insurance
The Contractor shall prove to the Employer before starting work that the required
policies of insurance have been taken out. He will also supply the policies to the
Employer within 3 months of the Commencement Date. The Engineer should be
kept informed. The Contractor's policies must be with insurers and in terms
approved by the Employer.
Page 109 of 264
The Contractor will keep the insurers informed and maintain adequate insurance
throughout, producing policies and proof of payment of premiums on demand by
the Employer.
If the Contractor fails to provide or maintain the policies, the Employer may do so
and deduct the premiums from sums due to the Contractor.
The Contractor and the Employer will indemnify each other against any breach of
the terms of any policy.
Sub-clauses 25.2 and 25.4 are new to the 4th Edition. In the 3rd Edition, the
obligation now contained in sub-clause 25.1, to obtain approved insurance and to
produce it on request, was repeated in clauses 21, 23 and 24. Sub-clause 25.3
contains the additional sanction that if the Contractor fails to provide proof of the
policies, the Employer may take out his own insurance at the Contractor's
expense.
25.1 The obligation to "provide the insurance policies to the Employer" does not
apparently mean that the Contractor is to leave the policies with the Employer as
he is required to produce them again upon demand under sub-clause 25.2.
"Such insurance policies shall be consistent with the general terms agreed prior
to the issue of the Letter of Acceptance". The intention and effect of this
sentence is obscure. There are three specific clauses detailing the nature of the
insurance policies and an overriding requirement that both the terms and the
insurers must be approved by the Employer. The insurance is
to come into effect when the Contractor starts on site which will normally be
some months after the Letter of Acceptance. Thus the reference to "general
terms agreed prior to the issue of the Letter of Acceptance" is baffling, particularly
as it is the Letter of Acceptance that signifies the existence of an agreement
between the parties. The draftsman is perhaps intending to indicate that the
terms of the policies and the identity of the insurers should be discussed and the
approval of the Engineer obtained during the negotiations leading up to the Letter
of Acceptance.
The approval of the Employer to the terms and supplier of insurance is subject to
clause 1.5 (Notices, consents etc.) and must not "unreasonably be withheld or
delayed".
25.3 The principle that the Employer should take out insurance himself in the
event that the Contractor does not do so is obviously sound as is the Employer's
right to deduct the premiums from monies otherwise due to the Contractor. The
detailed working of this clause could give rise to considerable argument however.
If a Contractor effects insurance but fails through an oversight to provide the
policy to the Employer within 3 months of the commencement date, is the
Employer entitled to take out insurance and maintain it for the entirety of the
Page 110 of 264
remainder of the contract? If so, does the Contractor's obligation to insure
lapse? What if the Contractor is able to obtain the insurance much more cheaply
than the Employer? Is the Employer under any duty to mitigate his loss?
Happily, these questions should arise only rarely in practice as contractors
generally recognise the importance of insurance.
For a comment on whether non-disclosure leading to the avoidance of a policy of
insurance is a failure to insure or a failure to comply, see under clause 21.3
(Responsibility for amounts not recovered).
25.4 This sub-clause has to be read with clause 21.3 (Responsibility for
amounts not recovered) and clause 23.1 (Third party insurance). Clause 21.3
makes it clear that the Employer and the Contractor bear any losses through
damage to the works which are not insured or not recovered from the insurers, in
accordance with the division of risks set out in clause 20 (Care of Works). If the
failure of insurance or recovery is due to a breach of condition by, for example,
the Employer when the risk was otherwise upon the Contractor, this sub-clause
will, it is submitted, overrule the effect of clause 21.3 and the Employer will bear
the loss. For a comment on whether non-disclosure leading to the avoidance of a
policy of insurance is a failure to insure or a failure to comply, see under clause
21.3 (Responsibility for amounts not recovered).
Similarly, this clause would appear to overrule the preservation of the indemnities
given under clause 22 (Damage to persons and property).
Loss caused to the Contractor by the Employer's failure to comply with conditions
of an insurance policy taken out by a subcontractor in joint names with the
Employer would be recoverable from the Employer if the policy could be said to
have been "effected pursuant to the Contract". Clause 24.2 (Insurance against
accidents to workmen) envisages the Contractor procuring the insurance by
subcontractors so that such policies could, it is submitted, be regarded as falling
within the terms of this sub-clause.
Part II to this clause, as to clause 21 (Insurance of Works) and clause 23 (Third
Party Insurance) provides alternative wording in the event that the Employer
decides to take out those insurance policies himself.
CLAUSE 26 : legislations and Regulations
The Contractor should comply with all local legislation and regulations and the
rules of all public bodies and companies affected by the works. The Contractor
will indemnify the Employer against any breaches, but the Employer will be
responsible for and will indemnify the Contractor in respect of matters such as
planning permission.
This clause represents a welcome simplification when compared with the 3rd
Edition. The final sentence is new and forms a necessary link with clause 22.2
Page 111 of 264
(Exceptions) and clause 22.3 (Indemnity by Employer) which make damage
resulting from the very existence of the project the responsibility of the Employer.
Missing from the 4th Edition is any provision whereby the Employer repays fees
properly incurred by the Contractor. There is no other mention of such fees in
the contract so that normal practice would be to include a provisional or
contingency sum or a lump sum item in the Bill of Quantities.
Difficulties can arise when part of the Engineer's design is found to conflict with a
local law. If the discrepancy is found before the work is executed, the Contractor
can seek a variation of the works. The Employer would not, it is submitted, be
entitled to deny the Contractor payment of any costs consequent upon the
variation on the grounds that the Contractor had undertaken to conform with local
regulations and therefore should not be entitled to further payment for doing so.
The Contractor has undertaken that he will conform with the local law in the
execution of the works. He is not undertaking that the works as designed so
conforms. It would, it is submitted, place intolerable burdens upon tenderers if
they had to check the design for compliance.
Another area of difficulty that frequently occurs is when delays and costs are
incurred as a result of the rules and regulations of the various utilities whose
pipes and cables pass under or are connected to the works. The design of the
works is normally the Engineer's concern, but liaison with the utility companies is
the Contractor's responsibility. In many countries, the procedure for re-routing,
for example, a telephone cable may be a long and bureaucratic process. It is
submitted that the Contractor would be obliged to show severe delay of this sort
to qualify as "special circumstances" entitling the Contractor to an extension of
time under clause 44.1 (Extension of time for completion).
A very interesting question arises when the Employer is an arm of the
government of the country in which the project is sited and the utility concerned is
also government-owned. Thus, the Contractor could be dealing with the Ministry
of Public Works as Employer and the Ministry of Telecommunications in relation
to the relocation of a cable. A Contractor will seek to argue that delays caused
by the Ministry of Telecommunications fall within the ambit of "delay, impediment
or prevention by the Employer" under clause 44.1(d). The answer lies within the
administrative law of the country in which the project takes place. If the
government can be said to be "one and indivisable" so that the two Ministries are
merely manifestations of the same legal person, the Contractor may well
succeed. In civil code countries, with legal systems based on the French model,
a contract with a ministry would normally be an administrative contract and the
doctrine of Fait du Prince could apply: this would make an act of one arm of
government a potential ground for claim under a contract with another as the
state is not regarded as comprising separate entities but as a single whole.
The boundary between the Contractor's duty of conformity with local rules and
regulations on the one hand and the Employer's responsibility for "planning,
zoning or other similar permission required" on the other hand is likely to cause
difficulty. The reference in the sentence to clause 22 (Damage to persons and
Page 112 of 264
property) and in particular the indemnity in respect of the exceptions set out in
clause 22.2 may be intended to give guidance to the scope of the words "other
similar permission".
This clause should be read with clause 70.2 (Subsequent legislation) which does
not detract in any way from the duty to comply but reimburses the Contractor in
respect of costs caused by changes in relevant laws after a certain date. It
should also be read with clause 5.1 (Language/s and law) and the commentary
thereto, clause 13 (Work to be in accordance with the contract) which requires
the Contractor to execute the works "unless it is legally...impossible" and clause
66.1 (Release from Performance).
Government Employers may wish to exempt Contractors from certain taxes and
duties in order to ensure, for example, that all the funding available is spent on
the project and not on taxes. A clause to that effect should be inserted in Part II.
CLAUSE 27 : Fossils
Items of value or interest discovered on the site belong to the Employer. The
Contractor shall take steps to preserve such articles and will tell the Engineer
immediately and follow his instructions. The Contractor will be entitled to an
extension of time and reimbursement of his costs in relation to such instructions.
The only change of principle in the 4th Edition is the power of the Engineer to
grant an extension of time for delays caused by instructions. The standard 4th
Edition wording for the Engineer's determination of extension of time and cost
has been introduced.
The purpose of this clause is to endeavour to ensure that items of interest are
handed over to the Employer. Apart from the potential value of such items, the
Contractor would have good reason to seek to hide such discoveries if the
Contractor would suffer financially as a consequence of the discovery. For this
reason, almost every standard form of contract has a fossils or antiquities clause
placing the financial risk of such discoveries on the Employer.
"...as between the Contractor and the Employer...". Local legislation may require
all finds to be handed over to the state and third parties may have claims over
the articles uncovered. The contract of course can only govern relations between
the two parties.
The Contractor's entitlement to extension of time and costs is only "by reason of
such instructions". Thus, if critical work stops whilst the Engineer is acquainted
with the discovery and whilst decisions are made, possibly by the importation of
experts, and the result is only an instruction by the Engineer to proceed because
for example, the discovery is of no value, the Contractor will apparently be
entitled to no extension of time. This may be unfortunate in that it contradicts the
purpose of the clause and the Contractor will have to make decisions as to
Page 113 of 264
whether the discovery is of value and interest and will be taking a risk if he stops
the work and informs the Engineer. This will tempt contractors to take the safe
course and say nothing. To achieve its objective, the clause should allow the
Contractor an extension of time at least whenever a genuine discovery causes
critical work to come to a halt.
This clause is the only occasion in the contract where the Contractor is required
to "acquaint" the Engineer of something, as normally a written notice of some
description is required. Written confirmation of the fact that the Engineer has
been informed would be a sensible precaution for the Contractor.
CLAUSE 28 : Patent Rights
The Contractor will indemnify the Employer from all claims for infringement of
patent rights etc. in relation to Contractor's Equipment, materials or plant except
where the infringement results from the Engineer's design or the Specification.
The Contractor is to pay all costs for obtaining materials for the Works.
In the 4th Edition, this clause has been divided into two sub-clauses and uses
somewhat different vocabulary. The phrase "or for incorporation in" in sub-clause
28.1 is new. The exception in relation to the Engineer's design or specification is
also new and has been introduced to allow for the fact that normally the
Contractor has little control over the materials and plant to be incorporated and
thus should not be liable for infringements as a consequence. Now it is only
where the Contractor or a subcontractor selects the equipment, material or plant
that the Contractor is liable for infringements.
This clause raises the queation as to who is liable to pay royalties or licence fees
other than in respect of matters dealt with in sub-clause 28.2. The phrase
"damages...and expenses...in relation thereto" appears to be broad enough to
cover payments made in order to avoid the infringement, but the exception
assumes that the infringement has already occurred. This clause could usefully
be clarified. Meanwhile, as it would perhaps impose an excessive burden upon
tenderers to require them to investigate the potential liability for royalties etc., a
provisional sum would, it is submitted, produce a sensible result, particularly as it
is the Engineer's design and he is best placed to make the necessary enquiries.
CLAUSE 29 : Interference at work site
The Contractor shall complete the project causing a minimum of interference to
the convenience of the public or the access to adjacent properties and roads.
The Contractor shall indemnify the Employer against claims arising from such
interference if the Contractor is responsible.
This clause is virtually unchanged from the 3rd Edition.
Page 114 of 264
This clause should be read in conjunction with clause 19.1 (Safety, security and
protection of the environment) whereby the Contractor is to "avoid damage or
nuisance to persons or to property of the public or others" and clause 22
(Damage to persons and property). The latter clause at 22.2(a) to (c) makes the
Employer responsible for the damage and claims which are the inevitable
consequence of the execution and existence of the project. This clause, which
could easily have been combined with clause 22, is the corollary, namely that the
Contractor is liable for the avoidable claims etc. arising from the works.
Altogether in the contract, some 13 indemnities are given or are to be given by
nominated subcontractors or insurance policies of which 7 are given to the
Employer by the Contractor and 4 to the Contractor by the Employer. This
proliferation of indemnities must be borne in mind when the parties consider
whether their liabilities in relation to the project are at an end. When the
Contractor is giving his written discharge under clause 60.7 (Discharge), he
should be aware that his right to indemnity is compromised in respect of liabilities
incurred at the date of the discharge, but not, it is submitted, in respect of future
liabilities. See also clause 60.9 (Cessation of Employer's liability) and clause
62.2 (Unfulfilled obligations) and the comments under those clauses.
CLAUSE 30 : Damage at work site
The Contractor shall take all reasonable steps to avoid damage to roads and
bridges including by the careful selection of routes and distribution of loads.
Unless the contract says otherwise, the Contractor is responsible for any
alterations to roads and bridges necessary for the transportation to site of
Contractor's Equipment or Temporary Works and shall indemnify the Employer
against any claim arising from damage.
If any damage arises due to the transportation of materials or Plant, the
Contractor shall inform the Engineer and Employer. If the local law so provides,
the haulier and not the Employer shall be liable for such damage. Otherwise, the
Employer shall pay for the damage and indemnify the Contractor except to the
extent that the Engineer considers the damage was due to lack of care by the
Contractor. The Employer may deduct the Contractor's share of the damage
from sums otherwise due to the Contractor. The Employer is to inform and
consult with the Contractor in relation to settlement negotiations.
The same principles apply to any necessary waterborne transport.
Sub-clause 30.1 and 30.4 are virtually unchanged from the 3rd Edition save as to
vocabulary. Sub-clauses 30.2 and 30.3 have however been fundamentally
altered.
Page 115 of 264
This clause should be read in conjunction of clause 19.1 (Safety, security and
protection of the environment), clause 22 (Damage to persons and property) and
clause 29.1 (Interference with traffic and adjoining properties). Damage to roads
and bridges should be insured pursuant to clause 23.1 (Third party insurance)
save to the extent that the damage "is the unavoidable result of the execution
and completion of the Work": see clause 22.2 (Exceptions). However, in respect
of Contractor's Equipment or Temporary Works, the Contractor is responsible for
damage regardless of its avoidability. The Contractor is therefore liable for such
damage as insurance will not be available in respect of the unavoidable.
In respect of damage due to the transportation of materials or plant under subclause 30.3, the Contractor is only liable if he has failed to use every reasonable
means to prevent damage.
In arriving at their prices, tenderers will be obliged to obtain information about the
bearing capacity of roads and bridges which will be used in the transportation of
materials etc. to the site. Under clause 11.1 (Inspection of Site) the Contractor
will be deemed to have inspected the surroundings of the site both as to the
"extent and nature of work and materials necessary" and "the means of access to
the site". In relation to their equipment and proposed Temporary Works, they will
be obliged to include for the cost of any necessary strengthening or
improvements and for the cost of repairs.
In relation to any strengthening of bridges etc. needed for movement of materials
and plant, the Contractor is apparently not responsible for or obliged to pay the
cost of such strengthening, but must "use every reasonable means" to prevent
damage. The interpretation of such "reasonable means" should presumably be
limited to matters of the sort particularised in clause 30.1. It is therefore
submitted that a Contractor is entitled to a variation in respect of any
strengthening etc. which is necessitated only by the transportation of materials or
Plant. It is not immediately obvious why the Contractor should not be asked to
price for all strengthening necessitated by the works with additional payment only
in the event of additional strengthening being required for the execution of some
varied or additional work. In the 3rd Edition, the Contractor was obliged to notify
the Engineer of any exceptional load which was likely to cause damage and
make proposals for the necessary strengthening. Unless the Engineer served a
counter-notice denying the necessity for strengthening or modifying the
proposals, the Contractor would be paid. If the foregoing commentary is correct
and the Contractor has no duty to strengthen roads and bridges which may be
damaged by the transport of materials or Plant and as the obligation contained in
the 3rd Edition to notify the Engineer of loads likely to cause damage has been
deleted from the 4th Edition, the Employer is left exposed to damage claims
which could have been avoided. It would normally be much cheaper temporarily
to strengthen a bridge than to repair it. This is an oversight that must surely be
rectified.
An addition to sub-clause 30.3 is the requirement that the Employer should
inform the Contractor about the negotiation of any settlement and consult with
Page 116 of 264
him if liability is to be shared. In the 3rd Edition, the Employer would simply
negotiate the settlement and the Engineer would certify the amount payable by
the Contractor. The Contractor's only defence to excessive settlements would be
the difficult task of persuading the Engineer or an arbitrator that the amount paid
out was due to poor negotiation rather than the Contractor's lack of care for the
bridges etc.
This clause proceeds almost on the assumption that the Employer is part of the
government in the Country in which the works are taking place and the Engineer
is employed by the Ministry of Public Works or equivalent. The absence of any
reference to liaising with local authorities and the assumption that a Contractor
may set about strengthening bridges and "improving any road" will often be quite
unrealistic. In this regard, this clause should be read with clause 26.1
(Compliance with statutes, regulations) as the local law will often have provision
for the movement of exceptionally heavy loads around the country.
The liability of both Employer and Contractor should be covered by the insurance
under clause 23 (Third party insurance).
CLAUSE 31 : Opportunities for other Contractors
The Contractor is to allow the Employer's workmen, other contractors and local
authority workmen working on or near the site on work not forming part of the
contract all reasonable opportunities for carrying out their work.
If the other contractors request that the Engineer makes roads available which
the Contractor is obliged to maintain or if the Contractor permits use of
Temporary Works or Contractor's Equipment or provides any other services, the
Contractor is to be paid.
This clause is effectively unchanged from the 3rd Edition but, in common with the
policy of the 4th Edition has been divided into items to make the clause more
readable.
It is submitted, however, that the words from "who may be
employed..." onward are intended to qualify (a) and (b) as well as (c) and should
therefore commence on the following line.
The presence on or adjacent to the site of other contractors can often be a
source of contention due to the obligation upon the Contractor to liaise and afford
them access, but without the powers that he has in relation to subcontractors to
programme, control and monitor their work. Although the Contractor may obtain
extra payment for the facilities provided to other contractors, there is no express
provision for extension of time for any delay that results from their work. This is in
contrast to the ICE 5th and 6th Editions which provide for an extension "if
compliance...shall involve the Contractor in delay...beyond that to be foreseen by
an experienced contractor". The Contractor under the FIDIC conditions is left with
the task of trying to demonstrate that such delays fall within one or other of the
items in clause 44.1 (Extension of time for completion). Where the delay derives
Page 117 of 264
from workmen or other contractors employed by the Employer, there should be
no difficulty in demonstrating entitlement under clause 44.1 item (d) "any delay,
impediment or prevention by the Employer". Delay by the work of duly
constituted authorities may be more difficult, particularly if it has to qualify as
"other special circumstances" under clause 44.1 item (e).
An extension of time may be available to the Contractor under clause 42.2
(Failure to give possession) if the work of the other contractors on site or relating
to the access to the site amounts to the retaking by the Employer of possession
of that part of the site. Although clause 42.2 addresses only the "failure on the
part of the Employer to give possession", it is submitted that by necessary
implication, it also covers delays caused by the Employer subsequently depriving
the Contractor of such possession. Compare the Canadian Federal Court of
Appeal decision of Queen v Walter Cabott Construction (1975) 69 DLR(3d) 542
where an Employer was held to be in breach of his obligation to provide an
unimpeded site when work on an adjoining phase of the site hampered the
contractor in the execution of his work.
Clause 53.1 (Notice of claims) applies to claims under this sub-clause so that the
Contractor has 28 days of the event to notify the Engineer of an intention to
claim. The notice requirement of clause 52.2 (Power of Engineer to fix rates)
does not, it is submitted, apply for the reasons set out under that sub-clause.
This clause should be read in conjunction with clause 19.1 (Safety, security and
protection of the environment) whereby the Contractor is to "have full regard for
the safety of all persons entitled to be upon the site" and clause 19.2 (Employer's
responsibilities) whereby the Employer takes on responsibilities in relation to site
safety where he employs workmen or other contractors on site. The Contractor
retains the safety responsibility in relation to the workmen of duly constituted
authorities.
The use of the term "written request" in sub-clause 31.2 and not "instruction"
suggests that the Contractor has some right to decline the request, regardless of
its reasonableness. However, on this occasion and the three other occasions in
the contract when the Engineer makes a request, the Contractor is obliged by the
word "shall" to comply with that request. Here, the relevant "shall" is in subclause 31.1. The other clauses are clause 6.1 (Custody and supply of drawings
and documents), clause 14.2 (Revised programme) and clause 37.4 (Rejection).
In these three clauses, it seems that "request" is intended to be interchangeable
with "instruction". An instruction to provide facilities in relation to other
contractors working off site could be challenged on the grounds that the
instruction was not on a matter "touching or concerning the Works" within clause
13.1 (Work to be in accordance with contract). Clause 2.5 (Instructions in
writing) does not cover requests or "requirements" in sub-clause 31.1: only the
requests are expressly to be written. This is no doubt because it is the requests
that may entitle the Contractor to recover costs.
Page 118 of 264
Provision is made for the employment of other contractors in case of default by
the Contractor in the following clauses:- clause 39.2 (Default of Contractor in compliance)
- clause 49.4 (Contractors failure to carry out instructions)
- clause 63.1 (Default of Contractor)
- clause 64.1 (Urgent remedial work)
These contractors seem to fall within sub-clause 31.1 item (a) which yields the
curious result that the Contractor, having defaulted on an obligation under the
contract thereby causing the employment of another contractor, may be entitled
to payment for "allowing" the new contractor onto site.
Part II urges the Employer to include in the tender document details of any
anticipated works to be done by other contractors. The degree of notice given to
the Contractor at the outset, or indeed after the works have commenced, and
thus his ability to programme or allow for the other works, may well influence the
Contractor's entitlement to extension of time.
CLAUSE 32 : Keep site Clear of Obstructions
This clause, which is virtually unchanged from the 3rd Edition, requires the
contractor to keep the site clear of obstructions, rubbish and surplus equipment
and materials.
"Obstruction" is to be distinguished from the "physical obstructions" referred to in
clause 12.2 (Adverse physical obstructions or conditions) and is no doubt
intended to refer to obstructions of the sort that the Contractor is to store or
dispose of.
This clause is to be read in conjunction with clause 54.1 (Contractor's Equipment
etc.) which prohibits a Contractor from removing any Contractor's Equipment or
materials from site without the consent of the Engineer.
This clause should also be read in conjunction with clause 33 (Clearance of site
on completion) which addresses the position after the taking-over of the Works.
CLAUSE 33 : Clearance of Site on Completion
The Contractor shall remove from any part of the site taken over all Contractor's
Equipment, surplus material, rubbish and temporary works which are not
required during the Defects Liability Period. The part of the site taken over must
be left clean and in a workmanlike condition to the Engineer's satisfaction.
This clause, which has been substantially revised for this edition, is to be read in
conjunction with clause 32.1 (Contractor to keep site clear) which imposes
Page 119 of 264
obligations upon the Contractor to dispose of surplus equipment and materials
during the course of the works; and in contrast with clause 54.1 (Contractor's
Equipment etc.) which prohibits the removal of Contractor's Equipment and
materials without the consent of the Engineer. Reading this clause and clause
54.1 together, it may be that the consent of the Engineer is only required for such
removals during the course of the works and not when the works have been
handed over. Other provisions relevant to the removal of equipment etc. are to
be found in clause 63.1 (Default of Contractor) which entitles the Employer to use
the Contractors Equipment etc. after termination by the Employer and clause
69.2 (Removal of Contractor's Equipment) in the case of termination by the
Contractor.
The proviso allowing the Contractor to retain on site materials, equipment etc.
that are necessary during the Defects Liability Period is new to the 4th Edition. It
is necessary because the obligation is tied in the 4th Edition to the taking-over
certificate whereas it is "the completion of the Works", almost certainly meaning
the end of the maintenance period, that is the key in the 3rd Edition. It is an
obvious improvement that the obligation to clear the site as far as practicable
should start upon taking-over.
CLAUSE 34 : Engagement of Staff and Labour
This clause imposes the basic obligation upon the Contractor to obtain and
provide for his own staff and labour.
The clause is the equivalent to clause 34(1) of the 3rd Edition: sub-clauses 34(2)
to (9) have been relegated to Part II, which provides a menu of some 15 optional
clauses dealing with everything from wage rates to burying the dead. It may be
that a degree of coordination between the additions to this clause and those to
clause 54 (Contactor's Equipment, Temporary Works and materials) would be
appropriate.
This clause is to be read in conjunction with clause 16.1 (Contractor's
employees) which refers to the provision by the Contractor of "such skilled, semiskilled and unskilled labour as is necessary", and clause 16.2 (Engineer at liberty
to object), which entitles the Engineer to ban any person from the site. Insurance
obligations in relation to staff and labour are imposed by clause 24.2 (Insurance
against accidents to workmen).
CLAUSE 35 : Returns of Labour and Equipment
This clause, which is taken with minor amendments from the 3rd Edition requires
the Contractor to maintain a record in a prescribed form of his labour and
equipment.
Page 120 of 264
This is the first of a number of clauses requiring the Contractor to maintain
records. The others are:-
clause 44.3 (Interim determination of extension): interim particulars of
delays having continuing effect;
-
clause 52.4 (Daywork): lists of workmen and receipts and vouchers
proving payment;
-
clause 53.2 (Temporary records): in support of claims;
-
clause 58.3 (Vouchers): all documentation showing expenditure in
relation to provisional sums;
-
clause 59.5 (Certification of payment to nominated Subcontractors);
-
clause 60.1 (Monthly statement): showing monthly valuation; and
-
clause 60.6 (Final statement): to include supporting documents.
Apart from the Engineer's general involvement in and control over the
Contractor's operations, the relevance of this information is primarily in relation to
fluctuations in the event that clause 70.1 (Increase or decrease of costs) is
operating. This clause also provides a method of policing the prohibition in
clause 54.1 (Contractor's Equipment) which prevents the Contractor from
removing equipment from the site without the consent of the Engineer.
Part II provides optional additional clauses for record-keeping in relation to health
and safety and the reporting of accidents.
CLAUSE 36 : Facilities for Testing
All materials, plant and workmanship must be strictly in accordance with the
contract and any Engineer's instructions and tested as the Engineer may require
in accordance with the contract. The Contractor will provide all facilities for
testing and shall supply samples for materials for testing as required by the
Engineer.
The Contractor will supply samples at his own cost if such supply is envisaged by
the contract.
The Contractor will bear the cost of all tests envisaged by the contract and, in the
case of load tests and tests on executed work, where such tests are described in
sufficient detail to allow a price in the tender.
The Contractor will bear the cost of all other tests if the work or materials fail to
satisfy the Engineer.
Page 121 of 264
Otherwise, the Engineer will award the Contractor an extension of time and
costs.
This clause is virtually unchanged from the 3rd Edition save that sub-clause 36.5
has been added to provide machinery for the payment of the Contractor's costs
of the extra tests and also to provide expressly for extension of time. Previously,
the Contractor would have been obliged to demonstrate that the extra tests were
"extra or additional work" within clause 44.1 (Extension of time for completion).
The broad scheme of the contract is that the Contractor will be paid for any tests
for which he has allowed or should have allowed in his contract price but the cost
of any other tests will be allocated according to the result of the test. This "loser
pays" formula is to be found in clause 38.2 (Uncovering and making openings),
clause 49.3 (Cost of remedying defects) and clause 50.1 (Contractor to search).
This arrangement is bound to raise the suspicion that materials etc. will be ruled
as having failed their tests in circumstances where another result would mean
additional cost to the Employer and the inference of a mistake by the member of
the Engineer's team who ordered the test. This suspicion will be particularly
reinforced where the Engineer susbequently agrees to accept the materials
tested despite such failure. For a comment comparing the treatment of the above
clauses, see under sub-clause 36.5 below.
36.1 "(a)... described in the Contract and in accordance with the Engineer's
instructions". If the Engineer's instructions are inconsistent with the contract,
then, to the extent that they impose a higher standard than that specified, the
Contractor should be entitled to a variation under clause 51.1 (Variations). If the
instruction suggests a lower standard than that prescribed, a problem arises in
relation to clause 2.1 (Engineer's duties and authority) item (c) which states that
the Engineer "shall have no authority to relieve the Contractor of any of his
obligations under the Contract". The Contractor will be in the difficulty that clause
7.1 (Supplementary drawings and instructions) and clause 13 (Work to be in
accordance with the contract) both insist that the Contractor strictly obeys the
Engineer's instructions. The answer may be that the Engineer's authority to
instruct a change in the quality of work is expressed in clause 51.1(c) so that this
would override the limitation within clause 2.1. Thus, clause 36.1(a) may be
reconciled as the description in the contract would effectively be altered by the
instructions.
In English law, there will be implied into a construction contract a strict duty to
supply good and proper materials, irrespective of fault on the Contractor's part:
see for example Young & Marten v McManus Childs (1969) 1 AC 454.
36.2 The obligation to supply samples is limited to materials:
workmanship are tested in other ways.
Page 122 of 264
plant and
36.3 "(a) clearly intended by or provided for in the Contract". This phrase,
which occurs in clauses 36.2 and 36.3 and nowhere else in the contract, could
give rise to some difficulty. As "provided for" deals with express requirements for
tests or samples, "clearly intended by" appears to deal with implicit tests or
samples. In clause 36.1, there is a clear requirement for samples of materials to
be supplied as selected and required by the Engineer. Presumably this is not a
clear intention or provision or else clause 36.2 would make reference to clause
36.1. It appears that the draftsman has tried to relieve the Employer and
Engineer of setting out a requirement for every single sample and test and has
left it to be implied where such samples and tests will be needed. It seems
inevitable that this short-cut will create arguments.
Similarly, clause 36.3(b) seems designed to raise the issue whether the
description of a test was sufficiently detailed to enable a Contractor to allow for it
in his tender. It may well not be obvious from the tender itself whether a
particular test was allowed for and thus an unscrupulous Contractor or Employer
would be free to debate the sufficiency of detail.
Materials etc. are to be subjected to testing "from time to time". This raises the
question whether such tests may occur after the taking-over of the part of the
works concerned. The testing and inspection in clause 37.2 (Inspection and
testing) only takes place "during manufacture, fabrication or preparation" of
materials etc. Under clause 50.1 (Contractor to search), it is only when a defect
has appeared in the works that a search may be undertaken during the defects
liability period. Under clause 38.2 (Uncovering and making openings), the words
"from time to time" recur and raise the same question. It is submitted that, once
the works are taken over, the Engineer's powers under this clause are at an end
save in respect of any outstanding work completed during the defects liability
period pursuant to clause 49.2 (Completion of outstanding work and remedying
defects).
Although the word "measuring" features in the list of items in respect of which the
Contractor is to provide assistance, labour etc. it is submitted that this is not an
intentional reference to the measurement referred to in clause 56.1 (Works to be
measured) whereby the Contractor is to provide only "a qualified representative"
and certain particulars.
36.4 "In accordance with the provisions of the Contract to the satisfaction of the
Engineer". See the commentary under clause 13.1 (Work to be in accordance
with contract) in relation to a very similar phrase. For other provisions permitting
the Engineer to test work, see clause 38.2 (Uncovering and making openings)
and, where a defect has emerged, clause 50 (Contractor to search).
36.5 As commented above, there are four "loser pays" provisions where the
Contractor is paid for work only if no fault is found for which he is responsible.
There is a strange inconsistency between these clauses. Under this clause, the
Contractor receives time and his costs; under clause 38.2 (Uncovering and
making openings) and clause 50 (Contractor to search), he receives costs only;
Page 123 of 264
and under clause 49.3 (Cost of remedying defects), he receives a valuation
under clause 52 (Valuation of variations). Although the Contractor is probably
able to claim an extension for work executed pursuant to clauses 38.2 and 50,
where appropriate, under clause 44.1 (Extension of time for completion) item (a)
"the amount or nature of extra or additional work", the contract should make the
matter clear. An Employer could well argue, albeit wrongly, that the comparison
shows that the intention was to give time only for extra tests. There is a
difference between the valuation for remedials under clause 49.3 and "costs"
under the other clauses. The definition of "cost" at clause 1.1(g)(i) makes it clear
that profit is excluded. A valuation has no such exclusion.There is no discernable
policy distinguishing these clauses and the answer may be that there is none.
CLAUSE 37 : Inspection and Testing
The Engineer is to have access to the site and off-site factories etc.
Contractor is to help to obtain such access.
The
The Engineer may inspect and test materials and Plant and the Contractor shall
obtain permission for such inspections and testing where it is to take place offsite. Inspection and testing will not relieve the Contractor of his responsibilities.
The Contractor and the Engineer are to agree times and places for inspection
and testing and the Engineer should give at least one day's notice of his intention
to inspect or test. If the Engineer does not attend, the Contractor may carry out
the test and forward the results to the Engineer who must accept them as
accurate. If the test is a failure, or is not ready at the agreed time and place, the
Engineer may issue a rejection, stating his reasons and the Contractor must
remedy the failure. If the Engineer requires a repeat test, the Contractor must
pay any costs incurred by the Employer.
Inspection and testing may be delegated to independent inspectors acting as
assistants under clause 2.4, provided 14 days' notice is given to the Contractor.
This clause has been very considerably extended: the 3rd Edition comprised
only sub-clause 37.1; sub-clauses 37.2 to 37.5 are entirely new. They expand
and clarify the powers in clause 36.1 (Quality of materials, plant and
workmanship) and clause 39.1 (Removal of improper work, materials or plant).
The principal effect is to give the Engineer an express power to reject materials
prior to their arrival on site. Whilst in practice an Engineer who indicated that he
would instruct the removal of materials which he had inspected or tested off-site,
would not normally be ignored, these express powers reinforce the Engineer's
role as quality controller. In addition, provision is now made for the Employer to
recover the costs of repeated tests which may well provide an incentive to
Contractors and their suppliers to ensure a satisfactory result on the first
occasion.
Page 124 of 264
37.1 "Persons authorised" could include the Engineer's Representative under
clause 2.2 (Engineer's Representative), one of his assistants under clause 2.4
(Appointment of assistants), an independent inspector under sub-clause 37.5 or,
presumably, a representative of the Employer. In addition, as these clauses deal
with delegation, it is submitted that the Engineer may give written authority to any
other person who he wishes to be present at the inspection or testing.
The clause stops short of requiring the Contractor to procure access which is
perhaps strangely reticent, particularly given that in clause 37.2, "the Contractor
shall obtain permission" for the Engineer's inspection and testing.
The
Contractor will no doubt be able to make it a term of the sub-contracts and supply
contracts that the Contractor, the Engineer and others should have access for
inspection and testing. The present position is that the Contractor would be in
breach of contract for failure to secure permission for the Engineer to visit a
supplier's factory to inspect and test but not if the affording of every facility and
assistance failed to gain access for the Engineer. In practice, the two are so near
to being inseparable that the necessity for separate sub-clauses and separate
degrees of obligation must be questionable.
37.2 "...shall not release the Contractor from any obligation". The Contractor's
principal obligations in relation to materials and plant are set out in clause 36.1
(Quality of materials, Plant and workmanship) but see also clause 8.1
(Contractor's general responsibilities) and clause 13.1 (Work to be in accordance
with contract).
37.3 The purpose of the words "as provided in the Contract" is obscure. The
Engineer's powers to test appears in clause 36.1 (Quality of materials, Plant and
workmanship) and is repeated in sub-clause 37.2 in relation to "the materials and
Plant to be supplied under the Contract". The use of the phrase "as provided in
the Contract" rather than "as referred to in clause 37.2 above", raises the
question as least of whether this clause refers to any sub-division of the materials
and plant. Compare, for example, the phrase "clearly intended by or provided
for" in clause 36.2 (Cost of samples) and clause 36.3 (Cost of tests).
At first sight, the first two sentences of this sub-clause seem incompatible.
Presumably, the intention of the draftsman is that the Contractor and the
Engineer agree a time when inspection or testing will take place by the
Contractor alone or, if the Engineer so chooses, by or witnessed by the Engineer.
Thus, if he chooses to attend, the Engineer must give the requisite notice. That
notice must be in writing in accordance with clause 1.5 (Notices, consents etc.).
If the Engineer is unable to attend on one occasion, his right to have access "at
all reasonable times" under sub-clause 37.1, will mean that his opportunity to
inspect is not lost, even though he will have missed the test.
If the Engineer is not represented at the test, he does not lose all possibility of
rejecting the material as, firstly, he may instruct the test not to proceed with the
risk that the instruction will entitle the Contractor to further payment under clause
Page 125 of 264
52 (Valuation of Variations), or secondly, he could reject the materials or plant
under sub-clause 37.4 if the certified results did not comply with the contract.
37.4 Costs will be incurred by the Employer by the repetition of tests if he is
obliged to pay the Engineer or his delegates and authorised persons additional
sums and expenses for attending the repeated tests. The cost of the test itself
will be borne by the Contractor under clause 36.3 (Cost of tests) and clause 36.4
(Costs of tests not provided for) unless the repeated tests fall under the latter
clause and demonstrate that the materials etc are in accordance with the
contract. This would produce the result that the amount determined by the
Engineer under clause 36.5 (Engineer's determination where tests not provided
for) could be deducted again or reduced by the Engineer under this sub-clause.
One answer to this curious situation would be if a repeated test falls within clause
36.3 being a test "clearly intended by or provided for in the contract". For the
reasons why this tempting solution may not be sustainable, see the commentary
under clause 36.
In the event of a rejection notice, the Contractor is to "make good the defect or
ensure that rejected materials or Plant comply". In practise this means replacing,
amending or treating the materials, plant etc. to overcome the Engineer's
objection. However, it is only "rejected materials or plans" that may be the
subject of repeated tests. Thus, if the tested item has been replaced, it may be
open to a Contractor to argue that the Employer is not entitled to his costs in
respect of that repetition and, if clause 36.4 (Costs of tests not provided for)
applies, then he is entitled to be paid for the repeated test and even obtain an
extension of time.
Under clause 63.1 (Default of Contractor), a failure by the Contractor to comply
with a notice issued pursuant to this clause within 28 days is an act of default
which entitles the Employer to determine. As mentioned in the commentary
under clause 63, the choice of clauses to receive specific mention as grounds for
termination seem bizarre. In this case, the inspection of materials off-site may be
taking place months before their intended incorporation into the works with the
result that there may be no particular urgency. Moreover, the result of the
rejection may be that alternative materials have to be located and ordered from a
distant source. The required compliance is that the Contractor should promptly
make good the defect or ensure that rejected material or plant comply with the
contract. Read without reference to clause 63, a reasonable interpretation of that
clause would be that unless the Engineer required a repeat of the tests, the
supplier's only obligation was to ensure that when the materials etc were
delivered to site, they conformed with the contract and the Engineer's objection
had been overcome. In the event that the rejection was caused by the fact that
the test was not ready at the time and place agreed, it is altogether more difficult
to see what it is that the Contractor is to do within 28 days. Any Engineer asked
to certify pursuant to clause 63.1 that there has been a failure of compliance
under this sub-clause may have an unenviable task.
Page 126 of 264
37.5 See the commentary under clause 2 (Engineer and Engineer's
Representative) and the apparent breadth of the phrase "any person authorised
by him" commented upon under sub-clause 37.1.
CLAUSE 38 : Inspection of part of works
The Contractor is to give the Engineer an opportunity to check any foundations or
other parts of the Works which are about to be covered up. The Contractor
should notify the Engineer who should either attend or decline to do so.
The Contractor is to open up and make good any part of the Works as the
Engineer instructs. If clause 38.1 has been complied with and the part inspected
is found to be in accordance with the contract, the Contractor will be paid for the
opening-up and making good.
The principal alteration to sub-clause 38.1 in this edition is the reference to "part
of the Works" rather than "work" as in the 3rd Edition. Sub-clause 38.2 has been
translated into the phraseology of the 4th Edition but the principles of the clause
remain unaltered.
38.1 The draftsman has decided not to impose time limits on the notice and
inspection procedure, relying instead on the co-operation between Contractor
and Engineer. Whilst this faith, which is not generally reflected in the contract,
may often be justified, the fact that the Engineer is entitled to cause reasonable
delay to a Contractor who is ready to proceed with the covering of foundations, is
likely to cause difficulty, particularly if the covering up is repeated many times
over a period of several weeks. The parties to this contract may well feel it
sensible to agree a more formal procedure, including a right for the Contractor to
proceed if the Engineer does not attend at the appointed hour, in order to avoid
delays.
A "part of the Works" is not defined so that there will always be scope for debate
as to when this sub-clause applies. In clause 48.2 (Taking-over of Sections or
parts), "any substantial part" is referred to. Here, no guidance is given and, in
view of the fact that the recovery of costs under clause 38.2 depends upon this
sub-clause having been complied with, the Contractor will be well advised to
achieve agreement with the Engineer on what amounts to a relevant part.
This sub-clause should be read in conjunction with clause 37.1 (Inspection of
operations) which gives the Engineer access to the site as well as clauses like
clause 36.1 (Quality of materials, plant and work) and clause 8.1 (Contractor's
general responsibilities).
38.2 This clause should be read in conjunction with clause 50 (Contractor to
search) whereby the cause of defects, shrinkage or other faults may be
investigated. From the Employer's point of view, it would be beneficial if this subPage 127 of 264
clause and clause 50 could be linked so that if defective workmanship in one
area gave rise to a problem, a reasonable amount of opening-up in other areas
likely to be similarly affected could be undertaken at the Contractor's expense.
Thus, for example, if one pile under a bridge was found to be unstable, due to a
faulty concrete mix the cost of opening up nearby piles in order to check the
concrete mix used there could properly, it is submitted, be chargeable to the
Contractor. As it is, no matter how justified the opening up and no matter how
great the risk of a repeat of the defect, the Contractor is to be paid if no defect is
in fact found.
For a comment comparing the treatment of this clause with the other "loser pays"
clauses, clause 36.4 (Cost of tests not provided for), clause 49.3 (Cost of
remedying defects) and clause 50 (Contractor to search), see under clause 36.5
(Engineer's determination where tests not provided for). This clause should also
be read with clause 39.1 (Removal of improper work, materials or Plant) which
provides an express power to have remedied any defects discovered .
"... the Engineer may from time to time instruct ..." For comment on the ability of
the Engineer to instruct variations and tests after taking over, see the comments
under clause 13.1 (Work to be in accordance with the contract) and clause 36.1
(Quality of materials, plant and workmanship).
It should be noted that to recover his costs, the Contractor must show that both
sub-clause 38.1 has been complied with and that the works were properly
executed. He does not recover his costs of the opening-up, even if the works
were perfect, if the Engineer was not invited to inspect. It should also be noted
that an examination by the Engineer under sub-clause 38.1 will provide the
Contractor with no defence in the event that the works are found on opening up
to be defective. See for example clause 37.2 (Inspection and testing) where
"such inspection or testing shall not release the Contractor from any obligation
under the Contract". If, upon such examination, the Engineer indicates
willingness to accept work that is not fully up to specification, the Contractor
should obtain a variation in writing to that effect or follow the clause 2.5
(Instructions in writing) procedure in relation to oral instructions although neither
of these would rule out all possibility of challenge by the Employer: see under
clause 51.1 (Variations).
CLAUSE 39 : Removal / Replacement of material / plant
The Engineer may order the removal and replacement of any materials, plant,
work or design by the Contractor which are not in accordance with the contract.
If the Contractor fails to comply with the Engineer's instructions within the time
stated or a reasonable time, the Employer may employ others to execute the
work at the Contractor's expense.
Page 128 of 264
Sub-clause 39.1 is similar to the 3rd Edition although the reference to design in
item (c)(ii) is new. Sub-clause 39.2 has been substantially amended not least by
giving the Contractor "a reasonable time" to comply with the instruction.
39.1 This clause is theoretically unnecessary as the Contractor is obliged to
produce a result in accordance with the contract and would not be entitled to
payment for defective work, nor substantial completion if the defect was serious
nor a Defects Liability Certificate. The role of the clause is therefore to give the
Engineer a more proactive quality control capability, forcing the Contractor to
remove defective work at once rather than at a time convenient to the Contractor.
In this sub-clause, the instructions may be issued if "in the opinion of the
Engineer" work or materials are not in accordance with the contract. The
Engineer's opinion does not feature in clause 37.4 (Rejection) or clause 38.2
(Uncovering and making openings). The significance of the opinion may be that
if the Engineer is shown to be wrong and that the works in fact conformed with
the contract, the Contractor will be entitled to treat the instruction as a variation
and claim payment under clause 52 (Valuation of variations). If the clause had
said that the Engineer was only entitled to issue instructions where the works and
materials did not comply with the contract, an Employer could argue in the above
instance that the instruction was unauthorised and invalid and deny liability for
the cost of the works executed. For a discussion of the significance of the
Engineers opinion in another context, see the commentary to clause 63.1
(Default of Contractor).
Whilst this clause gives the Engineer wide powers, which seem to remove any
duty upon the Employer to mitigate the loss flowing from what may be a minor
breach of the specification, in practice it is more likely that, where possible, minor
faults will be left or allowed for and a deduction will be made in the valuation of
the work.
A failure to comply with an instruction under this sub-clause within 28 days of its
receipt is a ground for termination by the Employer under clause 63.1 (Default of
Contractor). As commented under clause 37.4 (Rejection) the selection of
clauses to be specifically mentioned in clause 63.1 seems to owe nothing to
logic. Here, the time for compliance with an instruction may be specified in the
instruction and could well be longer than the 28 days referred to in clause 63.1.
Furthermore, the Employer's remedy in the case of a failure to respond by the
Contractor is carefully set out in sub-clause 39.2 where the Contractor is given "a
reasonable time" where no time is specified by the Engineer. In some instances,
where items are not critical, six months may be a reasonable time. Yet, if 28
days go past, the Contractor is at risk of termination. See also the commentary
under clause 63.1.
This clause should be read in conjunction with clause 17 (Setting-out) whereby
the Contractor has power to order the re-execution of works due to dimensional
or alignment errors.
Page 129 of 264
A new feature of the 4th Edition is the reference to design at item (c)(ii); this fills a
gap because an element of the works may be wrong despite the materials, plant
and workmanship being in accordance with the contract. Before this edition, the
Employer would have had to base his rejection of badly designed work on breach
of the responsibility given to the Contractor for design under clause 8.2 (Site
operations and methods of construction). See also clause 7.2 (Permanent
Works designed by Contractor). The inclusion of work or materials in an interim
certificate does not mean that those works and materials are in any sense
approved. See clause 61.1 (Approval only by Defects Liability Certificate) and
the commentary thereunder.
39.2 The sanction provided by this sub-clause is far more immediate and
effective than the threat of termination which is unlikely to be in the interests of
either party. The threat of the disruption and expense of alternative contractors
entering the site and executing a part of the works would provide a very real
incentive to the Contractor.
For other clauses involving work by other contractors, see clause 31
(Opportunities for other contractors), clause 49.4 (Contractors failure to carry out
instructions) and clause 63.1 (Default of Contractor).
If the work or materials had been paid for in interim certificates, the Employer's
deduction would amount to the entire cost of the other contractor; if not paid for
the deduction would be limited to any additional cost to the Employer of having
an alternative contractor carry out the works.
CLAUSE 40 : Suspension of Works
If the Engineer so instructs, the Contractor is to suspend all or any part of the
works and properly protect and secure the works as the Engineer thinks
necessary for the duration of such suspension. Unless the suspension is either
provided for in the contract, or is the Contractor's responsibility, or is necessary
due to the weather, the proper execution or safety of the works (for a reason not
being the Employer's responsibility), the Contractor will be reimbursed.
The Engineer will determine the extension of time and costs to be granted to the
Contractor.
If a suspension of all or any part of the works for which the Contractor is to be
compensated lasts for 12 weeks, the Contractor can give notice requiring
permission to proceed within 4 weeks. If permission is not given, the Contractor
may give notice and treat the part of the works as omitted or, where all the works
were suspended, terminate under clause 69.1 (Default of Employer).
There have been a number of changes of vocabulary and arrangement in the 4th
Edition but the principles of the 3rd Edition remain intact. In particular, the
Page 130 of 264
provision for extension of time and additional cost has been put into a separate
sub-clause 40.2.
40.1 Other express provision for suspension is found in these conditions only at
clause 69.4 (Contractor's entitlement to suspend work), whereby the Contractor
is entitled to suspend if he is not paid within 4 weeks after the due date for
payment of a certificate and after 4 weeks of giving notice to the Employer.
Clause 45.1 (Restriction on working hours) also imposes restraints and the
contract may expressly provide for periods of suspension during religious
festivals, sod-cutting ceremonies etc.
"...default of or breach of Contract by the Contractor". The draftsman of the 4th
Edition has added the words "or breach of contract" to the word "default" on three
occasions in this contract, the others being clause 44.1 (Extension of time for
completion) and clause 51.1 (Variations). On each occasion the words relate to
misdemeanours by the Contractor: the same "belt and braces" approach has not
been thought necessary in relation to the Employer's failings. The rationale may
be that as the term "default" has been used, albeit in the clause titles only, in
clause 63.1 (Default of Contractor) and clause 69.1 (Default of Employer), the
draftsman may have considered it necessary to make clear that a default in this
context does not necessarily need to be a default which would entitle the
Employer to terminate.
"(c) necessary by reason of climatic conditions on the Site". This contract places
the risk of delays caused by weather upon the Contractor unless he can
demonstrate that he has suffered "exceptionally adverse climatic conditions"
under clause 44.1 (Extension of time for completion) item (c). If the climatic
conditions that give rise to the suspension can be shown to be "exceptionally
adverse", it is submitted that the Contractor will still be entitled to an extension of
time under clause 44.1 but no reimbursement under clause 40.2. It would defeat
the object of the allocation of risk if an Engineer could keep the Employer's
entitlement to liquidated damages alive by suspending the works whenever
exceptionally adverse climatic conditions occurred. See also clause 11.1
(Inspection of Site) and clause 12.2 (Adverse physical obstructions or conditions)
for other references to climatic conditions and clause 20.4 (Employer's risks) for
the phrase "any operation of the forces of nature".
"(d) necessary for the proper execution of the Works...". In circumstances were
the Employer is having difficulty in funding the works, it is possible on the present
wording to see an argument that where the suspension occurs in order to give
the Employer time to re-organise his funding and in circumstances where all
certificates have been and will continue to be paid, exception (d) will apply and
the Contractor will not be entitled to time and money. The Employer would argue
that the suspension is necessary for the proper execution of the works and does
not arise from any act or default on the Employer's part. Such an argument
certainly runs counter to the intention of the clause and should be defeated on
Page 131 of 264
the grounds that "proper execution" relates to conformity with the contract and
not whether the contract can be executed at all.
Suspension may be necessary "for the proper execution of the works" in
circumstances where a Contractor is, through poor organisation, insufficient
labour etc., failing to cope to the detriment of the works. In those circumstances,
the Engineer could probably call a halt to the work to allow and require the
Contractor to put in place a proper organisation and level of manpower before
proceeding.
The risks defined in clause 20.4 (Employer's risks) range from war and hostilities
through loss or damage due to design, to "any operation of the forces of nature".
If a suspension was caused by, for example, the flooding of the works, such that
it fell within clause 20.4(h) "any operation of the forces of nature", there could be
conflict with items (c) and (d) of this sub-clause. It is noteworthy that item (c)
refers to climatic conditions only "on the Site" so that if the flood occurred due to
heavy rainfall elsewhere, there would be no difficulty. This overlap should it is
submitted be dealt with so that damage to the works resulting from such an event
is recoverable by the Contractor but costs and time flowing from a related
suspension would not be granted.
The Engineer is entitled to instruct suspension whenever he considers it
necessary. No guidance is given as to the circumstances in which the power
may be exercised so the question is whether the Engineer may use it at the
Employer's request, for instance in circumstances where the Employer is having
funding difficulties. Clause 2.6 (Engineer to act impartially) does not apply to
instructions although the ordering of a suspension could certainly amount to the
exercise of a discretion "which may affect the rights and obligations" of the
parties. Thus, it may well be arguable that the Engineer is obliged to exercise his
right to order suspension impartially. In circumstances where the Employer is
asking the Engineer to order suspension to enable the Employer to overcome
funding difficulties, the Engineer may well consider his power to grant time and
money and the Contractor's power under clause 40.3 to bring about the omission
of a suspended part or the termination of the contract as a whole results in no
unfairness to either party with the result that he could impartially agree to
suspend at the Employer's request.
40.2 This sub-clause is new to the 4th Edition and is consistent with the
draftsman's policy of spelling out in some detail the Engineer's obligations to
consult and determine time and money. The cost incurred by the Contractor by
reason of the suspension would no doubt include the costs of protecting and
securing the suspended works.
40.3 If items (b) to (d) of clause 40.1 apply, the Employer's entitlement to have
the work suspended is limited only by the Engineer's view of how long the
suspension is necessary. If the ground for suspension is the outbreak of war, the
Employer may terminate the contract under clause 65.6 (Outbreak of war).
Similarly, if the cause of the suspension is a frustrating event, clause 66.1
Page 132 of 264
(Release from performance) may apply, releasing both parties from further
performance.
If the suspension is due to the Employer's funding difficulties, the Employer may
give notice under clause 69.1 (Default of Employer) that "for unforeseen reasons,
due to economic dislocation, it is impossible for him to continue". This subclause adds a new ground for termination by the Contractor under clause 69.1:
see the commentary under that clause.
The Contractor is given the option whether to bring the suspension to a head or
not and may be content with an extension of time and reimbursement of his costs
indefinitely. In some circumstances the Employer, through the Engineer, will also
be given a choice of whether to suspend the work, thereby potentially giving the
Contractor a right to terminate, or whether to grant the Contractor extensions of
time as necessary. For example, the Employer may find himself unable to give
possession of part of the site to the Contractor. He could suspend all or part of
the works or simply allow the Engineer to grant extensions of time pursuant to
clause 42.2 (Failure to give possession). There may be no difference in costs
payable to the Contractor as the Contractor's ability to demobilise any part of his
labour force or equipment would depend in either case upon the Engineer's
instructions and the parties' views as to how long the delay would be likely to last
and how quickly the Contractor would be required to resume working. The
Employer could therefore prevent the Contractor having the option to terminate.
CLAUSE 40.3 (Suspension lasting more than 84 days)
"If the progress of the Works or any part thereof is suspended on the written
instructions of the Engineer ..."
The word in italics has been removed, no doubt because of clause 2.5
(Instructions in writing) which states that "instructions given by the Engineer shall
be in writing". Unfortunately, the remainder of clause 2.5 deals with oral
instructions. The effect of the deletion therefore is to permit an oral instruction to
suspend, provided it is followed by confirmation of the instruction by the
Contractor to the Engineer. As this could lead to the termination of the contract,
the wisdom of the deletion is questionable.
Nevertheless, the deletion of the reference to writing removes an anomaly as
sub-clause 40.1 (Suspension of work) has no express reference to the instruction
to suspend being in writing. However, this was not the last reference to written
instructions as clause 48.1 (Taking-Over Certificate) still refers to "instructions in
writing" regarding outstanding defects. Either clause 2.5 needs to be tightened up
or the conditions should specify where it is essential that an instruction be
written.
There are numerous other references throughout the conditions to delegations,
requests and other communications being in writing. See also clause 1.5
Page 133 of 264
(Notices, consents etc) which requires notices, consents, approvals, certificates
and determinations to be in writing.
CLAUSE 41 : Commencement of Works
This clause defines the start of the construction of the project. Once the tender
has been accepted, the Employer has a period, set out in the tender, to give the
go-ahead via a notice from the Engineer. When the Contractor has received the
notice, time is running and the Contractor is obliged to start work and proceed
"with due expedition".
This clause is different from the 3rd Edition in that the Appendix to Tender
specifies the time within which the Engineer must give a notice and the
Contractor must start "as soon as is reasonably possible" thereafter. Under the
3rd Edition, the period named in the appendix governed the Contractor's start on
site and there were no time limits for the Engineer's order.
The procedure for commencement of the construction phase of the project is as
follows:(i)
The Employer decides how much time he needs after choosing a
Contractor to do everything necessary to enable the project to begin i.e. secure
possession of the site, obtain necessary planning and other approval, organise
import licences etc. The required time is inserted in the Appendix to Tender.
(ii)
The Letter of Acceptance is issued by the Employer to the Contractor.
(iii)
Within the time period inserted in the Appendix to Tender the Engineer
issues a notice to commence.
(iv)
Receipt of the notice by the Contractor is the date defined at clause
1.1(c)(i) as the Commencement Date from which time runs.
Upon receipt of the Engineer's notice, the Contractor is obliged to commence the
works as soon as reasonably possible. "Works" is defined narrowly and does not
seem to cover mobilisation. The Contractor should therefore be aware that a
client may be entitled to object to a programme involving a mobilisation period
longer than is strictly necessary. It is work on Permanent or Temporary Works
that is to be commenced as soon as reasonably possible. As the definitions of
Temporary Works and Contractor's Equipment are circular and unhelpful, it is
unclear whether, for example, setting up site huts and compounds counts as
"Works". This lack of clarity is particularly unfortunate in view of clause 63.1
(Default of Contractor) item (b)(i) which makes a failure without reasonable
excuse to commence the works in accordance with the current clause a ground
for termination.
Page 134 of 264
The clause also imposes upon the Contractor an obligation to proceed with the
works "with due expedition and without delay". Breach of this obligation is not a
specific ground for termination under clause 63.1, unlike ICE 5th and 6th which
refer to "failing to proceed... with due diligence". The Employer would have to
show a repudiation for clause 63.1 item (a), a failure to proceed for item (b)(ii) or
persistent breach for item (d). It could, however, form the basis of a claim by the
Employer for general damages if some loss could be shown to flow from the slow
progress. This claim is, of course, quite distinct from a claim for delay to the
completion of the Works as a whole for which liquidated damages represent the
(normally) exclusive remedy. If, for example, the Employer lost funding as a
result of the poor progress and was obliged to refinance part of the project at
greater cost, he could have a claim. Poor progress should result in a notice under
clause 46.1 which the Engineer is obliged to give if he forms the opinion that
progress is too slow to complete on time. A failure to comply with such notice
could lead to termination under clause 63.1.
"Without delay" presumably means without delay other than a delay for which an
extension of time is available under clause 44.1 (Extension of time for
completion). These words seems to add little to "with due expedition".
The form of the notice to be issued by the Engineer is not specified although
clause 68.1 (Notices) requires it to be in writing. If the notice to commence is not
given within the time set out in the Appendix to Tender, the contract is silent. The
Employer would be in breach and the parties would have to negotiate a variation
of the contract. Any claim by the Contractor would be subject to his duty to
mitigate his loss.
The Commencement Date defined by this clause is relevant under clause 20.1
(Care of works), clause 25.1 (Evidence and terms of insurances) and clause 43.1
(Time for Completion).
CLAUSE 42 : Handing over possession
Unless the contract contains specific provisions, the Employer is to hand over
possession of as much of the site and the agreed means of access as necessary
to enable the Contractor to proceed with his programme or proposals for the
project.
If the Contractor is delayed or incurs costs due to a failure by the Employer to
give necessary possession, the Engineer is to grant an extension of time and
costs.
The Contractor is to pay for any special wayleaves or additional facilities required
off-site.
This clause is essentially the same as the 3rd Edition with changes to the
vocabulary consistent with the policy of the 4th Edition. Item (d) of sub-clause
Page 135 of 264
42.1 is however new. In sub-clause 42.3, the term "facilities" has been used in
place of "accommodation" although the latter term has been retained in clause
11.1 (Inspection of Site) at item (d).
42.1 In the UK, at least, the common law would imply a term that if you enter
into a contract whereby the Contractor is to carry out certain work, the Employer
will provide him with the site on which that work is to be executed. It would be
unsafe to assume that all jurisdictions make the same implication.
With civil engineering projects, particularly roads, it is quite unnecessary for the
Contractor to be given possession of the entirety of the site, some parts of which
might not be touched for a year or more. Thus, if the contract is silent, the
Employer's obligation is simply to feed the Contractor with sufficient of the site to
enable him to pursue his intended sequence of operations, whether set out in a
clause 14 programme or set out in written proposals.
An Employer who is unable to provide any part of the site at short notice would
be unwise not to deal with the matter in the contract. Under clause 14.1
(Programme to be submitted), the programme is to be submitted after the letter
of acceptance and this may not give the Employer a great deal of time. The
reference to "the programme referred to in clause 14, if any," is ambiguous as
clause 14.1 refers to a programme to be submitted for the Engineer's consent.
This clause should make it clear that it is the programme as consented to that will
govern the Employer's obligation and not any programme no matter how
unrealistic which the Contractor may choose to submit, possibly as a foundation
for a claim. As the reference is to clause 14 as a whole rather than just subclause 14.1, it is submitted that the draftsman's presumed intention should
prevail. It may be considered relevant to a consideration of what is reasonable
that the Contractor has an obligation under clause 11.1 (Inspection of site) to
have obtained all necessary information in connection with the site.
As for the alternative "reasonable proposals" no time is given for these proposals
and indeed it is not clear that the right to submit reasonable proposals ends at
the commencement of the job. A Contractor seeking to generate a claim and an
extension of time could propose to commence works on a portion of the site
which he knew to be unavailable to the Employer. The question would then be
what amounts to "reasonable". It is to be presumed that "reasonable" will be
judged primarily in terms of the logical progression of the Works. If two areas of
the site were equally logical but the Contractor deliberately chose the unavailable
portion, the Engineer, and probably an arbitrator, would conclude that this was
unreasonable.
Clause 14.2 (Revised programme) provides for the revision of the programme
and there can be little doubt that the Employer's obligation to provide further
portions of the site will be revised accordingly.
Page 136 of 264
The definition of "Site" at clause 1.1(f)(vii) is new to the 4th Edition and is plainly
one that has caused draftsmen of civil engineering contracts difficulty. On its
own, the first half of the definition - "the places provided by the Employer where
the Works are to be executed" - would defeat the current clause as portions not
provided would not be part of the Site. The essence of the definition is
presumably the second half, "any other places as may be specifically designated
in the contract as forming part of the Site". It is assumed that the purpose of the
first half is in case either the contract does not define the Site with precision or if
additional land is found to be necessary during the course of the Works. See also
the commentary under clause 1.1(f)(vii). The Canadian Federal Court of Appeal
decided in Queen v Walter Cabott Construction (1975) 69DLR(3d) 542 that the
Employer's underlying obligation to provide the site meant more than simply
providing the actual site upon which the structure was to stand but also sufficient
working space. In that case the Employer was held to be in breach when he let
an adjacent contract which interfered with the Contractor's working space.
This clause is silent as to the duration of the possession to which the Contractor
is entitled. Under clause 48.2 (Taking-over of sections or parts), provision is
made for the occupation or use of parts of the works by the Employer in the
absence of provision in the contract and, indeed in the absence of agreement by
the Contractor. Clause 48.2 is presumably providing a remedy for a possible
breach of contract, although normally a Contractor will welcome the opportunity
to pass responsibility for a section of the site to the Employer and to benefit
under clause 47.1 (Liquidated damages) from the early hand-over. If a bonus
clause is available, an additional incentive will be provided. If the use or
occupation causes delay to the progress of the works, the Contractor may be
entitled to an extension of time under clause 44.1 (Extension of time for
completion) under item (d) "any delay, impediment, or prevention by the
Employer".
For a comment on the effective re-taking of possession by the Employer's use of
other Contractors, see under clause 31.1 (Opportunities for other contractors).
42.2 For the Contractor to be entitled to an extension under clause 44.1
(Extension of time for completion), he must first have given notice of the delay
pursuant to clause 44.2 (Contractor to provide notification and detailed
particulars). This at least is the likely construction of the contract although it is by
no means beyond argument that the entitlement referred to is as set out in clause
44.1 and that the obligation upon the Engineer to determine an extension is not
subject to clause 44.2. In the absence of a right to an extension of time, the
English courts would treat a failure to give possession on time as being fatal to
the Employer's entitlement to liquidated damages: see for example the Court of
Appeal in Rapid Building v Ealing Family Housing (1984) 29 BLR 5.
Similarly, it is unclear whether the Contractor's entitlement to costs under subclause 42.2 item (b) is subject to the procedure for claims set out in clause 53
(Procedure for claims). A Contractor would be unwise to assume that notification
is not required.
Page 137 of 264
"Consultation": this requirement for consultation is new to the 4th Edition and
adds an element of natural justice to the Engineer's deliberations. It is subject to
clause 2.6 (Engineer to act impartially) and the Engineer must make up his own
mind impartially.
A curious feature of the drafting of this clause is that the failure to give
possession for which extension of time and costs may be granted is a failure to
give possession in accordance with the clause 14 programme or the Contractor's
reasonable proposals and does not deal with a failure to grant possession as
specifically prescribed by the contract. This is because this sub-clause refers to
"failure on the part of the Employer to give possession in accordance with the
terms of sub-clause 42.1" which only imposes an obligation to give possession
where the contract is otherwise silent. This point is unlikely to be significant as
the clause 14 programme will no doubt take any prescribed possession
sequence into account. The Contractor will be entitled to an extension of time
under clause 44.1(d) "any delay, impediment or prevention by the Employer" and
will be entitled to his costs as damages for breach of contract. Damages would,
however, be less satisfactory to the Contractor as the Engineer would not be
entitled to determine such damages and include them in certificates. It would be
in the interests of both parties to resolve this discrepancy.
42.3 It appears that the permanent access to the site is to be provided by the
Employer only if the contract so provides. Otherwise, clause 11.1 (Inspection of
Site) requires the Contractor to have made due allowance in his tender for
access. Any temporary rights of way or special permissions are to be obtained by
the Contractor. In practice, the distinction between permanent access and
temporary rights of way will often be far from clear. Short of making one party
responsible for all such matters, there is little that can be done in the contract to
resolve the potential uncertainty.
If special or temporary wayleaves or additional facilities are only required in order
to enable the Contractor to execute a variation instructed by the Engineer, the
Contractor should be reimbursed for costs incurred which he could not possibly
have allowed for. The draftsman has not considered this situation and a
Contractor must rely on the words "required by him" to argue that variations and
the associated wayleaves etc are required by the Employer. Alternatively, the
Contractor must bear the costs and seek to recover the outlay in the rates fixed
under clause 52 (Valuation of variations).
CLAUSE 42.3 (Rights of way and facilities)
The Contractor shall bear all costs and charges for "special or temporary rights of
way required by him in connection with the access to the Sites." The word
"wayleaves" has been removed from the clause and its title. It is presumed that
the reason for the change was to do away with a somewhat obscure term.
English property lawyers might seek to argue however that right of way is a
narrower concept than wayleave but the difference is unlikely to be significant in
practice.
Page 138 of 264
CLAUSE 43 : Completion of work on time
This clause provides the basic obligation upon the Contractor to complete the
works on time. He must substantially complete the whole of the works within the
given period subject to any extensions granted. If the project has been divided up
into Sections, then he must complete each Section within the specified period,
again subject to any extensions.
The wording of this clause is materially different from the 3rd Edition but the
principle has been retained. If it is preferred to express this clause in terms of
dates rather than periods, Part II provides alternative wording.
The obligation upon the Contractor is not, in reality, to complete by the specified
date or any current extended date but to complete on or before the date finally
settled upon as the extended date. Clause 44 (Extension of time for completion)
envisages a delay of at least 8 weeks (28 days for the Contractor's notice; 28
days for the detailed claim) before the Engineer begins his own investigation and
that must be followed by consultation before a determination is made. There will
therefore very often be a period of uncertainty as to the date by which the
Contractor must complete. If the delay is a continuing one, clause 44.3 (Interim
determination of extension) applies and the uncertainty will be even more
prolonged. For the position on the deduction of liquidated damages during this
period, see clause 47.1 (Liquidated damages). For a comment on implied
acceleration orders see clause 46.1 (Rate of progress).
"...any Section required to be completed...". This clause should be read with
clause 20 (Care of Works),clause 44, clause 47 and clause 48.2 (Taking-over of
Sections or parts) to follow through the principal provisions dealing with Sections,
a new defined term in this edition.
As the Time for Completion is defined at clause 1.1 (c)(ii) in terms that are similar
but not identical to those contained in this clause, it is perhaps surprising that this
clause does not simply oblige the Contractor to complete the works by the Time
for Completion. In any event and in view of the clause title, it would be sensible to
ensure that this clause and the definition accurately reflect one another.
CLAUSE 44 : Extension of Time
This clause provides the mechanism for extension of time to be granted. If the
Contractor is fairly entitled to an extension, the Engineer must grant one, having
first consulted with the parties. The qualifying grounds are as follows:-extra work
-other grounds "referred to in these Conditions"
-exceptionally bad weather
Page 139 of 264
-Employers' delays
-special circumstances
The Contractor is to give notice of the delay within four weeks and is to submit
detailed particulars four weeks later.
If the delaying event is continuous, provision is made for interim and final
particulars and the determination of interim and, after consultation, final
extensions. The final extension may not reduce the interim extensions granted.
Clause 44 contains some major changes as compared with the 3rd Edition. In
particular item (d) of sub-clause 44.1 is new as is the two-stage notification
process in sub-clause 44.2. Sub-clause 44.3 is entirely new.
44.1
"(a) The amount of or nature of extra or additional work." Clause 51
(Variations) permits the Engineer to order:- increased work
- decreased work
- omissions
- changes to the character/quality of the work,
its position, its sequence
- additional work
Although the word "extra" is not used elsewhere in this context in the contract, it
may be that "extra or additional" reflects the distinction between the increase in
quantities at clause 51.1(a) and the addition of new work at clause 51.1(e). On
this assumption, this ground for extension of time covers the first and last items
in the above list only. A decrease in quantities or an omission could have time
consequences and it is obvious that any one of the changes listed could cause
delay to the works. Unless one treats a change as an omission and an addition,
which is artificial, changes are not obviously covered and one may have to resort
to trying to push them into (b) "any cause of delay referred to", (d) "any delay,
impediment or prevention by the Employer" or (e) "other special circumstances".
For an alternative interpretation of the word "extra", see the discussion under
clause 51.2 (Instructions for variations) in relation to the granting of extensions of
time for "automatic" changes in quantities.
In the UK, at least, if a change was ordered by the Engineer which caused delay
but for which the extension of time clause made no provision, it would be
arguable that time was at large and the Employer's ability to recover liquidated
damage was lost. See on time at large Peak Construction v McKinney
Foundations (1970) 1 BLR 114.
Page 140 of 264
For comment on the Contractor's right to extensions of time in relation to work
which is the subject of provisional sums, see under clause 58.2 (Use of
Provisional Sums).
"(b) any cause of delay referred to in these Conditions". This wording, which is
shared with ICE 5th and ICE 6th, is not without ambiguity. Does it only refer to
clauses where there is express reference to delay, extensions of time and clause
44 or could it also refer to clauses which deal with events which would frequently
cause delay but have no express reference to extensions of time, such as clause
17.1 (Setting-out) or clause 20.3 (Loss or damage due to Employer's risks)?
Express references to clause 44 can be found in the following clauses:- clause 6.4 (Delays and cost of delay of drawings)
- clause 12.2 (Adverse physical obstructions or conditions)
- clause 27 (Fossils)
- clause 36.5 (Engineer's determination where tests not provided for)
- clause 40.2 (Engineer's determination following suspension)
- clause 42.2 (Failure to give possession)
- clause 69.4 (Contractor's entitlement to suspension of works).
Express reference to the word "delay" is to be found only in clauses 6.4, 27, 42.2
and 69.4, all of which are in the above list.
It may also be possible to argue for a construction of these words as meaning
anything referred to in the conditions which causes delay. However, as such an
interpretation would probably include the Contractor's delays, success is unlikely.
"(c) exceptionally adverse climatic conditions." The intention is that the
Contractor should allow for all the usual vagaries of the weather. The use of the
term "climatic" as opposed to the more usual "weather" may have a broadening
effect on this ground for extension. For example, a flood which does not result
from exceptionally heavy rainfall in the area of the site might be covered by
"climatic" but not by "weather".
Comparing "exceptionally adverse" with "exceptional adverse" as used in the 3rd
Edition and ICE 5th and ICE 6th, one sees a subtle but important change of
emphasis. Under those forms, the weather has to be both exceptional and
adverse. In these conditions, the weather need not be unusual, it must only be
exceptionally adverse. This raises the possibility that it could be conditions on
site that make the weather exceptionally adverse rather than anything unusual
about the weather. Equally, if the weather was very unusual but did not cause
exceptional difficulty, an extension could legitimately be declined.
This item should be read with clause 11.1 (Inspection of Site) which requires
tenderers to take note of the "hydrological and climatic conditions", clause 12.2
(Adverse physical obstructions or conditions) which excludes climatic conditions
from the effect of the clause, clause 20.4 (Employer's risks) item (h) "any
operation of the forces of nature" and clause 40.1 (Suspension of work).
Page 141 of 264
(d) "any delay, impediment or prevention by the Employer". In the UK at least,
there needs to be clear words that allow an extension to be granted for a breach
of contract by the Employer. See, for example, Peak Construction v McKinney
Foundations (1970) 1 BLR 114. It seems likely that the words used are
sufficiently clear to cover such breaches although the absence of express
reference to breach invites an argument to the contrary. It is submitted that as
delays, impediments and preventions are clear examples of breach, if not
authorised in the conditions by provisions such as clause 38.2 (Uncovering and
making openings) or clause 51.1 (Variations), the quoted words are sufficiently
clear to cover breach.
Delays by the Engineer should also be covered by the words, at least in respect
of those actions of the Engineer which are performed as agent for the Employer.
However, the contrary is arguable: there is no reference to "servants or agents"
either here or in the definition of the Employer at clause 1.1(a)(i). Agents are
referred to in clause 22.2 (Exceptions) and clause 24.1 (Accident or injury to
workmen) so, it would be argued, the draftsman has used the term where he
intended it to apply. The fact that agents are not mentioned here is thus
deliberate. Further, the Engineer's defaults have been covered elsewhere in
clauses such as clause 6.4 (Delays and cost of delay of drawings) and clause
17.1 (Setting-out). It is submitted that this argument, which is unlikely to have
impact outside common law jurisdictions, is essentially unmeritorious however
sustainable by the rigorous application of the canons of the construction of
contracts. The intentions of the parties are clear: time should not be set at large
due to some failure of the Employer or his team when an extension of time is
perfectly capable of doing justice between the parties. Arbitrators are unlikely to
frustrate this purpose on such narrow grounds.
There is no provision under this contract for extensions of time due to delay by
subcontractors nominated by the Employer. This is in contrast to some English
forms which balance the Employer's right to choose a subcontractor by placing
part of the risk of that subcontractor's default upon the Employer. A Contractor
might nevertheless be entitled to an extension of time if the selection of the
defaulting subcontractor was sufficiently negligent as to amount to delay,
impediment or prevention by the Employer. It must be noted however that the
Contractor is given the right to raise reasonable objection under clause 59.2
(Nominated Subcontractor; objection to nomination). If the Contractor failed to
raise an objection, he may have no grounds for extension.
(e) "other special circumstances which may occur other than through a fault of or
breach of contract by the Contractor or for which he is responsible". "Special" in
the Concise Oxford Dictionary means "of a particular kind, peculiar, not general;
exceptional in amount, degree, intensity etc". Thus, it is clearly not a catch-all
clause as merely routine delays would seem to fall outside these words. There is
however little authority on the meaning of these words leaving the Engineer and
arbitrator with virtually unfettered discretion.
Page 142 of 264
It is not immediately obvious why this item alone has been qualified by reference
to the Contractor's default. It must apply equally to items (a) and (b). The word
"fairly" would seem to achieve the necessary result. The inclusion of the specific
exception could indeed have the effect of undermining the interpretation of
"fairly": why, it would be argued, would the draftsman have included the
exception in item (e) if "fairly" is intended to mean the same?
"Fairly to entitle ..." This sub-clause is phrased in such a way as to define the
Contractor's entitlement to an extension of time and then make it mandatory for
the Engineer to determine and grant the Contractor his entitlement. Compare
this with ICE 5th where the Engineer is obliged only to "make an assessment of
the extension of time (if any) to which he considers the contractor entitled." In
practice, the difference may not be significant but the distinction could be
sufficient to encourage an argument that the Engineer is obliged to grant the
Contractor's fair entitlement. Thus it could be said that the Employer's obligation
in relation to certification is to procure that the Engineer certified fairly. This
would be going considerably further than the obligation recognised by English
law at present, which only places an obligation upon the Employer to ensure that
the Engineer makes the determination and that he is free to do so fairly under
clause 2.6 (Engineer to act impartially). For further discussion on the Employer's
duty, see under sub-clauses 2.1 (Engineer's duties and authority) and 2.6.
There is no express obligation upon the Contractor in this clause to take all
reasonable steps to mitigate the effect of delays, such as would be found in
many English standard forms. There is an obligation in clause 41.1
(Commencement of Works) to proceed "with due expedition and without delay"
but, it is submitted, it is the phrase "such as fairly to entitle" which ensures that
the Contractor will not receive extensions of time for reasonably avoidable delay.
"Any Section or part thereof ...". A section is defined as a portion of the Works
specifically identified in the contract as a Section. A part is therefore a part of the
Works which is not so identified. Under clause 47.2 (Reduction of liquidated
damages), provision is made for the reduction of liquidated damages where a
part of the works has been taken earlier than the whole of the works or the
section of the works of which it forms part. However, it is not necessary for that
part to be the subject of a separate award of extension of time. The effect could,
however, be to allow the Engineer to grant an extension of time to a narrowly
defined part of the site and thereby increase the Contractor's liability for
liquidated damages.
"...after due consultation with the Employer and the Contractor".
This
requirement upon the Engineer to consult with the Employer and Contractor is
new to these conditions. Indeed, in sub-clause 44.3, the requirement to consult
was only added with the Editorial Amendments made in 1988. The objective is to
add an element of natural justice to the decision-making process and to ensure
than Engineers do not speak exclusively to their paymasters prior to making
important decisions. Consultation is not intended to alter in any way the
Engineer's obligation to make an independent decision and clause 2.6 (Engineer
Page 143 of 264
to act impartially) is intended to override. Presumably, a determination of the sort
provided for in this clause would be covered by clause 2.6 (Engineer to act
impartially) item (d) "action which may affect the rights", although determinations
other than of value are not expressly referred to.
The timing of the grant of the extension is not catered for in the clause which only
says it must be after consultation with the parties. Clause 1.5 (Notices, consents
etc.) has removed the need to imply a term: the determination may not be
unreasonably withheld or delayed. It is submitted that this imposes a duty on the
Employer to ensure that his Engineer performs: see the English case of London
Borough of Merton v Leach (1985) 32 BLR 51. As to whether a failure to
determine could ever cause the extension of time machinery to break down,
leaving time and damages "at large".
Concurrent delays: a perennial problem in relation to extension of time provisions
is how to deal with circumstances where two causes of delay overlap. There is
no problem if the two causes of delay are the responsibility of the same party
with the same financial consequences but there is difficulty if the overlapping
delays fall into two of the following categories:
(i)
delays only the responsibility of the Contractor: no extension of time or
reimbursement of costs, liquidated damages deducted;
(ii)
neutral delays, where the Contractor receives extension of time but no
reimbursement of costs; and
(iii)
delays wholly the responsibility of the Employer where the Contractor
receives extensions of time and reimbursement of costs.
This problem. which has been the subject of much comment and debate, has not
been addressed, let alone resolved by the current clause. There is consensus, in
the UK at least and in the absence of conclusive authority, that if overlapping
delays fall into categories (ii) and (iii) above i.e. a neutral delay such as the
weather and a delay which is wholly the responsibility of the Employer such as
late possession of the site, then these delays should be treated as the
responsibility of the Employer and the Contractor should receive his
reimbursement. It is the combination of categories (i) and (ii) and categories (i)
and (iii) that cause the greatest difficulty. These questions will be addressed in
broad principle first followed by an examination of the contract conditions:
-Overlap between (i) and (ii): Contractor's default and neutral delay.
If it is accepted that the Employer's responsibility should predominate over a
neutral delay, it may well be arguable that the Contractor's default should likewise
predominate over such neutral delays. To take an example: if the Contractor
claims that bad weather prevented him from completing certain concrete
foundations, the Employer's response might be that the Contractor was not ready
to proceed in any event due to the failure of the Contractor's reinforcement
Page 144 of 264
subcontractor to have the necessary reinforcement on site and ready for
installation. The Contractor says that he could not have finished earlier than he
did because of the intervention of the weather. The Employer replies that the
weather did not cause him to be delayed as the subcontractor's default would
have prevented earlier execution of the foundations in any event. At this point,
the parties would probably immerse themselves in complex critical path
exercises in order to attempt to demonstrate that one of the delays was
"dominant" or "effective". If the bad weather lasted a day beyond the time that the
subcontractor was able to start or if the subcontractor had not delivered the steel
to the relevant part of the works for a day after the weather permitted work to
start, one party would then claim that the other delaying event was irrelevant. In
reality, of course, both events prevented the works from proceeding although one
of the events might have been solely responsible for some part of the delay.
As there is no question of the Contractor being compensated, the sole question
is whether the Employer should receive liquidated damages to compensate him
for the late receipt of the project. The Employer had accepted the risk in the
contract that if exceptionally bad weather should occur then he would receive no
such compensation. The receipt of liquidated damages would therefore be
something of a windfall for the Employer. The Contractor, on the other hand, will
have to pay for his own prolongation costs in any event. On broad principles of
fairness, it is therefore submitted that the Contractor should receive an extension
of time relieving him of liability for liquidated damages. Whilst this produces the
result that the Contractor "gets away with" his subcontractor's default, he has
nevertheless incurred irrecoverable prolongation costs. Better, in short, that the
losses should lie where they fall than that the Contractor should be penalised
twice, by liquidated damages as well as by prolongation costs.
-Overlap between (i) and (iii): Contractor's default and Employer's Default.
The problem is at its most acute when the Employer and the Contractor have
caused concurrent delays. To adapt the earlier example, the Contractor
complains that the Engineer has not provided him with necessary details and
drawings to execute the foundations; the Employer replies that the Contractor's
steelwork subcontractor has not supplied the necessary reinforcement to the site
or otherwise prepared himself to execute the works. The Contractor argues for
extension of time and reimbursement of costs and the Employer is seeking
liquidated damages. In these circumstances, it is submitted that the just result is
similar to that set out above. The Contractor should receive an extension of time
relieving him from liquidated damages but should not receive reimbursement of
costs for prolongation which would have been experienced in any event. The
Employer should not be compensated for his inability to take possession of the
project on time when, due to his Engineer's default, such possession would not in
any event have been possible.
The question then arises whether the conditions steer the Engineer or an
arbitrator to particular conclusions or whether the conditions leave the Engineer
or arbitrator free to attempt to do justice on a case by case basis. Under the
Page 145 of 264
current sub-clause, the governing criterion is that the event is "such as fairly to
entitle the Contractor to an extension". The formula used elsewhere in clauses
such as clause 6.4 (Delays and cost of delay of drawings), clause 27 (Fossils)
and clause 42.2 (Failure to give possession) is "if the Contractor suffers delay
and/or incurs costs from failure on the part of the Employer..." or "by reason of"
the failure or instructions. As far as time is concerned, these clauses invariably
refer to the "extension of time to which the Contractor is entitled under clause 44"
thereby invoking the Engineer's or arbitrator's opinion as to fairness. As to the
costs, the Contractor has an entitlement and the Engineer has an obligation to
determine if costs have been incurred from or by reason of the event. Therefore,
the Engineer is not being asked to consider fairness but merely to confine himself
to causation. Thus, in the second example given above where late drawings and
a defaulting subcontractor coincided, the principal costs incurred by the
Contractor would be prolongation costs. The Engineer would have to decide
whether those costs were incurred "by reason of" the late drawings. The just
result, it has been submitted, is for the Contractor to receive an extension of time
but no money in this situation. On the wording of the clauses granting time and
costs, it is difficult to see that the Engineer is empowered to grant an extension of
time without granting the consequential prolongation costs. It may be possible for
him to refuse extension of time while granting costs because of the fairness
qualification under clause 44 which applies only to time but it seems he cannot
grant time alone. Once the Engineer has decided that the event has caused
delay and thus cost, he is obliged to determine the costs even though he may still
apply the fairness test to the extension of time. So in the case of the late
drawings and subcontractor's default example, the Engineer would be obliged to
make an all-or-nothing decision: either the "failure or inability of the Engineer" to
provide the drawings caused the delay and costs or it did not. In those
circumstances, the Engineer is, regrettably, not entitled to produce an
intermediate, possibly more just, result.
With clauses such as clause 17 (Setting out) and clause 38.2 (Uncovering and
making openings) where cost but not extension of time is provided for, the result
is effectively the same. If, for example, certain foundations were delayed either
by amendments due to incorrect setting out data or by an instruction to reopen
properly executed work, at the same time as the Contractor's subcontractor was
in default or not ready to proceed with the next activity, the question again arises
as to whether the Engineer is free to award an extension of time but not
prolongation costs. In either case, an extension of time is available under clause
44. As to costs, both clauses oblige the Engineer to determine the Contractor's
costs, by express reference to clause 52 (Valuation of Variations) in the case of
clause 17. It is submitted that this framework does not allow the Engineer to
grant an extension of time and determine the actual cost of executing the
additional work but to stop short of determining the consequential prolongation
costs. This is unfortunate as the Engineer must decide between unsatisfactory
alternatives.
If the Engineer refuses an extension of time, the payment of liquidated damages
is automatic under clause 47.1 (Liquidated damages for delay) and there is no
Page 146 of 264
further exercise of discretion by the Engineer as is to be found in some
conditions. Of course, the Employer is at liberty to waive damages.
In summary, these conditions oblige Engineers and arbitrators to choose which of
the defaulting parties to reward and which to penalise. The middle road, by which
it is submitted a more just result may be achieved, seems to be closed to them.
As concurrent delays are a common occurence and as the lack of provision
exposes both parties to considerable risk, express terms addressing the problem
are highly to be recommended.
In the United States, the courts have been striving for what has been submitted is
the just result. Where the responsibility for delay is concurrent, each party is left
to absorb its own loss and an extension of time alone would be granted. See, for
example, Commerce International Company v United States 338 F2d 81, 90
(1964) and United States v United Engineering and Construction Co. 234 US 236
(1913). "The rule is well settled that where both parties are responsible for the
delay and completion of the contract and it is impossible to ascertain the true
balance by setting off one against the other, no... damages can be assessed":
Sun Ship Building Co. v United States 76 Ct. Cl.154, 188 (1932). "Where two
parties are delayed in the accomplishment of the construction objective, neither
party should be allowed to profit from the delays of the other": Blackhawk Heating
& Plumbing GSBCA No. 2432, 17-1 BCA 76-1 BCA No. 11, 649 at 55,577.
44.2 This clause raises the question whether a failure to give the requisite
notice would be fatal to a Contractor's application for extension of time. The
clause says that the Engineer "is not bound to make any determination" so it is
still open for him to do so if he so wishes. How the Engineer should exercise his
discretion in these circumstances is debatable. Clause 2.6 (Engineer to act
impartially) presumably applies so the Engineer has to act impartially to reconcile
the conflicting interests of Employer and Contractor. If he should grant the
extension if deserved, the notice procedure is rendered redundant. If not, the
preservation of the Engineer's power might be thought pointless. It is submitted
that the Engineer should exercise his discretion in the manner suggested by
clause 53 (Procedure for claims), namely to allow extensions which are verified
on contemporary records but disallow very late claims of which his team had no
knowledge and which the Contractor seeks to support by new or oral evidence
only. In short, the Engineer should have regard to the purpose of notice
provisions, namely to avoid surprises and "claims-by-ambush", and should not
allow valid claims to be ruled out on technicalities.
If the delay was caused by the Employer, or the Engineer on his behalf, a refusal
of an extension of time on the grounds of lack of notice raises the issue of the
Employer benefitting in liquidated damages from his own breach. The answer
may be that it is the Contractor's breach of the notice provision from which he is
benefitting and not his own. If so, the damages bear no relationship to the gravity
of the Contractor's, perhaps immaterial, default and may be vulnerable to attack
as a penalty. It may also be possible to ask an arbitrator to grant an extension of
Page 147 of 264
time by reviewing the Engineer's decision not to exercise his discretion under this
clause.
Under ICE 5th, an Engineer may extend "if he thinks fit in the absence of any
such claim". A similar discretion exists under ICE 6th.
It is unclear exactly when the Contractor's time for notifying the Engineer begins
to run. The first notice must be given "within 28 days after such event has first
arisen". "Such event" appears to be one of the listed matters "being such as
fairly to entitle the Contractor to an extension of time". Thus in a case where
additional work was ordered, then designed, supplied and installed over a period
of time, it may only be realised during the installation period that delay would
result. In such circumstances, it is not at all easy to identify the beginning of the
28-day period.
There is no specified form for the notice to be given by the Contractor and it may
be sufficient to point to correspondence or other documentation provided that the
formalities of sub-clause 44.2(a) and clause 68 (Notices) have been complied
with. As to the details to be provided, it would have been clearer to say "detailed
particulars in support of any extension of time" as the present wording indicates
only details of the extension of time required.
"In order that such submission may be investigated at the time". The statement
of the purpose of the sub-clause may well allow arbitrators to make commonsense decisions as to whether to treat the clause as a condition precedent to an
extension of time. If the Engineer has been taken by surprise at the end of a
project by a claim for an extension of time and his ability to investigate the claim
is undermined, the arbitrator could rightly rely upon the condition precedent.
"Such other reasonable time as may be agreed by the Engineer". This agreement
need not take place before or during the 28-day period but could be
retrospective.
The application of this notice requirement to other clauses giving an entitlement
to extension of time is a difficult question. For example, clause 27.1 (Fossils)
provides for extension of time "under Clause 44" but also requires the Contractor
to acquaint the Engineer immediately. Is the present sub-clause redundant or
does it replace or supplement the terms of clause 27? It is submitted that this
clause is best interpreted as imposing a time limit where no other limit applies.
44.3 "Where an event has a continuing effect". This does not mean that the
event has to be continuous. If an event, which may itself be shortlived, causes
knock-on consequences that continue over a period of time, it is often very
difficult to assess those consequences until the job is complete. A critical delay
will have a continuous effect in the sense that all dependant activities will be
delayed. This is not intended to be covered. In any event, it may be "practicable"
for the Contractor to submit particulars of such an event within four weeks.
Page 148 of 264
It is doubtful whether it is practical to require a Contractor to provide interim
particulars every four weeks and for the Engineer to make an interim
determination on each occasion. The sub-clause might benefit from the
Engineer and the Contractor being given the ability to agree an alternative
period.
The ability to review determinations of extensions of time under this clause is
limited to continuing events in respect of which interim extensions have been
granted. Therefore, the prohibition on decreasing extensions of time is limited to
such continuing events. Strictly speaking, an Engineer may only reconsider a
determination under sub-clause 44.1 if he is asked for a decision under clause
67.1 (Engineer's decision). In reality, of course, engineers tend to be cautious
and conservative in granting extensions and contractors will endeavour to
persuade them to increase an extension of time granted. Such an increase, it is
submitted, is technically beyond the power of an Engineer except under this subclause or clause 67.1. A decrease in extensions of time may always be achieved
by the Employer seeking the Engineer's decision on the grounds that an
excessive extension of time has been granted.
It is submitted that the prohibition in the final sentence of the sub-clause upon
decreases in extension of time does not bind either the Engineer when making a
decision under clause 67.1 or an arbitrator under clause 67.3 (Arbitration). The
prohibition applies only to the final review.
CLAUSE 45 : Working Hours
The Contractor is not entitled to work at night, at weekends or bank holidays
unless the contract or the Engineer allows him to do so or in an emergency of
which the Contractor immediately informs the Engineer or where it is customary
to carry out the work 24 hours per day.
This clause is not fundamentally changed from the 3rd Edition.
Where the circumstances of the project are such that day and night working
and/or working seven days a week is desired, Part II provides an alternative
clause.
In order to work extra hours, the Engineer's consent may be obtained under this
clause or, after a notice to accelerate, under clause 46.1 (Rate of progress).
Alternatively, the Contractor must demonstrate a danger to life or property or,
less dramatically, that it is customary to execute the work day and night. It is
arguable that this clause is altogether unnecessary as any restrictions on working
hours seem invariably to be included in the contract details.
This clause should be read with clause 19.1 (Safety, security and protection of
the environment) which requires the Contractor to "take all reasonable steps... to
Page 149 of 264
avoid nuisance to persons... resulting from pollution, noise or other causes
arising as a consequence of his methods of operation".
"...unavoidable or absolutely necessary for the saving of life...". If "unavoidable" is
not qualified by "for the saving...", the clause gives more latitude than at first sight
appears. For example, the need to pour concrete continuously could be
unavoidable and thus entitle the Contractor to work after hours.
Under clause 46 of the 2nd Edition, an inability to work extra hours gave rise to a
claim on the part of the Contractor for an extension of time. This somewhat
extraordinary means of rewarding a defaulting Contractor has, sensibly, been
discarded.
CLAUSE 46 : Rate of Progress
Clause 46 enables an Engineer to require a Contractor who is in delay for
reasons which are the Contractor's responsibility, to accelerate to complete on
time. The Contractor may be allowed to work day and night. The Employer is
entitled to recover any extra supervision costs which result.
The principal change to this clause as compared with the 3rd Edition is the ability
of the Employer to recover any additional supervision costs caused by the
acceleration. Otherwise the alterations are mainly of vocabulary.
Clause 46 is problematic. Its intent is to remove from a Contractor in culpable
delay the choice of whether to accelerate or whether to incur liquidated damages.
Sometimes the latter course may be cheaper due to the inefficiencies of
acceleration.
The difficulty is that there will often be a dispute as to whether the cause of delay
falls within clause 44.1 (Extension of time for completion) ; further there will often
be other claims for extension of time in the process of notification and
consideration, which process is likely to be at least 10 weeks long. If the
Engineer is only entitled to use the clause when he has considered and
determined all extensions of time claimed, its use could be severely restricted.
The Contractor could effectively prevent its use by a regular stream of extension
of time notices.
If the Contractor disagrees with the rejection of an application for an extension of
time, he could refuse to act upon the Engineer's notification and seek to
persuade the Engineer or arbitrator that the delay fell within clause 44. If the
Contractor acts upon the notification and subsequently proves that the delay fell
within clause 44, the Employer may argue that the Contractor should not have
complied.
Wherever the Contractor has accelerated in order to overcome delays for which
he is not responsible, he will seek to recover from the Employer the costs of the
Page 150 of 264
acceleration. These costs will often substantially exceed the costs of the
prolongation of the contract which would otherwise have resulted. The
acceleration will often have been brought about by a notice under this clause, a
refusal to grant an extension of time or both. As a failure to comply with a notice
under clause 46.1 is a ground for the termination of the contract under clause
63.1 (Default of Contractor), Contractors are likely to comply first and argue later.
When the entitlement to an extension of time has been established, the Employer
may deny the validity of the Engineer's notice. The Contractor's options are then
either to seek to recover his acceleration costs as damages for breach of
contract by the Employer (by reason of the wrong notification by the Engineer) or
else to argue for an implied agreement to accelerate. For comment on the former
argument, see under clause 2.1 (Engineer's duties and authority).
It is important to appreciate that there is no power given to the Engineer under
the contract to order acceleration at the Employer's expense. Clause 51.1
(Variations) item (f) includes a power in the Engineer to instruct the Contractor to
"change any specified sequence or timing of construction of any part of the
Works" but, even if "sequence and timing" could be interpreted as included the
Contractor's rate of progress, the word "specified" must refer to a sequence and
timing as specified by the contract. It is submitted that a programme consented to
under clause 14.1 (Programme to be submitted) does not amount to a specified
sequence, particularly in the light of clause 14.4 (Contractor not relieved of duties
and responsibilities).
It should also be appreciated that an Engineer, as agent of the Employer, will not
necessarily have the Employer's authority to order such an acceleration. Some
circumstance, perhaps only the copying of relevant correspondence to the
Employer, is needed to demonstrate the necessary authority or ratification for the
Engineer's actions.
It is therefore necessary for a Contractor to demonstrate a variation of the
contract as distinct from a variation pursuant to the contract. He must show that
the Employer and Contractor have agreed that the Contractor should accelerate
and that the Employer would pay him so to do. One must therefore find words or
conduct on the part of the Employer or the Engineer on his behalf amounting to
an offer to vary the contract and thereby to pay for the acceleration. The actual
acceleration by the Contractor would be sufficient acceptance to produce the
binding variation. Alternatively, in UK and certain other jurisdictions, it may be
sufficient to show a request to accelerate, an acceleration in the progress of
works and some benefit flowing to the Employer in order to establish a quantum
meruit, a right to a reasonable payment for the work performed. A third
alternative and perhaps even further restricted in the jurisdictions in which it
would apply would be conduct on the part of the Employer which the Employer
intended the Contractor to rely upon and which was relied upon such that it
would be inequitable for the Employer to deny any obligation to pay the
Contractor.
Page 151 of 264
Thus, where the Engineer has required the Contractor by purported notice under
clause 46 to accelerate and/or has refused him an extension, and perhaps
reminding him of his duty to complete by the time for completion, the Contractor
may respond that he is entitled to an extension and that there are no delays
which are his responsibility. If the Engineer insists, the Contractor may
accelerate warning the Engineer of his intention to claim additional payment in
due course. This, not atypical, scenario will present an arbitrator with some
difficulties. An argument that a mere refusal of an extension of time, which turns
out to have been incorrect, amounts to an implied acceleration request is unlikely
to succeed. An arbitrator may well decide, however, that where acceleration has
been insisted upon in the face of the Contractor's denial of responsibility, the
Contractor could not realistically have refused to comply given the possibility of
termination. The Employer has benefitted by early possession (and would in any
event have been compensated for any lateness by liquidated damages) and the
Contractor has incurred significant additional costs. In such circumstances, an
award in favour of the Contractor is unlikely to do grave injustice.
The ability of the Engineer to refuse consent to the Contractor's proposed
acceleration measures could give rise to problems. If the Contractor had already
implemented measures when the Engineer issued his notice and those
measures were then rejected by the Engineer, the Contractor is left exposed to
liquidated damages and must undo the current measures and propose
alternatives. A dispute would then be inevitable. This right to interfere with the
Contractor's methods is contrary to the policy of the contract as expressed in
clause 8.2 (Site operations and methods of construction) and clause 14.1
(Programme to be submitted) which leave method strictly to the Contractor.
This clause should be read with and compared to clause 14.2 (Revised
programme). There, if actual progress and the approved programme do not
conform, the Engineer may request the Contractor to produce a revised
programme showing completion on time. Normally, a request for a revised
programme would accompany a notice under the current clause.
Given the difficulties of this clause, it is perhaps unfortunate that the Engineer,
having formed the opinion that the Contractor is in delay, is obliged to notify
under this clause. Employers would be well advised to approach this means of
spurring apparently slow contractors with considerable caution.
For cases on acceleration, see Morrison-Knudsen v British Columbia Hydro and
Power (1978) 85 DLR (3d) 186 and the decision of the English Court of Appeal in
Lester Williams v Roffey Brothers (1989) 48 BLR 69.
CLAUSE 47 : Liquidated Damages
If the Contractor fails to complete the whole or any specified Section of the
Works by the due date, the Employer may deduct or recover from the Contractor
the daily amount specified in the contract up to a given maximum amount.
Page 152 of 264
If the works are handed over on a piecemeal basis, the amount of liquidated
damages is reduced proportionately.
If appropriate, a bonus clause may be added for early completion, of which
examples are given in Part II.
This clause has been substantially altered from the 3rd Edition. Not least by the
inclusion of reference to a maximum amount of liquidated damages to be
specified in the Appendix.
47.1 In view of the international nature of the contract conditions, it has no
doubt surprised many people that the concept of liquidated damages has been
retained in the 4th Edition. There are now relatively few jurisdictions in which the
concept of a penalty being an unenforceable term survives. Even in those
jurisdictions which retain the venerable doctrine, the use of the term penalty
would have been acceptable. The House of Lords in Dunlop Tyre v. New Garage
(1915) AC 1979 accepted that the name given was not conclusive.
The limit specified in the appendix would, in the U.K. and other jurisdictions
maintaining the penalty doctrine, provide an argument that the prescribed
damages were not a genuine pre-estimate. See the comment on clause 47.2
below. The limit is not expressly optional but leaving the relevant section of the
appendix blank would doubtless remove the limit. In the U.K. at least, the use of
the term "nil" in the appendix either in respect of the daily rate or the overall limit,
could result in no recovery for delay: see Temloc Ltd v. Errill Properties Ltd (1987)
39 BLR 30.
The changes made from the 3rd Edition do not assist the working of the
liquidated damages provision. It is not clear why the simplicity of the 3rd Edition
or ICE 5th has not been pursued. The essence of an effective liquidated
damages clause is one with a very simple trigger mechanism. Two simple
questions should be asked: Has the date for completion passed? If so, is the
work complete? If not, then liquidated damages are deductible. Here, the trigger
is complicated with reference to "Time for Completion", clause 48 (Taking-Over
Certificate) and clause 43 (Time for Completion). The reference to failure "to
comply with the Time for Completion" is unfortunate as the "Time for Completion"
does not impose any obligation with which to comply. Clause 43 is relegated to
the source of the "time prescribed" whereas it is in clause 43 that one finds the
obligation to complete by any given time. The position is worsened by a conflict
between the definition of Time for Completion which refers to "the time...as
extended under clause 44" whereas clause 43 refers to "the time stated...or such
extended time as may be allowed under clause 44". In short, one refers to a
state of affairs existing at any given time whereas the other includes any future
extensions that may be allowed by the Engineer or even an arbitrator. Thus, in
the typical situation where a Contractor is in delay but disputes that it is his fault
and where applications for extension of time have been submitted, it may be
Page 153 of 264
arguable that there is no entitlement to deduct. The Employer would argue that
when the contract is read as a whole, the right to deduct is clear enough to
succeed. Nevertheless, to be sure of the matter, an Employer would be well
advised to clarify this clause.
Further, as the amount that may be deducted is defined as the number of days
between the time for completion "and the date stated in a Taking-Over
Certificate", it must be arguable that no deduction may be made until after
substantial completion has been certified. Indeed, the Time for Completion is
variable until the last extension of time has been awarded. Further, the
Employer is permitted to deduct "the amount of such damages": this phrase
suggests that the total amount of the damages needs to have been established
before deduction may take place. An Employer would counter that the final
sentence refers to the Contractor's obligation to complete the Works which, he
would say, demonstrates the intention that deduction should take place before
completion. The Contractor would be obliged to answer that the Works includes
the Defects Liability Period: see clause 49.1 (Defects Liability Period). It is
submitted that the construction contended for by the Contractor, although plainly
not intended by the draftsman is sustainable. It would be a brave Contractor,
however, that suspended or terminated under clause 69 (Default of Employer) on
the strength of deduction of liquidated damages and a robust arbitrator who
upheld the Contractor's decision.
"(which sum shall be the only monies due from the Contractor for such default)".
This statement that liquidated damages represents an exclusive remedy is
probably unnecessary in English law but is a welcome clarification in other
jurisdictions where this is far from clear. An Employer wishing to mount an
argument for recovery for delay beyond the liquidated damages will be assisted
by the words "monies due from the Contractor" and by the final sentence which
says that the "damages shall not relieve the Contractor...from any other of
his...liabilities under the contract". One problem that could result is a conflict with
clause 63.3 (Payment after termination) in the event that the delay leads to the
termination of the contract either by clause 63.1 item (a) repudiation, item (b)(ii)
non-compliance with a notice under clause 46.1 (Rate of Progress) or item (d)
persistent breach of contract. A Contractor whose contract is terminated after the
contractual completion date, would argue that the Employer's recovery is limited
to liquidated damages and seek to avoid the costs of the execution, completion
and remedying of any defects etc provided for under clause 63.3. This argument
might turn on the actual ground for termination and the precise meaning of "such
default" in clause 47.1.
In this contract, the deduction of liquidated damages is left strictly to the
Employer. In clauses 60.2, 60.8 and 60.10, the Engineer's sometimes wide
powers to deduct from the face of the certificate are carefully restrained in
relation to liquidated damages.
The Employer is entitled to deduct liquidated damages "from any monies due or
to become due to the Contractor". There is no express limitation to sums
Page 154 of 264
becoming due under this contract. Thus the Contractor has arguably agreed to
allow the deduction to take place from sums due under, for example, another
contract with the same Employer.
Bonus clauses such as the one suggested by Part II can give rise to difficulties.
For example, as the calculation of the bonus will normally be based on the period
of time between substantial completion and the contractual completion date as
extended, the Contractor may require the Engineer to consider and award
extensions of time which may be entirely theoretical because the Contractor has
in fact completed early. The wording of clause 44.1 (Extension of time for
completion) does not prevent the Engineer from granting such an extension as
the test is whether an event is "such as fairly to entitle the Contractor to an
extension". Difficulty arises when the Contractor puts forward an accelerated
programme in order to obtain his bonus and then seeks to claim extensions of
time when the Engineer, the Employer and others fail to match the programme.
This problem was considered in the case of Glenlion v. Guiness Trust (1987) 39
BLR 1989, when the Official Referee decided that whilst the Contractor was at
liberty to put forward a programme which achieved early completion, he could not
thereby impose obligations upon the designer to require the design to be ready
earlier than would have been necessary to complete on time. This is the position
in English law at present but it must be questionable whether it will be followed
elsewhere, particularly where a bonus clause has been inserted into the contract
precisely in order to encourage the Contractor to achieve the earliest possible
completion date. If the Contractor's programme had been consented to by the
Engineer under clause 14.1 (Programme to be submitted), it would be
extraordinary if the Engineer could then argue under clause 6.4 (Delays and cost
of delay on drawings) that "a time reasonable in all the circumstances" should be
judged not by reference to the approved programme but by reference to a
programme that would achieve completion on time.
In the civil law countries referred to under clause 5.1 (Languages and law), the
English concern about liquidated damages does not exist. However, under some
administrative contracts, the Administration may have additional powers to
impose penalties; this clause may be adapted to make it plain that the deductions
made are penalties and thereby the Administration may be limited to the
specified amount. With private law contracts, a Contractor is sometimes free to
argue before the courts that the damages deducted exceed the Employer's loss
in order to obtain a refund. For a brief overview of administrative law based on
the French model, see clause 5.1.
The limit to liquidated damages prescribed in the Appendix will add to the
arguments of a Contractor seeking to demonstrate that the provision represents
a penalty. They will argue, pursuant to Dunlop Tyre v. New Garage (1915) AC
1979 that as the same amount of damages could be recoverable whether a
substantial proportion of the works had been handed over on time or not, the
provision cannot represent a genuine pre-estimate of loss as the losses would be
very different in the two cases. It is submitted that an arbitrator should be
reluctant to overturn the liquidated damages provision on this ground as parties
Page 155 of 264
should be at liberty to prescribe limits to the damages recoverable. Of course, if
the provision was overturned the question would then arise as to the damages
recoverable at common law. Would they be unlimited or would the daily and
overall figures be imposed as limits to general damages? In the absence of a
breach of contract by the Employer (which would give rise to the argument that
the Employer should not benefit from his own breach), it is very difficult to
support any such limitation. Thus, an Employer wishing to escape from the limits
on liquidated damages in the Appendix, could be found arguing that the
liquidated damages scheme amounts to a penalty clause.
Two Hong Kong cases in which a minimum amount of liquidated damages was
prescribed are Arnhold & Co. v Attorney-General of Hong Kong (1989) 47 BLR
129 and Philips (Hong Kong) v Attorney-General of Hong Kong (1990) 50 BLR
122. In both cases, the liquidated damages provision, which also had a sliding
scale proportionate to the value of the works taken over, was held to be void for
uncertainty. See also the English decision in Bramall and Ogden referred to
above.
English courts will generally interpret a liquidated damages clause strictly against
the Employer seeking to rely upon it. However, if, on the one hand, the Employer
is endeavouring to avoid the clause in order to claim his actual damages or if, on
the other hand, the Contractor is advancing the clause as a limitation upon his
liability, the courts' approach might well change.
47.2 Clauses such as this have caused difficulty in the past because of the
difficulty of ascertaining the value of the part handed over: see for example
Bramall and Ogden v Sheffield City Council (1983) 29 BLR 73. One solution that
has been adopted is for the certifier to specify the value of the part taken over,
which specified value is deemed to be the value for the purposes of the clause.
Such arguments are unlikely to make much impact in jurisdictions without the
sensitivity of the English courts to penalties.
Under clause 60.3(a), the Engineer is given the power to determine the relevant
proportion of work handed over in relation to the release of retention monies. A
similar provision here would have reduced the scope for dispute as to the value
of the part.
For a comment on extensions of time for "part of the Works" see Clause 44.1
(Extension of time for completion).
CLAUSE 48 : Taking over / Substantial Completion
This clause provides for the Engineer to issue a certificate of substantial
completion, known as a Taking-Over Certificate. The Contractor notifies the
Engineer when he believes the work to be complete and the Engineer either
agrees and so certifies or specifies the works necessary to be completed before
Page 156 of 264
substantial completion. In the latter case, the Contractor receives his certificate
within 21 days of completing the listed work.
Taking-Over Certificates may be issued in respect of specified Sections or parts
of the Works, which are either complete or are incomplete but have been taken
over by the Employer.
The Engineer is given a discretion to issue an early Taking-over certificate in
respect of completed but unoccupied parts.
Early Taking-Over Certificates do not cover ground or surfaces which require
reinstatement unless the Certificate expressly says so.
Although the changes to this clause for the 4th Edition are mainly matters of
vocabulary, item (c) of sub-clause 48.2 is entirely new. The obligation in subclause 48.3 to complete outstanding work "with due expedition" is also an
innovation.
48.1 For guidance on the meaning of "substantially completed" and "practically
completed", see Hoenig v Isaacs (1952) 2 All ER 176. Substantial completion is
generally taken to refer to a sufficient degree of completion to enable the
Employer to take beneficial use of the works concerned.
"Substantial
completion" or "completion pursuant to Clause 48" must be kept distinct from
completion of "the Works" or of "the Contract". Clause 62.1 (Defects Liability
Certificate) makes it clear that "the Contract" will only be considered complete
when a Defects Liability Certificate has been issued by the Engineer. The title of
clause 33.1 (Clearance of Site on completion) and the term "Statement at
Completion" in clause 60.5 do not maintain the distinction. There is, however,
little scope for confusion.
In contracts where the Contractor is given the task of designing any part of the
Works, clause 7.2 (Permanent Works designed by Contractor) adds an additional
requirement to those set out in the current clause before substantial completion
is certified, namely, to submit and have approved by the Engineer operation and
maintenance manuals and as-built drawings.
In theory, the Contractor is only entitled to notify the Engineer of substantial
completion once the works have achieved such completion. Thus, an Engineer
may decline to produce a list of outstanding works. In practice however, the
Contractor will want to know where he stands in relation to substantial
completion; but if the Contractor gives notice too early, the Engineer may well
refuse to act.
The somewhat complex provisions concerning defects are no doubt intended
ensure that the Engineer's list is considered definitive and may only be added
in respect of new problems that emerge. Otherwise, the Contractor is entitled
his certificate once the listed works have been completed. A Contractor is
Page 157 of 264
to
to
to
at
liberty to argue, when an Engineer seeks to add a defect to the list of work to be
done prior to substantial completion, that the defect "appeared" before the
Engineer's list and thus may not now be added to the work to be completed prior
to issue of the certificate.
In the penultimate sentence, the second occurrence of "Works" should, it is
suggested, read "works".
The Taking-over certificate is significant. Firstly, in relation to the date of its
issue: under clause 20.1 (Care of Works), responsibility for care of the works
passes to the Employer; under clause 21.2 (Scope of cover), the Contractor's
obligation to insure the whole of the works ends; under clause 60.3 (Payment of
retention money), one half of the retention is released; and under clause 60.5
(Statement at Completion), time begins to run for the statement at completion.
Secondly, in relation to the date of substantial completion stated in the certificate:
under clause 47.1 (Liquidated damages for delay) liquidated damages cease;
and under clause 49 (Defects Liability Period), the Defects Liability Period starts
to run;
There is no mechanism for listing the outstanding work. It is submitted that a
general undertaking is sufficient under this clause, without any attempt to define
the work to be done after substantial completion. Under clause 49.2 (Completion
of outstanding work and remedying defects), there is a general obligation to
complete the work but no instruction is required. In reality, the Engineer or a
member of his team will issue snag lists and no distinction is normally drawn
between defects and work to be completed.
48.2 Alternative (c) is new to this edition and covers the (presumably rare)
situation where the Employer takes permanent occupation of an area which is
incomplete beyond merely requiring reinstatement of surfaces. It does not fit
conveniently into clause 48.2 because of the reference to "the procedure set out
in Sub-clause 48.1" which deals with completion and satisfaction.
This clause seems to proceed on the assumption that the Employer has a right to
take over any part of the works whether complete or incomplete. Whereas in
some contracts, early possession must be with the agreement of the Contractor,
there is no corresponding requirement here. Clause 42.1 (Possession of Site and
access thereto) deals with the giving of possession to the Contractor but does
not deal with the Employer's re-entry. Clause 47.2 (Retention of liquidated
dmages), which deals with the reduction in liquidated damages where parts are
taken over by the Employer, is also silent. The only reference to the Contractor's
agreement is in sub-clause 48.2(c) which envisages agreement between the
Employer and Contractor of use by the Employer "as a temporary measure".
Whilst a Contractor in delay or one seeking to take advantage of a bonus would
generally be content for the Employer to take early possession, a Contractor who
is on time or is somehow in dispute with the Employer may well wish to exclude
him until the time for completion. As discussed under clause 42.1 (Possession of
Page 158 of 264
Site and access thereto), unless the contrary is stated, construction contracts
assume that possession is given to the Contractor until the works are
substantially completed whereupon possession is returned to the Employer.
Clause 51.1 (Variations) item (b) makes it clear that the Employer is not entitled
to omit elements of the works in order to do the work himself or by another
contractor. The Contractor might have a case for alleging repudiation if the
Employer retakes possession of an incomplete part of the site without the
Contractor's consent. (If the Employer through the Engineer issues a variation
lawfully omitting the balance of the work to the relevant part of the site, then the
part is not incomplete and item (c) does not apply). The Employer's answer will
be to point to item (c) and argue that it shows the intention of the contract to be
that the Employer may retake incomplete parts of the works and that the
Contractor is compensated by a right to early substantial completion of the part
and early release of the corresponding retention money. Even if this is right, there
remains the anomaly in relation to the omission of the incomplete work. Thus it
would have been helpful if this point had been made clear. ICE 6th also now
addresses premature use by the Employer in a similar fashion.
If the Employer causes delay by his occupation, clause 44.1 (Extension of time
for completion) item (d) "any delay, impediment or prevention by the Employer"
may apply but if the contract allows such occupation or the Contractor has
agreed to it, the Engineer may refuse.
A Taking-Over Certificate for a Section or part triggers the release under clause
60.3 (Payment of retention money) of a proportionate amount of retention.
However, it has no relevance to the final release of retention or the grant of a
Defects Liability Certificate under clause 62.1 as these both refer to the expiry of
the last Defects Liability Period.
48.3 This clause gives the Engineer a discretion to issue a Taking-Over
Certificate where a part is complete but not occupied by the Employer. Contrast
the obligation to certify under the preceding sub-clause.
This clause does not relate back to the procedure at clause 48.1 and is not
initiated by a notice or request by the Contractor. Thus the Engineer has power
to take over part of the works whether or not the Contractor wishes to lose
possession of it and whether or not the Employer wishes to take occupation. It is
difficult to see that the Engineer would exercise his discretion under this clause in
any other fashion than at the request of and pursuant to the interest of the
Employer but this would seem to run counter to clause 2.6 (Engineer to act
impartially).
It is not difficult to envisage circumstances in which the Contractor might wish to
postpone the issue of a Taking-Over Certificate. For example, if the Contractor
believes that a defect existed in the work which would disrupt the Employer's use
and occupation of the works, the Contractor may well regard the liquidated
damages as a welcome ceiling to his liability. After substantial completion, the
Employer would be entitled to unlimited general damages to the full extent of his
Page 159 of 264
loss. In a project which had already experienced considerable delay, for example,
the limit of liquidated damages might have been reached in which case any
additional delay prior to substantial completion would involve the Contractor in no
further damages. The question therefore arises as to whether the Contractor is
able to prevent the issue of a Taking-Over Certificat.
Under sub-clause 48.1, the machinery is triggered by a notice from the
Contractor. Under sub-clause 48.2, the matter is not beyond argument: there is
the reference to the procedure in sub-clause 48.1 but it would be hard to
construe the Contractor's request as a condition precedent. Under sub-clause
48.3, the Contractor is not involved and apparently the Engineer may act upon
his own initiative. This however does not apply to the whole of the works. The
Contractor has an additional control in relation to the whole of the works in
projects where the Contractor was obliged to provide part of the design. Under
clause 7.2 (Permanent works designed by Contractor), the provision of operation
and maintenance manuals is expressed as a condition precedent.
It is submitted that a Contractor wishing to take advantage of the liquidated
damages provision as a limitation of his liability is in some difficulty: the Engineer
might well consider it consistent with his duty of impartiality to grant substantial
completion of the great majority of the works that was complete regardless of the
Contractor's wishes. If the Contractor endeavoured to delay substantial
completion by stopping or slowing down the works, the Employer would have a
number of remedies including clause 46.1 (Rate of progress) and clause 63.1
(Default of Contractor).
48.4 Reinstatement has presumably to be distinguished from repair and
maintenance, particularly in circumstances where the Employer has moved onto
and is making use of the surface concerned. On road projects, the wearing
course is sometimes left off when the Employer first takes occupation so that,
shortly before the works are complete as a whole, the entire project can be
brought up to the same standard with the wearing course being laid for the whole
project. Although it is not clear, the natural meaning of the sub-clause is that the
requirement for reinstatement is to be judged as at the date of the Taking-Over
Certificate.
48.5 Part II provides an optional clause for the situation where the Tests on
Completion cannot be carried out prior to taking-over. It introduces a deemed
taking over on the date established by the Engineer's taking-over certificate as
the date on which the Tests on Completion would have been completed.
Compared with the normal taking-over certificate, which states the date on which
in the Engineer's opinion the Works were substantially complete, this formula
seems even more likely to give rise to dispute. For example, if the test on
completion is carried out during the Defects Liability Period and the work fails the
test, is the taking over certificate open to challenge on the grounds that the test
would not have been "completed" until the works had been remedied and had
passed the test? There is also an unnecessary proviso which could simply say
that the Works should otherwise be substantially complete. The phrase
Page 160 of 264
"...substantially in accordance with the contract" might merely mean that such
works as have been performed are not defective.
The tests are to be carried out in the Defects Liability Period. It may have been
sensible to give the Employer the option to dispense with that, particularly as the
Contractor can claim additional costs for carrying the tests out later. This
proposed sub-clause is ambiguous as to whether the Employer is being granted
an option to dispense with the requirement that the tests are carried out prior to
the taking over certificate. This could be important as, for example, an Employer
whose actual losses were greater than the liquidated damages provided for delay
to the works could increase his recovery by taking over the works as soon as
possible. This sub-clause is, it is submitted, ill thought-out and parties would be
unwise to use it without substantial amendments.
CLAUSE 49 : Defects Liability Period
This clause defines the Defects Liability Period as an agreed period, usually six
or twelve months running from the date or dates of the Taking-Over Certificate(s).
The Contractor is obliged to complete any outstanding work and remedy any
defects during or shortly after this period.
Unless any remedial work undertaken by the Contractor was due to a cause
which was not the Contractor's responsibility, he receives no extra payment for
works executed during this period. If the Contractor remedies defects not of his
making, he is paid as if the work was a variation.
If the Contractor fails to carry out the remedial works within a reasonable time,
the Employer can take on alternative contractors to execute the works and
charge the Contractor the cost of remedying the Contractor's defects.
In the 4th Edition, the "Period of Maintenance" has become the Defects Liability
Period. This change in name appears to have occurred to avoid any suggestion
that the Contractor is obliged to carry out maintenance as distinct from remedial
works after substantial completion. Clause 49 has retained the structure and the
broad principles of the 3rd Edition but the vocabulary has changed extensively.
The reference to design in item (b) of sub-clause 49.3 is the most material
addition.
49.1 There is a school of thought that if you have a clause such as clause 1.1
entitled "Definitions", then all definitions should be contained there. That view is
reinforced by the fact that the Defects Liability Period is referred to in some
thirteen clauses throughout the contract.
"...the expression "the Works" shall be construed accordingly". It is far from clear
what effect these words are intended to have or indeed have. The definition of
Page 161 of 264
Works at clause 1.1(f)(i) includes the Permanent Works. It is also qualified by the
phrase in the opening sentence of clause 1.1 "except where the context
otherwise requires". The draftsman is no doubt addressing here the conflict
arising at first sight from the definition of the Defects Liability Period as starting
on "the date of completion of the Works".
The Defects Liability Period most frequently seen in the Appendix to civil
engineering contracts is one year.
49.2 There is no provision for the outstanding works to be listed or otherwise
identified. In practice, however, this may not cause particular difficulty. The
statement of intent in relation to the state of the works at the end of the Defects
Liability Period is of little apparent relevance to the obligation to complete
outstanding work as soon as practicable after the date in the Taking-Over
Certificate consistent with the undertaking given under clause 48.1 (Taking-Over
Certificate).
Sub-clause (b) contains no time limit upon the Contractor for executing the
remedial works save by implication from the statement of intent. Nevertheless,
failure to carry out works instructed within a reasonable time has the
consequence that the Employer may employ others under sub-clause 49.4
below.
It is a question of construction whether the terms "amendment, reconstruction"
are governed by the words "other faults" or whether amendments or
reconstructions which do not derive from defective design, materials or
wokmanship and amount to variations may be instructed by the Engineer during
the Defects Liability Period. The right to order variations under clause 51.1
(Variations) is not expressly limited in time and therefore the Contractor may
have no right to object to variations being ordered during the Defects Liability
Period. The obligation upon the Contractor to carry out variations may only end
upon the granting of the Defects Liability Certificate under clause 62.1. This
might come as a considerable surprise to a Contractor who demobilises in the
usual way after the Taking-Over Certificate has been issued. For further
discussion on whether the Engineer may issue variation instructions after
substantial completion, see the commentary under clause 13.1 (Work to be in
accordance with the contract).
It is obviously in the Employer's interests to have a right to take advantage of the
presence and knowledge of the Contractor to remedy faults arising through
design, the Employer's own direct works or other causes which are not the
responsibility of the Contractor. Perhaps surprisingly, the Engineer is given a
discretion as to whether or not to order remedials which seems to extend to
defects which are the Contractor's responsibility. As instructions are not expressly
referred to in clause 2.6 (Engineer to act impartially), the Engineer will often be
required to follow the wishes of the Employer. (See however the commentary
under clause 2.6 and the argument that all of the Engineer's functions are
covered by the impartiality obligation.) This raises issues of mitigation: is the
Page 162 of 264
Employer entitled to employ another contractor to execute the remedials? If so,
has he any right to recover damages from the Contractor? It is submitted that the
Engineer's discretion is limited to whether the remedials are necessary and the
means of carrying out the work. As the work is part of the contract, the Contractor
has the right to do it. Compare the right to omit work, now expressly limited by
clause 51.1 (Variations) item (b). If remedial work was given to another contractor
and the Employer sought to recover the cost from the Contractor as damages for
breach, the Contractor's response would be that the Employer was also in breach
with the result that the Employer may recover no more than the cost to the
Contractor would have been if he had executed the work. It is arguable that the
Employer should recover none of the costs incurred in breach of contract but as
the Contractor was himself in breach by executing work defectively, this position
is more difficult to sustain. If the Contractor is able to demonstrate that the
remedial work would have cost him nothing as subcontractors would have
executed it as part of their remedial obligations, it is submitted that the Employer
is in greater difficulty.
See clause 20.3 (Loss or damage due to Employer's risks) where a similar
discretion is given and clause 65.3 (Damage to Works by Special Risks) where
the Contractor appears to have been given the right to rectify, perhaps
inadvertantly. See also the commentary under those clauses. This clause should
also be read with clause 64.1 (Urgent remedial work). For discussion of the
Engineer's power to waive strict compliance with the specification, see the
commentary under clause 2.1 (Engineer's duties and authority) and clause 13.1
(Work to be in accordance with the contract).
49.3 The reference to implied obligation is one of the areas in the contract in
which the parties are exposed to the vagaries of the law of the contract, usually
the law of the country in which the works are being executed. The opportunity of
the overhaul of the conditions leading to the publication of the 4th Edition was
unfortunately not used to make express some of the commonly accepted implied
terms of the contract in order to reduce the necessity to research and apply local
laws.
If the Contractor is instructed to carry out remedial work which he believes to be
due to a cause for which he is not responsible, it is submitted that he has no
obligation to say so other than in accordance with clause 53.1 (Notice of claims),
that is within 28 days of the event, here the instruction. The notice requirement in
clause 52.2 (Power of Engineer to fix rates) relates to "work instructed to be done
by the Engineer pursuant to Clause 51". Whilst remedial work additional to that
due to the Contractor's faulty work, design etc. may fall within clause 51.1, the
instruction is pursuant to sub-clause 49.2 and not clause 51. This may be
something that Employers would wish to change as a very different attitude may
be taken to the repair of defects if they are not to be at the cost of the Contractor
but rather the subject of a claim. There will be defects the cause of which cannot
be established until opened up, such as those addressed under clause 50.1
(Contractor to search): the Employer will have to make an informed guess in the
case of non-essential remedials as to whether he will have to pay for the work. In
Page 163 of 264
practice, defects are most likely to be due to workmanship or materials problems.
It is comparatively rare that a problem is obviously and exclusively due to faulty
design: as a consequence, many disputes derive from the grey area between
design and workmanship.
If the Contractor is instructed to do work that does not fall within sub-clause
49.2(b), such as dealing with "fair wear and tear", he is unable to recover under
this sub-clause. Clarification should be sought as to the basis for the instruction.
In view of the doubt over the ability of the Engineer to order variations after
substantial completion, the Contractor should seek to ensure that the Engineer is
authorised by the Employer to require the work: thus, under English law at least,
the Contractor would be entitled to be paid for the work. To be certain, the
Contractor should obtain written agreements from the Employer in relation to
work of this sort falling outside the contract.
For a comment comparing the treatment of this clause with the other "loser pays"
clauses, clause 36.4 (Cost of tests not provided for), clause 38.2 (Uncovering
and making openings) and clause 50.1 (Contractor to search), see under clause
36.5 (Engineer's determination where tests not provided for).
49.4 This clause relates to the failure of the Contractor to carry out "such
instruction". This can only refer to sub-clause 49.2 (b) as that is the only
reference to an instruction. Clause 48.1 (Taking-Over Certificate) imposes the
deemed obligation to complete outstanding work "with due expedition" and subclause 49.2(a) requires the work to be done "as soon as practicable".
The insertion of "within a reasonable time" is new to the 4th Edition. When
construing what is a reasonable time, one should arguably consider the
statement of intent at the outset of sub-clause 49.2. Thus it could be said that
any time within the Defects Liability Period would be reasonable even for
repairing faults instructed at the beginning of the period. It is submitted that the
judgement of what is reasonable must also take into account the Employer's
need for a fully complete project as soon as possible and the Contractor's ability
to execute the remedial work.
In view of the fact that an alternative contractor will almost invariably cost the
Employer more than having works executed by the Contractor, it is strange that
the Employer's entitlement to reimbursement under this sub-clause is limited to
circumstances where the defect is found to be the responsibility of the
Contractor. As the Employer is entitled by sub-clause 49.2 (b) to require the
Contractor to execute remedial works which are not the Contractor's
responsibilty, the Employer would wish to be reimbursed the additional costs of
employing an alternative contractor to execute such works. The question is
therefore whether it is intended that this sub-clause provides all of the Employer's
remedies or whether the Employer is free to pursue the extra cost by way of
damages for breach of sub-clause 49.2(b). Although this sub-clause sets out to
prescribe the consequences of the Contractor's failure, it is submitted that the
Employer may pursue damages. This is because the draftsman used very clear
Page 164 of 264
words when in clause 47.1 (Liquidation damages for delay) he wished to indicate
that the provision was intended to be exhaustive. There are no equivalent words
here but the matter is certainly not beyond argument.
Part II provides an optional sub-clause 49.5 for projects which incorporate a high
proportion of machinery. If machinery is replaced, the Defects Liability Period
starts running again. The period will cease to run during any period that the
works are out of action due to a defect. The provisions are subject to a two year
maximum for the Defects Liability Period.
CLAUSE 50 : Search for Cause of Defect
This clause permits the Engineer to instruct the Contractor to search for the
cause of a defect emerging during the Defects Liability Period. Depending on
whose responsibility the fault turns out to be, the Contractor either bears the cost
himself or receives additional payment.
Although reorganised and translated into the language of the 4th Edition, the
clause remains similar to the 3rd Edition. "Shrinkage" has been introduced in the
place of "imperfection".
The clause gives the Engineer power to instruct the Contractor to undertake
searches both before and after substantial completion. The phrase "at any time"
replaces the more specific provision contained in the 3rd Edition. In any event,
the power to give instructions is more than adequate to enable the Engineer to
cause the Contractor to investigate problems prior to substantial completion,
even without the express powers in clause 38.2 (Uncovering and making
openings) and clause 39.1 (Removal of improper work, materials or Plant).
This clause is probably unnecessary in relation to searches in the Defects
Liability Period given the provisions in clause 49 (Defects Liability) for obliging
the Contractor to remedy defects which are not of his making. However, without
this clause, the Contractor could decline to search or carry out any extra work in
the absence of proof that a defect for which he was responsible existed on the
ground that there is no express power to issue instructions amounting to
variations after substantial completion. Whether this argument is right or wrong,
this clause serves to put the matter beyond doubt. For a discussion of this issue,
see the commentary under clause 13.1 (Work to be in accordance with the
contract).
If the Defects Liability Period expires while a search is under way, clause 62.1
(Defects Liability Certificate) provides for the postponement of the Defects
Liability Certificate until the work has been completed to the Engineer's
satisfaction. By clause 60.3 (Payment of retention money), the Engineer may
withhold enough retention to cover the cost of the search and rectification work.
As it is only the "costs of such search" that are recoverable, the financing costs
relating to the retention appear to be irrecoverable.
Page 165 of 264
This clause provides for the Contractor remedying the cause of the defect only if
it is his responsibility. In any other case, an instruction could be issued prior to
substantial completion or clause 49.2(b) could be invoked during the Defects
Liability Period.
Similar provisions appear at clause 36.4 (Cost of tests not provided for) and
clause 38.2 (Uncovering and making openings). In both cases, tests or
uncovering are undertaken on the basis that if the work revealed is defective, the
Contractor pays for such test or uncovering, otherwise the Engineer determines
an appropriate extra payment. Under clause 38, it is not necessary to have a
defect in order for the Engineer to be able to order action, as here. For a
comment comparing the treatment of this clause with the other "loser pays"
clauses, clause 36.4, clause 38.2 and clause 49.3 (Cost of remedying defects),
see under clause 36.5 (Engineer's determination where tests not provided for).
CLAUSE 51 : Variation / Additions / Omissions
This clause empowers the Engineer to order additions, omissions and/or
changes to the Works. Such variations are to be valued in accordance with
clause 52 unless the need for the variation arose through some default of the
Contractor.
The Contractor should obtain a written instruction from the Engineer unless the
variation is simply an increase or decrease in the quantities stated in the bill of
quantities.
The 4th Edition contains some important amendments, particularly to sub-clause
51.1, including protection in sub-clause 51.1(b) for the Contractor from abuse of
the right to omit work, a new item (f) allowing variations to the specified sequence
or timing of construction and a proviso making it plain that variations necessitated
by the Contractor's breaches will not be paid for by the Employer.
51.1 Unless the Engineer's authority is limited in Part II in relation to clause 2.1
(Engineer's duties and authority), this clause authorises him to make any
variation which in his opinion is necessary or appropriate. If a Contractor does
not believe the work to be either necessary or appropriate, he may challenge the
Engineer's opinion under clause 67 (Disputes). If a Contractor is confident that
the variation called for is beyond the power of the Engineer and thus beyond the
Employer's right to require variations, he will be free to refuse the work or
negotiate a fresh price for the work. This route may be one alternative open to a
Contractor wishing to escape from the rates in the contract. If an arbitrator
reviewing the Engineer's opinion agreed with the Contractor, the work executed
would no longer be varied work within the contract and the arbitrator would be
free, under English law at least, to award a quantum meruit or reasonable sum in
respect of the work performed. Doubtless the rate quoted by the Contractor
Page 166 of 264
would be one factor which the arbitrator would consider in selecting a reasonable
rate.
However, the Employer might be able to disown the variation as unauthorised as
the Engineer's authority under this sub-clause is limited to ordering necessary
and appropriate variations. As the Employer has the benefit of the work and an
ability to recover from the Engineer for any breach of his terms of engagement
and as the Contractor has incurred the cost of executing the variation, the
Employer's argument will generally be unattractive. If the Employer had notice of
the variation order before the work was executed and did nothing to prevent it, he
will doubtless be taken to have ratified the Engineer's action. Ratification could
also be found in the subsequent conduct of the Employer. Although he does not
receive a copy of the Contractor's notice under clause 52.2 (Power of Engineer to
fix rates), he would normally receive one of the copies of the Contractor's
monthly statement under clause 60.1. A lack of response to knowledge of the
variation could be taken as ratification even if the knowledge came too late to
prevent the work being executed.
Is the Employer entitled to challenge a variation issued by the Engineer other
than on the ground that it was not necessary or appropriate? If the Engineer is
obliged by his terms of engagement to obtain the approval of the Employer for
variations and that obligation is recorded in Part II to clause 2.1 (Engineer's
duties and authority), it is made clear in clause 2.1 that the Employer may not
subsequently challenge the variation on the ground of lack of approval. Rather,
the matter should be resolved between the Employer and the Engineer. If Part II
is silent, this sub-clause expressly authorises the Engineer to issue necessary or
appropriate variations. Variations are not specifically referred to in either clause
1.5 (Notices, consents etc.) or clause 2.6 (Engineer to act impartially), so that it
could be argued that the variation has been made by the Employer's agent and
therefore has in effect been issued by the Employer who should not be entitled to
seek to escape his own action. However, under both clause 67.1 (Engineer's
decision) and clause 67.3 (Arbitration), the Engineer's instructions are open to
challenge by the Employer as much as by the Contractor. The Employer may
therefore argue, for example, that the work the subject of the variation was part
of the original contract works and thus not a variation at all. It is submitted that
the Employer's right to challenge is limited to questions of the Engineer's
authority, that is where the Employer disputes the necessity or appropriateness
of the variation or claims that the work was already part of the contract.
In view of the breadth of the Contractor's obligation to comply with the Engineer's
instructions "on any matter, whether mentioned in the Contract or not, touching or
concerning the Works" under clause 13.1, it is perhaps remarkable that the
Employer's whim is so poorly catered for under the present sub-clause. The
opinion of the Engineer is expressly covered by clause 2.6 (Engineer to act
impartially) and is also challengeable under clause 67.1 (Engineer's decision)
and clause 67.3 (Arbitration). The position is therefore arrived at whereby the
Contractor is entitled to challenge the Engineer's opinion as to the
appropriateness of a variation arising from the Employer's whim. To pursue an
Page 167 of 264
earlier example, the Contractor could challenge the Employer's desire to have
yellow rather than white road markings.
This extraordinary conclusion survives even when clauses 7.1 and 13.1 and this
sub-clause are read together. The wide terms of clause 13.1 could arguably be
limited to matters touching or concerning the existing "Works" as built or as
designed and not extend to variations of those Works. If the clause was to be
interpreted otherwise, the use in clause 7.1 and this sub-clause of terms such as
"necessary" and "appropriate" would be otiose. This matter, which appears to
have received no consideration by the draftsman of the 4th Edition, needs to be
resolved.
In administrative contracts under civil law systems of the sort referred to under
clause 5.1 (Languages and law), the Employer and Engineer are limited in the
variations they may instruct by the public interest and the scope of the contract,
in a manner similar to the English common law: wholly new work, as distinct from
additional work, may not be ordered. The distinction between new work and
additional work will depend upon the nature of the project and the capacity of the
Contractor. Administrative law provides for the compensation of the Contractor
for variations imposed, independantly of the terms of the contract. The law of the
country may impose limits on the value of variations that may be ordered: for
example, Kuwait's Tender Law requires variations of more than 5% to be referred
back to the Central Tenders Board for approval.
"..any variation...that may, in his opinion, be necessary...". A question that
frequently arises in practice is whether the Engineer is obliged to instruct in any
given circumstances. There are some 19 clauses in the contract which empower
the Engineer to issue instructions of which only this clause and three others
arguably impose an obligation to instruct. The other clauses are:-
clause 5.2 (Priority of contract documents) where the Engineer is
obliged to instruct in respect of ambiguities;
-
clause 27 (Fossils) where the Engineer seems obliged to instruct the
Contractor upon the find; and
-
clause 48.1 (Taking-Over Certificate) where the Engineer is either to
grant the certificate or instruct the Contractor as to the work to be
completed prior to substantial completion.
Apart from the particular situations addressed by the above three clauses, the
Engineer's general discretion is fettered, if at all, by the terms of this sub-clause.
As commented under clause 2.6 (Engineer to act impartially), it is certainly
arguable that the Engineer's discretion under the current sub-clause is governed
by 2.6 item (d) "taking action which may affect the rights and obligations" of the
parties. However, unless one is to draw a distinction between those variations
which are simply additional requirements of the Employer and variations from
any other source, one has to conclude that variations were not intended to fall
Page 168 of 264
within clause 2.6. (See however the commentary under clause 2.6 and the
argument that all of the Engineer's functions are covered by the impartiality
obligation.) If one struggles through the syntax of the opening sentence of this
sub-clause there is some support for such a distinction. On the one hand, the
Engineer is to make variations that may in his view be necessary; on the other,
he may make variations which for any other reasons are appropriate.
Presumably, the Employer's whim, for example, to have yellow rather than white
lines on his new stretch of road is intended to fall within this latter category.
For discussion on whether the Engineer may issue variation instructions after
substantial completion, see the commentary under clause 13.1 (Work to be in
accordance with the contract). This matter has sensibly been put beyond doubt in
ICE 6th by the simple statement that "such variations ...may be ordered during
the Defects Correction Period". A similar clarification is recommended for the
current clause.
"(a) increase or decrease the quantity of any work." Taken in isolation, this
phrase includes a simple increase in the quantities over those set out in the bills
of quantities. But the Engineer would not normally instruct a change in quantities
in a remeasurement contract. See sub-clause 51.2, which makes it clear that no
such instruction is required; and the commentary under that sub-clause for the
argument as to whether a simple change in quantities amounts to a variation.
"(b) omit any such work (but not if the omitted work is to be carried out by the
Employer or another contractor)." A welcome addition to the 4th Edition is
making express what has been established in Australia at least, namely that
omissions must be genuine. Otherwise, an Employer could remove part of the
works from the Contractor if he found an alternative contractor able to do that
part of the work more cheaply. In the Australian High Court decision of
Commissioner for Main Roads v Reid (1974) 12 BLR 55, it was held that the
Contractor had a right to do the entirety of the works subject to the entitlement of
the Employer to make proper variations. It will undoubtedly be a difficult line to
draw: does a financing problem make the omission of works that the Employer
can no longer afford proper? Does the fact that the Employer has had the work
done after the completion of the contract works necessarily mean that he is in
breach? It is submitted that the question will have to be judged by the perceived
intention of the Employer at the time the instruction omitting the work was given.
Certainly, this clause has not removed the difficulty entirely.
An alternative view to that expressed by the Australian High Court is to say that
the Employer should be entitled to omit what he wishes providing the Contractor
is duly compensated. This has the merit of avoiding strained interpretations of
clauses which do not have express exceptions such as that in the present
clause. In valuing the variation, the Engineer would compensate the Contractor
for the loss of overhead and profit recovery by, for example, deducting 90% only
of the price of the omitted work. With a remeasurement contract, this is not
normally possible so that either the 10% must be added or some element of the
remaining work must be re-rated.
Page 169 of 264
This clause should be read with clause 40.3 (Suspension lasting more than 84
days) whereby the Contractor may, after giving notice, treat a part of the works
suspended for 12 weeks as having been omitted.
"(e) execute additional work...necessary for the completion of the Works". It could
be objected that the Contractor has already agreed to do everything necessary.
See, for example, clause 8.1 (Contractor's general responsibilities) or clause 12.1
(Sufficiency of tender). In reality, this obligation is much diluted by the
remeasurement mechanism of the contract and clauses such as clause 13 (Work
to be in accordance with the contract) and clause 20 (Care of Works).
"(f) change any specified sequence or timing": This addition to the 4th Edition is
more limited than may at first appear. The word "specified" means that this is
dealing only with variations to requirements set out in the contract document. It
does not, it is submitted, permit the Engineer to order acceleration. For more on
this point, see the commentary under clause 46 (Rate of progress).
"No such variation shall...vitiate...". At common law in the U.K. and elsewhere, a
variation which changed the whole character of the works, would so alter the
fundamental basis of the contract that the courts would not enforce such a
variation. A contract for a tunnel may not be varied to an airport. See for
examples the cases of Suisse Atlantique v N.V. Rotterdamsche (1967) 1 AC 361
and Chadmax Plastics v Hansen and Yuncken (1985) B&CL 52. The word "such"
refers back to (a) to (f) so the Contractor is protected. The requirement that
variations should be necessary or appropriate also provides a safeguard. It will of
course be borne in mind that the Engineer has power to vary under the contract
and not the contract itself, which can only be varied with the agreement of the
Employer and the Contractor. Any change which is outside the power of the
Engineer must therefore be negotiated.
An apparent omission from the proviso is the situation where a variation is
requested or suggested by the Contractor in order to improve the design, reduce
costs or save time.
51.2 The Engineer's instruction need not initially be written as clause 2.5
(Instructions in writing) allows for oral instructions. Written confirmation may be
obtained at any time after the instruction has been given and indeed may even
be obtainable from an arbitrator.
No instruction is required for simple changes in quantities from those stated in
the bill of quantities. As this is a remeasurement contract, changes in quantities
do not need special treatment. It is arguable that changes in quantities due to
the inevitable inaccuracy of some items in the bills, sometimes called "automatic"
changes in quantities, are variations.
The importance of this argument relates to whether a Contractor is entitled to
attempt to escape from the rates contained in the contract and claim additional
Page 170 of 264
payment under clause 52.2 (Power of Engineer to fix rates) where the actual
quantities found on site have exceeded those set out in the Bill of Quantities. It
will be recalled that, under clause 55.1 (Quantities), the quantities in the Bill "are
not to be taken as the actual and correct quantities". The actual quantities are to
be measured under clause 56.1 (Works to be measured) which also states that
the value of the Works will be arrived at in that fashion. The Contractor is
therefore paid under clause 60.2 (Monthly payments) for the actual quantities
executed.
Under clause 52.1 (Valuation of variations), variations are to be valued at the
rates in the Bill if "applicable". Under 52.2 (Power of Engineer to fix rates), if the
Contractor can show that "the nature or amount of any varied work" makes the
Bill rate "inappropriate or inapplicable", he is entitled to a new rate. The first
hurdle for the Contractor is therefore to show that the change in quantities
amounts to "varied work".
An Employer would argue that the purpose of clause 52.3 (Variations exceeding
15%) and the express reference to adjustments of the estimated quantities
contained there is to compensate the Contractor, if appropriate, in the event of a
serious difference between the estimated and actual quantities. This purpose, it
would be said, would be defeated if the Contractor was entitled to claim a new
rate whenever the actual and estimated quantities differed. The Employer would
interpret the present sub-clause as the draftsman's indication that changes and
quantities are not variations as instructions are not required in relation to such
changes.
It is submitted that the Employer's arguments are ill-founded. An increase or
decrease in the quantities of work is included at sub-clause 51.1(a) as being the
subject matter of a variation. The inclusion of "automatic" changes in quantities in
the current sub-clause and in clause 52.3, both of which are concerned with
variations indicates the draftsman's thinking. (When referring to the draftman's
thinking, it cannot go unremarked that the draftsman of the current edition
appears to have done very little in this respect. This particular problem has been
notorious since at least the second edition of this form and it is quite
extraordinary that the opportunity has not been taken to resolve this matter once
and for all and thus bring to an end the inevitable disputes that are generated by
this uncertainty.)
For cases which address this issue and which come to different conclusions, see
Arcos Industries v Electricity Commission of New South Wales (1973) 2 NSWLR
186 12 BLR 65, where the New South Wales Court of Appeal decided that a
shortfall in quantities in a Schedule of Rates Quantities with estimated quantities
and what was described as a "total price" did not amount to a variation; the Privy
Council in Mitsui v Attorney-General of Hong Kong (1986) 33 BLR 1, which
decided that quantities in excess of those anticipated were variations; and J.
Crosby & Sons v Portland UDC (1967) 5 BLR 121 in which an English High Court
judge decided that an increase in quantities under ICE 4th Edition amounted to a
variation.
Page 171 of 264
A further relevance of the issue as to whether automatic changes in quantities
amount to variations may be in relation to extensions of time. Under clause 44.1
(Extension of time for completion), "the amount or nature of extra or additional
work" is the first ground for extension. It may be arguable on the Employer's side
that although no express mention of variation is made in clause 44.1, the
correlation between the wording of clause 44.1(a) and clause 51.1(a) and (e) is
sufficient to make it plain that it is only variations for which extensions of time
should be granted.
It has been submitted that automatic changes in quantities fall within the
definition of varied work. If that is not correct, the question is whether an
automatic change in quantities could nevertheless entitle the Contractor to an
extension of time in appropriate circumstances. The term "additional" is to be
found in clause 51.1 (e) but the term "extra" is used only in clause 52.2 (Power of
Engineer to fix rates) in relation to extra payment. To what then does
"extra...work" refer? Extra to what? The answer may be extra to that work which
the Contractor contracted to perform. If the Contractor agreed to perform
whatever quantities are necessary to complete the works, (hence the lack of any
need for an instruction under the current sub-clause), that would rule out any
extension of time. If the answer is extra to the quantities of work which the
Contractor was obliged to price for in the Bills of Quantities, then an increase in
quantities could give rise to an extension of time.
It is submitted that justice would be done if an extension of time could only be
granted in relation to provisional quantities. For example, if the parties were not
sure of the amount of rock that would be found in excavations, and a provisional
quantity was included for excavating rock, the Contractor, in deciding what
allowance to make in his programme for excavation of rock, would not be
unreasonable in alighting on the provisional quantity given. Thus, when the
quantity increased, it would be just to grant an extension of time. In normal
circumstances were the works have not changed in any way from what was
anticipated but the quantities simply happen to be different, it is difficult to see
that an extension of time can be justified. The answer, it is submitted, therefore
lies in an interpretation which includes automatic changes of quantities within
clause 44.1, regardless of whether it is varied work within clauses 51 and 52. The
Engineer has ample discretion within clause 44.1 to grant or refuse extensions of
time as justice demands. For a discussion of the allowance the Contractor is to
make in his programme for works which are the subject of provisional sums, see
under clause 58.1 (Definition of "Provisional Sum").
Just as the adjustment that might be made under clause 52.3 might be adverse
to the Contractor where the increase in the work has meant an over-recovery in
relation to his plant and overhead costs, so the Engineer under clause 52.2 could
decide that the rate in the bills should be adjusted downwards owing to the
increase in quantity.
Page 172 of 264
In their Guide, FIDIC suggest that the parties include in Part II a variations
procedure which would cover authorisation by the Employer and agreement of
cost by the Engineer and the Contractor, in advance of the final decision to issue
the variation and prior to the execution of the works, where circumstances permit.
CLAUSE 52 : Value of Variations
The value of variations is ascertained by this clause. The starting point is that
the rates and prices set out in the contract should be used as far as possible,
failing which suitable alternative rates are either agreed or fixed by the Engineer.
While the discussions proceed, the Engineer is required to make on account
payments to the contract for the varied works.
If it would be unfair to continue to use the rates contained in the contract for a
given variation because of its nature or amount, a new rate is agreed or fixed by
the Engineer. Again, he is to make on account payments. However, the
Contractor must give notice within 14 days of the instruction and before he starts
the work if he intends to claim extra payment for the variation. Similarly, the
Engineer must give notice in the case of an omission.
If at the end of the project, it is found that the variations amount to more than
15% of the contract price (as adjusted), an addition or omission to the contract
sum may be agreed or determined by the Engineer in respect of the Contractor's
overheads.
The Engineer is empowered to issue instructions that variations be executed on
daywork, at the rates and prices set out in the contract. Detailed provision is
made for the proving of the amount of labour and materials involved.
This clause has been extensively altered and re-arranged. In particular, clause
52(5) of the 3rd Edition has become clause 53 (Procedure for claims). Whilst the
changes to sub-clause 52.4 are mainly matters of vocabulary, the first three subclauses are more fundamentally altered.
52.1 If the rates are "applicable", they should be used. If not, they should be
used as far as "reasonable" to agree a "suitable" rate. Failing agreement, the
Engineer fixes an "appropriate" rate. It is not clear what "applicable" means nor
what "suitable" and "appropriate" mean or whether there is any difference
between them. In the 4th Edition, "appropriate" has replaced "reasonable and
proper" which appeared in the 3rd Edition. In ICE 5th and 6th, the test is not
applicability but whether the work is of a similar character and executed under
similar conditions. The term "applicable" suggests a purely mechanical judgment
as to whether the rate in the bill is capable of being applied. It suggests no
judgment as to fairness. "Suitable" and "appropriate" are presumably synonyms
and import a judgment as to what is reasonable. This clause must be read
Page 173 of 264
alongside sub-clause 52.2 which deals with occasions when the nature or
amount of the varied work renders the rates "inappropriate or inapplicable".
"... additions to the Contract Price required to be determined in accordance with
clause 52". Clauses with such reference to clause 52 are as follows: clause 17
(Setting out), clause 20.3 (Loss or damage due to Employers Risks), clause 31.2
(Facilities for other Contractors), clause 49.3 (Cost of remedying defects) and
clause 65.3 (Damage to works by special risks). Other references to clause 52
are to be found in clause 51.1 (Variations), clause 58.2 (Provisional sums) and
clause 59.4 (Payment to nominated Subcontractors).
Where the Engineer fixes a rate, there can be little doubt that that the rate may
be challenged by either party. Although fixing is not referred to in clause 67
(Disputes), it is clearly a decision of the Engineer and thus not intended to be
final. An Official Referee so held in Mears Construction v Samuel Williams (1977)
16 BLR 49. A more difficult question arises in relation to a rate or price "agreed
upon between the Engineer and the Contractor". Is such an agreement open to
challenge by either the Employer or the Contractor? If the Engineer is acting as
the agent of the Employer for the purposes of such agreement, then such
agreement would be binding as there can presumably be no dispute over a
matter that has been agreed between the parties. One would feel more confident
about coming to that conclusion if it were not for the requirement for prior
consultation by the Engineer with both parties. Such consultation is associated
throughout the contract with those functions of the Engineer which he performs in
his capacity as an independent certifier. The Engineer has six functions under
this clause:(i)
(ii)
(iii)
(iv)
(v)
(vi)
the valuation of variations at the rates and prices set out in the contract;
valuation based upon the rates and prices;
forming an opinion as to the applicability of rates and prices;
agreement of suitable rates and prices;
fixing of appropriate rates and prices; and
the determination of the provisional valuation.
Of the above functions, there can be little doubt that (i), (ii), (iii), (v) and (vi) are
performed as independent certifier and there is no reason in principle why the
Engineer as certifier could not be attempting to agree a matter with the
Contractor. It is submitted, on balance, that the Employer is entitled to seek a
decision and arbitration in order to reopen such a decision. In any event, the
matter is debatable and a Contractor would be well advised to ensure that any
agreements made with the Engineer under this clause or elsewhere in the
contract have the approval of the Employer or are subsequently ratified by him.
52.2 It is not clear whether, as in ICE 5th and 6th, the conditions under which
the varied work is executed is relevant to an alteration of the rates. "The
nature...of any varied work" leaves the matter arguable. It is submitted that the
better view is that all the circumstances of the variation and, indeed, other work
directly or indirectly affected are relevant for consideration under this sub-clause.
Page 174 of 264
This sub-clause appears to address not only the rate applicable to the varied
work but the alteration of an existing rate or price. It talks of a "rate or price
contained in the Contract" which is "by reason of such varied work, rendered
inappropriate or inapplicable". Thus, if the variation comprised, say a 50%
increase in quantities in an item, this clause addresses the question whether the
rate for that item should be adjusted, and not just the rate for the additional work.
Compare sub-clause 52.3 where the whole of the value of the contract has been
increased or decreased by more than 15%. The question raised by the
comparison is quite how the two clauses interrelate. If this sub-clause allows
rates to be departed from, with adjustments limited only by what is appropriate,
what is the purpose of sub-clause 52.3? The answer is that there may be an
accumulation of variations and changes in quantities, none of which qualify under
sub-clause 52.2 for re-rating. In that case, sub-clause 52.3 applies. Where the
15% includes variations that have been re-rated, the exception in sub-clause
52.3 operates: "(subject to any action already taken under any other Sub-Clause
of this Clause)". Dayworks under sub-clause 52.4 are ruled out by item (b).
The works may be varied by the omission of work. In a remeasurement contract,
the effect is that the work is not done and therefore is not measured or paid for.
Yet, this sub-clause indicates that the omission may not be valued unless notice
is given by the Engineer or by.the Contractor. As this cannot mean that the
Contractor is to be paid for work not performed in the absence of notice, it is
presumably envisaged that the Contractor may wish to claim in respect of the
overhead and profit elements of the price for the omitted work. It is submitted that
this is the correct interpretation and one that produces a fair result.
The Engineer's functions under this sub-clause are as follows:(i)
forming an opinion whether rates or prices are "inappropriate or
inapplicable";
(ii)
the agreement of suitable rates or prices;
(iii)
the fixing of appropriate rates and prices;
(iv)
the determination of provisional valuations;
(v)
giving notice of his intention to vary the rate or price.
For a discussion of the capacity in which the Engineer reaches agreement with
the Contractor, and the Employer's ability to reopen such agreements, see under
sub-clause 52.1 above.
The proviso to sub-clause 52.2 imposes the tightest notice requirements of the
entire contract. Notice has to be given within 14 days of the instruction or earlier
if the work is to commence earlier. This can often mean that notice must be given
immediately. Whilst this can cut both ways because the Employer's right to adjust
a rate for an omission is also subject to this proviso, it seems unnecessarily
severe. No doubt the objective is partly to warn the Engineer of the pending claim
to enable him to reconsider the necessity for the variations. However, he will be
assisted little by the notice which merely has to indicate an intention to make a
Page 175 of 264
claim. This proviso relates to "work instructed to be done by the Engineer
pursuant to Clause 51" and therefore does not cover those clauses, such as
clause 17.1 (Setting-out) and clause 49.3 (Cost of remedying defects), which
require the Engineer to ascertain an extra payment to the Contractor in
accordance with this clause, it is submitted. Those clauses are governed by
clause 53.1 (Notice of claims). This is because of the careful distinction drawn in
the first sentence of sub-clause 52.1 between variations and "additions to the
Contract Price which are to be determined in accordance with Clause 52". All of
the clauses with such references to clause 52 require extra work or the
expenditure of provisional sums and so could be considered variations. However,
the current sub-clause refers to "varied work instructed to be done by the
Engineer pursuant to Clause 51": in each of the clauses with such references to
this clause, there is either a request, a requirement or an instruction causing the
work to be done or the costs incurred. In no case is an instruction under clause
51 called for.
"... before the commencement of the varied work...". The meaning of this phrase
is difficult to ascertain. If the object is to give the Employer an opportunity to
change his mind when he discovers that the Contractor intends to claim
increased rates, it must mean before the Contractor has committed himself to
expenditure. Otherwise, it could simply be an arbitrary, and somewhat pointless
deadline additional to the 14-day limit.
The severity of the notice requirement of this clause is not relieved by clause
53.4 (Failure to comply) because that deals only with a failure to give notice
under clause 53. The only, probably vain, argument to the contrary, based on the
opening words of clause 53.1 (Notice of claims), "notwithstanding any other
provision of the Contract...", is discussed under clause 53.1.
It is open to argument whether, in the event of an oral instruction, time runs from
the oral instruction or the written confirmation. For more on this, see clause 2.5
(Instructions in writing). It is not clear how the current clause interrelates with
clause 53 (Procedure for claims) which imposes a 28-day notice period
"notwithstanding any other provisions of the contract ...". It is doubtful that the
proviso can be circumvented by reference to clause 53.
This provision is considerably harsher than the 3rd Edition version which required
notice "as soon after the date of the order as is practicable" and it would appear
that failure to give such notice would be fatal to a claim. This seems somewhat
draconian, particularly compared with the notice provisions of clauses such as
clause 44 (Extension of time for Completion) when an event which is possibly
unknown to the Engineer has only to be notified within 28 days. Here, of course,
the Engineer is fully aware of the variation having instructed it.
One possible difficulty is where a Contractor has, within 14 days of the
instruction, formed no "intention to claim extra payment". It may only be later that
it becomes apparent to anybody that the varied work is such as to make the rates
inappropriate. In these circumstances, it is highly debatable whether notice is
Page 176 of 264
required or not. An arbitrator seeking to avoid the injustice that will undoubtedly
be worked by the strict application of the provison may well resort to this route.
As the contract contains no express loss and expense clause to compensate the
Contractor for the cost of prolongation caused by the ordering of variations, this
sub-clause is normally relied upon. It is said that the fact that the extra work has
caused delay to the completion of the works and additional costs renders the
rates inappropriate. This argument seems rightly to be accepted by arbitrators so
it is perhaps surprising that the conditions continue to leave the matter to be dealt
with in so oblique a fashion.
52.3 It is not entirely clear whether the figure to be compared with the "Effective
Contract Price" is the net result of the additions and deductions or whether "taken
together" means the total of the additions plus the total of the deductions. This
issue will often be important. As it would have been simple to make it clear that
the net result was intended, it is submitted that the two figures should be added,
even if this means an adjustment in circumstances where the additions and
omissions in fact cancel each other out.
Whilst it is sometimes assumed that this clause is for the benefit of the
Contractor, it can also be the case that the increase in the work has resulted in
an over-recovery of overheads which the Engineer is able to nullify. The return to
15%, last seen in the 2nd Edition, from the 10% used in the 3rd Edition is also to
the benefit of the Employer. The extent of the benefit depends on the right of the
Contractor to demand the same adjustment in respect of all varied work under
sub-clause 52.2 by showing the rate to be "inappropriate or inapplicable".
Exactly what adjustment the Engineer can make is not spelt out: it is a sum to be
"determined ... having regard to the Contractor's site and general overhead
costs" but "such sum shall be based only on the amount by which the additions
or deductions shall be in excess of 15% of the Effective Contract Price."
Presumably, this means that where, for example, the Contractor put in his price a
lump sum for overheads and the contract price increased by 20%, the Contractor
may only be allowed an increase in his overheads of 5% (being the excess over
15%) rather than the full 20%. It is considerably more difficult to see how the
clause works where a Contractor has put some or all of his overheads into the
rates. Despite the details to be provided under clause 57.2 (Breakdown of lump
sum items), it will frequently be very difficult to establish with any certainty how a
Contractor's prices are made up in the absence of his co-operation.
For a note on the relationship between this sub-clause and re-rating in respect of
variations, see the commentary under sub-clause 52.2. For discussion on the
possibility of re-rating where quantities vary from those in the bills of quantities,
see under clause 51.2(Instructions for variations).
52.4 Contractors are generally pleased to be able to execute works on a
dayworks basis. This is because of the high level of profit which it is normal to
include in the daywork schedule of rates and prices. The Engineer can require
Page 177 of 264
"any varied work" to be done on dayworks. Normally, this means occasions
where there are no rates and where the amount of work is small. If the varied
work was substantial, the Engineer would normally fix a rate.
As dayworks also provide unscrupulous Contractors with the temptation to
exaggerate their claims, heavy emphasis is wisely put on the proof of the amount
of labour and materials used. Nevertheless, it is remarkable that impracticality is
an excuse for failing to provide lists and statements in relation to dayworks when
the condition precedent of prompt notice under sub-clause 52.2 admits of no
exception.
Part II offers additional wording for contracts providing for payment in foreign
currency. There is also additional wording for sub-clause 52.2 which would
greatly limit the circumstances under which the Engineer would be empowered to
depart from contract rates: the suggested provision is that the item would have
to amount to more than 2% of the contract price and the actual quantity of work
executed would have to vary by more than 25%.
CLAUSE 53 : Notice for Claim
A Contractor intending to make a claim for additional payment must give notice
that he will do so within 28 days of the event.
Thereafter he must keep records including any records required by the Engineer,
who will be entitled to inspect such records.
Within 28 or an agreed number of days of the Contractor's notice, he should send
a detailed claim to the Engineer. If the claim has a continuing effect, he should
send regular interim claims followed by a final claim once the effects cease.
If the Contractor fails to give notice, keep records or provide details, his
entitlement will be limited by what can be proved from the records that do exist.
The Engineer is obliged to include an Interim Certificate in respect of such claims
or parts of claims for which the Contractor has supplied sufficient particulars.
This clause is an expansion of clause 52 (5) of the 3rd Edition. It is an attempt to
regulate the claims procedure. Only time will tell whether an improvement has
been achieved in practice. ICE 6th has adopted a very similar procedure.
53.1 "Notwithstanding any other provision of the Contract...". It is difficult to see
how this clause will relate to clauses with their own internal notice procedures:
clause 12.2 (Adverse physical obstructions and conditions) requires notice
"forthwith"; clause 27.1 (Fossils) requires the Engineer to be acquainted
"immediately"; and clause 52.2 (Variations) requires notice within 14 days. It is
submitted that where the notice given makes express the Contractor's intention
Page 178 of 264
to claim and has been copied to the Employer, then that is sufficient notice and is
given "within 28 days". No further notice is necessary. If notice is not given, for
example within the 14 days required under clause 52.2, it may be arguable that
this clause overrides, allowing the Contractor to give notice within 28 days or to
benefit under sub-clause 53.4. It seems unlikely that such an argument will
succeed as this clause does not create rights to payment but imposes a
machinery to deal with the rights created by other clauses. If such other clause
prevents the right arising in certain circumstances, this clause could not, it is
submitted, intervene. Accordingly, the "notwithstanding" appears to be addressed
to clauses such as those quoted above which seem to grant rights to the
Contractor unequivocally: notice must apparently be given regardless, although
the penalty for failure to do so is much reduced by sub-clause 53.4.
As the words "claim" and "additional payment" are not defined terms, the precise
application of the clause is uncertain. Is it necessary for a Contractor to "claim"
in circumstances where the entitlement is beyond dispute or triggered by, for
example, the Engineer's opinion?
"Additional payment pursuant to any clause":
additional payment may be sought are as follows:- clause 4.2
- clause 6
- clause 9.1
- clause 12.2
- clause 17.1
- clause 20.3
- clause 22.3
- clause 27.1
- clause 30.3
- clause 31.2
- clause 36.5
- clause 38.2
- clause 40.2
- clause 42.2
- clause 49.3
- clause 50.1
- clause 52
- clause 58
- clause 65
- clause 69.4
- clause 70
clauses pursuant to which
Assignment of subcontractors' obligations
Drawings
Contract Agreement
Physical obstructions
Errors in setting out
Loss or damage due to Employer's risks
Indemnity
Fossils
Transport damage indemnity
Other contractors
Tests
Uncovering
Suspension
Late possession of the site
Remedying defects not the responsibility of the Contractor
Searching for defects
Valuation of variations
Provisional sums
Special risks
Termination by Contractor
Fluctuations and legislation
Most of the above clauses state that the Engineer "shall determine" the
Contractor's entitlement. Under clause 40.2 (Engineer's determination following
suspension), "the Engineer shall...determine...the amount". Similarly, under
clause 49.3 (Cost of remedying defects) and clause 50.1 (Contractor to search),
if the work has been caused by defects which, in the Engineer's opinion, are not
Page 179 of 264
the Contractor's responsibility, the Engineer "shall" determine the extra payment.
In these instances, the only question is the quantum of the Contractor's costs.
"... or otherwise...": this appears to be a reference to breach of contract. This
inclusion of breach of contract within the workings of the contract is reflected in
clause 67 (Settlement of Disputes) where it is made clear that even disputes as
to breach of contract must be referred to the Engineer for his decision prior to
any arbitration. There is no similar provision in clause 52(5) of the 3rd Edition nor
in clause 52(4) of ICE 5th or 6th. It is generally accepted that without words such
as those to be found in clauses 53 and 67 of the 4th Edition, the Engineer would
have no jurisdiction in relation to breaches of contract. Any claims deriving from
contract documents other than "these Conditions" or generated by local laws
would also be covered by the phrase.
"...if the Contractor intends to claim...": the force of this clause is mitigated by this
phrase. If the Contractor can demonstrate that at the relevant time he did not
intend to claim, perhaps because he was unaware of the potential for such a
claim, then the notice requirement is inapplicable. However, it should be noted
that the 28-day period does not run from the date on which the intention was
formed, nor from the date on which the effect first manifested itself, but the date
on which the event giving rise to the claim occurred.
An additional requirement is placed on a Contractor pursuing a claim by clause
60.9 (Cessation of Employer's liability). Under this clause, the Employer's liability
for such claims ceases unless the Contractor has included the claim in his Final
Statement and, if the claim arose prior to substantial completion, in his Statement
at Completion.
Under clause 60.1 (Monthly statements), the Contractor is to include in his
statement "any other sums to which the Contractor may be entitled under the
Contract". The form of that statement is to be prescribed by the Engineer who will
inevitably require that the grounds for the claim be identified. A Contractor may
well wish to point to his monthly statement by way of a notice under this subclause. A difficulty in the Contractor's way is that clause 60.1 does not require the
monthly statement to be copied to the Employer whereas the Employer must be
sent a copy under the current sub-clause. Apart from this objection, it is
submitted that the monthly statement could well suffice. Under the 3rd Edition,
regular monthly reports were called for, a system which has certain apparent
advantages over the present clause. In ICE 6th, notices are called for "as soon
as may be reasonable and in any event within 28 days".
53.2 The obligation imposed upon the Engineer to study the records may be
found in practice to be inconvenient to the Contractor and Engineer alike. This
clause may be honoured more in the breach. See comments under 53.5 below.
53.3 This clause bears similarities with clause 44.3 (Interim determination of
extension of time) where delays having a continuing effect cause the Contractor
to give regular interim notices which are intended to result in interim extensions
Page 180 of 264
of time being granted. Here, the regular notices are to be given and there is
provision, albeit ambiguous, for interim payment under sub-clause 53.5.
The requirement to submit "a final account within 28 days of the end of the effect
resulting from the event", will often prove difficult to enforce in practice. It is very
often highly debatable when the effects of any given event come to an end. For
example, the effects of a critical delay will, on one view, end only upon
substantial completion as every critical activity subsequent to the delay will have
been postponed.
53.4 In contrast to clauses 44.2 (Contractor to provide notification and detailed
particulars) and 52.2 (Power of Engineer to fix rates), there is no attempt here to
create a condition precedent to entitlement. The incentive offered for compliance
is that the Contractor's entitlement would be limited to such amounts as he is
able to prove from such contemporary records as he maintained. The severity of
this clause would depend very much on the Engineer's or arbitrator's
interpretation of the clause. Arbitrators reading the clause at its narrowest would
permit no oral evidence and would require the claim to be "verified", i.e. proved
by contemporary records. This requirement may lead to a far higher standard of
proof than the traditional balance of probabilities. Similarly, they could decline to
make assumptions in order to bridge gaps in documentation. More likely
however, arbitrators will take the same view as they would if this clause did not
exist, namely that the Contractor will only recover those sums to which he can
prove his entitlement.
53.5 The Engineer is obliged to certify in interim certificates those claims in
respect of which he has sufficient particulars. If clause 53.2 has been followed
and the Engineer has indicated what records he requires to be kept, it will be
difficult for him to plead an insufficiency of particulars. The Engineer is not
entitled to hold out for the claim to be fully particularised before making any
payment but must make such payment as the particulars justify. In the common
situation where liability is agreed but the amount of costs is disputed, this clause
will be invoked in support of an interim payment.
Whilst this may have been the intention, the Employer could argue that payment
should only be made where the Engineer is fully satisfied as to a particular part of
the claim. If it is clear that the claim is worth, for example, between $20,000 and
$30,000 but agreement had not been achieved on any distinct part of the
$20,000, the Employer could resist payment. This seems unfortunate and the
clause could usefully be clarified. This provision should be compared with the
provision for on-account payments in clause 52.1 (Valuation of variations) and
clause 52.2 (Power of Engineer to fix rates). Under those clauses, it is made
clear that payment is to be made in the absence of agreement or the fixing by the
Engineer of a rate or price. This comparison assists the Employer to argue that
the draftsman did not intend such on-account payments to be made under the
current sub-clause.
Page 181 of 264
CLAUSE 54 : Contractor’s Equipment
All equipment, temporary works and materials that the Contractor brings onto site
are to be for the exclusive use of the works and may only be removed with the
consent of the Engineer.
The Employer will not generally be liable for loss or damage to the equipment,
temporary works or materials.
The Employer will use his best endeavours to help the Contractor obtain
clearance of his equipment etc. through customs and, where equipment has
been imported for the works, to help the Contractor obtain permission to reexport the equipment etc. when finished with.
All equipment hire agreements must permit the Employer to take over the hiring
of the equipment in the event of a termination under clause 63 (Default of
Contractor).
All costs incurred by an Employer in taking over and hiring equipment will be
recoverable from sums otherwise due to the Contractor under clause 63.
All sub-contracts are to include an equivalent clause permitting the Employer to
take over the equipment and materials of subcontractors.
Nothing in this clause amounts to approval by the Engineer of the materials,
equipment etc.
Clause 54 has been substantially altered. Sub-clauses 54.5. 54.6 and 54.7 are
new to the 4th Edition although clauses of this sort were suggested in Part II of
the 3rd Edition.
54.1 The object of this sub-clause is to ensure that equipment, materials etc
intended for use on the Site are not diverted to other projects on which the
Contractor may be working. The Engineer's consent is subject to clause 1.5
(Notices, consents etc.) and must not "unreasonably be withheld or delayed".
Moreover, under clause 2.6 (Engineer to act impartially), he must exercise his
discretion in relation to granting such consent impartially. Thus, if a suspension
under clause 40.1 (Suspension), for example, is likely to be prolonged, an
Engineer might well be acting unreasonably if he withheld his consent to the
Contractor using his equipment on a nearby project.
The Engineer, it is submitted, may not withhold his consent once the execution of
the works, subject to any necessary remedial works in the defects liability period,
has been substantially completed. This conclusion derives both from the
deemed intention in this sub-clause as well as the impartiality obligation under
clause 2.6 (Engineer to act impartially). This view is reinforced by the terms of
clause 33.1 (Clearance of site on completion) which imposes an obligation upon
Page 182 of 264
the Contractor to remove from parts of the site taken over all Contractor's
Equipment which is not required for remedying defects. See also clause 69.2
(Removal of Contractor's Equipment) which requires the Contractor to remove all
his equipment from site with reasonable despatch after termination of his
employment under the contract due to a default by the Employer.
The proviso in relation to transport vehicles is new to the 4th Edition, although
suggested in Part II to the 3rd Edition.
54.2: Clause 20 (Care of Works) makes the Employer liable for damage
resulting from causes listed in clause 20.4 (Employer's risks) which range from
war and hostilities through damage due to use or occupation by the Employer to
any operation of the forces of nature. Clause 65 (Special risks) again makes the
Contractor liable in respect of five of the Employer's Risks set out in clause 20.4.
In the event of termination by the Employer pursuant to clause 63.1 (Default of
Contractor), the Employer or his replacement contractor is entitled to use the
Contractor's equipment, temporary works and materials. As drafted, this clause
protects the Employer from loss or damage to such equipment etc even if the
loss and damage is caused by the Employer or the Employer's alternative
contractor. If this clause is left unamended, the matter must be taken into account
by the Contractor in arranging his insurance under clause 21.1 (Insurance of
Works and Contractor's Equipment).
54.3/54.4:
The duty imposed by an obligation to use "best endeavours" has
been the subject of a good deal of judicial consideration. In summary, the phrase
has been held to impose a heavy burden, namely to leave no stone unturned.
However, modern decisions have taken a less rigid approach and ask, as did the
Australian court in Transfield v Arlo International (1980) 30 ALR 201, "what is
reasonable in the circumstances, having regard to the nature, capacity,
qualifications and responsibilities of the [Employer] viewed in the light of the
particular contract". The reference to best endeavours is new to the 4th Edition
and might well be said to impose a greater obligation than that contained in the
3rd Edition which was "to assist". It seems unlikely that it was the intention of the
draftsman to add to the Employer's obligations in this regard.
The Employer is only obliged to assist with re-export in the case of Contractor's
Equipment. Surplus materials, temporary works, rejected plant etc. would need
to be the subject of special arrangements. Clause 32.1 (Contractor to keep the
site clear) and clause 33.1 (Clearance of site on completion) require the
Contractor to remove such materials from site and should be read in conjunction
with this clause.
54.5. By no means all hirers of equipment would be willing to proceed on terms
whereby the Employer undertakes only to pay hire charges from the date of
termination onwards although such terms are included in the standard terms of
the English Construction Plant Hire Association. As the Employer has no
obligation under clause 63.3 (Payment after termination) to pay the Contractor
any further sum until the end of the Defects Liability Period, the Contractor may
Page 183 of 264
not have money to pay the hirer, leaving the hirer exposed. The Employer might
be better served by a term whereby he agrees to pay all hire charges outstanding
and thereafter deducts such charges from sums otherwise due to the Contractor.
This clause should be read with clause 4.2 (Assignment of subcontractors'
obligations) and clause 63.4 (Assignment of benefit of agreement). The latter
clause also seeks to protect the Employer's position in the event of the
termination of the Contractor's employment.
54.6. Under clause 63.3 (Payment after termination), the Employer, after the
expiry of the Defects Liability Period, pays to the Contractor the total sum which
the Engineer determines would have been payable had the Contractor completed
less the total cost to the Employer of completing the works, remedying defects
and any other damages or expenses incurred.
54.7 This sub-clause should be read with clause 4 (Subcontracting) in
particular sub-clause 4.2 (Assignment of subcontractor's obligations) which
requires the Contractor to assign guarantees and other continuing obligations to
the Employer. This may mean that a term has to be included into the subcontract to that effect. See also clause 63.4 (Assignment of benefit of
agreement). Terms for inclusion in sub-contracts are also set out in clause 59.2
(Nominated Subcontractors; objection to nomination). In the current sub-clause,
the incorporation of terms is particularly important for the preservation of the
Employer's rights in the event of termination under clause 63.1 (Default of
Contractor). As always, when seeking to incorporate the main contract provisions
into sub-contracts, considerable care is necessary. For example, is the subcontract clause to indicate that it is the Engineer's consent or the Contractor's
consent that is required prior to the removal of materials? Is it the Employer or
the Contractor who is to use his best endeavours to assist with customs
clearance as referred to in sub-clauses 54.3 and 54.4? A provision in the subcontract imposing obligations upon the Employer is worth little to the
subcontractor as the Employer is not a party to the sub-contract. Presumably, the
intention is that sub-clauses 54.1 and 54.5 should be incorporated so that the
Engineer's consent is necessary to removal and so that the Employer is able to
take over the subcontractor's hire agreement. The current sub-clause would
benefit from clarification.
54.8. This clause is consistent with the policy of the contract as stated under
clause 61.1 (Approval only by defects liabilities certificate) that no other action
should amount to approval. See also clause 7.3 (Responsibility unaffected by
approval), clause 14.4 (Contractor not relieved of duties or responsibilities),
clause 17 (Setting-out) and clause 37.2 (Inspection and testing) for other
examples.
Part II provides two optional additional clauses whereby Contractor's equipment,
temporary works etc. vest in the Employer on delivery to site and revest in the
Contractor upon their removal with the Engineer's consent. This would not affect
hired equipment or equipment the property of subcontractors unless the subPage 184 of 264
contract is 'back-to-back' with these conditions and vests subcontractors'
equipment in the Contractor on delivery to site
On international projects, the role of the Contractor's Equipment is often critical.
As mentioned in the commentary under clause 14.1 (Programme to be
submitted) a factor in the evaluation of tenders will often be the equipment that
the competing tenderers propose to employ on the project. Thus it is important
that the passage of the equipment through customs and its arrival on site should
go smoothly and that, once on site - and very often paid for - it cannot thereafter
be removed until its work is complete. Optional clauses 54.2 and 54.5 are
intended to give the Employer security over the Contractor's equipment etc for
the performance of the contract. They also protect the Employer against delays
or increased costs which would arise following termination, especially where the
equipment is substantial or specially designed for the works. It is submitted that
these optional clauses confer on the Employer a security interest in the
Contractor's equipment etc. Advice should be obtained in each case whether the
security interest requires registration in order to take priority over the Contractor's
creditors or its liquidator.
By contrast, it is submitted that the current Part I clause may not be sufficient to
confer a security interest or proprietary right in the Contractor's equipment. It
follows that under English law, the Employer's right to use the Contractor's
equipment after termination may be invalidated by the insolvency laws. For this
reason, Employers may prefer to adopt the optional clauses on all but the
smallest projects.
FIDIC'S Guide also suggests that Part II be used to deal with other issues such
as limitations on the selection of Contractor's equipment and temporary works,
preference for local products etc.. FIDIC also suggest that additions to this clause
should be drafted bearing in mind any additions to clause 34 (Engagement of
staff and labour).
CLAUSE 55 : Bill of Quantities
This clause, which is virtually unchanged from the 3rd Edition, makes clear that
the quantities in the bill of quantities are estimates only.
Together with clause 56.1 (Works to be measured), clause 55 determines the
character of this contract as a remeasurement contract. Apart from clause 56.1,
this clause should be read in conjunction with clause 51.1 (Variations) which
makes the increase or decrease in the quantity of any work a variation which the
Engineer has power to instruct; and clause 51.2 (Instructions for variations)
which states that an instruction is not necessary where the increase or decrease
in quantities is due simply to the inaccuracy of the quantities in the Bill of
Quantities. These variations arise "automatically" due to the fact that the physical
work executed comprises quantities different from the theoretical work described
in the Bill of Quantities. It has been submitted under clause 51.2 (Instructions for
Page 185 of 264
variations) that automatic changes in quantities fall within the definition of "varied
work". If this submission is correct, it is perhaps anomalous that under clause
52.1 (Valuation of variations) and clause 52.2 (Power of Engineer to fix rates),
the Engineer is given the power to fix a rate for the work the subject of such
automatic variations which is different from the rate set out in the Bill of
Quantities. The Engineer may exercise his discretion where he considers the
rates not to be "applicable" or where it is "rendered inappropriate or inapplicable"
by "the nature or amount of any varied work relative to the nature of amount of
the whole of the Works". Thus, although in practice a Contractor will fix his rate in
accordance with the quantities that he believes will actually be required by the
design of the Works rather than the quantities set out in the Bill of Quantities, he
will nevertheless be entitled to argue for a new rate when, perhaps as he
predicted, the Bill of Quantities turns out to be inaccurate.
Of course, this may work in the Employer's favour: if, for example, a very small
quantity was included for pumping water out of excavations on the mistaken
belief on the part of the Engineer that the water-table was below the level of the
deepest excavation and the Contractor, possibly suspecting differently, placed a
large figure against that item, the Employer would, but for clause 52.2, be obliged
to pay to the Contractor an enormous windfall when, in the event, a great deal of
pumping was in fact required.
One effect of a remeasurement contract is that errors made by the Contractor in
carrying forward the rates and quantities into total figures which are summarised
as the Contract Price are automatically corrected in the measurement and
valuation process. This is because each valuation will be made on the actual
quantities executed, multiplied by the bill rates. The Contractor is in no way held
to the total that is contained in the right-hand column of the Bill of Quantities.
Unscrupulous contractors may therefore allow "errors" to creep in to their Bill of
Quantities in order to produce a more competitive tender price. For this reason,
one of the first actions taken by the Employer upon receipt of tenders is to
perform a mathematical check of the prices in the Bill of Quantities.
A different and difficult problem is created where tenderers make last minute
adjustments to their tender in order to achieve a competitive price by inserting in
the summary page of the Bill of Quantities, for example, "Less 1 1/2%" or "Less
£100,000". Employer's should make it plain to tenderers that such a practice is
not acceptable or specify the way in which such an adjustment is to be dealt with.
For example, all rates could be treated as having been reduced by the
percentage or, in the case of a lump sum, the reduction could be confined to the
preliminary section of the bill. Otherwise, there is room for debate over what are
the rates. The Contractor will argue that, for example, the adjustment should be
disregarded when considering the appropriateness of a rate or when fixing a
new rate. It may be said that the adjustment was intended only for the original
contract work and not for whatever variations the Employer may require in the
future. This uncertainty needs to be eliminated.
Page 186 of 264
CLAUSE 56 : Measurement of works
The Engineer shall value the Works in accordance with clause 60 by
measurement. When any measurement is to take place, the Engineer is to give
notice to the Contractor who will attend to assist the measurement and provide
particulars. If the Contractor fails to attend, the Engineer's measurement will be
taken as correct. Where measurement is by records and drawings prepared by
the Engineer, the Contractor will attend within two weeks of being called upon to
do so and shall examine, agree and sign the records and drawings. If he fails to
attend, the records and drawings will be taken to be correct. If he attends but
does not sign, the Contractor must serve notice within two weeks of his
objections, otherwise they will again be taken to be correct. The Engineer, on
receipt of such objections, shall review and confirm or vary his records and
drawings.
There are a number of changes to this clause in the 4th Edition, mainly of
vocabulary. The final sentence of the clause is new.
Valuation by measurement is central to the character of this contract. Such
valuation will occur in relation both to interim certificates and, most importantly,
the Final Certificate under clause 60.8 (Final Certificate). It may be considered
odd that there is no reference in clause 60 (Payment) either to measurement or
to this clause, although the link is formed by the opening sentence of this clause.
No timetable for the measurement is given, so the regime of clause 60.2
(Monthly payments) will effectively govern the procedure.
The questions raised by this clause are, firstly, whether measurements "taken to
be correct or agreed" for the purposes of one interim certificate may be
challenged for the purposes of the next interim certificate and, secondly, whether
they may be opened up by arbitration. In theory, each interim certificate should
represent a separate valuation exercise but it is nevertheless difficult to find
support within the contract for the proposition that the Contractor should be able
to call for the remeasurement of an area of work untouched between one
valuation and the next. As to arbitration, an ascertainment or determination by
the Engineer may be opened-up, reviewed or revised by an arbitrator pursuant to
clause 67 (Settlement of disputes) but where the parties have agreed a
measurement or by the contract have agreed that it should be deemed to be
correct, there would appear to be no dispute and thus no room for an arbitration.
It is therefore submitted that if the Contractor agrees a measurement or fails to
attend with the result that the Engineer's measurement is deemed to be correct,
the Contractor will be held to his agreement or the deeming effect of the clause
unless the particular works have subsequently to be remeasured. This result is
logical in view of the high proportion of work that is covered up in civil
engineering contracts. The arbitrator, it is submitted, may look at the facts leading
to the conclusiveness to ensure that the terms of the clause have been followed
but may not open up the measurement if the specified steps have been taken.
Page 187 of 264
If the Contractor attends a measurement but disagrees the result, there is no
express provision within this clause such as that dealing with disagreements over
records and drawings. However, it is for the Engineer to ascertain and determine
so that he is not inhibited by such disagreements. Under those circumstances,
the Contractor would be free to refer the dispute to arbitration.
"...except as otherwise stated...". Matters which are not to be measured include
the preliminary and lump sum items and variations and any other additions which
are to be determined in accordance with clause 52 (Valuation of variations)
where there are no appropriate or applicable rates. Works relating to provisional
sums or nominated subcontractors may also be valued other than by
measurement. In a contract where the parties have agreed to stage payments,
measurement would be relevant to the amount of the Final Certificate only.
There is an apparent conflict within this clause between the "reasonable notice"
to be given to the Contractor's agent and the obligation upon the agent who shall
"forthwith attend". This wording is presumably intended to mean that the agent is
to attend promptly at the time and place specified in the notice. If so, "promptly"
could usefully replace "forthwith". The requirement of "reasonable" notice is new
to the 4th Edition.
"...the Contractor's authorised agent...". This is presumably intended to be the
"authorised representative" referred to in clause 15.1 (Contractor's
superintendence). In the 3rd Edition, both clauses 15 and 56 refer to "the
Contractor's authorised agent or representative". If the draftsman of the 4th
Edition intended the agent in this clause to be the representative in clause 15, it
would be as well to achieve consistency between these two clauses in the
current edition.
The new final sentence serves to remind the parties that after all the machinery
of the clause, it is for the Engineer ultimately to ascertain and determine the
measurements, subject only to arbitration.
CLAUSE 57 : Net measurement of works
This clause provides for the Works to be measured net unless the contract says
otherwise. The Contractor is required to give a breakdown of the lump sum
items in his tender within four weeks of the letter of acceptance.
Sub-clause 57.1 is taken with minor amendments from the 3rd Edition but subclause 57.2 is new.
57.1 Parties will often require a Standard Method of Measurement to be
referred to in the contract. An SMM guides the parties as to the meaning and
contents of the Bill of Quantities as well as the measurement of the work
executed. In theory, it should reduce both the length of the Bill and the scope for
Page 188 of 264
disputes. In fact, many disputes have been founded on the wording of an SMM,
often in relation to omissions from the Bill. In this context, see clause 12.1
(Sufficiency of tender) which requires a Contractor to allow for all that is
necessary for the completion of the works.
The meaning of "measured net" is far from settled, particularly in the absence of
an SMM.
57.2 This sub-clause is new to the 4th Edition. Its purpose and, no doubt, its
effect is to reduce the scope for argument as to the proportion of items included
in the Bill of Quantities or tender as lump sums which should be included in each
valuation. Naturally, the Contractor will wish to be paid in full for the item at the
earliest possible moment. The breakdown is also needed for the purpose of
valuing variations pursuant to clause 52 (Valuation of variations).
CLAUSE 58 : Provisional Sum
"Provisional sum" is defined. The Contractor will be entitled to the sum
determined by the Engineer in respect of work covered by the provisional sums.
The Engineer may issue instructions in relation to provisional sums for work or
the supply of materials etc either by the Contractor who is to be paid pursuant to
clause 52 (Valuation of variations) or by a nominated Subcontractor who is to be
paid pursuant to clause 59.4 (Payments to nominated Subcontractors).
Unless the work is valued in accordance with existing rates or prices, the
Contractor shall produce all documentation relevant to provisional sums.
This clause has changed little in principle from the 3rd Edition although the last
sentence in sub-clause 58.1 is new and the exception at the end of sub-clause
58.3 is also new. Sub-clause 58.2 has been reorganised but without major
alterations to its effect. Goods and materials to be purchased by the Contractor
are now valued under clause 52 (Valuation of Variations) and not by reference to
clause 59.4 (Payment to nominated Subcontractors) as in the 3rd Edition.
58.1/58.2
As commented under clause 49.1 (Defects Liability Period), it would
be helpful and good practice to collect all definitions into clause 1.1 (Definitions)
particularly as the term "Provisional sum" is referred to on eight other occasions
outside this clause.
FIDIC has abandoned the distinction between provisional and prime costs sums
which is maintained in ICE 5th and 6th: neither the 3rd Edition nor the 4th Edition
refers to prime cost sums. In ICE 5th, provisional sums were optional sums but
prime cost sums had to be expended.
Thus, very often, nominated
subcontractors were the subject of prime cost sums. Here and in ICE 6th, the
Engineer may instruct or not. This raises the perennial question as to what
Page 189 of 264
allowance if any the Contractor is obliged to make in his programme for works
covered by provisional sums. Where there was a distinction between provisional
sums and prime cost sums, there was an obvious line to draw. Under the
present regime, a Contractor may be justified in including in his programme none
of the matters the subject of provisional sums, even though some of the works to
be performed by nominated Subcontractors may be central to the project.
Alternatively, the line could be drawn between those matters which must be
undertaken to complete the project and those matters which are genuinely
optional extras. Under clause 44.1 (Extension of Time for Completion), "the
amount of or nature of extra or additional work" is the first ground for extension of
time. This area is fraught with uncertainty and should be addressed by the
parties. For an argument that changes to the actual amount of work necessary
for elements of the work given provisional quantities should be the subject of
extensions of time, see under clause 51.2 (Instructions for variations).
The question arises as to whether provisional sums fall within the definition of
"varied work" within clause 52.1 (Valuation of Variations). The question is
relevant under clause 52.3 (Variations exceeding 15%) and whether the value of
work executed in relation to provisional sums is to form part of the calculation
bearing in mind that the provisional sum entered into the Bill of Quantities will be
excluded from the calculations. "Varied work" includes "all variations referred to
in clause 51". Instructions relating to the expenditure of provisional sums do not
fit happily into any of the categories of variation listed in that clause. Alternatively,
varied work may be "any additions to the Contract Price which are required to be
determined in accordance with clause 52". Whilst the current sub-clause refers to
clause 52, the reference is not in the context of an addition to the Contract Price.
This is because the provisional sum forms part of the Contract Price and is then
replaced by the actual value of any work ordered. As that replacement is done by
way of the omission of provisional sum and the addition of the actual value, there
is an argument that provisional sums fall within clause 51.1 (Variations) item (e)
"execute additional work".
However, it is submitted that it was not the intention of the draftsman that
provisional sum work should fall within "varied work". The matters covered by the
second part of the definition of varied work are those to be found in clauses such
as clause 17.1 (Setting out) and clause 65.3 (Damage to Works by special risks)
where the words "addition to the Contract Price in accordance with clause 52"
are to be found. This view is supported by the separate treatment that provisional
sums receive under clause 52.3 in item (b), whereas varied work is dealt with
under item (a). If the above submission is correct, notice is not required under
clause 52.2 (Power of Engineer to fix rates). Whether payment for provisional
sum work is "additional payment" for the purpose of clause 53.1 (Notice of
Claims), so that notice within 28 days is required, is debatable. It is submitted
that such notice is not necessary, particularly in the light of clause 58.3
(Production of vouchers).
Page 190 of 264
Altogether, contractors would be well advised to make it clear in their tenders
what allowance, if any, has been made in their programme and preliminaries for
the provisional sums.
58.3 The addition of the exception to the 4th Edition reflects the fact that the
provisional sum is to be valued under clause 52.1 (Valuation of variations) "at the
rates and prices set out in the contract if, in the opinion of the Engineer, the same
shall be applicable".
Where such rates and prices are applicable, the
Contractor's actual expenditure becomes less relevant. However, under clause
59.5 (Certification of payments to nominated Subcontractors), the Contractor is
obliged to produce proof that payments due to nominated Subcontractors have
been made.
It has been submitted above that the Contractor is not obliged to serve notice
under clause 52.2 (Power of Engineer to fix rates) in order to obtain a valuation
of work done in relation to a provisional sum. The proviso to clause 52.2 refers
to "work instructed to be done by the Engineer pursuant to clause 51". It must be
doubtful that a notice under clause 53.1 (Notice of claims) is required in view of
this sub-clause. The uncertainty generated by clause 53 is noted in the
commentary under that clause.
The Engineer's ability to instruct in relation to provisional sums may be one of the
matters for which the Employer requires the Engineer to seek approval as listed
in Part II under clause 2.1 (Engineer's duties and authority).
CLAUSE 59 : Nominated Sub-Contractor
The term "nominated Subcontractors" is defined.
The Contractor need not employ any nominated Subcontractor against whom he
has reasonable objection or who refuses to enter into a sub-contract which is
back to back with the main contract and which indemnifies the Contractor in
respect of the nominated Subcontractor's breaches and against the negligence of
his workmen and misuse of any Temporary Works.
If any nominated sub-contract includes a design obligation, the contract and the
nominated sub-contract must say so. A subcontractor must agree to indemnify
the Contractor in respect of such design obligations.
In respect of nominated Subcontractor's work, the Contractor will be entitled to
the price due to the subcontractor, payment under clause 52 for any attendance
and the profit percentage specified in the Bill of Quantities or Appendix to Tender.
The Engineer is entitled to proof that certified sums have been paid to nominated
Subcontractors before issuing any further certificate. Unless the Contractor
shows he has reasonable grounds for refusing to make such a payment and
Page 191 of 264
proves that he has so notified the nominated Subcontractor, the Employer may
make direct payments and deduct the equivalent sum from the Contractor. The
Engineer is to show the deduction on the next certificate which should not be
delayed.
Clause 59 is essentially the same as in the 3rd Edition save that clause 59(6) of
the 3rd Edition concerning the assignment of nominated Subcontractor's
obligations has become clause 4.2 (Assignment of subcontractor's obligations) in
the current edition.
59.1 The definition of nominated Subcontractors includes persons with whom
the Contractor is obliged to enter into sub-contract by the terms of the contract.
Under clause 4.1 (Sub-contracting), there is reference at item (c) to "the subcontracting of any part of the
Works for which the Subcontractor is named in the Contract". It is possible to
envisage circumstances where only one subcontractor or supplier is possible
because, for example, a specified product is available from only one supplier or
because the Contractor's list of proposed subcontractors was agreed and
incorporated within the contract. Under these circumstances, it would surprise
both parties to realise that the subcontractors or suppliers were "nominated
Subcontractors" in respect of whose works and supplies the Contractor was
entitled to the addition of the percentage set out in the Appendix to Tender under
clause 59.4(c).
"...shall...be deemed to be subcontractors to the Contractor...". This clause
makes it clear that the Contractor remains fully responsible for nominated
subcontractors' acts and defaults as if they were domestic subcontractors. By
clause 4.1 (Sub-contracting), the Contractor "shall be responsible for the acts,
defaults and neglects of any Subcontractor". There is no extension of time for
delays by nominated Subcontractors nor would such delay normally be accepted
as "special circumstances" within clause 44.1 (Extension of time for completion).
The Contractor is left to his remedies under the nominated sub-contract which
should include the indemnities set out at sub-clause 59.2(a) and (b).
Under English common law, the Engineer is obliged to renominate in the event of
a nominated subcontractor's default. Under these conditions, it is submitted that
the Engineer must be entitled to specify a replacement by issuing an instruction
and that he also has an obligation to do so. This is despite the fact that clause
4.1 (Subcontracting) places responsibility for "any Subcontractor" squarely onto
the Contractor, with no extension of time available, unlike some English forms.
The significance of the issue is as follows:(i)
if the matter is entirely at the Contractor's risk, then it should follow that he
is entitled to execute the works himself; and
Page 192 of 264
(ii)
if there is an obligation to instruct, a failure to do so or a failure to do so
reasonably promptly, could either bring the contract to a stand-still or entitle the
Contractor to an extension of time. If it proves very difficult to find a replacement
subcontractor, does responsibility for the ensuing delay pass from the
Contractor?
This question, it is submitted, may be limited to those circumstances where the
Engineer has nominated or selected the original Contractor or they have been
specified by the Employer in the contract. The Contractor may argue that the
subcontractors, where specified in the contract or named by the Engineer, are
effectively part of the Works. He is not entitled to use any other subcontractor
and so the Employer should be required to issue a variation in the event that
some alternative subcontractor is required. Under clause 13.1 (Work to be in
accordance with contract), the Contractor is spared performance of the contract
where it is legally or physically impossible to do it. When a subcontractor has
defaulted, for example, by going into liquidation and if the Contractor has no right
to execute the works himself, it must be legally and/or physically impossible for
him to proceed. Further, the payment regime set out in sub-clauses 59.4 and
59.5 suggest that the Engineer has a continued relationship with and
responsibility for the nominated subcontractors.
Where the nominated
subcontractor is the subject of a provisional sum, clause 58.1 (Definition of
"Provisional Sum") makes it plain that the expenditure of the Provisional Sum is
to be done on the instructions of the Engineer. Under clause 58.2 (Use of
Provisional Sums), the Engineer may instruct either the Contractor or the
nominated subcontractor to execute the works: such an instruction, it is
submitted, is needed before the Contractor can himself execute the works.
In summary, it is submitted that the Contractor's argument for an entitlement to
an instruction upon the default of a subcontractor nominated by the Employer or
the Engineer is strong and that, although the risk of the nominated
subcontractor's default itself remains on the Contractor, any delays created by a
failure promptly to renominate or instruct would entitle the Contractor to an
extension. The Employer's preferred solution in these circumstances will often
be immediately to instruct the Contractor to execute the works himself or by
subcontractors selected by him subject to the approval of the Engineer under
clause 4.1 (Subcontracting).
If the Contractor obtains his own replacement subcontractor, the work is still the
subject of a provisional sum and clause 58 (Provisional Sums) still applies. A
provisional sum would be valued in accordance with clause 52 and it follows from
the conclusion that an instruction must be issued that the Contractor should be
reimbursed for the cost of executing the work himself or obtaining a new
subcontractor to do that work even if the costs exceed those payable in respect
of the nominated subcontractor in default. This is also consistent with the
English common law position: the Engineer is obliged to renominate and the
Employer to pay the sub-contract price of the replacement subcontractor. Subclauses 59.4 and 59.5 will no longer apply as the Contractor or his new
subcontractor will not be "nominated Subcontractors".
Page 193 of 264
59.2 A dispute over whether a Contractor's objection to a proposed nominated
Subcontractor was "reasonable" or not is one that could theoretically bring the
contract to a standstill whilst the matter was referred through the disputes
procedure under clause 67 (Settlement of disputes) to arbitration. As FIDIC's
own Guide points out, it is obviously important to give the Contractor every
opportunity to object at the earliest possible stage. There is no provision as to
the time at which such objections must be raised unless it can be said that the
term "reasonable" refers both to the timing of the objection as well as its content.
It is submitted that an Employer could properly reject an objection which was
unreasonably delayed.
Where nominated subcontractors have been appointed in advance of the
Contract due, for example, to long lead times on certain materials, the right to
make objection should not exist provided that the appointment was notified to the
Contractor before the contract was entered into. No doubt the objection would
have to be exceptional to pass the reasonableness test.
If the Contractor raises a reasonable objection or the nominated Subcontractor
declines to sub-contract on the specified terms, the Employer may either renominate, a course which could involve serious delay to the contract, or attempt
to re-negotiate with the Contractor and nominated Subcontractor to overcome the
objection. This course may prove expensive. A third possibility could be to
instruct the Contractor to execute the work himself. As the Contractor may have
bid for the work the subject of the proposed nominated sub-contract himself, this
may be a desirable result. If the work is specialised, possibly incorporating an
element of design, this will be less welcome although under clause 59.3, the
Contractor will have had notice of a design element in his contract. Generally,
however, the Contractor would be unlikely to lose by the arrangement.
Under clause 4.2 (Assignment of subcontractors' obligations) and clause 63.4
(Assignment of benefit of agreement), the Contractor should provide in any subcontract for the right to make such assignments. See also clause 54.7
(Incorporation of clause in subcontracts) which specifies a term for inclusion in
sub-contracts concerning equipment and materials.
59.3 Just as the Contractor is fully responsible for the defaults of the nominated
Subcontractor, so the nominated Subcontractor must look to the Contractor in
respect of any claims that the subcontractor wishes to advance. In view of the
fact that it is the Engineer who instructs in the first instance what sum is to be
paid to the Subcontractor, it will often be with the Engineer that the subcontractor
is aggrieved. The difficult question then arises as to how that dispute should be
resolved. Experiments in the UK with proceedings whereby the nominated
Subcontractor "borrows" the name of the main contractor in order to pursue the
Employer have produced horribly complicated and unsatisfactory results: see for
example Lorne Stewart v William Sindall (1986) 35 BLR 109. An alternative
which appears in English domestic sub-contracts is an obligation upon the
contractor to obtain and pass on to the nominated Subcontractor the benefits of
Page 194 of 264
the main contract and generally to advance the interests of the nominated
Subcontractor in dealings with the Employer. This has also proved unsatisfactory
due to the lack of incentive for the Contractor and the variety of other commercial
considerations. If the nominated Subcontractor attempts to start an arbitration
against the Contractor, he may be met with the rejoinder that there is no dispute,
that the subcontractor's claim is agreed in principle and has been forwarded on to
the Employer for consideration and payment. This would only defuse the
arbitration however if, under the terms of the nominated sub-contract, the
Contractor was only obliged to pay to the nominated Subcontractor sums
instructed to be paid by the Engineer.
This sub-clause is to be read in conjunction with clause 7.2 (Permanent Works
designed by Contractor) which also requires express provision of any design
obligation and clause 8.2 (Site operations and methods of construction) which
states "where the Contract expressly provides that part of the Permanent Works
shall be designed by the Contractor, he shall be fully responsible...".
FIDIC offers no guidance to the parties as to the form of any sub-contract other
than indicating the obligatory terms under clause 59.2. The wide-spread practice
of using an ICE form of sub-contract becomes increasingly dangerous as these
conditions and the ICE conditions grow further apart. Careful consideration
needs to be given, not least to the respective provision for design liability.
59.4 Item (a). It is submitted that the Contractor is not obliged to obtain an
instruction on each occasion that payment is to be made to the nominated
Subcontractor. It will be sufficient to point to an instruction that required the
Contractor to enter the sub-contract giving rise to the obligation to pay. This
interpretation is founded on the use of the words "paid or due to be paid": whilst
the alternative may be explained as dealing with the Contractor's rights of set-off
or with payments authorised but not payable under the sub-contract, the phrase,
it is submitted, fits the contractual liability concept more easily. Furthermore, it is
not immediately obvious why instructions would be needed for each payment as
the Engineer already has the task under clause 60.2 (Monthly payments) of
ruling on the Contractor's monthly application for payment which will include a
statement of the nominated Subcontractor's work and the Contractor's proposed
payment. "Instructions" refers back to those referred to in clause 58.2 (Use of
Provisional Sums), therefore.
If the above argument is incorrect, the question arises as to whether a payment
must have been "on the instructions of the Engineer" as well as "in accordance
with the sub-contract". If the Contractor had been obliged to make a payment
under the sub-contract but has obtained no instructions from the Engineer, the
Contractor has no entitlement. If the subcontractor's entitlement was due to a
default of the Contractor, then the Engineer's instruction is an important
safeguard for the Employer. If, however, the Engineer has simply failed to
instruct or has instructed for a smaller sum, the Contractor will be obliged to take
the matter to arbitration. An Engineer may not necessarily feel obliged to instruct
Page 195 of 264
even upon receipt of an arbitrator's award as between Contractor and nominated
Subcontractor.
Item (b). The Contractor's attendance and superintendence may be the subject
of a separate item in the bill of quantities, either as a lump sum or percentage, or
may be left to be valued in accordance with clause 52 (Valuation of variations).
Item (c) represents the attraction to contractors of nominated sub-contracts as
this percentage for profit is comparatively risk-free, particularly if the nominated
sub-contract is reinforced by security such as a performance bond.
59.5 This clause is designed to ensure that nominated Subcontractors are paid
promptly and so perform their often crucial roles in the project without disruption.
Without this provision, the Employer would have to pay the Contractor regardless
of whether or not the subcontractor had also been paid directly. The Employer, in
other words, would pay twice. Perhaps inevitably, this sub-clause does not
prevent the Employer paying twice but arranges recovery from the Contractor.
This is not ideal if the cause of the non-payment of the nominated Subcontractor
is the insolvency of the Contractor, as will usually be the case. However, the
Employer will at the very least have retention in hand from which to deduct.
The sanction upon the defaulting Contractor does not seem to be very onerous.
The indication upon reading the clause as a whole is that certificates under the
main contract should not be delayed but should merely exclude the amount due
to the nominated subcontractor. The Contractor would lose the use of that
money for whatever number of days the contracts allowed him but seems
otherwise to be untroubled. He is apparently still entitled to his attendance and
his profit under items (b) and (c) under clause 59.4.
It should be noted that the amount deducted from subsequent certificates will be
the amount actually paid directly by the Employer so that the Contractor should
receive the subcontractor's retention money less the Contractor's own retention
percentage. This is in fact an improvement on the Contractor's normal position
whereby, if the main contract and nominated sub-contract retention percentages
were equal, the Contractor would receive no actual payment in respect of the
subcontractor's retention.
There would be a sanction against the Contractor if the Engineer certified nothing
in respect of the nominated Subcontractor and simultaneously certified that the
Employer was entitled to make direct payments. The Employer, having made the
direct payment, would then be entitled to deduct from the current certificate the
sum paid direct so that the deduction would be made from sums actually payable
to the Contractor and his other subcontractors. However, this would hardly
achieve the objective of the clause as the nominated Subcontractor would have
received the previous payment which had not been passed on but would have to
wait at least a further month until any further payment could be made by either
Contractor or Employer. The most likely scenario is that the Engineer would
certify the sums due to the nominated Subcontractor as normal and give the
Page 196 of 264
Employer a direct payment certificate at the same time.
Under those
circumstances, it is difficult to see that the Contractor suffers in any substantial
way.
"...paid or discharged...". The sub-clause recognises that the Contractor may
have a set-off against the nominated Subcontractor which extinguishes any right
to payment. It is the reasonableness of the set-off of which the Contractor must
satisfy the Engineer. If the Contractor demonstrated to an arbitrator that this setoff was reasonable when the Engineer took the opposite view and issued a direct
payment certificate, the risk, as first sight, is that the Employer may be obliged to
pay the Contractor as well. Generally, the loss incurred by the Contractor will be
minor, but if the Engineer's attitude prevented the Contractor recovering from the
nominated Subcontractor a set-off to which the Contractor was entitled, the loss
would be equivalent to that set-off.
The significance of the requirement in item (b) for proof that the nominated
subcontractor has been informed in writing of the cause for withholding payment
would apparently be to ensure that the nominated Subcontractor has had an
opportunity to respond to the Contractor's claims, the assumption apparently
being that such response would either be made directly to the Employer or
Engineer or that the response would be copied by the Contractor or
subcontractor to the Engineer, to enable him to make his judgment on
reasonableness.
In practice, the desire to make direct payments occurs most frequently in
circumstances where the employment of the Contractor has been terminated.
This sub-clause does not address this issue and the obligation under clause 63.4
(Assignment of benefit of agreement) requires only that the benefit of such subcontracts be assigned to the Employer and thus not the obligation to make
payments.
CLAUSE 60 : Certificates & Payments of the Contractor
This clause provides a mechanism for payment of the Contractor. Each month,
the Contractor submits six copies of his monthly valuation including on-site
materials, fluctuations and claims.
The Engineer has 28 days in which to certify the sum due less retention and any
sums other than liquidated damages which the Contractor owes the Employer.
The Engineer will not certify unless the net amount of the certificate would
exceed the minimum amount set out in the Appendix and the Contractor has
submitted his performance security.
Half of the retention money will be certified upon the issue of the Taking-Over
Certificate or a proportion of the retention money if the Taking-Over Certificate
relates to a Section or part only.
Page 197 of 264
The other half will be certified at the end of the last Defects Liability Period.
However, if there is any outstanding defect or search to be undertaken, the
Engineer may continue to retain enough of the retention money to cover the cost
of the work to be executed.
The Engineer is entitled to correct or modify interim certificates, including by the
omission or reduction in the value of items.
Within 12 weeks of the Taking-Over Certificate , the Contractor is to submit a
statement, which is a valuation of all the works and claims up to substantial
completion. In addition, the Contractor should provide an estimate of his future
entitlement. The Engineer is to produce a further interim certificate.
Within 9 weeks of the Defect Liability Certificate, the Contractor is to produce his
draft final statement showing his final valuation and accompanied by supporting
documentation. If the draft can be agreed, or after the production of any further
information that the Engineer calls for, the Contractor re-submits it in its agreed
form as the Final Statement.
At the same time, the Contractor must produce a written discharge stating that,
once the sum set out in the Final Statement has been paid and the performance
security returned, he will have been paid in full and final settlement.
Within 4 weeks of the submission of the Final Statement and discharge, the
Engineer issues a Final Certificate stating the total contract valuation and any
balance outstanding between the Contractor and the Employer other than
liquidated damages.
The Employer will not be liable to the Contractor for any claim which was not
referred to in the Final Statement and, unless the claim arose after the date of
substantial completion, the Statement at Completion.
Interim certificates shall be paid within 28 days of their delivery to the Employer
and the Final Certificate within 8 weeks. Interest will accumulate on late payment
at the rate stated in the Appendix.
This clause represents FIDIC's first attempt to draft in detail the payment clause.
In the 3rd and preceding editions, clause 60 merely suggested that the detailed
provision should be drafted by the parties to the contract following a menu of
subjects set out in Part II. The influence of ICE 5th, the payment clauses of
which were often used to fill the void in earlier editions, is clearly visible.
60.1 Although no time is given within which the Contractor is to submit his
monthly statement, the Contractor will normally submit it as soon as he can.
(a)
It might have been expected to see the words "properly executed" or
"executed in accordance with the contract". This would have put it beyond doubt
Page 198 of 264
that permanent works executed but in a defective fashion or otherwise not to the
satisfaction of the Engineer, would not be paid for. However, "Permanent Works"
are defined as "works to be executed ... in accordance with the Contract", so the
Engineer will not be without support in declining to pay. Contrast clause 60.5(a)
where the Contractor submits "the final value of all work done in accordance with
the Contract". For a case on payment for work not properly executed, see Acsim
v Dancon (1989) 47 BLR 55. Payment does not imply approval: see sub-clause
60.4 (Correction of certificates) which allows the Engineer to amend interim
certificates and clause 61.1 (Approval only by Defects Liability Certificate).
"(e) any other sum to which the Contractor may be entitled under the contract."
This appears to be intended to include claims and thus raises the question
whether the monthly statement would be a sufficient notice to satisfy clause 53.1
(Notice of claims). Under this clause, a statement is required only to show the
amount to which the Contractor considers himself entitled, but "the form
prescribed by the Engineer" is bound to require the Contractor at least to indicate
the head of claim concerned. A brief head of claim, with an amount quoted
would, it is submitted, be sufficient to satisfy clause 53.1. However, claims that
are not quantified within the month may be excluded from the statement. Good
practice may be to include all heads of claim in the monthly statement whether
quantified or not. In the latter case, the entries could be marked "to follow" or
equivalent. Clause 53.1 requires notices of claim to be copied to the Employer,
whereas all six copies of the monthly statement to go to the Engineer. The
Contractor should therefore send an extra copy to the Employer.
CLAUSE 60 (Certificates and payment)
60.1
Monthly Statements
The Contractor shall submit to the Engineer after the end of each month six
copies, each signed by the Contractor's representative approved by the Engineer
in accordance with Sub-Clause 15.1, of a statement, in such form as the
Engineer may from time to time prescribe, showing the amounts to which the
Contractor considers himself to be entitled up to the end of the month in respect
of
(a)
the value of the Permanent Works executed
(b)
any other items in the Bill of Quantities including those for Contractor's
Equipment, Temporary Works, dayworks and the like
(c)
the percentage of the invoice value of listed materials, all as stated in the
Appendix to Tender, and Plant delivered by the Contractor on the Site for
incorporation in the Permanent Works but not incorporated in such Works
(d)
adjustments under Clause 70
Page 199 of 264
(e)
any other sum to which the Contractor may be entitled under the Contract
or otherwise.
60.2
Monthly Payments
Click on the [*] button to see omitted text.
The Engineer shall, within 28 days of receiving such statement, [*] deliver to the
Employer an Interim Payment Certificate stating the amount of payment to the
Contractor which [*] the Engineer considers due and payable in respect [*] of
such statement, subject:
(a)
firstly, to the retention of the amount calculated by applying the
Percentage of Retention stated in the Appendix to Tender, to the amount to which
the Contractor is entitled under paragraphs (a), (b), (c) and (e) of Sub-Clause
60.1 until the amount so retained reaches the limit of Retention Money stated in
the Appendix to Tender, and
(b)
secondly, to the deduction, other than pursuant to Clause 47, of any sums
which may have become due and payable by the Contractor to the Employer.
Provided that the Engineer shall not be bound to certify any payment
under this Sub-Clause if the net amount thereof, after all retentions and
deductions, would be less than the Minimum Amount of Interim Payment
Certificates stated in the Appendix to Tender. Notwithstanding the terms of this
Clause or any other Clause of the Contract no amount will be certified by the
Engineer for payment until the performance security, if required under the
Contract, has been provided by the Contractor and approved by the Employer.
60.3 Payment of Retention Money
Click on the [*]button to see omitted text.
(a)
Upon the issue of the Taking-Over Certificate with respect to the
whole of the Works, one half of the Retention Money, or upon the issue of a
Taking-Over Certificate with respect to a Section or part of the Permanent Works
only such proportion thereof as the Engineer determines having regard to the
relative value of such Section or part of the Permanent Works, shall be certified
by the Engineer for payment to the Contractor.
(b)
Upon the expiration of the Defects Liability Period for the Works the other
half of the Retention Money shall be certified by the Engineer for payment to the
Contractor. Provided that, in the event of different Defects Liability Periods having
become applicable to different Sections or parts of the Permanent Works
pursuant to Clause 48, the expression "expiration of the Defects Liability Period"
shall, for the purposes of this Sub-Clause, be deemed to mean the expiration of
the latest of such periods. Provided also that if at such time, there shall remain to
be executed by the Contractor any work [*] instructed, pursuant to Clauses 49
and 50, in respect of the Works, the Engineer shall be entitled to withhold
certification until completion of such work of so much of the balance of the
Page 200 of 264
Retention Money as shall, in the opinion of the Engineer, represent the cost of
the work remaining to be executed.
60.4 Correction of Certificates
The Engineer may by any Interim Payment Certificate make any correction or
modification in any previous Interim Payment Certificate which shall have been
issued by him and shall have authority, if any work is not being carried out to his
satisfaction, to omit or reduce the value of such work in any Interim Payment
Certificate.
60.5 Statement at Completion
Not later than 84 days after the issue of the Taking-Over Certificate in respect of
the whole of the Works, the Contractor shall submit to the Engineer six copies of
a Statement at Completion with supporting documents showing in detail, in the
form approved by the Engineer,
(a)
the final value of all work done in accordance with the Contract up to the
date stated in such Taking-Over Certificate
(b)
any further sums which the Contractor considers to be due and
(c)
an estimate of amounts which the Contractor considers will become due to
him under the Contract.
The estimated amounts shall be shown separately in such Statement at
Completion. The Engineer shall certify payment in accordance with Sub-Clause
60.2.
60.6
Final Statement
Not later than 56 days after the issue of the Defects Liability Certificate pursuant
to Sub-Clause 62.1, the Contractor shall submit to the Engineer for consideration
six copies of a draft final statement with supporting documents showing in detail,
in the form approved by the Engineer,
(a)
the value of all work done in accordance with the Contract and
(b)
any further sums which the Contractor considers to be due to him under
the Contract or otherwise.
If the Engineer disagrees with or cannot verify any part of the draft final
statement, the Contractor shall submit such further information as the Engineer
may reasonably require and shall make such changes in the draft as may be
agreed between them. The Contractor shall then prepare and submit to the
Engineer the final statement as agreed (for the purposes of these Conditions
referred to as the "Final Statement").
Page 201 of 264
If, following discussions between the Engineer and the Contractor and any
changes to the draft final statement which may be agreed between them, it
becomes evident that a dispute exists, the Engineer shall deliver to the Employer
an Interim Payment Certificate for those parts of the draft final statement, if any,
which are not in dispute. The dispute may then be settled in accordance with
Clause 67.
60.7
Discharge
Upon submission of the Final Statement, the Contractor shall give to the
Employer, with a copy to the Engineer, a written discharge confirming that the
total of the Final Statement represents full and final settlement of all monies due
to the Contractor arising out of or in respect of the Contract. Provided that such
discharge shall become effective only after payment due under the Final
Payment Certificate issued pursuant to Sub-Clause 60.8 has been made and the
performance security referred to in Sub-Clause 10.1, if any, has been returned to
the Contractor.
60.8 Final Payment Certificate
Click on the [*] button to see omitted text.
Within 28 days after receipt of the Final Statement, and the written discharge, the
Engineer shall issue to the Employer (with a copy to the Contractor) a Final
Payment Certificate stating
(a)
the amount which, in the opinion of the Engineer, is finally due under the
Contract or otherwise, and
(b)
after giving credit to the Employer for all amounts previously paid by the
Employer and for all sums to which the Employer is entitled [*] , other than under
Clause 47, the balance, if any, due from the Employer to the Contractor or from
the Contractor to the Employer as the case may be.
60.9
Cessation of Employer's Liability
The Employer shall not be liable to the Contractor for any matter or thing arising
out of or in connection with the Contract or execution of the Works, unless the
Contractor shall have included a claim in respect thereof in his Final Statement
and (except in respect of matters or things arising after the issue of the Taking
Over Certificate in respect of the whole of the Works) in the Statement at
Completion referred to in Sub-Clause 60.5.
60.10 Time for Payment
The amount due to the Contractor under any Interim Payment Certificate issued
by the Engineer pursuant to this Clause, or to any other term of the Contract,
shall, subject to Clause 47, be paid by the Employer to the Contractor within 28
Page 202 of 264
days after such Interim Payment Certificate has been delivered to the Employer,
or, in the case of the Final Payment Certificate referred to in Sub-Clause 60.8,
within 56 days, after such Final Payment Certificate has been delivered to the
Employer. In the event of the failure of the Employer to make payment within the
times stated, the Employer shall pay to the Contractor interest at the rate stated
in the Appendix to Tender upon all sums unpaid from the date by which the same
should have been paid. The provisions of this Sub-Clause are without prejudice
to the Contractor's entitlement under Clause 69 or otherwise.
As is shown above, the amendments to clause 60 fall into the following
categories:(i)
Amendments addressing the certification of breach of contract;
(ii)
Amendments following the definition of interim payment certificate and
final payment certificate;
(iii)
The provision for interim payments where the final statement cannot be
agreed;
(iv)
Minor amendments.
(i) Breach Of Contract
As was pointed out in the main work, the 4th Edition lacked any clear policy as to
whether damages for breach of contract should form part of the payment
mechanism under clause 60. This has now been resolved in favour of the
inclusion of damages for breach of contract within the scope of the certifying
function of the Engineer.
The addition of the words "or otherwise" in sub-clauses 60.1, 60.6 and 60.8(a)
and the removal of the words "under the Contract" in sub-clause 60.8(b) has had
this effect. The decision of those responsible for the amendments to make the
Engineer responsible for the certification of damages for breach of contract
removes an area of debate. Whilst it is clear that the Engineer had power to rule
on questions of damages when making a decision pursuant to clause 67.1
(Engineer's decision), it is far from clear that such power extended to the normal
certifying functions.
Under clause 53.1 (Notice of claims), claims for additional payment "pursuant to
any Clause of these Conditions or otherwise" must be notified to the Engineer.
Under clause 53.5 (Payment of claims):"The Contractor shall be entitled to have included in any interim payment certified
by the Engineer pursuant to Clause 60 such amount in respect of any claim as
the Engineer...may consider due to the Contractor provided that the Contractor
has supplied sufficient particulars to enable the Engineer to determine the
amount due."
Prior to this reprint, it was arguable by an Employer that, notwithstanding clause
53, there was no right to interim payments of damages because certificates
under clause 60.2 could only include the sums listed in items (a) to (e) in clause
Page 203 of 264
60.1. Item (e) referred only to sums to which the Contractor was entitled "under
the Contract." The counter-argument was that the entitlement under clause 53.5
to have damages claims included in interim certificates had the effect of creating
an entitlement "under the contract". Such an argument could only extend to
claims for damages where the Contractor had followed the clause 53 procedure
sufficiently to enable the Engineer to make a determination. For an old case in
which these arguments were aired in the English courts, see Blackford & Sons v
Christchurch (1962) 1 LLR 349. This argument has been resolved by the
addition of the words "or otherwise" to item (e).
Clause 53 refers only to claims of the Contractor. There are no notice
requirements upon the Employer so that the Engineer may certify and the
Employer may deduct without any notice other than the certificate itself. This has
always been true under clause 60.2 (b) of the 4th Edition. Of course, the
Employer may have rights of set-off under the law governing the contract in
which case the Contractor could be given no notice at all.
The inclusion of damages in certificates makes the careful exclusion of clause 47
(Liquidated damages for delay) from interim and final certificates look redundant.
If the Engineer is to certify the Employer's entitlement to unliquidated damages,
with all the difficulties of ascertainment implicit in such a process, it is very
difficult to see why he should not certify a sum that has been agreed as part of
the contract and is capable of precise calculation. If the Employer does not wish
to claim liquidated damages he may say so as with any other heads of claim
which he may have.
An Engineer certifying damages may wish to introduce additional lines on the
form of certificate: firstly, representing additional sums owed to the Contractor for
the Employer's breaches; and secondly, showing deductions resulting from the
Contractor's breaches.
(ii) Definition of "Interim Payment Certificate" and "Final Payment Certificate"
See generally the comments under clause 1.1 (Definitions) above. As stated
there, the new definition of Interim Payment Certificate has been used in subclauses 60.2 (Monthly payment), 60.4 (Correction of certificates) and 60.10 (Time
for payment). As discussed in the commentary under clause 1.1 above, the
defined term could have been used in sub-clauses 59.5 (Certification of
payments to nominated Subcontractors), 60.3 (Payment of Retention Money)
and 60.5 (Statement at completion) as the certificates referred to in these
clauses fall within the definition of Interim Payment Certificate. It has been
submitted that the definition of Interim Payment Certificate has been more widely
drawn than intended.
(iii) Interim Payment following disputed Final Statement
In clause 60.6 (Final Statement), a paragraph has been added. This paragraph
closely follows the World Bank's recommendation in their suggested paragraph
Page 204 of 264
60.11. One important difference, however, is that the World Bank adds an
additional sentence namely: "The Final Statement shall be agreed upon
settlement of the dispute". The desirability of the sentence is considered below.
The additional wording also deals with one of the criticisms of sub-clause 60.6
expressed in the main work. In the absence of these words, it remained
arguable whether the Engineer was obliged to certify any payment pending the
agreement of the Final Statement. Good practice would call for such a certificate
but an Employer would previously have had grounds for denying the Engineer's
authority to so certify.
It is seen throughout the conditions that interim payment should be made for
those parts of claims for additional payment which are not disputed by the
Engineer. In clause 52.2 (Power of Engineer to fix rates) the Engineer is to
determine provisional rates or prices pending the agreement or fixing of rates or
prices for variations.
Similarly, under clause 53.5 (Payment of claims) the
Contractor is entitled to payment for those parts of any claim for additional
payment for which he has provided sufficient particulars.
Disputed parts of the Contractor's final statement are to be settled in accordance
with clause 67 (Settlement of disputes). This procedure may lead to one of three
results:(a)
a binding Engineer's decision;
(b)
an arbitrator's award;
(c)
an agreement between the Employer and the Contractor, whether
under Clause 67.2 (Amicable settlement) or otherwise.
The question then arises as to whether sub-clauses 60.7 (Discharge), 60.8 (Final
Payment Certificate) and 60.9 (Cessation of Employer's liability) have any
function when the dispute has been resolved under Clause 67. The Final
Statement is defined as an agreement between the Engineer and the Contractor.
Unless the Engineer's decision is wholly in agreement with the Contractor's
claim, none of the possible results of the disputes procedure leads to a Final
Statement. A settlement or an award would generally specify when any balance
due to the Contractor is to be paid so that the part of clause 60.10 (Time for
payment) that deals with the final payment to the Contractor would also be
redundant.
An Engineer's decision, however, would not generally deal with time for payment.
In these circumstances, it would no doubt be expressed as the overall balance
due to the Contractor and amount in effect to a Final Payment Certificate.
However, there would be no agreed Final Statement and no discharge under
Clause 60.7 (Discharge) which are the necessary pre-cursors to a Final Payment
Certificate. As the Employer's obligation to make final payment is tied to the
Final Payment Certificate, the conditions have no mechanism for such a final
payment. Doubtless, the draftsman would rely upon the common sense of the
parties to overcome this hurdle.
Page 205 of 264
The World Bank, by its use of the additional sentence, evidently does not share
the draftsman's optimism and has provided that "the Final Statement shall be
agreed upon settlement of the dispute". This could be treated as a direction to
the Engineer or arbitrator to make their decision or award in terms that the sum
arrived at shall be treated as the amount of the Final Statement. It is perhaps
unfortunate that the World Bank's wording calls for further agreement between
the parties. One party might well take issue with the arbitrator's award. If FIDIC
decide to adopt the World Bank's general approach, it might be preferable to
introduce a deeming provision whereby the gross sum arrived at in the dispute is
taken to be the amount of the Final Statement. It is accepted that this solution is
not free from difficulty as such a dispute could well address the overall
entitlement of the Contractor - in effect the amount of the Final Payment
Certificate - and not just the gross entitlement of the Contractor which is the
subject of the Final Statement.
The lack of a discharge under clause 60.7 (Discharge) does not matter greatly if
the dispute which is taken through to an Engineer's decision, a settlement or an
award address the overall entitlement of the Contractor. The result will very
often be a full and final settlement of the Contractor's claims. More difficulty
arises if the dispute relates purely to the Final Statement, permitting further
scope for conflict if the Employer through the Engineer deducts claims and
contra-charges on the face of the Final Payment Certificate. Nevertheless, the
draft final statement is supposed to include reference to all the Contractor's
claims so that a resolution of a dispute over the Final Statement should also be a
resolution of those claims. Clause 60.9 (Cessation of Employer's liability) seeks
to bar any claim from the Contractor that is not included in the Final Statement.
As commented in the main work, the Final Statement referred to in clause 60.9
must be the Contractor's draft final statement as it would no longer be a claim
once it formed part of an agreed Final Statement.
It is reasonable to anticipate that clause 60 will be the subject of further
substantial change in the future.
(iv) Minor Amendments
In clause 60.3 (Payment of Retention Money) at item (b), the word "ordered" has
been replaced with "instructed" bringing the vocabulary into line with the
remainder of the contract. The term "ordered" is left over from previous editions
and shows the conditions' ICE origins.
In clauses 60.5 (Statement at Completion) and 60.6 (Final Statement) the
Contractor is now required to produce six copies of each of those documents.
This amendment is consistent with clause 60.1 (Monthly Statements) which has
always required the Contractor to supply six copies of his monthly statements.
60.2 "...considers due and payable in respect thereof...". The question
frequently recurs as to whether the Engineer is entitled to certify damages
payable by the Employer to the Contractor. It is submitted that he cannot
Page 206 of 264
because the words "in respect thereof" relate to the Contractor's statement
submitted under sub-clause 60.1. The contents of this statement are specified
and item (e) includes the words "under the contract" thereby excluding damages
for breach of contract.
At item (b), the Engineer is empowered to deduct from certificates "sums which
may have become due and payable by the Contractor to the Employer". The
words "under the contract" are missing which must raise the argument that the
Engineer is entitled to deduct on the face of certificates damages other than
liquidated damages for any breach of the contract by the Contractor or even
sums which are due and payable outside of the contract, for example, on other
projects. It must be doubtful that this was intended by the draftsman. The
expression "which may have become due and payable" seems unnecessarily
vague and would allow an Employer to seek to persuade the Engineer to deduct
on the face of the certificates sums which the Employer has merely claimed as
due from the Contractor. The Engineer is not asked to consider the Employer's
claim. Whilst in some jurisdictions it may be that the Employer would be entitled
to set off from certificates sums in respect of such claims, it is again doubted that
this was the intention of the draftsman.
The careful exclusion of clause 47 (Liquidated damages) from this clause and
sub-clauses 60.8 and 60.10 becomes somewhat ironic in the light of the latitude
given to the Employer and Engineer by 60.2(b). As the Employer's ability to
deduct liquidated damages is really largely dependant upon Engineer's
decisions, the value of this careful exclusion must be doubtful. One effect of the
exclusion of liquidated damages is that the Contractor will be entitled to a
certificate if the monthly total due to him would have been reduced below the
Minimum Amount of Interim Certificates had the liquidated damages been
deducted.
It has not been made clear whether the Contractor is entitled to apply for interim
certificates other than under sub-clause 60.5 after substantial completion. In
reality, the period between the statement at completion and the final statement
and certificate could be a long one and sums may fall due as, for example, the
valuation of variations is agreed with the Engineer. It is submitted that the normal
practice of certifying as and when significant sums are agreed is intended here.
Clauses which entitle the Employer to make deductions are as follows:- clause 25.3 (Remedy on Contractor's failure to insure
- clause 30.3 (Transport of materials or plant): where the Contractor has failed to
prevent damage to roads.
- clause 37.4 (Rejection)
- clause 39.2 (Default of Contractor in compliance)
- clause 46 (Rate of progress): extra costs of supervision.
- clause 47.1 (Liquidated damages)
- clause 49.4 (Contractor's failure to carry out instructions): regarding
remedying of defects
Page 207 of 264
- clause 59.5 (Certification of payments to nominated Subcontractors)
- clause 64 (Urgent remedial work)
- clause 70.1 (Increase or decrease of cost)
- clause 70.2 (Subsequent legislation)
If the Employer is late in making payment of a certificate, provision is made under
sub-clause 60.10 for the payment of interest. If, however, the Engineer is late in
certifying under this sub-clause, there is no express remedy for the Contractor
although the result in terms of cash-flow is exactly the same. The Contractor is
obliged to seek compensation from the Employer by way of damages for breach
by the Employer of an implied term that the Employer will ensure that the
Engineer certifies in accordance with the contract. Given that the existence of
such implied terms will depend on the law of the contract, it might have been
preferable for this obligation to have been spelt out, for example as part of clause
2 (Engineer and Engineer's Representative).
This clause must be read with clause 56.1 (Works to be measured) which
requires the Engineer to ascertain the value of the works by measurement.
Strangely, there is no reference to clause 56 or measurement anywhere in clause
60.
Under clause 10.1 (Performance security), the Contractor is supposed to submit
his performance security within 28 days of the Letter of Acceptance. This will
normally be before the date for commencement and inevitably before the first
Interim Certificate is due. There are limited possibilities for the Employer to
interfere with this process as the form is prescribed. However, the Employer is
entitled under clause 10.1 to withhold his approval of the institution providing
such security. Clause 1.5 (Notices, consents etc.) prohibits the Employer from
withholding or delaying consent unreasonably.
60.3
(a)
After a Taking-Over Certificate with respect to a Section or part only, the
Engineer determines the proportion having regard to the relative value of the
Section or part. This clause is to be contrasted with clause 47.2 (Reduction of
liquidated damages) where a similar determination by the Engineer would reduce
the considerable scope for dispute as to the value of the part handed over.
(b)
The same exercise of releasing a proportion of the retention is not applied
in respect of the second moiety of the retention money which is to be withheld
until the last Defect Liability Period has expired. This could be galling if a very
minor matter was delayed through no fault of the Contractor and received its
Taking-Over Certificate later. The arrangement certainly has the merit of
simplicity but could be open to abuse. It is perhaps misleading to talk of "the
other half of the Retention Money" as this indicates that retention released after
substantial completion and that to be released after the Defects Liability Period
Page 208 of 264
will be the same amount. This is unlikely to be so as the Engineer will have
certified one or more further payments under sub-clauses 60.2 and 60.5.
As the release is determined by the effluxion of time rather than the completion of
the remedying of the defects, it is obviously sensible to give the Engineer power
to withhold monies to cover outstanding work. However, the Engineer is only
entitled to withhold his estimate of the cost of work remaining to be executed
which has been ordered. Under clause 50.1 (Contractor to search), the
Contractor may have been ordered to search for a defect but, until such time as
the search has revealed the source of the defect and the remedial work
necessary to overcome it, the Engineer would not be in a position to order the
remedial work. Thus, the Engineer would not be entitled by this provision to
retain money against the works which may potentially have to be ordered. This
could leave the Employer exposed. The answer is perhaps for the Engineer to
order the Contractor to search and also to remedy, with details of the remedial
work to follow.
It should be noted that the trigger for the release of retention is the expiry of the
last Defects Liability Period and not the issue of the Defects Liability Certificate.
60.4 Although the ability to make corrections may be implicit in the concept of
an "interim" certificate, it is as well to make the power express. The Engineer
would have been assisted in omitting or reducing the value of work not carried
out properly if the words "in accordance with the Contract" which are used in subclause 60.5(a) had been used in sub-clause 60.1(a).
It may be arguable that the Engineer's dissatisfaction could apply to the rate of
progress as well as to the quality of the work. This raises the possibility of
reductions in certificates being an additional weapon whereby the Engineer might
induce the Contractor to make progress. See also clause 46.1 (Rate of
progress). It is doubtful that this possibility was intended by the draftsman.
Clauses which require the Contractor to carry out work to the satisfaction of the
Engineer are as follows:- clause 13.1 (Work to be in accordance with contract)
- clause 17.1 (Setting out)
- clause 20.2
(Responsibility to rectify loss or damage)
- clause 33.1
(Clearance of site on completion)
- clause 36.4
(Testing)
- clause 48
(Taking-Over)
- clause 49
(Defects liability)
"...correction or modification in any previous certificate..." This wording could give
rise to an argument that certificates other than interim payment certificates might
be modified pursuant to this clause. Thus, a Taking-Over Certificate under clause
48.1, a certificate entitling the Employer to make direct payment to a nominated
Subcontractor under clause 59.5 or a certificate of the Contractor's default under
Page 209 of 264
clause 63.1 could all be capable of modificiation. As the contents of the interim
certificate is specified under sub-clause 60.2, where it is confined to amounts of
payment, it seems plain that the power to modify was intended to be limited to
interim certificates. Accordingly, and for the avoidance of doubt, this sub-clause
should be amended to read "any previous interim certificate".
This clause must be read with clause 67.1 (Engineer's decision) which permits
the Engineer to reconsider "any opinion, instruction, determination, certificate or
valuation". However, before the Engineer may exercise this power, one of the
parties must have referred a dispute to him with express reference to clause
67.1.
60.5 In this clause and in clause 60.6, there is reference to "the form approved
by the Engineer". Contractors will thus be obliged to submit draft forms in
advance of the latest date in order to ensure that their submission is going to be
acceptable to the Engineer. The submission is due 12 weeks from the issue of
the Taking-Over Certificate and not from the date stated in the Taking-Over
Certificate. The approval is subject to clause 1.5 (Notices, consents etc.) and
may not be unreasonably delayed or withheld.
(a)
The effect of the word "final" in this clause is not entirely clear. It is
perhaps surprising that it appears here and not in clause 60.6(a) which deals with
the "Final Statement".
(b)
This appears to be broad enough to include damages for breach of
contract. It may be that the words "under the contract" in (c) should have been
added to (b) as well.
(c)
It is to be presumed that it is not intended that the Engineer should certify
payment of the amounts estimated by the Contractor. The requirement that the
Engineer should certify "in accordance with sub-clause 60.2" would seem to rule
this out as he is only to certify sums that he considers due and payable.
It is essential that all the Contractor's claims are recorded in the Statement at
Completion: see sub-clause 60.9 which terminates the Employer's liability for
claims that are not recorded in both this Statement and the Final Statement
under sub-clause 60.6. No indication is given of the degree of detail required: this
may be a matter of the form to be approved by the Engineer and will no doubt
depend on the extent of the notification made and records kept under clause 53
(Procedure for claims). Normally, no more than a reference to the claim and the
amount claimed would be necessary.
Unfortunately, strict adherance to the letter of sub-clause 60.2 could result in the
entirety of the retention being deducted again having been released under subclause 60.3(a). This is because sub-clause 60.2 requires the retention
percentage stated in the Appendix, a single figure, to be deducted from all
certificates. Even if it can clearly be implied that sums repaid under sub-clause
60.3(a) should not be re-deducted under sub-clause 60.5, it is certainly unclear
Page 210 of 264
whether the full retention percentage should be deducted or half of that
percentage from the balance now certified. It is submitted that no departure from
standard practice is intended.
It is not clear what the effect of a failure by the Contractor under sub-clauses
60.5 or 60.6 to comply with the time limits would be. Generally, clear words are
required to make a time limit a condition precedent and such words are not used
here. It is submitted that these time limits should be treated as directory rather
than mandatory. It is very much in the Contractor's interest to make these
submissions as early as possible whereas the Employer will not generally suffer
detriment by the delay.
60.6 A comparison of sub-clause 60.6 (a) and (b) with sub-clause 60.5(a) and
(b) and, indeed, with sub-clause 60.1(a) and (e) reveals a certain inconsistency.
The word "final" would have a place in sub-clause 60.6 (a). Sub-clause 60.6 (b)
includes claims but plainly does not include damages for breach of contract
because of the words "under the contract". Thus, it is inconsistent in sub-clause
60.7 for the Final Statement to amount to a "full and final settlement of all monies
due ... arising out of or in respect of the contract" as these words would include
breach of contract.
Taken literally, in the absence of agreement on the draft final statement, the
clause would be powerless. No provision is made for such an eventuality so the
parties would have to resort to clause 67 (Settlement of disputes). Meanwhile,
the question arises whether, pursuant to sub-clauses 60.2 or 60.5, there can be
any certification in respect of those parts of the statement that are agreed. Whilst
the sub-clause 60.2 interim certificate procedure is not expressly halted at
substantial completion, the clause, together with sub-clause 60.1, does not seem
to be drafted with the period after substantial completion in mind. One possibility
is that the agreement is directed to form only: otherwise the Engineer would be
reopening an agreement in determining the amount of the Final Certificate under
sub-clause 60.8. This ambiguity should be resolved.
It is essential that all the Contractor's claims are recorded in the Final Statement:
see sub-clause 60.9 which terminates the Employer's liability for claims that are
not recorded in both this Statement and the Statement at Completion under subclause 60.5.
60.7 The discharge called for is to the effect that the final statement represents
the Contractor's entire entitlement. Yet the wording of sub-clause 60.6 (a) and
(b) makes it plain that damages for breach of contract are not to form part of the
Final Statement. Compare the words "under the contract" in 60.6 with "arising
out of or in respect of the contract" in this clause.
This is plainly a somewhat one-sided procedure as the Engineer may
subsequently deduct from the agreed value sums which he considers the
Employer to be entitled to. Indeed, the Employer seems to be at liberty to
continue to present claims.
Page 211 of 264
"...payment due under the Final Certificate...". As this certificate takes no account
of any entitlement of the Employer to liquidated damages, it is quite possible that
payment of the sum stated in the certificate will not take place. As drafted, it is
submitted that the discharge would not become effective in those circumstances.
In order to take liquidated damages into account, words such as those in clause
60.10 (Time for payment), "subject to Clause 47", would be required.
This clause should be read with sub-clause 60.9 and clause 62.2 (Unfulfilled
obligations) and the comments under those clauses. It should also be borne in
mind that the Employer gives to the Contractor indemnities under the following
clauses:- clause 22.3 (Indemnity by Employer)
- clause 25.4 (Compliance with policy conditions)
- clause 26.1 (Compliance with statutes, regulations)
- clause 30.3 (Transport of materials or Plant)
It is submitted that the discharge does not inhibit future claims under these
indemnities as it is "all monies due" that are settled and not, for example, "all
monies due or to become due".
60.8 "(a) the amount which, in the opinion of the Engineer ...". In view of the
agreement which is required before a final statement can exist, it is somewhat
surprising in this clause to see the Engineer being empowered to exercise his
discretion once again as to the amount which is finally due. One explanation
would be if the agreement of the draft final statement in sub-clause 60.6 was to
be as to form only. This seems unlikely in view of the words with which the
second part of the sub-clause begins: "if the Engineer disagrees with or cannot
verify any part of the draft final statement ...". If the agreement was as to form,
content and final figure, then (a) should read "the amount of the agreed final
statement". As drafted, the Engineer is apparently entitled to state in the Final
Certificate a sum different to the sum agreed under sub-clause 60.6. This throws
into question the purpose of the agreement and the capacity in which the
Engineer is reaching such agreement. Regrettably, the only explanation seems to
be an oversight on the part of the draftsman: this clause therefore needs to be
amended.
In sub-clause 60.8, the draftsman has reverted to "under the contract" thereby
once again excluding damages for breach of contract. Compare the wording of
sub-clauses 60.1 (e), 60.5(b), 60.6(b) and 60.7. There does not seem to be a
clear policy on damages.
Similarly, the Engineer gives credit for "all sums to which the Employer is entitled
under the Contract" which is to be contrasted with sub-clause 60.2 (b) which
lacks the words "under the contract".
As in sub-clauses 60.2 and 60.10, the contract is careful to leave the deduction
of liquidated damages to the Employer. See the commentary on this under
clause 60.2.
Page 212 of 264
Whereas in some, particularly construction, contracts the final certificate is
expressed to be conclusive in relation to certain matters contained in it which are
not immediately challenged at arbitration, here it is the combination of the
discharge under clause 60.7 and the cessation of the Employer's liability under
60.9 that limits the potential for future disputes. One must look to clause 61.1 for
any limitation to be imposed upon the Employer. There, it is said somewhat
obliquely, that the Defects Liability Certificate constitutes approval of the Works.
Exceptions are not spelt out, but it is doubtful that this recognition that the
Contractor has executed the works and remedied the defects to the satisfaction
of the Engineer would provide a defence to a claim in respect of latent defects.
60.9 In order for the Contractor to maintain any claim, he must include it in his
Statement at Completion, if it has arisen by then, and in his Final Statement.
There would be a discrepancy with clause 60.6 (Final Statement) if that clause
envisages the agreement of the draft Final Statement. If this agreement extends
to agreement of the Contractor's entitlement, it is difficult to see that a "claim", as
distinct from sums agreed as either being due or not due, would still exist after
the Final Statement. It is submitted under sub-clause 60.6 however that the
required agreement is as to form only.
This clause was at clause 62(2) in the 3rd Edition. Despite its new position, it
should still be read with the current clause 62.2 (Unfulfilled obligations) which at
first sight looks contradictory but which, as is submitted thereunder, is in fact
close to meaningless. The fact that clause 62.2 (Unfulfilled obligations) seeks to
preserve certain liabilities of the Employer, militates in favour of the interpretation
that the agreement is as to form only. If those liabilities are preserved but the
Contractor is unable to enforce them, clause 62.2 would be even more
redundant. See also sub-clause 60.7 above.
There are a number of incidences under the contract when the Employer gives to
the Contractor indemnities or is otherwise responsible to the Contractor. Clauses
in which this occurs and where the Contractor's resulting claims against the
Employer could arise for the first time after the Statement at Completion or Final
Statement have been submitted by the Contractor include the following:- clause 19.2
- clause 21.3
- clause 22.3
- clause 24.1
- clause 25.4
- clause 26.1
- clause 70.2
- clause 71.1
(Employer's responsibilities) in relation to safety;
(Responsibility for amounts not recovered);
(Indemnity by Employer);
(Accident or injury to workmen);
(Compliance with policy conditions);
(Compliance with statutes, regulations);
(Subsequent legislation); and
(Currency restrictions).
In each of the above cases, it is conceivable that the Contractor would wish to
make a claim against the Employer after the date of the Final Statement.
Page 213 of 264
Further, if the Contractor was made liable under the applicable law to a third
party in respect of design which had been carried out by the Engineer, the
Contractor would wish to bring a claim against the Employer to recover any
damages paid out.
The question therefore arises whether sub-clause 60.9 in fact bars these claims.
The purpose of the sub-clause is sensible, namely to enable the Employer to
achieve a reasonable degree of certainty as to his ultimate liability.
Nevertheless, it is submitted that this sub-clause cannot be intended to contradict
the indemnities and other rights contained in the clauses listed above. If a
change in legislation occurs or currency restrictions are imposed at the time of
the final certificate, it is submitted that the Contractor is entitled to claim for any
losses under clauses 70.2 and 71.1. Therefore "claim" in the current sub-clause
must be interpreted as meaning a claim which the Contractor intends to make.
This is consistent with clause 53 (Procedure for claims) which, it is submitted,
addresses only claims which the Contractor intends to make. No such intention
can exist where the circumstances have not arisen or are not known to the
Contractor. A difficulty in the way of such an interpretation is the fact that the
exception in brackets refers only to the Statement at Completion. It would be
argued for the Employer that if the draftsman had intended an exception to be
made for subsequent events, the exception would have been extended to cover
both Statements. If this is correct, then Contractors would be well advised to
include in their Final Statement a generally-worded claim in respect of any
potential liabilities of the Employer to the Contractor including those arising out of
the clauses listed above.
It is submitted that this sub-clause should be amended to make it clear that
claims that are known, or which should have been known to the Contractor at the
date of the Final Statement must be included in that statement or lost. The subclause should have no effect on latent or future claims.
60.10 As clause 60 is the only clause under which interim certificates are issued,
it is uncertain to what the words "or to any other term of the contract" refer. One
possibility is that the draftsman had in mind a decision of the Engineer under
clause 67.1 (Engineer's decision) to increase an interim certificate. Alternatively,
an arbitrator's award to the same effect could be referred to, although most
jurisdictions will have their own provisions for the time for payment and interest
on awards. Another possibility is that the words refer back to "the amount due to
the Contractor" but this requires a somewhat strained construction which
replaces "or to any other term" with "or under any other term". The Employer's
liability for interest is plainly tied to certificates. This position is to be contrasted
with the scheme of the ICE 5th clause 60(6) where the Engineer's failure to
certify also gives rise to an entitlement to interest. To achieve the same result
under this contract, it would be necessary to obtain an award including damages
for the failure of the Employer to procure proper certification by the Engineer in
breach of an implied term. The damages would be the interest lost or cost of
finance incurred by the Contractor. In English law, it is difficult to imply a term
making the Employer liable in damages on each occasion that an arbitrator
Page 214 of 264
disagrees with the Engineer. Rather, the obligation found in cases such as
London Borough of Merton v Leach (1985) 32 BLR 51 is to ensure that the
Engineer is free to certify fairly and that when the contract calls for a certificate or
other action on the part of the Engineer, he duly performs. The presence in the
contract of clause 2.6 (Engineer to act impartially) provides an argument for a
wider obligation in that, as the duty to be impartial is now express in the contract
to which the Engineer is not party, the clause must impose an additional duty
upon the Employer. It is submitted that a distinction has to be drawn between the
duty to be impartial and any duty to be right. Just because the arbitrator
disagrees, it does not, it is submitted, mean that the Engineer has been partial. It
is therefore difficult to find that the Employer is automatically in breach and thus
automatically liable for damages by way of interest.
For a discussion of the extent to which the Employer is able to rely upon the
Engineer's certificates by way of defiance to allegations of breach of contract,
see under clause 63.1 (Default of Contractor).
The payment of interest is without prejudice to the Contractor's entitlement under
clause 69 (Default of Employer) to suspend or terminate but the question is
whether it is an exhaustive remedy otherwise. If late payment and the
consequential cash flow difficulties caused a Contractor, for example, to be
unable to place an order or secure a shipment of materials, the Contractor
arguably has no recourse to the Employer who has a further four weeks' grace
before either suspension or termination is enforceable. Under ICE 5th, there is a
similar provision but the Contractor's entitlement to interest is not stated to be
without prejudice to any other remedy. The contract's silence might be more
beneficial to the Contractor than the express preservation of particular remedies
as in this clause. The contract could be interpreted here as intending to exclude
other remedies. It is submitted, however, that although certain remedies are
prescribed by the contract for late or non-payment, these are not exhaustive. In
English law at least, clear words are needed to exclude parallel common law
rights; the words used here would probably not satisfy an English court, with the
result that damages at common law could be recovered for the Employer's
breach.
The Contractor will be well advised to endeavour to agree a high percentage to
ensure that the interest rate would never be attractive to an Employer when
compared with the Employer's other financing arrangements.
A Contractor's ability to recover compound interest either for late payment of
certificates or as part of the costs to be determined by the Engineer will vary from
jurisdiction to jurisdiction. In England, the courts are still hampered by a long
established rule against compound interest and have therefore tended to address
the question as one of "financing charges" being part of the Contractor's direct
costs or damages: see Minter v WHTSO (1980) 13 BLR 7 and Rees & Kirby v
Swansea (1985) 30 BLR 1. ICE 6th now provides expressly for compound
interest: a contractor in a sufficiently strong negotiating position would be well
advised to seek the inclusion of a provision based on the ICE 6th clause.
Page 215 of 264
In Middle Eastern countries where the Sharia’ah influences the law, interest
clauses have to be carefully checked for legality and enforceability. Interest
provisions may be regarded as tainted with riba or usury. This difficulty applies
equally to the recovery of interest on damages. Expenses such as financing
charges may be acceptable if clearly demonstrated but each country enforces
the Sha'aria with its own interpretation and severity.
Part II provides optional additional sub-clauses dealing with situations where
payments have been made in fixed proportions of various currencies, where all
payments are to be made in one currency, where it is necessary to define the
place of payment and where an advance payment is contemplated. Advance
payments are common, particularly where a contractor is obliged to incur a high
proportion of his costs on the purchase and transportation of equipment and
other mobilization before any of the permanent works can be executed and thus
before any payment would normally become due. Detailed provision for the
amortization of such payment and for the securing of it by means of an advance
payment bond is also normal. The clause proposed in Part II would not be
adequate for large advances.
CLAUSE 61: Defects Liability Certificate
This clause makes it clear that no certificate or determination or other action by
the Engineer amounts to approval of the works other than the Defects Liability
Certificate.
This clause is taken from the 3rd Edition but the "Maintenance Certificate" is now
known as the Defects Liability Certificate in order, FIDIC say, to avoid confusion
as to the role of the Contractor during the period.
The term "Defects Liability Certificate" is not defined. However, under clause
62.1 (Defects Liability Certificate), it is to be given by the Engineer within 28 days
after the end of the last Defects Liability Period or when all works instructed have
been completed, whichever is later. The significance of the Certificate is that it is
an acknowledgement that the Contractor has complied with the obligation to
execute the works and remedy such defects as have been instructed by the
Engineer. The Certificate would not, it is submitted, amount to any sort of
release in relation to latent defects in respect of which the Employer would be
entitled to recover damages for breach of contract; nor, more arguably, is it a
release in respect of patent defects which were not the subject of instructions by
the Engineer.
The Certificate, like any certificate, may be opened up, reviewed and revised by
the arbitrator if he disagrees either that the Defects Liability Period has expired or
that remedial works, which have been instructed by the Engineer, have been
satisfactorily completed. This is on the assumption that "the satisfaction of the
Engineer" falls within his "opinion" or is a "decision" and thus falls within clause
Page 216 of 264
67.3 (Arbitration) and amongst those things that the arbitrator has power to open
up. There is no clear suggestion that the Defects Liability Certificate is in any
way conclusive or in any way inhibits the Employer's subsequent right of action.
If, for example, the Engineer believed that all remedial works instructed had been
executed but subsequently found this not to be the case, the Employer would, it
is submitted, remain entitled to recover for the breach that the defect
represented, particularly if there had been any deliberate concealment by the
Contractor. Moreover, the Employer could seek the Engineer's decision under
clause 67.1 (Engineer's decision) in order to have the Defects Liability Certificate
withdrawn. For a discussion of the Engineer's power to do so, see clause 67.1.
"...approval of the Works". The Engineer is called upon to give his approval in
numerous clauses and such approval is essential for the running of the project.
For example, the Engineer must approve the Contractor's supervisor under
clause 15.1 (Contractor's superintendence) and must give his approval before
work is covered up under clause 38.1 (Examination of work before covering up).
It is thus only approval of the "Works" that is confined to the Defects Liability
Certificate. If this means the whole of the works, then it would be arguable that
approval of a particular part could be valid. Indeed, it could also mean that a
certificate other than the Defects Liability Certificate signifies approval for a part
of the works. The definition of "Works" covers the whole project but the term is
given an adjusted meaning in clause 49.1 (Defects Liability Period). It is arguable
that if this clause is intended to refer to the Works or any part thereof, then it
would not have been necessary, in so many clauses throughout the contract, to
say that approval is not implied or that responsibility is not removed. However,
this contract does repeat itself and more often than not the cause of clarity is
served as a consequence. Further, when the contract is read as a whole and the
wide powers in clauses such as clause 38.2 (Uncovering and making openings)
and clause 39.1 (Removal of improper work, materials or Plant) are noted, it is
submitted that the correct interpretation becomes clear: the Employer through his
Engineer is entitled to disapprove of any defective work at any time before the
Defects Liability Certificate is issued and is not bound by any earlier action.
The theme that the Engineer's approval and other actions will not relieve the
Contractor of his contractual obligations runs right through the contract. See
clause 7.3 (Responsibility unaffected by approval), clause 14.4 (Contractor not
relieved of duties or responsibilities), clause 17 (Setting-out), clause 37.2
(Inspection and testing) and clause 54.8 (Approval of materials not implied) for
examples. Under clause 2.1 (Engineer's duties and authority), the Engineer's
authority is expressly limited to prevent an argument that the Engineer had
approved a breach of contract or sub-standard work.
As the Engineer is not mentioned in this clause, it could be said to apply to
approvals of the Employer also. It would therefore be advisable for a Contractor
seeking a relaxation of an element of the specification, for example, to obtain
from the Employer agreement to a variation of the contract (as opposed to a
variation under the contract).
Page 217 of 264
All approvals of the Engineer or the Employer are subject to clause 1.5 (Notices,
consents etc.) and must not be unreasonably withheld or delayed. The Engineer
must also comply with clause 2.6 (Engineer to act impartially).
CLAUSE 62 Defects Liability Certificate
This clause provides for the issuing of the Defects Liability Certificate, which
signals the completion of the contract. The Certificate is to be issued within 28
days of the end of the Defects Liability Period (or if the Works have been handed
over in sections, the last of the periods) or after all remedial and searching works
have been completed, whichever is the later. The second portion of retention
money is released under clause 60.3 regardless of whether or not the Defects
Liability Certificate is issued.
The Defects Liability Certificate does not affect the Contractor and Employer's
obligations to one another.
This clause is essentially the same as sub-clauses 62(1) and 62(3) of the 3rd
Edition although the vocabulary has changed. In particular, "Maintenance" has
become "Defects Liability". Sub-clause 62(2) of the 3rd Edition has, with
amendments, become clause 60.9 (Cessation of Employer's liability).
62.1 "The Contract shall not be considered as completed...". The "Contract" is
defined as a series of pieces of paper and not, as intended here, as the
Contractor's obligation to carry out and complete the Works. What is intended is
reference to the physical construction obligations: it is not intended that other
outstanding obligations and rights are affected. For example, there is a string of
rights and obligations, which flows from the Defects Liability Certificate: within 56
days the draft final statement is due to be issued and subsequently discussed
prior to the issue of the Final Statement. That statement leads within four weeks
to a Final Certificate, which leads within eight weeks to payment by the
Employer. This common-sense interpretation of the clause is not assisted by the
last phrases of sub-clause 62.2, which deems the contract to remain in force for
certain limited purposes.
The proviso that payment of retention is not dependent upon the issue of a
Defects Liability Certificate is probably unnecessary in this edition because
clause 60.3 (Payment of retention money) makes the expiry of the last Defects
Liability Period and not the certificate the occasion for the second release of
retention. This appears to be left over from the 3rd Edition when the payment
clause was left to the parties to complete in Part II.
The Defects Liability Certificate may be delayed whilst remedial works and
searches are undertaken so that responsibility for the defect which gives rise to
the search under clause 50 (Contractor to search) can be identified prior to the
triggering of the final payment machinery.
Page 218 of 264
The granting of the Defects Liability Certificate brings to an end the Employer's
ability to claim on the Performance Security under clause 10 (Performance
security). The security must be returned within 2 weeks of the issue of the
certificate.
The Contractor's right to remedy defects is also brought to an end. It is arguable
that the Contractor is not given the right to repair all the defects, only those which
he is instructed to remedy. This is inconsistent, however, with the opening
sentence of clause 49.2 (Completion of outstanding work and remedying
defects), which shows that the draftsman plainly intended that the Contractor
should remedy all defects in order to produce the works in the desired condition
at the end of the Defect Liability Period. Instructing the Contractor to remedy all
defects is also consistent with the Employer's duty to mitigate his loss if, as would
normally be the case, an alternative contractor would be more expensive. It is
possible to reconcile the internal inconsistency of clause 49.2 if the Engineer's
instruction power is treated as confined to the identification of the defects and,
where appropriate, a statement of the required remedial action.
For a discussion on when the Engineer's role comes to an end and he is functus
officio, see under clause 2.1 (Engineer's duties and authority).
62.2 If the commentary under clause 61.1 (Approval only by Defects Liability
Certificate) and clause 62.1 is correct, this clause is necessary only in order to
put certain matters beyond doubt. Thus, the obligation to pay damages for
breach of contract for latent defects would clearly remain unaffected. It is a moot
point whether the Employer's obligation to pay the Final Certificate has been
"incurred" prior to the issue of the Defects Liability Certificate. As the Final
Certificate is only issued three or more months after the Defects Liability
Certificate, it could well be arguable that this clause does not bite on that
obligation. That argument is reinforced by the deeming provision at the end of
this sub-clause, which suggests that, for the purpose of establishing obligations
arising after the Defects Liability Certificate, the contract is not in force. It is
submitted that the ICE model is to be preferred without any deeming provisions.
In order to make sense of this clause and to avoid the absurd result that the
contract is not in force for the purpose of obligations arising after the date of the
Defects Liability Certificate, such as the obligation to pay the final certificate, it is
necessary to interpret the sub-clause as a simple qualification of the opening
sentence of sub-clause 62.1. That sub-clause suggests that the contract is
complete when a certificate is issued. Sub-clause 62.2 is therefore simply saying
that "completed" does not mean "completed and all obligations fulfilled".
This clause should be compared to clause 60.9 (Cessation of Employer's liability)
which seeks to curtail the Employer's liability to the Contractor. As submitted
thereunder, that clause should only bite on claims which the Contractor knew or
should have known about at the time of the final statement. It would seem to be
effective to bar the Contractor's claims which are not set out in the Contractor's
Page 219 of 264
statements under clause 60.5 (Statement at completion) and clause 60.6 (Final
statement). This clause should also be read with clause 60.7 (Discharge).
CLAUSE 63 : Termination
This clause deals with the Employer's ability to terminate the employment of the
Contractor and the consequences of his so doing. The power arises if the
Contractor has become insolvent, has either seriously or repeatedly breached
the contract, has failed to obey instructions in relation to his progress or defective
work or is in breach of the prohibition against subcontracting without consent. In
the event that insolvency occurs in one of the listed forms or if the Engineer
certifies one of the other heads of default, the Employer can give two weeks
notice before terminating the contract and taking over the site. The Employer is
then free to complete the works himself or with another contractor and use the
Contractors plant, materials etc. to do so.
After termination, the Engineer certifies the value of the works executed and the
value of any materials equipment and temporary works.
After termination, the Employer is not obliged to pay the Contractor any further
sum until after the Defects Liability Period and only then when all his costs of
completion have been ascertained. The balance is calculated by the deduction
of all the Employers' costs from the sum which would have been payable to the
Contractor had he completed.
For two weeks after termination, the Engineer may require the Contractor to
assign sub-contracts and supply agreements to the Employer.
Although the structure of clause 63 of the 3rd Edition has been retained, there
have been extensive changes and sub-clause 63.4 has been added in the
current edition. "Forfeiture" has become "termination" throughout and sub-clause
63.1(a) refers to "repudiation" rather than "abandonment".
63.1 Just as under the ICE 5th and 6th and clause 69.1 (Default of Employer),
there is no general provision in this clause for any warning shot. Item (d)
however is the one ground which provides for a prior written warning. If the
Engineer certifies that one of the listed defaults has taken place, then the
Employer has an absolute right to terminate after only 14 days notice (seven
days under ICE). No conduct by the Contractor in remedying the default affects
the Employer's rights in any way. FIDIC, in their Guide, indicate that the intention
behind the Engineer's certificate, which is copied to the Contractor, was to give
the Contractor a written warning. This overlooks the important fact that such a
certificate would in practice only be given at the instigation of the Employer who
may immediately act upon it. Furthermore, it overlooks the additional point that,
once the Engineer has certified, the Employer's right to terminate is not qualified
either by a time-limit or by an opportunity for the Contractor to remedy the default
Page 220 of 264
and thereby prevent termination. Because of the way the contract sets out the
entitlements of the parties following termination, there is not even any effective
duty to mitigate restraining the Employer. Only the delay and disruption of
changing contractors acts as a deterrent to an Employer and only then if he has
a genuine desire to complete the project.
The Employer's powers are further extended by the absence of time limits for the
exercise of this power. Once the Engineer has certified, there is nothing in the
clause which seems to prevent the Employer holding the threat of termination
over the Contractor indefinitely thereafter. A tribunal sympathetic to a Contractor
could however imply a requirement that the Employer act at once or not at all
unless the Contractor's default was a continuing one. In this connection, see
Mvita Construction Co. Ltd. v Tanzania Harbours Authority (1988) 46 BLR 19 and
the decision of the Tanzanian Court of Appeal that although the words "then the
Employer may...terminate" do not mean "at that time" but "in that event", the
Employer must terminate within a reasonable time of the Engineer's notice "to
avoid a change of the circumstances certified by the Engineer".
Further, the Engineer could be asked substantially after the event to certify:
under items (c) and (e), it would be possible for the Employer to invite the
Engineer to certify that the Contractor had defaulted at some point in the past.
Used in this way, a petty failure of compliance with clause 4.1 (Subcontracting)
would effectively give the Employer a right to terminate at will with all the financial
consequences at any time thereafter. Only under items (b) and (d) is it
reasonably clear that the failing must be current. As to item (a), under English
common law the right to accept a repudiation of a contract and rescind is lost to
an Employer if he "affirms" the contract. This means any act or omission which
might be interpreted as the expression of an intention on the part of the Employer
to continue with the contract despite the repudiatory act. The ordering of a
variation, making an interim payment, indeed almost any action by Engineer or
Employer under the contract could amount to affirmation. Thus, at common law,
the right to rescind must be used promptly or lost. Here, the question is whether
in item (a) the words "repudiated the Contract" might be interpreted differently to
allow the Engineer to certify and the Employer to notify at any time after the
repudiation regardless of whether the default has been remedied. It is submitted
that the words permit of this harsh interpretation and require amendment.
Meanwhile arbitrators should strive to imply a term to bring the clause into line
with English common law.
ICE 6th has addressed the problems discussed above and, firstly, permits the
Employer to extend the notice period to allow the contractor to rectify his default
and, secondly, requires a notice of termination to be given as soon as is
reasonably possible after the Engineer has certified. These provisions represent
a significant improvement.
This clause is very comprehensive ranging from informal insolvency ("unable to
pay his debts as they fall due") to formal insolvency (liquidation etc). Thus in
England it includes any failure to pay an undisputed debt within 21 days of
Page 221 of 264
service of a Statutory Demand and may also include a Contractor whose balance
sheet discloses an excess of liabilities over assets (Section 123 of the Insolvency
Act 1986). The clause is probably wide enough to cover any kind of insolvency
under English law.
Most countries have insolvency legislation although some have only provided for
insolvency recently and their law is in an early stage of development (for
example, People's Republic of China and USSR). It should be noted that civil law
jurisdictions tend not to recognise liquidators or receivers unless they have been
appointed by a court of the country where the company was incorporated.
English law is unusual in that most receivers and a significant number of
liquidators are appointed out of court.
"...deemed by law...". It would always be advisable for parties to these conditions
to obtain local advice as to the meaning of this clause in the law of the contract
as defined by clause 5.1 (Language/s and law). However it is by no means clear
that the reference to "law" in this clause is to the law of the contract only. An
Employer wishing to terminate the contract of a financially troubled Contractor
will argue that the references in this clause to "any law" and "any applicable law"
give a clear indication that the reference is not intended to be confined to the
local law or the law of the contract. It is arguable that the references to
bankruptcy, liquidation or dissolution are applicable no matter in which country
they take place. In this context, see sub-clause 63.4 "unless prohibited by law".
"...if the Contractor has contravened Sub-clause 3.1". The inclusion of the
reference to a breach of the non-assignment clause in the list of acts of
insolvency, appears to indicate an assumption that such an assignment would
come about primarily in the event that the Contractor was in financial difficulty.
This is not, of course, necessarily so and the law of assignment is by no means
so clear as to make it a safe proposition for an Employer to terminate on this
ground without the clearest evidence. Such evidence in some circumstances
may not always be forthcoming. Compare this position with the relative
reassurance given to an Employer in relation to the other grounds by the
certificate of the Engineer.
The only prerequisite for a notice of termination by the Employer on one of
grounds (a) or (e) is the certificate of the Engineer. It is a difficult issue to
determine what is the consequence if the Engineer proves to be wrong. A
certificate under this clause is as open to challenge at arbitration as any other
certificate so that an arbitrator could and will often in these circumstances be
asked to decide that the ground upon which the termination was based did not
exist. If the arbitrator so awards, what is the result? The Employer is entitled to
give notice of termination if he has the Engineer's certificate. Under English law
at least, the Employer's duty is not to ensure that the Engineer certifies correctly
but to ensure that he certifies when the contract calls for a certificate and that he
is free to exercise his discretion in accordance with clause 2.6 (Engineer to act
impartially). Thus, the Employer is not automatically in breach of contract if an
arbitrator overturns a certificate upon which a termination was based.
Page 222 of 264
The consequence of the termination will have been that the Contractor will have
lost whatever profit he would have made on the balance of the work, has had his
equipment, materials etc. effectively confiscated, will have received no payment
until the works have been completed and the defects liability period has expired
and at that time will have had deducted all the Employer's expenses of
completing the works by another contractor and any costs of delay. If there is no
breach of contract, the question is on what basis the arbitrator is able to do
justice between the parties.
If termination was brought about by an incorrect certificate by the Engineer, this,
it is submitted, is a risk which both parties take when entering into the contract.
The risk should however fall somewhat more heavily upon the Employer as he
has the opportunity to decide whether or not to act upon the Engineer's certificate
before issuing his notice of termination. Thus, a fair result would be achieved by
the application of the measure of reimbursement given by clause 65.8 (Payment
if contract terminated) so that the Employer has to bear the additional costs of
completing the work by alternative means and the Contractor is reimbursed but
recovers no loss of profit.
This result, whilst fair, is not obviously open to the arbitrator. Unless it is said that
he has some general inherent jurisdiction to produce a just result, he is obliged to
consider the rights of the parties under the contract or, in the event of breach, at
common law. Here there is no breach so that the arbitrator may be confined to
opening up, reviewing and revising the certificates and other actions of the
Engineer. Having reviewed and cancelled the certificate of default, it follows that
the arbitrator must review and cancel the certificates under clause 63.3 which
entitle the Employer to make the deductions from the Contractor's valuations. If
the arbitrator then issued a further interim certificate, the Contractor would
achieve payment for the works executed. That seems to be as far as the
arbitrator can go to remedy the position and it has the result that the Contractor is
paid for the works executed but does not receive profit nor compensation for late
payment nor compensation for the use by the Employer of the Contractor's
equipment and materials, save to the extent that they are included in the
arbitrator's interim certificate. Meanwhile, the Employer bears the additional costs
of obtaining an alternative contractor and receives no reimbursement for any
delays that occurred. No doubt the Employer will consider what remedies are
available to him under the Engineer's terms of engagement.
For the Contractor to achieve full reimbursement including recovery of the lost
profit, he would have to demonstrate that the certificate or the Employer's
reliance upon it amounted to breach of contract which, it is submitted above, is
not easily possible if the Engineer acted in good faith and the arbitrator's contrary
decision is simply a matter of opinion. Alternatively, the Contractor would have to
argue that, once the arbitrator had overturned the certificate of default, the reentry by the Employer amounted to a breach of contract either under clause 42
(Possession of Site) or as a repudiation or even as an unlawful omission under
clause 51.1 (Variations). However these arguments will be met with the defence
Page 223 of 264
that the Employer merely relied upon a certificate as he was entitled to do under
clause 63.1. This argument seems to be correct. For a case in which this
situation was considered, albeit on a dissimilar contract, see the Privy Council's
advice in Loke Hong Kee v United Overseas Land (1982) 23 BLR 35. On the
facts, the arbitrator was held to be limited to considering whether the Engineer's
certificate was given in good faith. Nevertheless, it was pointed out that the
Employer is not obliged to act upon the Engineer's certificate, may judge its
correctness for himself and therefore should not complain if it is subsequently
overturned.
The contract may be brought to an end prematurely under the following clauses:- clause 40 (Suspension)
- clause 63 (Default of Contractor)
- clause 65 (Special risks)
- clause 66 (Release from performance)
- clause 69 (Default of Employer)
In addition, a repudiation by either party could be accepted by the other party. In
ascending order of worth to the Contractor, the financial consequences are
broadly as follows:- clause 63.1 (Default of Contractor): Contractor receives the contract sum he
would have obtained less the Employer's cost of execution/completion and
remedying of defects less damages for delay and all other Employer's expenses.
- clause 65 (Special Risks) and clause 66 (Release from performance):
Contractor receives value of works to date together with preliminaries, materials,
committed expenditure plus the costs of demobilisation of plant and staff less any
unspent advances paid by the Employer.
- clause 40 (Suspension) and 69 (Default of Employer): as clauses 65 and 66
together with damages including the Contractor's loss of profit.
repudiation: effectively the same as clause 69 but expressed as the
Contractor's entitlements under the contract up to the date the repudiation was
accepted and damages for breach of contract.
"(a) has repudiated the contract". This is new to the 4th Edition and, under
English law at least, requires the Engineer to make a difficult legal judgment as
to whether the Contractor has, by his words or conduct, expressed an intention
no longer to be bound by the contract. Under the 3rd Edition and ICE 5th and
6th the term is that the Contractor "has abandoned the contract". If there is a
repudiation, the Employer would be entitled under English common law to
terminate at once. It is submitted that this right survives although the Employer
would lose the protection of the Engineer's certificate were the right to be
exercised. Generally, clear words are required under English law if common law
rights are to be excluded. It must be doubtful that these words, which do not
even purport to exclude co-existent rights, qualify. Unless the Employer wishes to
Page 224 of 264
authorise the Engineer to take legal advice prior to certifying whether or not a
repudiation of the contract has taken place, it is suggested that the interests of
both parties would be served by restoring "abandonment", an altogether simpler
concept.
"(b) without reasonable excuse...": one can but speculate as to what would
amount to a reasonable excuse for failing to commence or to proceed; plainly
this gives the Engineer and thus the arbitrator considerable discretion.
As discussed in the commentary to clause 41.1, there is ambiguity as to the
meaning of these words.
"(i) to commence the Works". As discussed in the commentary to clause 41.1,
these words are ambiguous. In particular, the distinction between Temporary
Works and Contractor's Equipment is ill-defined. The Contractor must be aware
that his right to programme a long mobilisation period will be subject to this
obligation to commence Permanent or Temporary Works, on pain of termination.
"(ii) to proceed with the Works ... pursuant to Sub-clause 46.1": The obligation
under clause 46.1 (Rate of progress) is not "to proceed", rather to "take such
steps as are necessary...to expedite". The clause assumes that the works are
proceeding but at a rate which is not sufficient in the Engineer's opinion to
achieve completion by the due date. It would require a strained interpretation of
the contract to make this ground for termination apply to a failure of the
Contractor to take steps to expedite progress despite the knowledge that this
must have been the draftsman's intention. This is an important provision as it is
the only means of obliging a Contractor in delay to accelerate rather than take
the often cheaper option of liquidated damages. It therefore needs amendment,
together with clause 46.1 to provide a more precise obligation than to "take
steps" and an effective sanction.
Under clause 46.1, the Contractor's obligation is to react "thereupon" which is
taken to mean immediately. This clause, if it were not misconceived, would give
the Contractor four weeks before any sanction is imposed.
(c)
Under clause 37.4 (Rejection), the Engineer is entitled to notify the
Contractor of his rejection of plant and materials whereupon the Contractor "shall
then promptly make good the defect". The Engineer does not necessarily specify
the means whereby the defect will be remedied and "promptly" may have to be
read in the context of ordering replacement plant or materials from a distant
source.
Under clause 39.1 (Removal of improper work, materials or Plant), the Engineer
is empowered to instruct the removal and replacement of plant, materials or work
which he considers not to be in accordance with the contract. It should be noted
that there is provision for the Engineer to specify a time limit for the removal of
such plant or materials. If that time limit should be longer than 28 days, there is a
theoretical conflict with sub-clause 63.1(c) which requires the instruction to be
Page 225 of 264
carried out within 28 days of receipt. Under clause 39.1(b) and (c), there is no
time limit imposed save by sub-clause 63.1 which could well trap an unwary
Contractor on a project where the removal and replacement are not critical
operations.
See the comments under clauses 37.4 and 39.1 criticising the selection of these
clauses as grounds for termination.
(d)
The 4th Edition is in line with ICE 5th in making "warning" singular rather
than plural as in the 3rd Edition. Warnings are not covered by clause 1.5
(Notices, consents etc.) which deals with the necessity for notices to be in writing
hence the express requirement for writing here. ICE 6th has reverted to
"warnings".
"Persistent" is defined in the Concise English Dictionary as "continue firmly or
obstinately esp. against remonstrance". "Flagrant" is defined as "glaring,
notorious, scandalous". It may perhaps be unavoidable that a clause which has
consequences as grave as this one includes terms as debatable as these. ICE
5th and 6th also use "persistently" but the alternative is "fundamentally in
breach". It is a safeguard for both the Contractor and the Employer that the
Engineer's certificate is required before action may be taken. In English law, a
forfeiture clause will be construed strictly, giving the Contractor the benefit of any
doubt.
(e)
Clause 4.1 relates to sub-contracting and represents a considerable
danger to the Contractor. No part of the works may be sub-contracted without
the prior consent of the Engineer save in respect of the provision of labour,
subcontractors named in the contract and "the purchase of materials which are in
accordance with the standards specified in the contract". In the context of subclause 63.1, the quoted words represent a considerable trap. A Contractor would
be most unwise to organise the purchasing of materials in any fashion without
the Engineer's express approval. Otherwise, if any materials are shown to be
sub-standard, the Engineer may certify and the Employer may give notice to
terminate without the Contractor having defaulted in any culpable way. Compare
the 3rd Edition and ICE 5th which requires that unauthorised sub-letting be "to
the detriment of good workmanship or in defiance of the Engineer's instructions
to the contrary". ICE 6th has adopted the course to be preferred and has dropped
unauthorised subcontracting as a ground for termination altogether. A breach of
clause 3.1 (Assignment of Contract) entitles the Employer to determine without a
certificate from the Engineer.
"Without thereby releasing the Contractor from any of his obligations or
liabilities". This wording, shared with the ICE, is obviously not intended to be
taken literally. Plainly, the Contractor is relieved of his obligation to execute and
complete the works. Equivalent words were considered in the case of E.R. Dyer
v Simon Built/Peter Lind Partnership (1982) 23 BLR 23 where it was held that
these words prevented the contract being "determined" for the purpose of a subcontract which was automatically to come to an end upon the "determination" of
Page 226 of 264
the main contract. Only termination at common law by the acceptance of a
repudiation would bring about the automatic ending of the sub-contract, it was
held.
"As he or they may think proper": it is difficult to see by what standards this
propriety is to be judged. If the Contractor requires the materials, etc., for
another project, is this a factor? It is submitted that the draftsman intended the
Employer and new contractor to use as much of the materials, etc., as they
wished. To that end, the word "proper" could usefully be replaced by the word
"fit".
The definition of "Contractor's Equipment" at clause 1.1(f)(v), is wide enough to
include the machinery of subcontractors. It seems that the Employer is also
entitled to make use of any materials left on site. Clause 54.7 (Incorporation of
clause in subcontracts) requires that terms equivalent to those in clause 54
(Contractor's Equipment, Temporary Works and materials) be included in "any
sub-contract for the execution of any part of the Works". Therefore suppliers are
not intended to be covered. No doubt, the use of machinery and materials would
be part of the negotiations with suppliers which would follow the termination as
mentioned in the commentary to sub-clause 63.4 below. By way of example, a
supply agreement could include a retention of title clause whereby title to the
goods or materials is not transferred until such time as they have been paid for.
Difficult questions of law would undoubtedly arise if the Employer sought to use
this power in respect of the machinery or materials of unpaid suppliers.
It is submitted that the provisions of this clause are not exhaustive and that there
is a parallel right to terminate at common law. This question could be important in
circumstances where the assumptions made in sub-clause 63.3 do not apply. For
example, the Employer may himself abandon the project or may take the
opportunity to revise the project so that the payment mechanism of sub-clause
63.3 becomes inoperative. The question would also be relevant if, after conduct
by the Contractor amounting to the repudiation of the contract, the Employer reentered immediately and without giving the required 14 days notice. There are
two factors which suggest that the common law is intended to be excluded: firstly,
the inclusion of repudiation at item (a), replacing the term "abandonment" used in
the 3rd Edition; and secondly, the absence of any express words such as
"without prejudice to the rights of either party" as in clause 65.6 (Outbreak of
war). It is submitted that the reason for including repudiation is to give to the
Employer the protection afforded by the certification of the Engineer when
terminating the contract for repudiation. As to the lack of words making it clear
that this clause is "without prejudice" to common law rights, this is not essential
under English law. Indeed, it may be argued that express words are required to
exclude common law.
Of the grounds for termination under this sub-clause, items (b), (c) and (e) would
not normally amount to repudiatory conduct by the Contractor. Thus, a failure by
the Employer to follow the letter of the clause in terminating the Contractor's
employment could leave the Employer in repudiatory breach of the contract. With
Page 227 of 264
items (a) and (d), provided that in the latter case the neglect to comply with an
obligation was sufficiently serious, the Employer could still terminate the contract
without strictly following the terms of the clause. However, it is important to
appreciate that the question of the relevance of common law must be judged in
accordance with the law of the contract. The comments made relate to English
law alone and thus are relevant to contracts adopting English or similar law
pursuant to clause 5.1 (Languages and law).
The wording of clause 67.1 (Engineer's decision) gives rise to an argument that
if the Contractor requests an Engineer's decision within the 14-day period after
receipt of a notice under this sub-clause, the termination is suspended until the
Engineer has made a decision on the validity of the notice or the grounds upon
which it was based. This is because clause 67.1 says that "unless the Contract
has already been repudiated or terminated, the Contractor shall, in every case,
continue to proceed with the works". Under this clause, the termination may not
occur until the 14-day period has expired. However, if the notice states that
ground (a) applies because the Contractor has repudiated the contract or if the
Contractor's conduct in relation to one of the other grounds amounts to
repudiation, the argument may fail. The Contractor could seek a decision on the
notice alleging repudiation. Of course, if the Employer has the courage of the
Engineer's convictions, he could terminate the contract at common law
immediately, if the law of the contract permits. The phrase "repudiated or
terminated" and the fact that "repudiated" replaced "abandoned" in the 4th
Edition gives rise to the suspicion that the draftsman intended the Contractor to
continue in all cases where the works had not already come to a halt. In other
words, it was the Contractor leaving site or the Employer re-entering after
repudiation by the Contractor that was intended. If so, clarification of clause 67.1
is called for, perhaps by saying "unless the Contract has already been
terminated, the Contractor has withdrawn or the Employer has already entered
upon the Site...". Meanwhile, it is submitted that the present wording allows the
intentions of the draftsman to be respected and the Employer should await the
Engineer's decision before acting upon his notice.
It is therefore submitted that the argument is good and the Contractor may delay
termination by requesting a decision in the absence of a clear repudiation.
However, it may not gain the Contractor much respite as the Engineer could
make his decision by return of post. There is no express requirement for
consultation and the Engineer's only restraint is clause 2.6 (Engineer to act
impartially). In the commentary under clause 69.1 (Default of Employer), it is
suggested that the same argument applies to termination by the Contractor.
In some countries, particularly those with civil law systems, termination of a
contract is only permissable with the leave of the court. However, in countries
with administrative laws based on the French model, the administration may
have a superimposed power to terminate at will if the public interest so demands,
irrespective of the terms or law of the contract. This power is the most extreme
expression of the doctrine of Fait du Prince briefly described under clause 5.1
(Languages and law) above. The Contractor may have a right to compensation.
Page 228 of 264
In relation to the Employer's continued use of the Contractor's machinery where it
has been hired, see clause 54.5 (Conditions of hire of Contractor's Equipment)
and clause 54.6 (Costs for the purpose of clause 63).
Courts are faced with difficult decisions when asked to intervene in the event of a
disputed termination. In Tara Civil Engineering v Moorfield Developments (1989)
46 BLR 72, an English Official Referee decided that an injunction would not be
granted preventing termination if the clause 63 notice appeared valid on its face
and in the absence of clear proof of bad faith or unreasonableness. In AttorneyGeneral of Hong Kong v Ko Hon Mau (1988) 44 BLR 144, where the Contractor
had issued a notice of termination and the Employer had also notified
termination, the question of the Employer's right to use the Contractor's
equipment arose. The Hong Kong Court of Appeal decided that both notices
would be treated as provisionally valid pending arbitration. The Contractor was
allowed to remove his equipment. For some cases on the need for strict
compliance with the notice provisions, see under clause 68 (Notices).
In the New Zealand case of Brown and Doherty v Whangarei County Council
(1988) 1 NZLR 33, the Court held that termination clauses must be complied with
to the letter if they were to be relied upon.
63.2 Although latin is an international language, it is still to be doubted whether
legalistic latin should be employed in a civil engineering contract. In fact, given
clause 2.6 (Engineer to act impartially), it is doubtful whether mention of
reference to the parties, investigation and enquiries is necessary.
Item (a) provokes the question why a quantum meruit ("reasonably earned",
"reasonably accrue") has been introduced. There can be little doubt in a
termination under the contract, as distinct from a common law termination after a
repudiation, that the payment provisions of clause 60 (Payment) are capable of
being operated. Compare for example clause 65.8 (Payment if contract
terminated) which deals with termination caused by one of the special risks,
where the Contractor is paid "for all work... at the rates and prices provided in the
Contract". The answer may be that this valuation and certification does not lead
to payment. Sub-clause 63.3 provides an altogether different basis for the actual
payment. The purpose of this clause is no doubt to provide for some form of
valuation to take place as soon after the termination as possible so that works
executed by the Employer or alternative contractors is not confused with work
executed by the Contractor. This logic is however undermined by the fact that
the valuation is likely to be of little use to the Engineer in performing his
calculation under sub-clause 63.3.
Item (b): whilst it is perfectly sensible for the value to be established of the
Contractor's materials, equipment and temporary works, the valuation does not
distinguish between those which the Employer intends to use and the remainder
which, presumably, the Contractor is at liberty to remove from the site. (In
contrast with clauses 65.7 and 69.2, there is no provision in clause 63 for the
Page 229 of 264
removal of the Contractor's material and plant). Unhappily, the valuation arrived
at is, once again, not to be utilised save perhaps by an arbitrator who overturns
the Engineer's certificate which gave rise to the termination.
63.3 The Employer is not obliged to make any further payment until the
expiration of the defects liability period. This gives rise to the obvious problem
that after termination, there will be no defects liability period as that period starts,
pursuant to clause 49, from the date specified in the Engineer's Taking-Over
Certificate, which will not now be given. How then is this clause to operate? One
possibility is to take the defects liability period as starting from the contractual
completion date as extended. This may be sensible although perhaps somewhat
difficult to sustain if part of the background of the termination was culpable delay
on the part of the Contractor which meant that he would not have completed on
time. An alternative is the defects liability period of the alternative contractor.
This assumes that a new contractor is taken on to complete the same works on
very similar terms. It is of course perfectly possible that an Employer who has
terminated will take the opportunity to revise the project or the contract conditions
upon which the contract is let. Equally, it is quite possible that the Employer will
decide to abandon the project. This possibility is not catered for by the terms of
the contract at all. The Employer would have to rely upon his general rights to
damages for the Contractor's breach of contract.
There is no time limit imposed for the ascertainment and certification by the
Engineer of the Employer's costs and expenses. The Employer would only be
concerned to ensure prompt certification if a balance is due to him. From the
Contractor's viewpoint, a time limit could usefully be added.
The Engineer is required to certify what sum "would have been payable to the
Contractor upon due completion by him". This exercise raises questions such as
whether variations to the work introduced after termination should be taken into
account. A similar exercise would have to be undertaken by a court or arbitrator
endeavouring to establish a Contractor's loss of profit and other damages under
clause 69 (Default of Employer) or after the acceptance of a repudiation by the
Employer. An alternative approach is to deduct from the value of the works
executed by the Contractor the additional cost to the Employer of executing the
works by an alternative contractor. This would also have required a comparison
of the cost had the Contractor executed the works and the Employer's actual
costs and thus amounts to the same speculative exercise. Variations introduced
after the termination must either be included in the Contractor's costs or excluded
from the Employer's costs.
See the commentary under sub-clause 63.2 for a comment on the failure of this
sub-clause to make any use of the valuation carried out by the Engineer under
sub-clause 63.2.
Included in the assessment to be undertaken by the Engineer are "damages for
delay in completion (if any)". In the commentary under clause 47.1 (Liquidated
damages for delay), it has been remarked that it is arguable that damages only
Page 230 of 264
become payable under that clause after a Taking-Over Certificate has been
issued. If that is correct and as termination is unlikely to take place after the
Taking-Over Certificate has been issued, then there will be no liquidated
damages for delay. If that is correct, it must be arguable for an Employer that, in
the absence of an effective liquidated damages remedy, common law damages
for delay should be available. If the termination takes place prior to the Time for
Completion, it is plain that clause 47.1 does not come into operation and no
liquidated damages are payable. Again, it may be arguable that if the Employer
can demonstrate loss, for example because an alternative contractor requires
substantial additional payment in order to complete by the Time for Completion,
this may be recoverable.
Costs incurred by the Employer in taking over the hire of machinery from the
Contractor as provided in clause 54.5 (Conditions of hire of Contractor's
Equipment) are deemed part of the cost of completing: see clause 54.6 (Costs
for the purpose of clause 63).
63.4 "Unless prohibited by law": what is prohibited by law will depend less upon
the law of the contract pursuant to clause 5.1 (Languages and law) but rather
upon the laws which govern the agreements concerned. Contracts for personal
services are not capable of assignment under English law nor may assignments
be effected which infringe the insolvency laws. The expression "prohibited by
law" seems to exclude a mere inability to assign owing to, for example, some
limitation upon assignment in the supply agreements or sub-contracts. Thus, for
the purposes of this clause and for clause 4.2 (Assignment of subcontractors'
obligations) the Contractor must beware of agreeing to any such limitation. If a
Contractor, in an endeavour to comply with this sub-clause or clause 4.2,
purports to assign a contract containing such a limitation, the assignment will be
ineffective and he will be in breach of this sub-clause. For clarity, clause 4 could
usefully impose an obligation upon the Contractor to ensure that all supply
agreements and sub-contracts entered into are capable of assignment insofar as
the relevant law allows. See also clause 54.5 (Conditions of hire of Contractor's
Equipment) which seeks to allow the Employer to take over the hire agreements
after the departure of the Contractor.
In contrast with clause 59.5 (Certification of payments to nominated
Subcontractors), there is no provision in this clause permitting the Employer to
pay the subcontractors and suppliers directly in the event of termination. Many
construction contracts provide for direct payment and set-off in the event of
termination. The draftsman may be relying either on the Employer's rights as
assignee of sub-contracts or on sub-clause 63.3 which relieves the Employer of
liability to make further payments until completion. However, in neither case is
the Employer entitled to pay the subcontractors directly for work executed prior to
termination and thereafter to set off the direct payment from sums otherwise due
to the Contractor. The draftsman may have considered that clause 59.5 could be
operated after termination. Even if this is the case, it only entitles the Employer to
pay nominated subcontractors. The Contractor may have ordered a major item of
Page 231 of 264
machinery for installation by direct contract with a manufacturer which would not
fall within this clause. An express power of direct payment on termination would
place the Employer in a better position to negotiate with subcontractors and
suppliers. Without it, the Employer would have no power of set-off if it chose to
make the direct payment and, subject to other provisions in the contract, may be
at risk of paying the same sum to a liquidator appointed over the Contractor. In
these circumstances, it is surprising that Part II gives no optional clauses which
might cover the situation.
It should be noted that if the general conditions are amended to provide for a
direct payment and set-off, the provision may be ineffective if the Contractor
becomes bankrupt or goes into liquidation. This is because of the general
principle of insolvency law that the property of an insolvent must be distributed
rateably amongst all the creditors. See for example British Eagle v Air France
(1975) 1 WLR 785. It would be argued that the debt owed to the Contractor
constituted property and that it is not open to the Employer to distribute that
property to any particular creditors of the Contractor. Such provisions are
invalidated in some jurisdictions (e.g. Singapore, New Zealand and South Africa)
but are upheld in others (England and Australia). Cases which have upheld such
clauses in England may, however, no longer be good law.
CLAUSE 64 : Remedies
If the Engineer considers that urgent work is necessary for the safety of the
Works and the Contractor is unable or unwilling to carry out such work, the
Employer may use other contractors. If the Contractor was responsible for the
work, the Employer may deduct his costs from sums otherwise due to the
Contractor. The Engineer is to notify the Contractor of the emergency as soon as
practicable.
This clause is not fundamentally changed from the 3rd Edition.
The issue whether the Contractor "was liable to do at his own cost" the
emergency works, will depend largely on whether the work was done during the
execution of the works or during the Defects Liability Period and partly on the
terms of clause 20 (Care of Works). Clause 20 makes responsibility for care of
the works the Contractor's until they have been taken over by the Employer. The
Contractor is not liable for damage caused by the Employer's risks listed at
clause 20.4 (Employer's risks) although he is obliged to rectify the damage if it
occurred before taking-over. After the works are taken over, the Contractor has
neither an obligation to execute the works nor to pay for them unless the
emergency was caused by the Contractor either by defective work or while
completing outstanding work or remedying defects.
In view of the Engineer's power of instruction, and the fact that emergency work
by another Contractor is likely to be more expensive than such work done by the
Contractor, it is perhaps surprising that this clause is not expressed in mandatory
Page 232 of 264
terms and that the Contractor is not obliged to pay the Employer the additional
costs of obtaining an alternative contractor in circumstances where the
Contractor has an obligation to rectify but is not liable to pay. This apparent
omission in the clause may be rectified by the Engineer using his power of
instruction so that if the Contractor failed to comply with that instruction, the
Employer would be entitled to damages. In that way, this clause may be read as
a clause that gives the Employer a power to employ alternative contractors at the
Contractor's expense rather than a clause which permits the Contractor to
decline to take necessary emergency action. It will also provide the Contractor
with the necessary incentive to act.
Other contractors may also be used by the Employer pursuant to clause 31
(Opportunities for other contractors), clause 39.2 (Default of Contractor in
compliance), clause 49.4 (Contractor's failure to carry out instructions) and
clause 63.1 (Default of Contractor).
CLAUSE 65 : Special Risks
A Contractor shall have no liability for damage to the Works (other than
condemned work under clause 39), other property or injury or loss of life arising
from the special risks.
The special risks are defined.
If the Works, materials, plant or equipment are damaged by one of the special
risks, the Contractor is to be paid for work executed, materials and plant
damaged and any rectification work or replacement or repair of materials or
equipment as required by the Engineer or necessary for the completion of the
Works. Damage caused by bombs etc shall be deemed the consequence of the
special risks.
The Contractor is to be paid any costs of completing the Works which result from
the special risks and which would not otherwise be recoverable. The Contractor
is to notify the Engineer of such costs forthwith.
If war breaks out and materially affects the Works, the Contractor is to continue
to use his best endeavours to complete the Works but the Employer is entitled to
terminate the contract by notice.
Upon a termination on account of war, the Contractor is to remove his equipment
and assist his subcontractors to do the same as soon as possible.
After such termination the Contractor will be paid for all work executed, for costs
incurred including demobilisation costs less the balance of any advance
payments.
Page 233 of 264
This clause has certain significant alterations from the 3rd Edition, and has been
re-organised. The indemnity given by the Employer to the Contractor under
clause 65(1) has been deleted. Payment for rectification and replacement work is
now to be made in accordance with clause 52 (Valuation of variations) and not on
the basis of cost plus profit. The opening words of sub-clause 65.5 and of 65.8,
item (e) are new, as is the final sentence of 65.8.
Clause 65 could usefully be divided, with sub-clauses 65.1 to 65.5 being included
with the risk and insurance clauses 20 to 25 and with sub-clauses 65.6 to 65.8
remaining in their current position amongst the termination clauses. Such a move
would emphasize the odd way in which the clause duplicates and sometimes
clashes with clause 20 (Care of Works).
65.1 The careful exclusion of works condemned under clause 39 (Removal of
improper work, materials or plant) in this sub-clause and sub-clause 65.5 must
make it easier for the Contractor to recover payment for work, no matter how
imperfectly executed which had not been the subject of an instruction pursuant to
clause 39. It is worthy of note that, with the exception of the reference to noncompliance with clause 39 as a ground for termination under clause 63.1 (Default
of Contractor), clause 39 is not referred to anywhere else in the contract. In
particular, clause 39 is not an exception to the Contractor's right of recovery
under clause 20.3 (Loss or damage due to Employer's risks). The answer may be
that under clause 20.3 the Engineer would not require the Contractor to rectify
condemned work because he would already have instructed the Contractor
under clause 39 to replace it. Nevertheless, it seems somewhat strange that if
the damage serves to demonstrate that an element of the works was constructed
wholly defectively, the Contractor is entitled both to payment for the original
defective execution and for the cost of rebuilding.
The essential difference between this sub-clause and clause 20.3 (Loss or
damage due to Employer's risks) is that the Employer's risks exempt the
Contractor from the cost of repairing damage to the Works whereas the special
risks exclude the Contractor from liability not only for damage to the Works but
also from damage to other property and death or personal injury. This must
include death or personal injury to workmen as referred to clause 24.1 (Accident
or injury to workmen).
In civil code countries, where administrative law based on the French model
applies, this clause reflects the Theorie de l'imprevision whereby if exceptional
and unforeseen events render the Contractor's obligation excessively onerous
threatening him with excessive loss, then the Contractor's loss may be reduced
to reasonable limits by way of compensation by the Employer. In certain
countries, notably Eygpt this doctrine has been extended to civil or private
contracts as well. This clause is in fact more generous than the administrative
law doctrine as it provides for the Contractor to be completely relieved of
responsibility, whereas the Theorie only provides for the reduction of the
Page 234 of 264
Contractor's losses. For a brief overview of administrative law based on the
French model, see clause 5.1 (Languages and law).
65.3 If damage to the works is caused by the special risks, that is Employer's
risks under clause 20.4 (a),(c),(d) and (e) or (b) in the event that the rebellion
relates to the country in which the Works are being executed, the question arises
whether there is any material difference between "no liability" under clause 65
and the Contractor's right to payment under clause 20.3. For example, if delay
results from the event, is the Contractor exposed to liquidated damages? If he is
under no liability whatsoever, presumably not. If, however, he is to receive an
additional payment "in accordance with Clause 52", has he agreed to take the
risk of delay upon himself? It is submitted that he has not because, in either
event, an extension of time should be due under clause 44.1 (Extension of time
for completion) items (a) or (e). Liability to a third party might not produce so
simple an answer: could such liability be brought within the "rates and prices"
context of clause 52? If the scheme of the contract requires prolongation costs to
be covered by the terms of the clause, inappropriate as the wording may be for
that function, the answer may be that even liability to a third party is covered. In
summary, this clause and clause 20.3 should not on their respective wording
have the same effect but in practical terms they probably do.
As pointed out in the commentary under clause 20.3, there is a conflict between
this sub-clause and clause 20.3 as to the Contractor's right to carry out and be
paid for the repair and completion of the Works and the replacement of
equipment etc. Here, "the Contractor shall be entitled ... so far as may be
required by the Engineer or as may be necessary for the completion of the
works, to payment for (a) rectifying ... and (b) replacing". Work which is
necessary for the completion of the Works the Contractor is therefore entitled to
undertake. On the other hand, clause 20.3 requires the Contractor to rectify the
damage "if and to the extent required by the Engineer". It should be borne in
mind that the Contractor's underlying right and obligation is to carry out and
complete the works unless and until the contract or his employment under it is
terminated. Neither clause 20.3 nor this sub-clause give a right to terminate nor
do they address the issue of termination. Once an element of work has been
satisfactorily completed, does a Contractor have a right or obligation to return to
that part of the works in the event that it is damaged? If the damage is the
responsibility of the Contractor, there is no difficulty and clause 20.2
(Responsibility to rectify loss or damage) imposes a clear obligation on the
Contractor to rectify such damage. If the damage is not his responsibility, it is
submitted that the Contractor has no underlying right or obligation to repair the
damage. Clause 20.3 (Loss or damage due to Employer's risks) is consistent
with this position and it is worthy of note that under clause 49.2 (Completion of
outstanding work and remedying defects) the Contractor is only obliged to
remedy such defects as the Engineer may instruct. This sub-clause may be
interpreted in two ways to achieve consistency: firstly, it may regarded as dealing
only with the right to payment as distinct from the right or obligation to execute
the repair works; or secondly, the phrase "as may be necessary for the
completion of the Works" may be taken to mean the completion of those parts of
Page 235 of 264
the work which had not, at the time of the incident, been completed. It is
submitted that this interpretation produces a sensible result. After all, there is no
obligation upon the Contractor to insure four of the five special risks so the funds
may not be available to execute repairs in any event.
Clause 53.1 (Notice of claims) applies to claims under this sub-clause so that the
Contractor has 28 days of the event to notify the Engineer of an intention to
claim. The notice requirement of clause 52.2 (Power of Engineer to fix rates)
does not, it is submitted, apply for the reasons set out under that sub-clause.
"Plant" has been omitted from items (a) and (b) in this sub-clause which, it is
presumed, is an oversight.
65.4/65.5
The very wide wording of this clause, especially the "whenever and
wherever" in combination with the very loose causative link required under clause
65.5 seems bound to give rise to some curious claims. Thus, the explosion of a
grenade in Mecca, for example, leading to Moslem members of the Contractor's
workforce on a project in Sweden taking a day off work by way of protest would
seem to entitle the Contractor to claim additional costs under sub-clause 65.5.
The Contractor is obliged to give notice forthwith upon such costs coming to his
knowledge. The only explanation for the forthwith requirement as distinct from,
for example, the 28 days required by clause 53.1 (Notice of claims) is the
apparent generosity of the clause. The only other occasion on which notice must
be given forthwith is under clause 12.2 (Adverse physical obstructions and
conditions), although clause 27 (Fossils) requires the Engineer to be acquainted
with the find "immediately".
Sub-clause 65.5 should be read with clause 70.1 (Increase or decrease of cost).
65.6 After the generosity to the Contractor of the previous two sub-clauses this
clause seems intended as some partial compensation to the Employer. If he
wishes to terminate the contract without being obliged to pay the Contractor any
sum in respect of loss of profit, he may do so if he is able to demonstate a
material effect upon the execution of the works by any war anywhere in the
world. What amounts to a material effect will always be a difficult question but a
war which affected the price of oil, for excample, may arguably suffice. However,
it is "the execution of the Works" which must be effected and there may well be
scope for argument than an increase in price as distinct from the non-availability
of material or labour needed for the works, would not affect the execution. Such
an argument would be supported by the wording of clause 70.1 (Increase or
decrease of cost) where matters affecting the "cost of the execution of the works"
are referred to.
The clause does not specify that the material effect must be adverse and, it is
submitted on the wording of the clause, an Employer is given the option to
terminate in the event of some benefit being conferred on the project by reason
of the outbreak of war. For example, if a shortage of labour was converted to a
Page 236 of 264
plentiful supply on account of a war in a neighbouring region, the Employer might
well be able to claim a material effect.
In the event of termination, the parties' rights under this clause and clause 67
(Settlement of disputes) are expressly preserved as it is the contract that is being
terminated and not the Contractor's employment as under clause 63.1 (Default of
Contractor) or clause 69.1 (Default of Employer). Curiously, the Engineer, in
making his decision under clause 67.1 (Engineer's decision) would not be bound
by clause 2.6 (Engineer to act impartially) as that clause has not been preserved.
The parties' rights in respect of breaches of contract occurring prior to termination
are also preserved. This could rise to difficulty if such antecedent breaches give
rise to a right in either party to terminate, yielding a different financial result to
that set out in sub-clause 65.8. For example, if the Employer had interfered with
the issue of a certificate and the Contractor was about to issue or had issued a
notice of termination under clause 69.1(b) which would only take effect 14 days
thereafter, the Employer might well seek to avoid the Contractor's profit claim by
terminating under this clause.
On the assumption that the Employer can show the requisite material effect, it is
submitted that sub-clause 65.8 will prevail and the Contractor will not receive his
loss of profit. This is because it is the manner in which the contract or the
employment of the Contractor comes to an end that is critical in determining
which of clauses 63.3, 65.8 or 69.3 applies.
CLAUSE 65.6 (Outbreak of War)
Click on the [*] button to see omitted text.
The proviso has been amended as follows:"Provided that the Employer shall be entitled, at any time after such
outbreak of war, to determine the Contract by giving notice to the Contractor and,
upon such notice being given, the Contract shall, except as to the rights of the
parties under this Clause and [*] Clause 67, terminate, but without prejudice to
the rights of either party in respect of any antecedent breach thereof."
In this sub-clause and in clause 66.1 (Release from performance), thought has
been given to the termination of the Contract as distinct from the termination of
the employment under the Contract. Under English law, a widely-worded
disputes clause, including the provisions for Engineer's decisions and amicable
settlement, would survive the ending of a contract. Accrued entitlements to
damages for breach of contract would also generally survive. The words are
necessary, however, even in English law to ensure the survival of the applicable
provisions dealing with payment following termination of a contract. Whatever
the law governing the contract, it is obviously wise to deal with this matter
expressly.
Page 237 of 264
65.7 This sub-clause should be contrasted with clause 54.1 (Contractor's
Equipment etc) and clause 54.4 (Re-export of Contractor's Equipment.) See also
the commentary under clause 54.
65.8 For a comparison of the financial consequences of termination under this
clause with termination under clause 63.1 (Default of Contractor) and clause 69.1
(Default of Employer), see the commentary under clause 63.1.
CLAUSE 66 : Release from Performance
Where circumstances beyond the control of the parties make performance of the
contract impossible or unlawful, the parties are released from further
performance and clause 65.8 (Payment if contract terminated) applies.
This clause contains significant alterations from the 3rd Edition, not least that
specific reference to war has been omitted. This clause must be read in
conjunction with clause 13.1 (Work to be in accordance with contract) which says
that the Contractor must carry out the works in strict accordance with the contract
"unless it is legally or physically impossible". The words "impossible or unlawful"
are new to the 4th Edition, the former wording being where "either party is
prevented from fulfilling his contractual obligations". See the commentary to
clause 13.1 for discussion on "impossibility".
This clause attempts to bridge between the strict common law doctrine of
frustration and the civil law concept of force majeure. English common law, as
codified in the Law Reform (Frustrated Contracts) Act, makes it difficult for a
party to succeed in a plea of frustration. In Davis Contractors v Fareham UDC
(1956) AC 696, the English House of Lords held that a contract was not
frustrated by a severe shortage of labour; the Court of Appeal also refused relief
in Wates v GLC (1983) 25 BLR 9 when the contractor complained that runaway
inflation had fundamentally altered the economics of the contract. It took a
catastrophic landslip which buried the site, swept away a twelve storey block of
flats and killed a number of people to persuade the Privy Council in Wong Lai
Ying v Chinachem Investment Co. Ltd (1979) 13 BLR 81 that a contract had been
frustrated.
If a contract is held to be frustrated, the result, broadly speaking, is that the
contractor is to be paid for the work done prior to the frustrating event but
otherwise both parties are discharged from further performance. In civil law
jurisdictions, the doctrine of force majeure takes an altogether more relaxed
approach to relieving the parties of their obligations under the contract and it is
this more relaxed approach that has been adopted in the current clause. This
clause should be read with clause 20.4 (Employer's risks) and clause 65 (Special
Risks), which also reflect the doctrine of force majeure, and the commentary
under clause 5.1 which briefly outlines three civil law doctrines that are implied
into administrative contracts in certain countries.
Page 238 of 264
The project comes to an end if one party is unable to fulfill his contractual
obligations or if both parties are released from further performance. The latter
circumstance may be relatively rare but the ease with which a party could invoke
the former depends on the interpretation of the expression "any circumstances
outside the control of both parties". In theory, the financial circumstances of a
Contractor could render it impossible for him to continue and his difficulties could
derive from a change in the construction market altogether outside his control
and that of the Employer. Although such a Contractor would have to
demonstrate the impossibility of his carrying on to the satisfaction of an arbitrator,
this clause must present both parties with considerable scope for escaping from
an unprofitable contract. As clause 65.8 (Payment if contract terminated) gives a
generous reimbursement of costs, a Contractor who finds himself making a loss
is bound to consider taking advantage of this clause if circumstances allow.
It may be relevant to a consideration of whether a contract has been frustrated or
a party is unable to fulfil his contractual obligations that there is a power under
clause 40.1 (Suspension of work) to put all or part of the project on hold for three
months without the consent of the Contractor. It could well be argued therefore
that a merely temporary problem could be overcome within the terms of the
contract.
CLAUSE 66.1 (Release from performance)
Click on the [*] button to see omitted text.
This clause now reads as follows:"If any circumstance outside the control of both parties arises after the issue of
the Letter of Acceptance which renders it impossible or unlawful for either [*] or
both parties to fulfil his or their contractual obligations, or under the law governing
the Contract the parties are released from further performance, then the parties
shall be discharged from the Contract, except as to their rights under this Clause
and Clause 67 and without prejudice to the rights of either party in respect of any
antecedent breach of the contract, and the sum payable by the Employer to the
Contractor in respect of the work executed shall be the same as that which would
have been payable under Clause 65 if the Contract had been terminated under
the provisions of Clause 65."
The first two amendments are presumably intended to make it clear that
impossibility or illegality affecting both the Contractor and the Employer has the
same effect of discharging the contract as would impossibility or illegality
affecting one party only. Given the conservatism of the committee responsible
for the re-print, it is perhaps surprising that they felt it necessary to make these
amendments. Scope for misunderstanding was very limited, it is submitted.
For comment on the preservation of certain clauses and rights, see under clause
65.6 (Outbreak of war) above.
Page 239 of 264
CLAUSE 67 : Settlement of Disputes
This clause is the disputes clause and introduces a 3-stage process. Any dispute
should be referred in writing to the Engineer who is given 12 weeks in which to
give his decision. Unless the contract has come to an end, the Contractor
continues to execute the Works and both parties must give effect to the
Engineer's decision. If either party is dissatisfied with the decision or the
Engineer fails to make a decision, they have 10 weeks in which to give notice of
their intention to commence arbitration. If they fail to give such notice, the
Engineer's decision will become final and binding upon the parties.
For 8 weeks after the notice of arbitration is given, the parties try to settle the
dispute amicably.
If neither the Engineer's decision nor the attempts at amicable settlement have
succeeded in resolving the dispute, the matter is referred to arbitration under the
rules of the ICC. The arbitrator will have power to look into any decision of the
Engineer and replace any certificates etc. that the Engineer has made. The
parties may use fresh evidence and arguments and may call the Engineer as a
witness. The arbitration may be commenced before or after the completion of
the Works. The conduct of any arbitration before completion will not change the
obligations of the parties.
Where an Engineer's decision has become final and binding, a party may refer
any failure by the other party to comply with that decision directly to arbitration
without the need for a further Engineer's decision or any attempt at amicable
settlement.
The 4th Edition introduces fundamental changes to the disputes procedure. The
principles contained in clause 67 of the 3rd Edition have been divided between
sub-clauses 67.1 and 67.3. A more detailed procedure has been set out for the
Engineer's decisions. Sub-clause 67.2 introducing amicable settlement is new as
is clause 67.4 giving either party a right to go directly to arbitration in the event
that an Engineer's decision has neither been challenged nor complied with.
67.1 "If a dispute...". It is not uncommon for one party to deny that a dispute
exists and therefore to deny that an Engineer's decision or arbitration is
appropriate or indeed permitted under the terms of the contract. In England, a
dispute has been held to require a claim by the Contractor and its rejection: see
Monmouthshire County Council v Costelloe & Kemple (1965) 5 BLR 83. This
Court of Appeal decision on ICE 4th Edition centred on whether a dispute had
been referred to the Engineer and illustrates the good sense of requiring the
reference and the decision to say that they are made pursuant to this clause.
Page 240 of 264
It is clear from the breadth of the opening phrases of this clause that the category
of disputes to be referred to the Engineer includes breaches of contract. Thus,
the Engineer will be asked to give a decision on, for example, whether the
Employer was in breach by failing to ensure that the Engineer certified properly in
accordance with the contract. The Engineer is therefore called upon to judge
whether his own actions were correct or incorrect with possible ramifications
under his contract with the Employer. It is perhaps asking too much of any
Engineer to be independent and disinterested in relation to such a decision. For
this reason, this procedure is sometimes regarded as little more than a delay to
the resolution of the dispute or as a cooling-off period. In practice, a reference
under clause 67.1 will often be preceded by correspondence between Contractor
and Engineer in which the respective positions are set out.
In these
circumstances, the Contractor could justifiably consider a further 12-week delay,
while the Engineer formalises his position, to be time wasted.
Overall, the procedure does seem very protracted with a period of up to 30
weeks from the reference to the Engineer until an arbitration may be
commenced. Under the ICC Rules, an award in less than a further 6 months is
probably unlikely. Whilst this may encourage the parties to pursue only
substantial complaints and to take the amicable settlement procedure seriously, a
year is a very substantial period, particularly if the project will somehow be
affected by the award. For example, a decision as to whether an Engineer is
entitled to instruct a particular variation could be of great importance to the
project.
Whether the broad opening phrases of clause 67.1 are sufficiently broad to
require an Engineer's decision on a demand by either party for the rectification of
the contract (i.e. the correction of the contract to reflect accurately the intentions
of the parties) will depend on the applicable law. Under English law those words
in an arbitration clause would almost certainly be held to give an arbitrator power
to rectify the contract. Accordingly, it is submitted that a party could apply for
rectification in the first instance to the Engineer although, under clause 67.3, he
would be free to put his argument in a different way and seek rectification from
an arbitrator. It must be doubtful whether a decision by an Engineer could have
the effect of rectifying a contract as distinct from resolving the particular dispute
referred to him for decision. If the Engineer's decision became final and binding
for lack of challenge, an arbitrator looking at a separate dispute involving the
"rectified" clause would, it is submitted, be at liberty to ignore or reconsider the
Engineer's purported rectification.
There is no express time limit for a reference to the Engineer. The clause
envisages such references after the completion of the works. Limits on the ability
of the Contractor to claim are contained in clause 53 (Procedure for claims),
clause 60.7 (Discharge) and clause 60.9 (Cessation of Employer's liability).
Nevertheless, clause 62.2 (Unfulfilled obligations) preserves obligations on both
sides. The most likely source of dispute long after the completion of the works
would be the emergence of defects. Subject to the limitation period imposed by
the law of the contract, such a dispute might arise many years after the project is
Page 241 of 264
complete. For a discussion on when the Engineer's role comes to an end and he
is functus officio, see under clause 2.1 (Engineer's duties and authority).
As no arbitration (other than one under clause 67.4) may start without an
Engineer's decision, the question arises as to what happens if the Engineer is no
longer available. The Engineer is defined as a person and Part II requires the
insertion of a name. Although the draftsman appears to have in mind the name
of an individual, it would not be inconsistent with the contract for the name of a
practice of Engineers to be used. In either event, the individual could be dead,
retired or in dispute with the Employer and the practice could be disbanded. The
Engineer may simply refuse to consider any reference. In these circumstances,
it is submitted that the party must write to the name set out in Part II and the
address also set out in Part II pursuant to clause 68.2 (Notice to Employer and
Engineer) and thereafter rely upon the ability 84 days later to give notice of
intention to commence arbitration when the Engineer has failed to give notice of
his decision.
There is no express power given to the Employer to appoint a new Engineer
should the need arise. This is a departure both from the 3rd Edition and ICE 5th
and one which has not been followed by ICE 6th. The reason given in FIDIC's
guide is that FIDIC wishes the parties to agree on the identity of the new
Engineer because the identity of the Engineer would have been one of the
factors which influenced the Contractor in the calculation of his tender. For a
discussion on the effect of this omission, see the commentary to clause
1.1(a)(iv). The effect on the current sub-clause is that the Employer is unable
unilaterally to nominate a new Engineer and the Contractor will be entitled to
serve notice of arbitration after 12 weeks. It is submitted that knowledge on the
part of the Contractor that the person named is no longer alive or practicing
and/or that the address set out in Part II is no longer effective should not
disentitle the Contractor from giving notice and thereafter from commencing
arbitration.
"Whether before or after repudiation or other termination of the contract...". It is
helpful that it is made clear that the repudiation or other termination of the
contract does not affect the disputes procedure. In many jurisdictions, the
survival of the disputes procedure would not be beyond doubt. It could otherwise
be arguable that the disputes procedure would perish along with the contract
after repudiation. The issue of which parts of the contract remain alive and in
what particular circumstances is not assisted by clause 62.2 (Unfulfilled
obligations) where, for certain purposes, "the contract shall be deemed to remain
in force between the parties...". For more on this point, see the commentary to
clause 62.2.
"...any opinion, instruction, determination, certificate or valuation of the
Engineer". Other functions of the Engineer listed in clauses 1.5 (Notices,
consents, approvals, certificates and determinations) or 2.6 (Engineer to act
impartially) which do not appear in clause 67.1 are as follows:-
Page 242 of 264
- decisions
- consents
- satisfactions
- approvals
- notices
A table showing which of the Engineer's functions is referred to in which of
clauses 1.5, 2.6, 67.1, 67.3 and 68 is contained in the commentary to clause 1.5.
In view of the breadth of the opening words of this clause, it is perhaps
unfortunate that it should remain arguable that there is any limitation on the
functions of the Engineer to which this procedure applies. Although it is
submitted that, on a true construction, all functions of an Engineer are covered by
the opening lines of the clause, the matter could be put beyond doubt by the use
of some broad catch-all words such as those used at clause 2.6(d) "otherwise
taking action which may affect the rights and obligations of the Employer or the
Contractor".
An innovation of the 4th Edition is to require both the reference to the Engineer
and the Engineer's decision to state that they are made pursuant to clause 67.
This removes considerable scope for argument as to whether any letter written to
the Engineer claiming, for example, an extension of time amounted to a request
for a decision and whether any response from the Engineer amounted to such a
decision allowing the Contractor to move on towards arbitration.
"... the Contractor shall, in every case, continue to proceed with the Works...".
Whilst it is obviously right that the Contractor is obliged to proceed with the works
whilst the disputes procedure is in operation, the exact definition of "Works" may
well be the subject of the dispute. For example, if an instruction or a variation
had been given which the Contractor contended was not within the Engineer's
powers. Similarly, the Contractor is obliged to give effect immediately to any
decision that the Engineer makes. Thus, if the Engineer decides to refuse the
Contractor an extension of time, the Contractor would theoretically be obliged to
accelerate in order to complete on time in order to "give effect" to the decision.
For more on acceleration, see the commentary to clause 46.1 (Rate of progress).
If the Engineer certified that one of the grounds for termination under clause 63.1
(Default of Contractor) existed but, before the Employer gave notice of
termination, the Contractor referred the dispute to the Engineer, the question
would then arise as to whether the Employer is entitled to terminate the contract.
The current sub-clause states that the Contractor should in every case continue
to proceed with the works unless the contract has already been terminated. This
situation has not been catered for in clause 63.1. It must be arguable by a
Contractor that the right to terminate is suspended until the Engineer has given
his decision. It is submitted in the commentary under clause 63.1 that this
argument has merit, particularly in the light of the express reference to
termination in the clause. It is suggested under clause 69.1 (Default of Employer)
Page 243 of 264
that the same argument is available to the Employer in relation to termination by
the Contractor.
Whilst this clause makes clear that the Contractor is obliged to proceed with the
works pending the Engineer's decision, there is no corresponding obligation upon
the Employer to continue to make payments. If followed strictly, this could lead to
the Contractor being obliged to continue working in circumstances where it was
the Employer's failure to pay that give rise to the dispute in the first place. In
reality, it must be unlikely that an unpaid Contractor would continue to work for an
Employer who was not complying with his payment obligations.
The form of the notice of intention to commence arbitration is not specified. The
4th Edition has made it clear that it is not necessary at this stage in a dispute to
submit a Request for Arbitration to the ICC. Under earlier editions, the party had
90 days from receipt of the Engineer's decision to "require that the matter or
matters in dispute be referred to arbitration". The arbitrators in ICC case no.
4862, reported in (1989) 6 ICLR 44, decided that these words were satisfied if a
party had given notice of an intention to arbitrate to the other parties. The current
edition puts the matter beyond doubt and thereby avoids the necessity for each
dispute to be the subject of a separate Request for Arbitration, with all the time
and expense involved, during the currency of the contract.
As the statement of the dispute in the notice will establish the limits of the
arbitrator's terms of reference in the absence of agreement to the contrary
between the parties, it is important that the nature of the dispute is carefully
worded. If too broad, the party giving the notice could be met with the argument
that parts of the matters set out have not been referred to the Engineer for his
decision. If too narrow, the arbitration may be too limited, despite the freedom to
introduce new evidence and arguments as set out in clause 67.3. It is suggested
that the parties would be well advised to err, when referring matters to the
Engineer and when notifying intention to commence arbitration, on the side of
broadly-worded statements of the dispute. Two English cases on the point are
Mid Glamorgan County Council v Land Authorty for Wales (1990) 49 BLR 61 in
which the courts stressed the need for clarity in defining the disputes as, if there
had been no reference to the Engineer, the arbitrator would not have jurisdiction
to deal with the dispute in the absence of agreement between the parties; and
Wigan Metropolitan Borough Council v Sharkey Bros (1987) 43 BLR 115 where it
was held that the words "other matters" were an insufficient reference of disputes
to arbitration: the court held that the respondent in the arbitration was not thereby
given sufficient information as to the claim which he had to answer.
Another question which arises is whether a party is entitled to raise a new claim
or counterclaim in an arbitration if that claim has not been the subject of an
Engineer's decision and attempts at amicable settlement. In practice, the
arbitration procedure is sufficiently protracted that a party would have a more
than adequate time to refer the matter to the Engineer in order for it to be
considered by the arbitrator. If an arbitrator was asked to consider a claim that
had not been the subject of an Engineer's decision, (other than one under subPage 244 of 264
clause 67.4), it is submitted that a correct course would be for the arbitrator to
disregard the claim. In the case of a counterclaim, he could wait until after the
award whereupon he could consider an application for any payment under the
award to be postponed until after the procedure was followed in respect of the
counterclaim. If there was no doubt about the creditworthiness of the beneficiary
of the award, and no particular difficulties about executing against the beneficiary
in respect of any sums awarded on the counterclaim, the arbitrator may well
refuse any postponement of the payment. The relevant arbitration rules would,
however, have to be considered to see if any such power was given to the
arbitrator. Problems of this sort would be avoided by very broad terms of dispute
such as "what sums are properly payable by x to y under or in connection with
the contract dated... between x and y in relation to the...project."
The importance of the form of notice is apparent from the final paragraph of this
sub-clause which states that in the absence of such notice, the Engineer's
decision shall be final and binding. It is also vital that the Engineer clearly defines
the matters covered by his decision to minimise room for dispute over what
disputes may no longer be the subject of arbitration. There can be no appeal
from the decision becoming final, only from an arbitration. One exception to this
could be statutory provisions such as section 27 of the UK's Arbitration Act 1950
which permits an application to the court for an extension of time for commencing
an arbitration in certain circumstances. Note that in the absence of a decision by
the Engineer and a notification of arbitration the status quo ante is not then fixed
but the parties could refer the matters to the Engineer afresh.
A possible exception to the "final and binding" effect is found in sub-clause 67.4
whereby an arbitration may be commenced in relation to a failure to comply with
the Engineer's decision. If the failure was referred to arbitration under that
clause, a party could argue that the arbitrator should consider the decision as
well as the failure to comply. The other party would undoubtedly argue that, as
the decision has become "final and binding", the arbitrator's terms of reference
would not extend beyond a consideration of the consequences of the failure to
comply. This argument, which seems correct on the interpretation of the two subclauses, could put an arbitrator in the difficult position of assessing the
consequences of a failure to comply with a decision with which he disagrees.
Thus a Contractor must ensure that he observes the time limit strictly.
A failure to comply with the dispute procedure set out in clause 67.1 has the
result that "no arbitration... may be commenced". This raises the issues whether
court proceedings would be open to the parties as an alternative. An English
court may well decide that the wording of the clause should not prevent it
attempting to do justice between the parties on the grounds only of a failure to
comply with a particular time limit. However, a court would decline to review or
revise any certificate or other decision of the Engineer. This is because of the
Court of Appeal's decision in NWRHA v Derek Crouch (1984) QB 644; 26 BLR
104, where it was held that, in a contract where an independent person was
empowered to make decisions binding on the parties, a court does not have
power to substitute its own views for that of the parties chosen decision-maker.
Page 245 of 264
The courts are reinforced in this view where there is an arbitration clause
whereby the parties have agreed upon a procedure for the review of the
decision-maker's rulings. Thus, the courts should, it is submitted, be prepared to
consider a defects claim, a claim for breach of contract or other claim which did
not depend for its success upon the revision of the Engineer's decisions.
An Engineer is apparently entitled to review and revise his own certificates so
that, whereas under clause 60.4 (Correction of certificates) a specific power is
given to correct interim certificates in subsequent interim certificates, under the
current sub-clause, an Engineer may correct any certificate provided that one of
the parties refers the dispute over the certificate to him. Both the Contractor and
the Employer must give effect to the revised certificate.
"Such notice shall establish the entitlement of the party... to commence
arbitration". This must be subject to clause 67.2 and the 56-day amicable
settlement period provided for there. These words may have been included to
make it clear that no further notice is required under clause 67.3 in order to
commence arbitration. The question could arise whether the running of a
limitation period is halted by the notice of intention to commence arbitration or the
commencement of the arbitration which may only take place (other than under
sub-clause 67.4) 8 weeks later. In England, the Limitation Act 1980 defines the
commencement of the arbitration for limitation purposes as when one party
serves a notice requiring the other party to agree an arbitrator or to submit the
dispute to the designated person. The reference to the ICC under sub-clause
67.3 is a request for the nomination of arbitrators and so would normally be the
effective date but this will depend on the relevant law and the terms of the notice
given under this sub-clause.
67.2 This provision is new to the 4th Edition and features in an adapted,
optional form in ICE 6th. It is obviously desirable for the parties to resolve
disputes without arbitration if possible but this provision will often merely
represent an eight-week delay to the resolution of the dispute. Opponents of this
clause would say that no responsible, commercial men would allow a dispute to
descend into the mire of arbitration without first having attempted to negotiate a
settlement. This may often be true but it also happens that the parties become
entrenched and relations between the parties are such that any suggestion of
discussion leading towards amicable settlement could be interpreted as a sign of
weakness. The advantage of a clause such as this is that it may allow the parties
to meet or to engage the services of a third party such as a mediator without loss
of face. By the same criterion, this clause could be criticised for failing to provide
any guidance as to how the 56 days should be spent. Parties entering into these
conditions may decide that they would be best served either by adopting some
conciliation rules such as those of the ICC or by writing their own into the
contract.
The 56-day automatic limit is necessary as problems frequently arise where
arbitration clauses state that arbitration may only be commenced "in the event
Page 246 of 264
that amicable settlement is not possible". Parties determined to delay the
commencement of arbitration may argue that all avenues for amicable settlement
have not been exhausted and therefore that arbitration should not commence.
A failure by a party to attempt to settle the dispute amicably would not appear to
be a breach of contract. Where the position is hopeless the parties are at liberty
to agree a shorter period than the 8 weeks for the commencement of the
arbitration. Equally, if settlement discussions are making progress, the parties
may agree to a longer period.
CLAUSE 67.2 (Amicable Settlement)
Click on the [*] button to see omitted text.
This sub-clause now reads:"Where notice of intention to commence arbitration as to a dispute has been
given in accordance with Sub-Clause 67.1, arbitration of such dispute shall not
be commenced unless an attempt has first been made by the parties shall
attempt to settle such dispute amicably before the commencement of arbitration.
Provided that, unless the parties otherwise agree, arbitration may be commenced
on or after the fifty-sixth day after the day on which notice of intention to
commence arbitration of such dispute was given, whether or not even if no
attempt at amicable settlement thereof has been made."
This amendment is not strictly necessary. If it is an attempt to avoid a style of
drafting that says "the parties shall do x and y but if they do not, never mind", the
effort is to be welcomed. It has not, however, been successful as that remains
the result. It is submitted that the amendment has no contractual effect.
67.3 This clause does not call for any new notice, but leaves the next steps to
the rules of the ICC.
"Any dispute...shall be finally settled...". The arbitrator, it is submitted, has very
wide power to resolve disputes and is not limited to opening up, reviewing and
revising the Engineer's decision. The reference to "any dispute" refers back to
the very broad opening words of sub-clause 67.1. A question arises whether
there is anything that the arbitrator does not have power to reopen. For example,
under clause 56.1 (Works to be measured), if the Contractor does not attend to
examine and agree certain records and drawings, "they shall be taken to be
correct". It is submitted that the effect of such words is that the parties have
agreed that in certain circumstances, the records and drawings are to be taken
as final and therefore there can be no dispute. The arbitrator could consider
whether the circumstances have arisen which make the matter final but could not
look into the correctness of the records and drawings. This situation is to be
distinguished from the functions of the Engineer such as that in clause 52.2
(Power of Engineer to fix rates). The use of the term "fix" does not exclude the
arbitrator as the Engineer is making a decision which is open to review. Nor, it is
Page 247 of 264
submitted, is there any doubt that the Defects Liability Certificate may be
reviewed and revised like any other certificate.
The difficulties of defining the limits of the arbitrator's powers is illustrated by the
following problem. If the contract calls for an on-demand bond to be provided by
the Contractor, as is often the case in international contracts, and the Employer
calls the bond, does the arbitrator have power to deal with the resulting dispute
when the Contractor contends that the Employer's loss represented but a small
fraction of the amount paid out under the bond? Whilst it is reasonably clear that
the dispute "arises between the Employer and Contractor in connection with or
arising out of the Contract" and thus falls within clause 67, there appears to be no
express mechanism for bringing the money paid to the Employer under the bond
into account. Unless it is possible to find some implied term of the contract, there
appears to be no contractual right for the Contractor to reclaim the excess
payment. The question therefore arises whether the arbitrator has power to make
awards to do justice between the parties or whether he is confined to considering
only claims with a clear basis in law or upon the terms of the contract. In reality,
the answer is that the arbitrator will be limited by the rules of arbitration and the
applicable law only insofar as his awards are open to the Court's supervision.
See also the discussion under clause 63.1 (Default of Contractor) of the
arbitrator's power to do justice after a termination based upon an Engineer's
certificate of default which is held to be incorrect.
It is sobering to bear in mind that an arbitrator is only obliged to conduct the
arbitration and decide the award in accordance with any relevant law to the
extent that any court has power to supervise his action either by means of a
power to remove the arbitrator for misconduct or to overturn or remit his award
on appeal. In many countries, the courts will intervene in exceptional cases only
and many arbitration rules make the arbitrator's award final excluding any appeal.
Perhaps as a reflection of this reality, there is an increasing use of so-called
"equity clauses" which expressly empower the arbitrator to decide the dispute
between the parties in accordance with the principles of common-sense and
commercial fair play rather than by the application of any particular law. On the
other hand, arbitration clauses are also frequently deleted in favour of resolution
by the local court.
The list of the Engineer's functions which may be reviewed and revised omits
consents, satisfactions, approvals and notices but seems to be intended to be
comprehensive. It is submitted that the omitted functions could properly be
treated as covered, particularly by "opinions" and "determinations" even in the
absence of the final sentence of clause 2.6 (Engineer to act impartially) which
states that "any such decision, opinion, consent, expression of satisfaction, or
approval, determination of value or action may be opened up, reviewed or
revised as provided in Clause 67". See the table in the commentary under clause
1.5 (Notices, consents etc.) showing how the terms describing the functions of
the Engineer are used in the contract.
Page 248 of 264
Whilst the parties may be unrestricted in the evidence or arguments they may
use before the arbitrator, they would be limited as to the disputes which they may
raise. Any dispute which has not been the subject of an Engineer's decision and
an attempted amicable settlement (apart from sub-clause 67.4 disputes) could
and probably should be rejected by the arbitrator. See under sub-clause 67.1 for
further comment.
"...the Engineer being called as a witness...". Just as a judge at first instance
may not be called as a witness on an appeal, it is certainly possible to envisage
an argument seeking to prevent an Engineer being called as a witness to an
arbitration to be cross-examined on his decisions. Thus it is sensible for the
contract to provide expressly for the Engineer to be called.
The contract makes express what should be clearly implicit that the obligations of
the parties are unchanged by the conduct of an arbitration during the progress of
the works. Difficulty arises when it is the nature and extent of those obligations
that is being resolved at the arbitration.
Parties may well decide to amend the contract to ensure that arbitration does not
take place prior to substantial completion. The dispute could involve the
Engineer and other key figures being absent at arbitration in a different country
and pre-occupied with its preparation when their time and energies are needed
by the project. The lengthy disputes procedure and the inevitable delays
involved in ICC arbitration should usually ensure that the arbitration will take
place after the works are complete, however. If the award is published during the
currency of the works, that award will, it is submitted, affect the obligations of the
parties. Thus, if an extension of time has been granted by the arbitrator, the
Contractor must be entitled to work to that time regardless of any notice under
clause 46.1 (Rate of progress). If the arbitrator makes a money award, that
award should be included in the following interim certificate under clause 60.2
(Monthly payments), in the absence of a more specific direction by the arbitrator.
With administrative contracts in civil law jurisdictions, there may be conflict or
overlap between the role of the administrative court and arbitration. For example,
a Contractor wishing to claim under one of the doctrines briefly set out under
clause 5.1 (Languages and law) will have to decide whether an arbitrator could
grant the relief sought or whether an application to the court would be necessary.
This problem is at its most acute in situations where the administrative law is
inconsistent with the contract terms such as in relation to liquidated damages or
termination. The solution adopted in France has been to prohibit arbitration
clauses in public works contracts. No generally applicable guidance can usefully
be given here and local advice is obviously essential.
As discussed under sub-clause 67.1 above in relation to the Engineer's power to
rectify the contract, the ability of the arbitrator to make such an award will depend
on the law of the contract and the rules and procedural law applicable to the
arbitration. In English law, the opening words of clause 67.1 would be sufficiently
wide to allow an arbitrator to rectify: see Ashville Investments Ltd v Elmer
Page 249 of 264
Contractors (1988) 3 WLR 867 where the Court of Appeal held the words "arising
in connection with" the contract to be broad enough to cover rectification.
Part II provides alternative wording if the ICC procedure is not to be followed.
FIDIC recommend a careful checking of the amendments due to the need to
tailor the clause to the alternative procedure.
As commented under clause 5.1 (Languages and law), it is advisable to specify
in the contract the place where an arbitration is to take place: this will determine
the nature of any interference or supervision by the courts. The procedural law to
apply and, importantly, the language in which such proceedings will be
conducted should also be put beyond argument.
67.4 A party who has failed to give the requisite notice of intention to
commence arbitration may endeavour to have the matter arbitrated under this
clause, perhaps by deliberately failing to comply with the Engineer's decision.
Here, a failure to comply with the Engineer's decision may be arbitrated
whereupon the arbitrator may be invited to review the Engineer's decision as well
as the consequences of the failure to comply with that decision. In the
commentary to sub-clause 67.1, it was submitted that the arbitrator would be
correct to decline to extend the scope of the arbitration beyond the failure to
comply and its consequences even if the arbitrator disagrees with the Engineer's
decision.
CLAUSE 68 : Notices
This clause specifies the addresses to which certificates, notices and instructions
must be sent. In the cases of the Employer and the Engineer, the addresses
must be set out in Part II.
The principal change for the 3rd Edition is the introduction of "cable, telex or
facsimile transmission" as alternatives to post or delivery. It is obviously
advantageous to the administration of the project that notices etc. may be given
locally as posting, for example, to the Contractor's principal place of business,
probably in another country, will make administration more prolonged and subject
to the uncertainties of the post.
This clause should be read in conjunction with clause 1.5 (Notices, consents
etc.), which requires that all notices shall be in writing. The term "writing" is
defined at clause 1.1(g)(iv). In the commentary to clause 1.5, there is a table
setting out where terms like certificates, notices and instructions are to be found
in certain of the clauses. For example, it is quickly apparent that clause 1.5
requires consents, approvals and determinations to be in writing. This clause,
however, does not deal with those matters. In the case of determinations, this is
no doubt because the Engineer is invariably required to notify the parties of his
determination. Consents and approvals, however, need to be dealt with. "All
communications in writing" might be a preferable formula.
Page 250 of 264
There is an apparent conflict between this clause, which requires instructions to
be given to the Contractor by post etc., with clause 15.1 (Contractor's
superintendence) which provides that the Contractor's authorised representative
should receive instructions from the Engineer on behalf of the Contractor,. As a
matter of practicality, there will inevitably be instructions which need to be given
immediately, in which case they should either be confirmed by post in
accordance with this clause or in accordance with the procedure for confirming
oral instructions under clause 2.5 (Instructions in writing).
The contract gives no indication of when notice is deemed to be given. This could
be of importance in relation, for example, to the timing of the Employer's calling
of a bond under clause 10.3 (Claims under performance security) or his re-entry
under clause 63.1 (Default of Contractor). It is presumably not intended that
notice will only have been given once the recipient has actual knowledge of the
notice, as such a provision would invite the parties to indulge in a variety of
imaginative means of avoiding receipt or knowledge of such notice. It may well
be intended that, with telex or facsimile transmissions or notices left at the office
of a party, notice is deemed to have been given if successfully transmitted or left
during normal office hours or the following working day otherwise. There is
inevitably more difficulty with notices sent by post or cable. Unless a party is to
be provided with the defence that a particular notice was never received,
something that will often be impossible to disprove, the contracting parties need
to introduce some presumption: for example, in England, legal process is
deemed to have been served by post on the second day after posting. This
clause might be improved by the addition of a provision dealing with this issue.
If a notice is served incorrectly, particularly in relation to something as
fundamental as termination, a hard decision will have to be taken as to whether
to allow such a technicality to deprive one of the parties of what would otherwise
have been his rights. Contrast the Court of Appeal decision in J.M. Hill & Sons v
London Borough of Camden (1980) 18 BLR 35 where a technical failing in the
manner of serving a notice was held not to invalidate a termination on the
grounds that a common-sense, businesslike approach was required; and the
Singapore Court of Appeal in Central Provident Fund Board v Ho Bock Kee
(1981) 17 BLR 21 who came to the opposite conclusion when they held that an
incorrectly served notice was fatal to a party's termination under the contract.
CLAUSE 69 : Defaults of Employer
This clause gives the Contractor a right to terminate his employment under the
contract or to suspend or decelerate his works. If the Employer fails to pay a
certificate within 4 weeks of the due date, or interferes with certificates or
becomes insolvent or gives notice that unforeseen economic circumstances have
rendered it impossible for him to continue, the Contractor may terminate on
giving 14 days notice.
Page 251 of 264
After the 14 days notice, the Contractor is to remove his equipment from site.
After termination, the Employer is to pay the Contractor for all work executed and
all costs and damages associated with the termination of the project.
Alternatively, if the Employer fails to pay a certificate within 28 days of the due
date, the Contractor may give 28 days notice and then suspend or decelerate his
work. He shall be entitled to an extension of time and costs in respect of the
suspension or deceleration.
If the Contractor suspends or decelerates and the Employer then pays the
certificate together with interest, the Contractor will no longer be entitled to
terminate and must resume normal working.
Sub-clauses 69.1, 69.2 and 69.3 are taken from the 3rd Edition with minor
amendments; for example, the period in clause 69.1(a) has been reduced from
30 days to 28 days. Sub-clauses 69.4 and 69.5 are entirely new.
69.1 Consistent with most of clause 63.1 (Default of Contractor), this clause
makes no provision for a warning shot. If one of the events occurs, the
Contractor is entitled to give notice and terminate. One distinction is that here
the Contractor does not require a certificate of the Engineer to the effect that one
or other of the defaults has taken place. Whilst this removes a hurdle, it also
removes a safeguard. For a discussion on this, see the commentary to clause
63.1.
"(a) failing to pay to the Contractor the amount due...". The 4th Edition has
resolved the difficulty inherent in the 3rd Edition as to whether payment became
"due" immediately upon certification or only upon the expiry of the period for
payment. Now it is made clear that the Contractor may give notice of termination
four weeks after the period specified under clause 60.10 (Time for payment). As
the Employer is given 4 weeks grace before any sanction may be imposed other
than interest under clause 60.10, it would be advisable for Contractors to
negotiate as high an interest rate as possible.
"...subject to any deduction that the Employer is entitled to make under the
Contract...". In view of the fact that under clause 60.2 (Monthly payments) and
clause 60.8 (Final certificate) the Engineer is empowered to make deductions to
which the Employer is entitled on the face of the certificate, with the sole
exception of liquidated damages, it is not immediately obvious what deduction
the draftsman has in mind other than liquidated damages. If the effect is to allow
the Employer not to pay a certificate in full on the ground that he is entitled to
deduct sums under the contract which either have arisen subsequent to the
certificate or are deductions of which the Engineer has not been satisfied, these
words add an unwelcome element of uncertainty in a critical clause. A Contractor
who has not received full payment could be met with the argument that there are
other sums due under the contract which the Employer will demonstrate to the
Page 252 of 264
Engineer or arbitrator. Thus, the Contractor in exercising his rights under this
clause may be taking the risk that the Engineer or arbitrator would be persuaded
later that a deduction was due, and the Contractor's termination could then be
treated as a repudiatory breach of contract.
It will be noted that a failure of the Engineer to certify is not included in the list of
Employer's defaults. If the reason for non-certification is interference by the
Employer, then the matter is dealt with under item (b) below. If the Engineer is
refusing to certify because, for example, he has not been paid, this could also be
"obstructing ... the issue of any such certificate" under item (b). If the Engineer
has died or is otherwise incapable of acting, the absence of any mechanism
whereby the Employer may renominate creates a problem which has been
discussed under the definition of Engineer in the commentary to clause 1
(Definitions and interpretations). If the Engineer, perhaps an employee of the
Employer, simply refuses or fails to certify the whole or any part of sums due, this
clause and the contract generally does little to assist the Contractor. He is not
entitled to terminate and interest under clause 60.10 (Time for payment) is only
payable on unpaid certificates. The Contractor is obliged to rely upon an implied
term, namely that the Employer will procure that the Engineer, who is not a party
to the contract, fulfils his function in accordance with the contract. The damages
which the Contractor would claim would include interest and/or financing
charges. Alternatively, in an extreme case, the Contractor might be able to argue
that the Employer's failure to procure proper action on the part of the Engineer
amounted to a repudiation of the contract entitling the Contractor to leave the
site. To base such a radical step upon an implied term would be highly risky
although the threat of such a step might be sufficient to ensure some activity on
the part of the Engineer.
"(b) interfering with ... any ... certificate". In Part II to clause 2.1 (Engineers duties
and authority), a list may be inserted of those clauses in respect of which the
Engineer is to obtain the specific approval of the Employer before carrying out his
duties. Thus, the Contractor is given notice that there is a term in the agreement
between the Employer and the Engineer that such approval must be sought. It
may seem strange that if the Employer does not give the approval sought, the
Contractor is able to terminate the contract. In effect, this clause renders the
approval process a prior notification requirement only. Clause 2.1 makes it clear
that the Contractor is not concerned to ensure that necessary approval has been
obtained.
Although ambiguous, the correct reading of (b) must relate "interfering with" and
"obstructing" to "the issue of any such certificate". At first sight it is quite possible
to read the clause as if it is the required approval that must not be interfered with
or obstructed. As it is the Employer's own approval under clause 2.1 (Engineer's
duties and authorities) that is referred to, this is not correct as he cannot interfere
with or obstruct himself. It seems to be necessary that the interference or
obstruction is successful in postponing or changing the certification. Giving the
words their normal meaning, an attempted interference or obstruction would not
allow the Contractor to terminate. Under clause 2.6 (Engineer to act impartially),
Page 253 of 264
it is suggested that the failure or refusal of the Employer to appoint or renominate
an Engineer capable of impartiality could give a Contractor an argument that
certificates were being interfered with or obstructed.
"... any such certificate". As this refers back to payment certificates dealt with in
(a), the Contractor's right to terminate for interference does not extend to TakingOver Certificates, Defects Liability Certificates or such matters as determinations
of extensions of time.
"(c) becoming bankrupt...". The list of forms that the Employer's insolvency might
take is very short compared with clause 63.1 (Default of Contractor) and appears
unduly restricted. This may reflect the fact that Employers are sometimes
departments or agencies of governments but this assumption would lead to the
conclusion that there should be no right to terminate on the insolvency of the
Employer. In fact, of course, the form is not restricted to use by governments but
is in widespread use by public and private employers. Bankruptcy and liquidation
are unlikely to be the first formal insolvency procedures to affect an Employer. In
the U.K., it is more likely that an Employer would go into receivership although
liquidation may follow later. In civil jurisdictions, it is more likely that a courtsupervised procedure for reorganisation would come first. This may be
analogous to the administration procedure in England and Chaper 11 bankruptcy
in the United States. In that connection, it would appear that Chapter 11 is
excluded as, for the purposes of item (c), "becoming bankrupt" applies only to an
individual. For these reasons, contractors may prefer to amend this clause to
mirror the insolvency events in clause 63.1 (Default of Contractor).
"(d) giving notice ... that for unforeseen reasons, due to economic dislocation, it is
impossible for him to continue ...". It is by no means clear that the notice need be
true. The event is the giving of the notice and the economic dislocation is
expressed more as the prescribed contents of the notice rather than as a
condition precedent. Thus, the Employer is given the option the terminate the
contract. This is not entirely unreasonable given that Sub-clause 69.3 (Payment
on termination) provides for the Contractor to be paid in full including his loss or
damage so that he is able to recover the profit that he would otherwise have
made. Having gone this far, it is but a short step for the draftsman to give to the
Employer an option to terminate at will but at considerable expense. This would
remove the advantage given to the unscrupulous.
Economic dislocation in this clause is to be compared with the two other clauses
in which external events may bring the contract to an end. Under clause 65.6,
(Outbreak of war) the outbreak of war in any part of the world which, "whether
financially or otherwise materially effects the execution of the Works" gives the
Employer a right to terminate by notice. Under clause 66.1 (Payment in event of
release from performance), "any circumstance outside the control of both parties
... which renders it impossible or unlawful for either party to fulfil his contractual
obligations" releases the parties from further performance. The difference under
these clauses is that the Contractor does not receive his loss or damage
including his loss of profit. For more information on the different financial
Page 254 of 264
consequences of the various means of bringing the contract to an end, see the
commentary under clause 63.1
Under either of clauses 65.1 or 66.1, it would seem that an arbitrator could
review the circumstances to decide whether the circumstances really existed or
not. Under this clause, the arbitrator would apparently only be entitled to ensure
that the notice was in writing and addressed correctly.
It should be noted that clause 40.3 (Suspension lasting more than 84 days) adds
a further ground for termination by the Contractor in the event that the works are
suspended for 12 weeks and the Engineer does not give permission to proceed
within 4 weeks of a notice from the Contractor.
The Contractor's notice is in no prescribed form but must comply with clauses 1.5
(Notices, Consents, etc) and 68 (Notices). It would probably be sufficient for the
Contractor simply to write saying that his employment under the contract would
terminate after 14 days but in practice it would be advisable to specify which of
(a) to (d) applies, not least so that the Employer has an opportunity to respond.
This response might persuade the Contractor that he has made a mistake in
which case the Contractor may be able to withdraw his notice and thereby avoid
repudiation of the contract. Although the contract states that termination shall
take effect 14 days after the giving of the notice, a statement by the Employer
that the notice is invalid and that the Contractor is to continue working amounts
both to an opportunity for the Contractor to withdraw the notice by accepting its
invalidity and an affirmation by the Employer of the contract so that Contractor's
action of giving the notice will no longer represent a repudiation which the
Employer may act upon.
It is a curious feature of this clause that, after the Employer has given notice that
it is impossible for him to continue "to meet his contractual obligations" i.e. to pay,
it is then necessary for the Contractor himself to give notice which only takes
effect two weeks later during which period the Contractor should, theoretically, be
working. Impossibility under clause 66.1 (Release from performance) produces
an immediate release as does the Employer's notice of a material affect upon the
execution of the works under clause 65.6 (Outbreak of war).
For a discussion of the duration of the Contractor's entitlement to terminate, see
the commentary to sub-clause 69.5 below.
The argument is advanced in the comments under clause 63.1 (Default of
Contractor) and clause 67.1 (Engineer's decision) that the Contractor can delay
and perhaps forestall the termination of his employment by requesting the
Engineer's decision within the 14-day notice period. This is because clause 67.1
says that "unless the Contract has already been repudiated or terminated, the
Contractor shall, in every case, continue to proceed with the Works". As the
termination does not take effect until the period expires, it is submitted that a
request for a decision will prevent the termination unless the conduct of the
Employer amounted to repudiation. Even then there may be doubt.
Page 255 of 264
If this argument is correct, the consequences are far-reaching. The benefits to
the Employer could extend to a delay of up to 12 weeks while the Engineer
decides whether the notice was justified. No doubt the Engineer's duty under
clause 2.6 (Engineer to act impartially) would cause him to act promptly. If the
decision was adverse to the Contractor, clause 67.1 requires the parties to
proceed. Even if an arbitrator holds that the Engineer was wrong, provided the
Engineer had acted in good faith, the Contractor would be in breach if he
withdrew in defiance of the Engineer's decision: "the Contractor and the
Employer shall give effect forthwith to every such decision". One exception to this
may be if the Contractor is able to demonstrate that the Employer had
repudiated the contract, thereby entitling the Contractor to end the contract at
common law under the law of the contract. This argument has to overcome the
problem of any affirmation of the contract, that is, action by the Contractor which
recognises the continued existence of the contract, and the possible argument
raised under clause 63.1 that "repudiation" actually means the abandonment or
common law termination of the contract, not the breach giving rise to a right to
treat the contract as at an end.
The advantage to the Contractor, it is submitted, is that if the Engineer endorses
his notice of termination, he is protected from the grave financial consequences
even if an arbitrator reverses the Engineer's decision. The parties are obliged to
comply with the decision pending the arbitration.
Under some civil law jurisdictions such as those referred to under clause 5.1
(Languages and law), a Contractor may not terminate or suspend an
administrative contract without the sanction of the court. To terminate or suspend
without leave could result in the forfeiture of all the Contractor's rights. Although
an express right to terminate or suspend without a court's decision might suffice
for a private law contract, such an express clause is ineffective in such an
administrative contract.
For some cases on the need for strict compliance with the notice procedure and
on the courts' approach to disputed terminations, see under clause 63.1 (Default
of Contractor) and clause 68 (Notices).
CLAUSE 69.1 (Default of Contractor)
Click on the [*] button to see omitted text.
The ground for termination of the Contractor's employment at item (d) has been
changed:"In the event of the Employer:
(d)
giving notice to the Contractor that for unforeseen economic reasons due
to economic dislocation it is impossible for him to continue to meet his
contractual obligations ...".
Page 256 of 264
It was commented in the main work that the event giving rise to the right to
terminate was the Employer's notice and that the contents of the notice did not
have to be true. Nor, it was submitted, would an arbitrator have power to
consider the contents of such a notice provided it claimed the requisite
impossibility. If these unattractive conclusions are correct, then the amendments
are of little significance.
If the contents of the notice may be the subject of dispute, the departure of the
term "economic dislocation", which appeared also in the 3rd Edition, and the
introduction of the far more comprehensible "economic reasons" will be of
benefit. After all, it is likely to be the impossibility and the lack of foresight which
come under close scrutiny and not the precise nature of the economic cause. As
pointed out in the main work, the Contractor is entitled to all his costs and his
loss of profit, as he would be if the contract had simply been repudiated by the
Employer, so challenges to such a notice may be unusual.
69.2 Clause 54.1 prohibits the Contractor from removing any equipment,
temporary works and materials from the site without the consent of the Engineer.
Here, the Contractor may retrieve his equipment but the temporary works and
materials must remain unless the Contractor obtains the Engineer's consent. If
the termination had been brought about by the Contractor's default, all these
items would remain for the use of the Employer or an alternative contractor under
clause 63.1 (Default of Contractor).
69.3 Termination under clause 65 is only possible under clause 65.6 (Outbreak
of war). Payment under clause 65.8 (Payment if contract terminated) provides for
payment for works executed, materials etc supplied or which the Contractor is
committed to purchase, sums committed for the completion of the works and
demobilisation costs. Clause 65.8(d) is irrelevant as it deals with costs
attributable to special risks.
For a discussion of the financial results of termination under this clause, clause
63.1 (Default of Contractor), clause 65.6 (Outbreak of War) and after repudiation
of the contract, see the commentary under clause 63.1.
Given the broad scope of clause 65.8, "any loss or damage" will refer mainly to
the Contractor's loss of profit. This appears to be the one occasion in the contract
where the Contractor is entitled to recover his loss of profit. Compare the
definition of "cost" at clause 1.1(g)(i) which carefully excludes profit.
69.4 In addition to his right to interest on unpaid certificates and as an
alternative to termination, the Contractor may suspend. At first reading, it appears
that this right only arises some 12 weeks after delivery of the Interim Certificate.
However, it is submitted that a Contractor may give notice of suspension
immediately after the initial 28-day payment period has expired with the result
that very shortly after the 28 days of default required under this sub-clause the
notice will expire and the Contractor will be entitled to suspend or decelerate. If
Page 257 of 264
the intention had been that the notice could only be given after the 28-day default
period, the clause would have said "the Contractor ... may give 28 days prior
notice ... and thereafter suspend work or reduce the rate of work".
"Subject to any deduction that the Employer is entitled to make under the
Contract". See the commentary under sub-clause 69.1 on the identical phrase.
"Due consultation": this requirement of consultation is new to the 4th Edition and
adds an element of natural justice to the Engineer's deliberations. It is subject to
clause 2.6 (Engineer to act impartially).
The right to suspend is a valuable addition, new to the 4th Edition. The
alternative of deceleration is also valuable. The ability to take action less drastic
than termination against an Employer who is failing to pay must be in the
interests of all parties of the contract. Similarly, the ability to decelerate or goslow enables the Contractor to make his point without having the problem of idle
plant and labour. Such a go-slow may also be to the benefit of the Employer as
the consequential reduction of the value of the next certificate may ease any
financial difficulties which had given rise to the situation.
Extension of time and costs are necessary to put the Contractor back in the
position he would have been in had the Employer paid on time. There is no limit
on the period for which a Contractor can suspend or go-slow. He may continue to
do so for as long as the Employer fails to pay and a notice to terminate is not
issued.
"(a) any extension of time": for the Contractor to be entitled to an extension under
clause 44; he must first have given notice of the delay pursuant to clause 44.2.
This at least is the likely construction of the contract although it is be no means
beyond argument that the entitlement referred to is not subject to clause 44.2.
"(b) the amount of such costs": similarly, it is probable that the Contractor's
entitlement to costs is subject to the procedure for claims set out in clause 53. A
Contractor would be unwise to assume that notification is not required.
"... which shall be added to the Contract Price". The Contract Price has a
somewhat chequered history in this contract. Whilst in the Agreement as signed
by the parties, the Employer covenants to pay the Contractor the Contract Price
"or such other sums as may become payable", there is no reference to the
Contract Price in clause 60, the payment clause. This makes the use of the term
whenever the Engineer determines costs which are to be payable to the
Contractor surprising at first sight..
"Contract Price" is defined at clause 1.1(e)(i) as being the sum stated in the
Letter of Acceptance and is not itself subject to any variation. As this is a
remeasurement contract, the Contract Price is of limited relevance, hence the
lack of any mention of it in the payment clause. What then is the effect of the
words "the amount of such costs, which shall be added to the Contract Price"? If
Page 258 of 264
the Contract Price is relevant only as a means of comparing tenders, why does it
receive mention in a further 17 clauses? In relation to five clauses, namely:- clause 17.1 (Setting out)
- clause 20.3 (Loss or damage due to Employer's Risks)
- clause 31.2 (Facilities for other contractors)
- clause 49.3 (Cost of remedying defects)
- clause 65.3 (Damage to works by special risks)
the answer is provided by clause 52.1 (Valuation of variations). The five clauses
listed have express reference to clause 52 and the cost to be paid to the
Contractor falls to be dealt with in accordance with the valuation of variations
machinery.
For a further 11 clauses, namely:
- Clause 6.4 (Delays and cost of delay of drawings)
- Clause 12.2 (Adverse physical obstructions or conditions)
- Clause 27.1 (Fossils)
- Clause 36.5 (Engineer's determination where tests not provided for)
- Clause 38.2 (Uncovering and making openings)
- Clause 40.2 (Engineer's determination following suspension)
- Clause 42.2 (Failure to give possession)
- Clause 50 (Contractor to search)
- Clause 65.5 (Increased costs arising from special risks)
- Clause 69.4 (Contractor's entitlement to suspend work)
- Clause 70 (Changes in cost and legislation)
Additions are provided for without any form of mechanism. An important question
is whether the Contractor is entitled to receive such additions in interim
payments. Under clause 60.1 (Monthly Statements), only clause 70 of the above
list receives specific mention. The rest have to be included by the Contractor
under clause 60.1 (e) "any other sum to which the Contractor may be entitled
under the Contract". The Contractor will argue that once the Engineer has
determined the amount of his costs, that is then a sum to which he is entitled
under the contract. Clause 53.5 (Payment of claims) assists in this argument, as
amounts determined by the Engineer as due in respect of claims are to be
included in any interim payment. The difficulty with clause 53 is to know how it
relates to other provisions of the contract. "Claim" is undefined. It is submitted,
however, that there can be no genuine doubt that the Contractor is entitled to be
paid for claims as soon as they have been ascertained in whole or in part.
The use of the term "Contract Price" in this context does nothing for clarity. It
permits of the argument that "shall be added to the Contract Price" does not
amount to an immediate entitlement but that such costs may only be brought into
account at the Final Certificate stage. Whilst it is submitted that this argument is
not well founded, it illustrates the point that frequent reference to Contract Price
Page 259 of 264
throughout the contract is unhelpful in a remeasurement contract where the
Contract Price has no part to play in the payment machinery.
69.5The Contractor is entitled under the contract to three remedies
simultaneously: from the due date for payment, he is entitled to interest and 28
days thereafter (if notice of suspension was given when payment became
overdue) he may suspend or go-slow and additionally serve notice of termination.
Interest and the right to be in suspension or go-slow working continue for the 14
days of the termination notice.
There is an error in this sub-clause if it is intended to bring the Contractor's rights
under this clause (i.e. to serve notice of termination, to suspend or decelerate) to
an end if the Employer pays the overdue sum together with interest. If the
Contractor has not suspended or decelerated, the Contractor's right to give
notice of termination appears to continue indefinitely, regardless of the full
payment by the Employer of the certificate together with interest. This seems less
extraordinary when it is appreciated that payment by the Employer the day after
a notice of termination has been given by the Contractor does not in any way
prevent the termination taking effect at the expiry of 14 days.
Part II suggests that where the Employer is a government, item (c) should be
deleted; item (d) should be deleted where it, in combination with sub-clause 69.3,
is contrary to local law.
CLAUSE 70: Changes of costs and Legislation
The rise and fall in the cost of labour, materials etc is to be taken into account in
accordance with a fluctuations clause as set out in Part II.
Any affect upon the cost of the works resulting from changes in the local law,
regulations etc., occurring after the date four weeks before the tender date, are to
be established and added to or deducted from the contract price.
Although worded slightly differently, this clause is fundamentally the same as in
the 3rd Edition. Consistent with the draftsman's policy of giving time periods in
multiples of seven, the 30 day period in sub-clause 70.2 has been reduced to 28
days.
70.1 Part II provides three alternative methods of dealing with the fluctuations
issue: firstly, a clause allowing no adjustments; secondly, where adjustment is
based on the difference in cost between base prices and the current price of local
labour and specified materials; and thirdly, where adjustment is made by the use
of indices in a formula. Each of these alternatives has its advantages and
problems. In particular, parties will have in mind whether there is to be a fixed
Page 260 of 264
price element; whether local inflation alone is to be taken into account, as some
government Employers will object to "importing" inflation; and the scope for
political interference with official indices.
FIDIC, through their Guide, advise that any project lasting for longer than a year
should contain a fluctuations clause, permitting adjustment. They take the view
that the Employer should bear the risk rather than asking tenderers to quote firm
prices which include provision for increased costs. Ultimately, this is an area of
risk that may be allocated as the parties think fit.
In civil code countries, where administrative law based on the French model
applies, this clause reflects the Theorie de l'imprevision whereby if exceptional
and unforeseen events render the Contractor's obligation excessively onerous
threatening him with exorbitant loss, then the Contractor's excessive losses may
be reduced to reasonable limits by way of compensation by the Employer. In
certain countries, notably Eygpt, this doctrine has been extended to civil or
private contracts as well. This clause is in fact more generous than the
administrative law doctrine as it provides for the Contractor to be completely
relieved of responsibility, whereas the Theorie only provides for the reduction of
the Contractor's losses. The Theorie could however be relevant in cases where
the fluctuations clause has been deleted. For a brief overview of administrative
law based on the French model, see clause 5.1 (Languages and law).
70.2The Employer is generally better placed to predict and to allow for changes
to the local law which will affect the project. Thus it makes sense for the
Employer to take this particular risk. If the Employer is a part of the government,
then it is obvious that a Contractor would be taking a very grave risk by accepting
any fundamental amendment to this clause.
"If ... there occur ... changes to any ... Law". Such changes are often heralded
for a considerable period before coming into effect. For example, legislation may
already have been enacted which specifies that a relevant provision will come
into effect on a date six months into the project. The Employer needs to specify
in the tender documents if the Contractor is required to take into account any
change which will be implemented after the given date, otherwise, it is submitted,
the Contractor may ignore the coming change and make a claim, despite clause
11.1 (Inspection of Site) which deems that the Contractor has obtained and
based his Tender upon all relevant information.
It is a pity that the draftsman of the current edition did not take the opportunity to
tidy up the drafting of this sub-clause. It is unnecessary to have two lists of
statutes etc when the words introducing the first list could have been "the
introduction of or changes to". Presumably the word "such" at the beginning of
the second list is intended to import all the missing words from the first list. In
which case the inclusion of the word "state" simply adds confusion. The
importance of clear drafting in this clause is that it will be closely scrutinized by
contractors wishing to make a claim where additional costs have been caused by
Page 261 of 264
changes in the law of countries other than that in which the project is taking
place. As commented under clause 5.1 (Language and law), it is quite possible
that several other countries' laws impinge upon the project, regardless of the
specified law of the contract. For example, the country from which the insurance
has been obtained could introduce laws increasing the cost of that insurance.
Similarly, a country in which elements of the work are being manufactured prior
to delivery to site could change its laws and have the same effect. The intention
of the clause and, it is submitted, the correct interpretation of the clause, despite
its short-comings, is that the Contractor will only be reimbursed for changes in
the law of the country in which the project is taking place. Although "Works" is
defined broadly enough to include elements of the work being manufactured
elsewhere, the phrase "in the country in which the Works are being or are to be
executed" seems to resolve the matter.
In the civil code countries referred to above, this clause is the approximate
equivalent of the doctrine of Fait du Prince applicable to administrative contracts.
Under the doctrine, the Contractor will be fully compensated if he has suffered
increased costs or losses due to a change in the law or other acts or decisions of
the Administration. For a brief overview of administrative law based on the
French model, see clause 5.1 (Languages and law).
This clause should be read with clause 26.1 (Compliance with statutes,
regulations) which imposes the basic obligation to comply with the local law,
clause 13.1 (Work to be in accordance with the contract) which requires the
Contractor to execute the works "unless it is legally...impossible" and clause 66.1
(Payment in event of release from performance).
CLAUSE 71: Compensation to Contractor
The Employer is to compensate the Contractor for any losses arising from
currency restrictions imposed in the country in which the project is taking place
after the date four weeks prior to the tender date.
This clause is not significantly changed from the 3rd Edition, although the 30 day
period is reduced to 28 days.
This clause could equally well have been grouped with clause 70.2 (Subsequent
legislation). The risk passes at the same date, 28 days prior to the tender date
and relates effectively to changes to the law. In an extreme case, where the law
changed and required the contract price to be paid entirely in local currency, it is
difficult to see how the Employer could "reimburse any loss or damage to the
Contractor". There could be real difficulties in the way of a Contractor seeking to
pursue his rights under this clause, particularly against a government Employer.
In such circumstances, the Contractor could find it impossible to fulfill his
obligations and could seek to invoke clause 66.1 (Release from performance).
In the civil code countries referred to in clause 5.1 (Languages and law), this
clause is the approximate equivalent of the doctrine of Fait du Prince applicable
Page 262 of 264
to administrative contracts. Under the doctrine, the Contractor will be
compensated if he has suffered increased costs or losses due to a change in the
law or other acts or decisions of the Administration. For a brief overview of
administrative law based on the French model, see clause 5.1.
Whether a failure to pay in the currencies specified in Part II to clause 60 would
amount to a failure "to pay to the Contractor the amount due under any
certificate" allowing the Contractor to terminate under clause 69.1 (Default of
Employer) is a difficult point. The Employer could say that, by reference to the
(theoretical) exchange rate, he had paid the requisite amount. The value to the
Contractor, however, would fall very far short of the amount to which he
considered himself entitled. It is submitted that the Contractor's argument is to
be preferred as "amounts" in clause 69.1 should be taken to mean "amount or
amounts of the different currencies and in the proportions set out in Part II".
"Foreign currency" is defined at clause 1.1(g)(iii) to mean "a currency of a country
other than that in which the Works are to be located".
CLAUSE 72: Currency and Exchange Rates
Where the contract provides for the Contractor to be paid in one or more foreign
currencies, the exchange rate will be fixed.
Where the tender is to be expressed in a single currency but the Contractor has
specified the proportions of the currencies in which he requires to be paid, the
applicable exchange rates will be as stated in Part II or the local central bank rate
prevailing 28 days prior to close of tenders.
In respect of payment for provisional sum work, the proportions and amounts of
foreign currencies will be worked out in accordance with the same rules.
This clause has not been significantly changed from the 3rd Edition.
These clauses are very often of vital significance to Contractors working
overseas and will frequently be supplemented with conditions of particular
application. The clause should be read with clause 71.1 (Currency restrictions)
and any clause dealing with the form of payment in Part II to clause 60
(Certificates and payment). "Foreign currency" is defined at clause 1.1(g)(iii) to
mean "a currency of a country other than that in which the Works are to be
located".
72.1 Exchange rates represent an area of risk which is equal to both parties
and may be altered rather than avoided, by being fixed. Significant shifts in
exchange rate could spell disaster for either party whether exchange rates are
fixed in the contract or not.
Page 263 of 264
72.2 Part II provides the alternatives of a fixed rate based on a local central
bank rate on a particular day or a rate set out in the Appendix to Tender.
Certainty is the key. It is therefore unhelpful that the last phase, "as has been
notifed...in the Tender", could refer to at least three alternative nouns in the
sentence. Whilst analysis seems to suggest that the reference is to "the latest
date for the submission of tenders" the fact that the same wording was not felt
necessary in clause 71.1 (Currency restrictions) is a misleading inconsistency.
Certainty is as necessary in the earlier clause as this one.
72.3 It is not immediately obvious why provisional sums need to be the subject
of specific provision or, if provision is necessary, why variations and all the other
clauses whereby extra payment is made to the Contractor are not also dealt with.
MISCELLANEOUS AMENDMENTS
- In clause 69.4 (Contractor's entitlement to suspend work), "cost" has become
"costs".
- In the Reference to Part II, "5.1 part" has become "5.1 (part)".
- In the Tender, paragraph 1, "sums" in the last line has become "sum".
- Appendix entries have been changed as follows:Percentage of invoice value of listed materials and Plant 60.1(c) per cent
Minimum amount of Interim Payment Certificates 60.2 Rate of interest upon
unpaid sums 60.10 per cent per annum- A number of punctuation changes have
been made and some additional use has been made of "and" and "or". These
changes are set out below. The only noteworthy change is to clause 42.1 where
already difficult syntax has been rendered nonsensical by the amendment.
Page 264 of 264