In December 2017, the Fédération Internationale Des Ingénieurs-Conseils (the International Federation of Consulting Engineers) (“FIDIC”) published updated editions of its Conditions of Contract for Construction (the “Red Book”), Conditions of Contract for Plant and Design-Build (the “Yellow Book”) and Conditions of Contract for EPC/Turnkey Projects (the “Silver Book”). These editions were published further to the industry-wide responses to consultative drafts initially issued by FIDIC in late 2016.
The new versions are the first major updates to the FIDIC forms since the First Editions were released in 1999, and include a number of notable changes.
Overall, the changes made by FIDIC do not, in our view, represent major shifts in respect of the basic risk allocation set out under each of the Red, Yellow and Silver Book.
However, the changes do provide some welcome clarity on certain provisions and they also represent some procedural and administrative modifications which the contracting parties will need to be aware of if they choose to use the new editions. The other theme that presents itself in the changes is the presence of increased reciprocity in the rights and duties of both parties. We discuss these in the attached article but some headline examples include: Sub-Clause 1.13 dealing with the reciprocal obligation on the Parties to comply with Applicable Laws and obtain permits; Sub-Clause 8.4 relating to advance warning of delays/increased costs; and Sub-Clause 20 relating to Employer and Contractor claims (including the reciprocal time bar on claims that was absent in the 1999 Edition).
At the launch of the new editions in London, FIDIC were keen to emphasise that the changes were designed to encapsulate FIDIC’s overall aim that the contracts should always represent a “fair and balanced” risk allocation. It is to be noted that this aim can be construed as applying largely to the changes made to the Red and Yellow Books, given that the Silver Book does not use a number of the same concepts and the risk allocation under the Silver Book has always intentionally passed more risk to the contractor given the context in which it is used.
The attached article focuses on the changes made to the Silver Book only, since that is the contract form in the FIDIC suite most relevant to limited recourse financing of construction projects, and examines the impact of the changes in the Second Edition for those parties that elect to use the FIDIC Silver Book in that context.
In summary, we think that it is unlikely users will be quick to adopt the 2017 edition, and we set out many of the reasons in the attached article. The 1999 edition of the Silver Book has become a very popular starting point for project financed EPC contracts, but has typically needed a number of amendments to certain areas in which the standard conditions do not meet the requirements for a ‘bankable’ contract, which include (by way of illustration):
conditions precedent to the Commencement Date,
direct agreements both for lenders and major subcontractors,
control over subcontracting,
performance testing and performance guarantees, and
acceleration of the Works.
These areas were also generally not addressed by the changes introduced in the new 2017 edition, hence our assessment that users may be slow to turn to it. These areas are explored further in the attached article.