FIDIC’s new rainbow: red, yellow and silver
Publication of the FIDIC red, yellow and silver book second editions last December marks a major development in international contracting for major infrastructure projects. Ellis Baker explains.
It is a significant landmark in the development of international contracting for infrastructure projects worldwide.
The publication last December of the Fédération Internationale Des Ingénieurs-Conseils (FIDIC) second editions of the Red, Yellow and Silver Books provide updates to the Rainbow Suite of contracts, the pre-eminent standard form contracts between employers and contractors on international construction and engineering projects.
The release of the second editions comes 18 years after FIDIC released its first edition Rainbow Suite in 1999, and 60 years after FIDIC introduced its first construction contract, the FIDIC Red Book, in 1957.
FIDIC has sought to build on almost two decades of experience gained from the use of the first editions. The second editions introduce substantial changes and are much more comprehensive than their predecessors, with the general conditions each spanning more than 100 pages and containing 21 clauses. Below are some of the key changes.
In the second edition Red and Yellow Books, the role of the engineer is much more prescriptive. For example, the engineer is required to encourage discussions between the parties in an endeavour to reach agreement and to adhere to a detailed procedure to determine any matter or claim (sub-clause 3.7).
In addition, there is now a positive obligation on the engineer under sub-clause 3.7 to act “neutrally” between the parties and the engineer is not deemed to act for the employer when issuing determinations.
By contrast, the silver book was conceived on the basis that the contract would be administered by the employer without appointment of an independent engineer. The second edition Silver Book, however, requires the mandatory appointment of an employer’s representative (sub-clause 3.1).
There is no obligation on the employer’s representative to act “neutrally” when consulting with and encouraging discussions between the parties or issuing determinations, as there is in the Red and Yellow Books; however, the representative shall not be deemed to act for the employer when exercising these functions (sub-clause 3.5).
Product and performance
The second editions place the contractor under an obligation to ensure that the works are fit for the purpose or purposes identified in the employer’s requirements or, where this is not specified, fit for their ordinary purpose (sub-clause 4.1); under the Red Book, this applies to the extent, if any, that the contractor is responsible for part of the design of the permanent works.
The contractor is now also required to indemnify the employer against all acts, errors or omissions it has made in fulfilling its design obligations that result in the works not being fit for the purpose intended under sub-clause 4.1 (new sub-clause 17.4).
Under all three of the new forms, the contractor is required to take out and maintain professional indemnity insurance sufficient to cover this obligation, if stated in the contract data (sub-clause 19.2.3).
New claims procedure
Unlike the first editions, the second editions prescribe a claims procedure that applies to both employer and contractor claims (new clause 20). In addition, all three of the new forms impose greater administrative requirements on a party when issuing a claim (sub-clause 20.2), meaning that pro-active contract administration will be required to prevent such claims being lost.
Under all three of the new forms, the Parties are now required to appoint a ‘standing’ dispute adjudication/avoidance board (DAAB); that is, a DAAB that is appointed at the start of the contract, which visits the site on a regular basis and remains in place for the duration of the contract to assist the parties in the avoidance of disputes, and in the ‘real-time’ resolution of disputes, if and when they arise.
Significant changes to the alternative clauses offered
There are now some 40 pages of alternative clauses. Notable provisions include:
- Limitation of liability: FIDIC has suggested an alternative provision in which separate limits of liability for consequential losses and insured losses are included.
- Milestones: FIDIC has suggested that if the employer wishes to have certain parts of the works completed by certain times but does not wish to take over those parts of the works when they are completed, such parts ought to be described in the specification as “milestones”. In such circumstances, FIDIC recommends that alternative provisions be added entitling the employer to delay damages if the contractor fails to complete the works of the milestone within the time for completion (subject to any extension of time).
- Amicable settlement: FIDIC recommends that the parties consider agreeing a longer time period than the 28-day period stated in new sub-clause 21.5 of the general conditions, in an effort to arrive at an amicable settlement procedure chosen by the parties.
Ellis Baker is a partner and head of construction and engineering at White & Case