New FIDIC - Checklist & Guidelines

Check List for One Sided Contracts For use with“Sample Bidding Documents under JBIC ODA Loans - Procurement of Civil Works”November 1999 Edition

December 2006

Procurement Policy and Supervision Division Project Development Department Japan Bank for International Cooperation (JBIC) Version 1.0

 PREFACE 

To realize effective and prompt implementation of projects financed by JBIC ODA Loans, it is essential to set out the rights and obligations of the Borrower and the Consultant in a consultancy contract and those of the Borrower and the Contractor in a construction contract, clearly and properly . (See Section 2.02 of “Guidelines for Employment of Consultant under JBIC ODA Loans” and Section 4.04 of “Guidelines for Procurement under JBIC ODA Loans”). JBIC recommends all the Borrowers to use “The Sample Bidding Documents under JBIC ODA Loans for Procurement of Civil Works” in drafting civil work contracts. These sample documents adopt the 1987 Edition of FIDIC conditions of contract (the FIDIC Red Book) under which the balanced risk allocation between the Employer and the Contractor is maintained. However, it is sometimes observed that contract documents prepared by the Borrower contain one-sided contract provisions, changing a fair allocation of contractual risks between the parties. Such one sided contracts actually affect negatively the smooth implementation of projects and consequently are considered to be disadvantageous to the Borrowers due, amongst other things, to the late completion of the project. With this thought in mind JBIC commissioned the Association of Japanese Consulting Engineers (AJCE) to prepare a check list to encourage to avoid such one sided contract provisions. This check list is based on samples actually observed in JBIC ODA projects. It is intended to be used by the Borrowers in preparation of fair contract conditions. JBIC will also use it when reviewing draft contract documents prepared by the Borrowers. JBIC recognizes that, even contract conditions maintain a balanced risk allocation, if these conditions are not properly applied, smooth project implementation cannot be achieved. However, to set out the proper provisions is essential for the smooth implementation.. JBIC will make a continuous effort to improve project implementation by close discussion and cooperation with Borrowers. JBIC hopes that this check list will contribute to the improvement.

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Context of this Document Check List for One Sided Contract A check list is set out in the first part of this document. This check list is prepared to avoid one sided provisions effecting the rights, obligations and risk of contracting parties.

It can be used

during preparation and review of contracts documents for construction works under JBIC ODA loans. Chapter 1 : Purpose of Check List The purposes of the Check List are described in chapter 1 together with the background behind the necessity of such a check list. Chapter 2 : Distinctive Features of FIDIC Red Book The general features and basic concepts of the FIDIC Red Book, which should be well understood by writers of construction contracts under JBIC ODA loans, are set out in chapter 2. Chapter 3 : Factors which create One Sided Contract The factors which create contracts one sided are examined in chapter 3 by categorizing the effects into 3 groups. Chapter 4 : Commentary on the Check List A commentary on the Check List is set out in chapter 4 as a guide to users.

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1. Purposes of Check List A contract is a document which stipulates rights, responsibilities and risks to be undertaken by each of the contracting parties. It is therefore a very important document to be used for smooth implementation of the project by the various stakeholders. Japan Bank for International Cooperation (JBIC) recommends that executing agencies of loan recipient countries utilize the "Sample Bidding Documents under JBIC ODA Loans (Procurement of Civil Works)" published by JBIC in 1999 (hereinafter called as “JBIC Sample Bidding Documents”) in preparation of bidding documents for construction works.

These sample bidding documents use the FIDIC

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Red Book 1987 as general conditions of contract.

FIDIC Red Book provides a well-balanced

allocation of risks as between the Employer and the Contractor. The FIDIC general conditions of contract may be modified in consideration of the actual project circumstances and requirements by adding conditions of particular applications in Part II of the FIDIC Red Book.

If modifications for any particular project alter the originally contemplated

risk distribution to a large extent and the risks allocated to the Contractor become excessively high, the following problems may occur:(1)

Higher bid price

(2)

Bid failure and disruption of project implementation

(3)

Non-participation in the bid of conscientious and capable contractors

(4)

Contract award to a bidder who fails or was not capable of estimating the risks properly

(5)

Poor construction quality and delay to the progress of the work due to lack of risk contingency

(6)

Undermining the relationship of mutual trust and respect between the Employer and the Contractor

(7)

Repetition of groundless claims from the Contractor

(8)

Frequent disputes between the Employer and the Contractor

(9)

In an extreme case eventual termination of the contract

These situations interfere with the smooth implementation of projects financed by Japanese ODA loans and, as a result, may impose larger financial burdens on the Employer. The Check List is prepared for the purpose of elimination of one sided provisions from the contract.

It is recommended to the executing agencies of loan recipient countries to utilize this

Check List as a reference guide in preparation of bid documents under JBIC Loans in order to

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Conditions of Contract for Works of Civil Engineering Construction

1

allocate risks and liabilities fairly between contracting parties as well as to keep fairness of the Engineer . The Check List is drafted based on actual experience on pervious construction contracts financed by Japanese ODA loans.

2. Distinctive Features of FIDIC Red Book The JBIC Sample Bidding Documents adopt FIDIC Red Book 1987 as general conditions of contract. FIDIC has a long history in drafting various conditions of contract for construction works. In particular, FIDIC Red Book2 (first published in 1957) is recognized as a de facto standard for civil and building works contracts in international projects.

FIDIC Red Book is

adopted in standard bidding documents for most multilateral development banks including World Bank and Asian Development Bank3. While JBIC is examining revision of the Sample Bidding Documents incorporating new FIDIC Red Book 1999, the Engineer’s roles described hereinafter will remain unchanged in principle except for the matters indicated in foot notes 3 and 4 on Page 4. The FIDIC conditions of contract comprise Part 1: General Conditions of Contract and Part 2: Conditions of Particular Application. Part II has the following functions:(1) to supplement and complete Sub-clause 1.1‫ޔ‬2.1‫ޔ‬5.1‫ޔ‬14.1‫ޔ‬14.3‫ޔ‬68.2 in Part I (2) to add particular provision required by local conditions such as characteristics of execution agency, project, region and country, etc. (3) to add to particular requirements or recommendations of the project financer If the Part II additions, supplementations and or modification of Part I alter the basic balance of the FIDIC Red Book the contract may become unfairly advantageous to the drafting party. The basic concepts and framework of the FIDIC Red Book are summarized below:1) Design by Employer FIDIC Red Book is suitable for Design-Bid-Build projects.

2

The Employer designs the

The first edition of FIDIC Red Book was issued in 1957 and it was drafted based on ICE conditions of contracts in UK. 3 World Bank and Asian Development Bank issued Harmonized Edition of Sample Bidding Documents based on FIDIC Red Book 1999 in May 2005. Both banks adopted FIDIC Red Book 1987 in their previous versions of Sample Bidding Documents.

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permanent work except for the works to be designed by Contractor in accordance with Clause 7.2, and the contractor executes the work according to those drawings and specifications provided with the bid documents.

The design work is usually carried out by a consulting

engineer appointed by the Employer and the design liability lies with the Employer㧔refer to Sub-clauses : 6.1, 6.4, 7.1, 7.2, 8.1). The design of the civil work structure largely depends on the site conditions including topography and geology. Since it is not entirely possible to know the actual geological conditions in the pre-investigation, design modification is frequently required during construction. Sub-clauses 51.1 “Variations”, allows such unforeseeable variations to be efficiently achieved without contractual problems. 2) Presence of Engineer One of the distinctive features of FIDIC Red Book is the appointment of "The Engineer".

The

Engineer is not a contracting party but his duties and authority are stipulated in the contract and the Engineer plays an essential role in the contract administration process.

Employer (Construction

(Consultancy

Contract)

Agreement) (Report, Notice, Application)

Contractor

Engineer (Supervision, Notice, Instruction,

Determination, Approval, Consent)

The roles of the Engineer can be classified into three categories in administration of construction contracts. (1) Employer’s agent

The Engineer has three main functions in the administration of FIDIC Red Book based construction contracts:x

Production of detailed design drawings under Sub-clauses 6 and 7

x

Issuance of instructions for variation of the works under Sub-clause 51

x

Review of plans and drawings submitted by the Contractor under Sub-clause 7.2

3

x

Carrying out project management services including time and cost management, quality control, testing and inspection, safety and environmental management under various Sub-clauses especially 36-39, 49 and 50

(2) Certifier

The Engineer issues various certificates certifying the quality of the Contractor’s performance and payment therefor at the Engineer discretion. The Engineer’s certificates have a strong binding effect on both the Employer and the Contractor. x

Taking-over certificate under Sub-clause 48.1

x

Certification of work completion date under Sub-clause 62.1

x

Interim payment certificate under Sub-clause 60.2

x

Defect liability certificate under Sub-clause 62.1

x

Final payment certificate under Sub-clause 60.8

(3) Decision maker in claim and dispute settlement

The Contractor is entitled to submit claims, as set out in the FIDIC Red Book, to the Engineer if the Contractor encounters events which are unforeseeable at the time of bidding or are deviations from the contract provisions. The Engineer will evaluate such claims and give his determination to the Employer and Contractor.

If either party is dissatisfied with the

Engineer’s decision a dispute arises and such dispute can be referred to the Engineer for his decision under Sub-clause 673. The Engineer therefore has three distinct and different roles:1) As Employer’s agent, 2) As certifier, and 3) As decision maker in claim and dispute settlement

In carrying out the last two roles the Engineer is obliged to remain independent and to act impartially as described in Sub-clause 2.64. 2.6 Engineer to Act Impartially Wherever, under the Contract, the Engineer is required to exercise his discretion by: (a)

giving his decision, opinion or consent, or

3 Under FIDIC Red Book 1999, a dispute shall be referred to Dispute Adjudication Board (DAB) in accordance with Sub-clause 20.2. 4 Under FIDIC Red Book 1999, the Engineer shall make his determination fairly in accordance with Sub-clause 3.5.

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(b)

expressing his satisfaction or approval, or

(c)

determining value, or

(d)

otherwise taking action which may affect the rights and obligations of the Employer or the Contractor

he shall exercise such discretion impartially within the terms of the Contract and having regard to all the circumstances. 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. It is usual to appoint consulting engineers as the Engineer under the contract with the Employer in JBIC ODA loan projects.

JBIC Guideline for Employment of Consultants stipulates that the

nature and the limit to delegation of authority to the consultant, as well as he scope and the nature of the responsibilities which the consultant is to assume shall be clearly defined in the contract between the Borrower and the consultant. 3) Claim and Dispute Settlement Procedure Construction work is susceptible to many external influences such as variable subsurface and, metrological conditions as well as social, economic and environmental factors.

It is impossible

to eliminate all uncertainties from construction work and unforeseen events are likely to occur during any lengthy construction period. Under FIDIC Red Book, the Contractor has an entitlement to extensions of time for completion of the work if he suffers delay from specified events and payment of qualifying additional cost he incurs as a result of such events.

The FIDIC Red Book sets out, in detail, a claims and

dispute settlement procedure to cope with uncertainties involved in construction works. Appendix-1 shows a flowchart of the claims and dispute resolution procedures under FIDIC Red Book 1987. 4) Balanced Risk Allocation It is said that the FIDIC Red Book is drafted so as to allocate the risk to the contracting parties in a fair manner using the following principles: x The party who can best manage the risk, takes such risk. x Risks for which neither the Employer nor the Contractor can control, is in principle taken by the Employer as the initiator of the project. 5) Unit Price/Re-measurement Contract 5

The payment to the Contractor is based on the actual quantities of work done at the unit prices set out in the contract Bill of Quantities.

The quantities set out in the contract Bill of Quantities

are provisional estimates of the work to be done. The actual work quantities are measured by the Engineer in the presence of the Contractor. The Engineer certifies interim payment amounts, usually monthly on the basis of the measurement of the work carried out during the relevant period.

3. Factors which create One sided Contract

There are three potential factors which make any contract one sided as follows:(1)

the Contractor’s contractual rights are unreasonably limited.

(2)

the Contractor’s contractual responsibilities are unreasonably expanded.

(3)

the Engineer’s powers, discretions and or authority are excessively restricted.

All three factors can be introduced in the preparation of Conditions of Particular Application and result in an enhanced risk to the Contractor. Examining each of these factors in turn:1) Limitation of Contractor’s right The entitlement to claim (if an unforeseeable event occurs, or when there is a deviation from the contract provision not attributable to the Contractor) is one of the most important contractual rights given to the Contractor.

If such entitlement is unreasonably restricted then the risk taken

by the Contractor are increased. The FIDIC Red Book 1987 allows the Contractor to exercise his entitlement to extensions of time and consequent additional cost arises in the following situations:-

 1 2 3 4 5

Event

Sub-clause

Delay of Drawing and instruction by the Engineer Occurrence of unforeseeable physical obstructions and conditions Error in position, levels, dimension, and alignment of the works given by the Engineer Loss or damage due to Employer’s risk event Discovery of fossil, coins, article of value,

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Add. Cost

*1

EoT*2

Process*3

6.4

ż

ż

A

12.2

ż

ż

A

17.1

ż



B

20.3

ż



B

27.1

ż

ż

A

etc.

31.2

ż



A

36.5

ż

ż

A

38.2

ż



A

40.2

ż

ż

A

42.2

ż

ż

A

49.3

ż



B

12

Facilities for other contractors Execution of additional test required by the Engineer Uncovering of the work not attributable to the Contractor Suspension of the work instructed by the Engineer Employer’s failure to give possession of the site Remedying defect not attributable to the Contractor Search not attributable to the Contractor

50.1

ż



A

13

Valuation of Variation

52.1

ż



A

14

Variation exceeding 15% of contract price

52.3

ż



A

15

Delayed payment

60.10

ż



C

16

65.3

ż



B

65.5

ż



A

18

Damage to the works by Special risk Increased costs arising from Damage to the works by Special risk Contractor’s entitlement to suspension

69.4

ż

ż

A

19

Increase of market price

70.1

ż



C

20

Change to legislation

70.2

ż



A

6 7 8 9 10 11

17

Notes: *1 : Additional Cost *2 : Extension of Time *3 : The Engineer is central to the decision making process to determine the Contractor’s entitlement to an extensions time and additional cost. The determination and analysis is carried out in three categories Type A, B, and C as follows:Type A:

To be determined by the Engineer after due consultation with the Employer and the Contractor.

Type B:

To be determined by the Engineer.

Type C:

To be determined by rules stipulated in the contract

2) Expansion of Contractor’s responsibility The Contractor’s contractual responsibility is considered to be increased unreasonably if no maximum amount is set for Liquidated Damages or an excessively long Defects Liability Period is stipulated. The following are typical examples of Employer’s obligations and responsibilities under the FIDIC Red Book 1987:-

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1. to give possession of the site to the Contractor under Sub-clause 42.1 2. to give necessary instructions, consents, approvals and notices to the Contractor

under various clauses 3. to avoid delay, impediment or prevention by the Employer under Sub-clause 44.1 4. to be responsible for damage to transportation routes when the Employer is liable for

this under Sub-clause 30.3 5. to supply goods or execute specified work when the Employer is responsible

therefore 6. to pay the Contractor according to Sub-clause 60.10, etc. 7. to be responsible for the Employer’s risk items under Sub-clause 20.3, 20.4 and 21.3 8. to settle disputes amicably under Sub-clause 67.2

If any of the above items are excluded entirely or partially from the Employer’s obligations or if such responsibilities are in all circumstances or even in certain specified circumstances transferred to the Contractor then the Contractor’s contractual responsibilities would be considered to be increased unreasonably. 3) Restriction of the Engineer’s authority The Engineer is required to exercise his authority impartially in giving approval, consent, certification and determination as described in Chapter 2.

However, under Sub-clause 2.1 of

Conditions of Particular Application, it is possible to impose the Employer’s prior approval as a precondition for the exercising of such Engineer’s authority. 2.1 Engineer's Duties and Authority (b)

The Engineer may exercise the authority specified in or necessarily to be implied from the Contract, provided, however, that if the Engineer is required, under the terms of his appointment by the Employer, to obtain the specific approval of the Employer before exercising any such authority, particulars of such requirements shall be set out in Part II of these Conditions. ……………

Similarly, the Engineer’s authority may be diminished if words such as “subject to prior approval of the Employer” are inserted in the independent clauses as listed in Chapter 3-1, in which the Engineer’s authority is described. Excessive use of Employer’s prior approval as a precondition for the exercise of the Engineer’s authority may tend to bias the Engineer’s independent decision making ability and thereby increase the one sided tendency of a contract.

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As described in section 3-1) above, the Engineer shall make determinations about alleged claims after due consultation with the Employer and the Contractor.

This will ensure that the

Employer’s views can be deemed to have been considered in the decision making process undertaken by the Engineer.

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4. Commentary on Checklist To draft Conditions of Contract in accordance with FIDIC Red Book's fundamental concepts and at the same time to avoid a one sided contract to be unreasonably advantageous to the drafting party as listed above, the following commentary is provided for to assist in the understanding and intention of the check list.

Check Point FIDIC Clause

01

Are the Bidding Documents based on the JBIC Sample Bidding Documents?

Whole

JBIC recommends that bidding documents are prepared based on “Sample Bidding Documents under JBIC ODA Loans (Civil Works) Nov.1999” (the JBIC Sample Bidding Documents). The JBIC Sample Bidding Documents are based on FIDIC Red Book 1987 (FIDIC Red Book) as the de facto standard for international civil construction contracts. FIDIC Red Book is considered to be a fair balance of risk between the Employer and the Contractor. It is strongly recommended that bidding documents are prepared in line with the JBIC Sample Bidding Documents. If local standard bidding documents are used instead of the JBIC Sample Bidding Documents, the following problems have been encountered: x Examination of the specially drafted conditions of contract takes a great deal of time as the clause numbers may not be consistent. x The provisions may deviate from usual international standard contractual practice. x The contract document may not be complete.

Check Point

FIDIC Clause

02

Has FIDIC Red Book Part II Conditions of Particular Application been completed and checked by a specialist who has the necessary experience?

Whole All

FIDIC Red Book consists of two parts; Part I Conditions of Contract, and Part II Conditions of Particular Application. Part II is prepared:

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x To provide the necessary details left blank in Part I (for example clauses: 1.1, 2.1, 5.1, 14.1, 14.3, 68.2, etc.), x To provide information specific to the project, specific to the region and specific to the country where the project is to be carried out, and x To provide information on terms required or recommended by the financing bank (for example JBIC). The Part I provisions have been improved through use on many projects and its provisions reflect a standard policy that has a high degree of professionalism. Great care is also necessary to coordinate Part I and Part II. Any rewriting may destroy the entire balance of the provisions and introduce referencing errors. For example when Clause 20.4 "Employer's Risk" is changed, it is possible to create inconsistency with Clause 65.2 "Special Risks". Completion and checking the consistency of Part I and Part II should only be undertaken by a specialist with the following necessary experience: (1) (2) (3) (4) (5)

A thorough knowledge of the international construction contracts, An understanding of the basic concepts of FIDIC Red Book, A technical understanding of the scope of construction work to be executed, A knowledge of construction cost estimates and time scheduling, English language and drafting skills.

Check Point FIDIC Clause

03

Has an independent engineer been appointed to administer the contract?

Whole

One of the main features of the FIDIC Red Book is that it provides for defined decisions, and for the contract administration (described in Chapter 2) to be undertaken fairly, by an independent engineer. Some execution agencies in developing countries acting as Employers have a tradition of providing an employee or related organisation to serve as the Engineer. In some other countries the Employer also holds the post of the Engineer, and the Engineer then appoints an independent consultant as the Engineer’s Representative. Even in this situation, the Engineer’s Representative may face difficulty in remaining impartial, unless a great deal of the power and authority of the Engineer is delegated completely to him. Where it is usual that execution agencies are both the Employer and the Engineer it 11

is highly recommended that this procedure be changed and that such execution agencies appoint an independent consultant to maintain the Engineer’s impartiality. Independence of the Engineer is an integral part of the FIDIC Red Book philosophy. Check Point FIDIC Clause

04

Is the design executed by the Employer, and does the Employer have design responsibility?

Whole

The Design-Bid-Build method is the assumed method of executing any project under the FIDIC 㧾ed Book. The Employer designs the permanent works, and the bidding is done based on that design. The Employer assumes the liability for defective design (for example under clauses: 6.1, 6.4, 7.1, 7.2, and 8.1). It would be a fundamental deviation from the JBIC Sample Bidding Documents and the FIDIC Red Book to impose liability on the Contractor for defective design and additional cost for construction due to the modified design. If the Design-Bid-Build method is used then such text change should be avoided as it increases the Contractor's risks too greatly.

Check Point

05

When the Engineer exercises an authority or power are the circumstances under which he is required to get the Employer's prior approval excessive?

FIDIC Clause

2.1

Engineer’s Duties and Authority

Another feature of the FIDIC Red Book is that the Engineer is required to be impartial in administering the contract as described in Clause 2.6 and Chapter 2. Clause 2.1(b) specifies that if any Engineer's decision to approve, prove, determine or decide is subject to the acquisition of specific prior approval from the Employer then such decisions shall be set out in FIDIC Red Book Part II. It is preferable to minimize the number of matters which need the prior approval of the Employer. This encourages the Engineer to make impartial judgments in line with the basic philosophy of the FIDIC Red Book. If there are many matters which need the prior approval of the Employer then there is the possibility that the Employer's view will excessively be reflected when the Engineer's exercises any discretion. Similarly when the text of FIDIC Red Book Part I and II is changed in this fundamental issue then

12

neutral judgment could be obstructed. As described in section 3-1)) above, the Engineer shall make hisdeterminations about alleged claims after due consultation with the Employer and the Contractor. This will ensure that the Employer’s views can be deemed to have been considered in the decision making process undertaken by the Engineer (Refer to Clauses 27.1, 36.5, 40.2, 42.2, 65.5, 69.4 and 70.2).

FIDIC Red Book clause 1.5 specifies that any consent, approval, certificate or determination shall not unreasonably be withheld or delayed. If the Employer's prior approval is required then the Contractor may consider such approval procedures represent an unjustifiable delay. The FIDIC Guidelines for Preparation of Part II clauses do not indicate which discretions should be subject to approval. To consider the circumstances under which restraints may be placed on the Engineer’s authority it would be necessary to take into account the factors specific to the country in which the works are to be carried out. The JBIC Sample Bidding Documents recommend that the following five situations should be subject to prior approval from the Employer:(a) (b) (c) (d)

approving subletting of any part of the Works under Clause 4, certifying additional cost determined under Clause 12, determining an extension of time under Clause 44, issuing a variation order under Clause 51, except in an emergency situation or if such variation would increase the Contract Price by less than xx %, (e) fixing rates or prices under Clause 52. The issuance of the certificates under Clauses 48.1 "Taking-Over", 60.2 and 60.8 "Payments", and 62.1 "Defects Liability" should be assumed to be the sole discretion of the Engineer, and should not be included in the matters requiring Employer's prior approval.

Check Point

06

Is any restriction on the Engineer's ability to make an impartial decision fair?

FIDIC Clause

2.6

Engineer to Act Impartially

As stated in Checkpoint 5 the FIDIC Red Book imposes on the Engineer an obligation to make impartial decisions when he has to exercise a discretion. From a broader point of view when any Engineer follows the FIDIC Red Book requirements faithfully then 13

his decisions will in fact be thought of as fair and impartial. If there is a text change that requires the Engineer to get the Employer's prior permission to exercise the Engineer’s authority under this clause, then the fairness of the Engineer’s decision may be affected greatly by the Employer’s view. Such text change should be avoided.

Check Point

07

Is the specified language of the contract, considered an international well understood neutrally regarded language?

FIDIC Clause

5.1

Language/s and Law

The JBIC Sample Bidding Documents recommend that English be nominated to be a language of the Contract. If the Conditions of Contract are made in two languages (e.g. English, French, or Spanish plus language of the country where the Works are to be carried out or language of the Employer's country) it is advisable to avoid specifying languages other than English, French, and Spanish as the ruling language for interpretation in the event of contradictions. This is advisable as all the stake holders in the Contract (the Employer, the Contractor, the Engineer, and JBIC) can regard English, French, and Spanish as neutral.

Check Point

08

Is the priority order of documents forming the contract clearly defined?

FIDIC Clause

5.2

Priority of Contract Documents

The priority of documents forming the contract recommended in the JBIC Sample Bidding Documents is as follows:(1) (2) (3) (4) (5) (6) (7) (8)

the Contract Agreement (if completed); the Letter of Acceptance; the Bid and the Appendix to Bid; the Conditions of Contract Part II; the Conditions of Contract Part I; the Specifications; the Drawings; and the priced Bill of Quantities. 14

Contract amendments such as "The document which describes the content in detail shall be given priority over a more general document." should be avoided. Such provisions if included regardless of the definition of priority, create uncertainty. Additional provisions dealing with the priority of documents should be drafted carefully so as not themselves, to create discrepancies and contradictions in the interpretation of the priority provisions whether the additional provisions are in the Contract Agreement, the Conditions, or the Letter of Acceptance.

Check Point

09

Are the Contractor's rights to extension of time, and / or additional cost limited for delay in issuance of drawings and instructions?

FIDIC Clause

6.4

Delays and Cost of Delay of Drawings

Under the FIDIC Red Book, the Engineer has a duty to issue construction drawings at the times set out in the construction time schedule submitted by the Contractor under Clause 14.1. The Contractor then prepares detailed drawings based on the construction drawings. The lead time for preparation of those drawings by the Contractor should be agreed at the time of the Contract. The Contractor suffers delay and / or incurs cost for waiting time in preparation of shop drawings and / or a delay in the Works arises from delay by the Engineer in issuing the construction drawings. Such delay and / or incurred cost are risks that the Contractor cannot manage and should not be asked to take responsibility for. As a matter of fairness to the Contractor it is necessary to avoid text changes which restrict the Contractor’s right to claim for extensions of time and the additional cost arising from delayed issue of drawings and instructions.

Check Point

10

Has the Contractor's general obligation been extended so as to impose design responsibility?

FIDIC Clause

8.1

Contractor’s General Responsibilities

The JBIC Sample Bidding Documents recommend that the provision “the Contractor shall promptly notify the Employer and the Engineer of any error, omission, fault or 15

other defect in the design….” is added. Any text change which makes the Contractor assume the responsibility for the design carried out by the Employer excessively expands the Contractor's obligations. Such text changes should not be made and the Contractor should not be responsible for any design which he has not prepared.

Check Point FIDIC Clause

11 10.2

Has the Contractor's obligation been expanded by extending the performance security's validity period? Period of Validity of Performance Security

FIDIC Red Book Clause 62.1 provides for the validity of the performance security to expire on the issuance of the Defects Liability Certificate. The performance security document shall be returned to the Contractor within 14 days of the issuance of the Defects Liability Certificate. FIDIC Red Book Clause 61.1 provides that the Contract shall only be regarded as complete upon issuance of the Defects Liability Certificate in accordance with Clause 62.1. The Contractor’s contractual obligations are at an end upon the issuance of this Certificate. Any text change that excessively expands the Contractor's obligation by requesting a performance security to remain valid beyond that date keeps the Contractor’s obligation alive unfairly.

Check Point

FIDIC Clause

12

11.1

Is the Contractor made to bear responsibility for the site conditions, and are extensions of time and additional cost for the presence of unforeseeable site conditions limited? Inspection of Site

Any text change or additional provision which makes the Contractor assume all the responsibilities for the inaccuracy and / or insufficiency in information given by the Employer deviates from the FIDIC Red Book and imposes an excessive and unfair responsibility on the Contractor. In case of inaccuracy of the site data, a claim can be submitted by the Contractor under Clause 12.2. Even if there is a text change attempting to limit this right the Employer may still be held responsible as the drafter of the tender / contract documents. If such a claim develops into arbitration, an award could go against the Employer. An arbitration 16

tribunal could decide that a bidder had insufficient time to investigate and verify the site data provided by the Employer and it would have been necessary and reasonable for the Contractor to have relied on the accuracy of the site data to calculate the tender price. The JBIC Sample Bidding Documents recommend adding a new Clause 11.2. This new clause allows the bidders to access data provided elsewhere in the Contract. This provision is helpful as it permits the bidders to understand site conditions in more detail. The critical factor is to select a proper contractor at an appropriate price by providing a thorough understanding of the site situation at the time of the tender.

Check Point

FIDIC Clause

13

12.2

Are the Contractor's right to claim for an extension of time and additional cost for unforeseeable physical obstructions or the conditions limited? Further, is there any possibility of the Engineer being unfairly influenced by the Employer when making a decision on such extension of time and additional cost? Not Foreseeable Physical Obstructions or Conditions

No Contractor can manage risks arising from physical obstructions or conditions which an experienced contractor could not reasonably have foreseen. Imposing a risk on a Contractor which he cannot manage may lead the bid evaluator to select a bidder without the maturity and / or experience to reflect such a risk in the price. In these circumstances there is a high possibility of spoiling another very suitable bidder who has properly reflected the risk in his tender price. Any text change which restricts or limits the Contractor’s right to claim for extension of time and additional cost shall be avoided to prevent from disadvantage for both the Employer and the Contractor. If there is a text change to the effect that the Engineer requires the Employer's prior permission to exercise his discretion in relation to extension of time and additional cost, the Engineer’s fair decision may be affected greatly by the Employer's views. Any such text change should be avoided as being against FIDIC Red Book principles and unfair.

Check Point FIDIC Clause

14 14.3

Has the right to receive progress payments for work carried out been limited by the Employer's capital plan? Cash Flow Estimate to be Submitted 17

FIDIC Red Book Clause 60 sets out the payment procedure which is invariably to be payment according to work progress. However, payment by some executing agencies / Employers is limited by an annual government budget. This limit is stipulated in the Contract. In such cases payment can only be made within the limit of the budget regardless of the amount due according to the FIDIC Red Book work progress procedures. The construction time schedule is prepared by the Contractor in accordance with their own construction methods. A cash flow plan is established referring to this construction time schedule. Any text change by which the Employer limits the Contractor’s cash flow plan should not be made.

Check Point

FIDIC Clause

15

17.1

Have the Contractor's obligations expanded to include responsibility for the original points, lines and levels given by the Engineer? Setting-out

Any text change to make the Contractor assume responsibility for the accuracy of the original points, lines and levels given to the Contractor by the Engineer changes the procedure stipulated in FIDIC Red Book Clause 17.1. Such a change imposes too much risk on the Contractor and any such text changes should be avoided as being unfair and against FIDIC Red Book principles.

Check Point

FIDIC Clause

16

Has any of the Employer's risk been imposed on the Contractor and consequently has the Contractor's obligation been expanded?

20.3 & Loss or Damage Due to Employer’ Risks and other related others issues

FIDIC Red Book Clause 21.2 provides that insurance shall be in the joint names of the Contractor and the Employer. Such insurance shall include all the Employer’s risks except the Special Risks stipulated in Clause 65. Any loss or damage not insured or not recovered from the insurers, pursuant to Clause 21.3, shall be borne by the Employer or the Contractor in accordance with their respective responsibility set out under the FIDIC Red Book or at law. Any amount not recovered from the insurers is described 18

as ”Excess” and/or "Deductibles”. Any insurable event not covered by the policy for any reasons is described as an "Exclusion”. Any text changes which transfers the Employer’s risks to the Contractor increases the Contractor’s obligation and would mean that the Contractor is required to bear any loss and or damage not recovered from the insurer. If a text change is made to delete an exclusion from FIDIC Red Book Clause 21.4 and such event occurs then the Contractor’s responsibility will have been unreasonably enlarged. It is necessary to avoid such text changes that move those normally excluded risks to the Contractor. Those risks cannot be managed and are not insurable at normal premiums.

Check Point

FIDIC Clause

17

27.1

Is there any possibility of the Engineer being unfairly influenced by the Employer when making a decision regarding obstruction to the Contractor during construction of the Works for which he is not responsible? Fossils

If there is a text change which requires the Engineer to get the Employer's prior permission to exercise Engineer's discretion in relation to extension of time and additional cost caused by removal of obstruction by fossils, the Engineer’s ability to make a fair decision may be affected by the Employer's views. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FIDIC Clause

18

30.3

Has the responsibility for compensation for damaged road and bridges that the Employer should assume been imposed to the Contractor? Transport of Materials or Plant

Any text change to FIDIC Clause 30.3 which imposes the Employer’s liability to compensate for damage to roads and bridges on the Contractor regardless of the law and the regulations, forces the Contractor to bear a risk that he cannot manage. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

19

Check Point

FIDIC Clause

19

31.2

Is there any possibility of the Engineer being unfairly influenced by the Employer when making a decision with regard to the Contractor’s additional cost for facilities for other contractors? Facilities for Other Contractors

If there is a text change which requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to additional cost, the Engineer’s fair decision may be affected greatly by the Employer's views. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FIDIC Clause

20

36.5

Is there any restriction on the Contractor’s right to claim for extension of time and additional cost for testing not provided for? Further, is there any possibility of the Engineer being unfairly influenced by the Employer when making a decision for such extension of time and additional cost? Engineer’s Determination where Tests not Provided for

Any text change to FIDIC Red Book which removes the Contractor’s entitlement to a claim for extension of time and additional cost for the tests not provided for in the Contract may lead to restriction on the Contractor’s rights. Such tests are unplanned work and an extension of time would be unavoidable if this work is on the critical path. Further, such cost could not have been included in the Contract Price. It is necessary to avoid any such text change that imputes such risk that cannot be managed. If there is a text change which requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to extension of time and additional cost, the Engineer’s fair decision may be affected greatly by the Employer's views. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FIDIC Clause

21

38.2

Is there any restriction on the Contractor’s right to Claim for additional cost for uncovering and making openings? Further, is there any possibility of the Engineer being unfairly influenced by the Employer when making a decision for such additional cost? Uncovering and Making Openings 20

Any text change to FIDIC Red Book Clause 38.2 which deletes the Contractor’s right to an additional cost for making openings of any part of the Works covered up in proper manner would impose an unmanageable risk to the Contractor. If there is a text change which requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to additional cost, the Engineer’s fair decision may be affected greatly by the Employer's views. Both such text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FIDIC Clause

22

40.2

Is there any possibility of the Engineer being unfairly influenced by the Employer when making a decision with regard to the Contractor’s additional cost and extension of time arising from work suspension ordered by the Engineer? Engineer’s Determination following Suspension

If there is a text change which requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to extension of time and additional cost, the Engineer’s fair decision may be affected greatly by the Employer's intention. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FIDIC Clause

23

41.1

Is there a possibility of delay and idling time for the Contractor before the Contractor can start work even though the Letter of Acceptance had been issued? Commencement of Works

The issuance date of the Notice to Proceed marks the commencement of the contractual construction period. The FIDIC Red Book requires the Contractor to submit a programme under Clause 14.1, and Cash Flow forecast under Clause 14.3 within the number of days stipulated in Part II such period counting from the date of the Letter of Acceptance. The Contractor is also required to submit the Performance Security under Clause 10.1, and a breakdown of the Lump Sum prices under Clause 57.2. A time limit for the issuance of the Notice to Proceed is usually stipulated in the 21

Appendix to Tender in relation to the date of issuance of the Letter of Acceptance by the Employer. The Contractor is not able to schedule the Works when the Notice to Proceed and Letter of Acceptance are delayed. Therefore if there is a text change which deletes the time limit for issue of the Notice to Proceed from the date of the Letter of Acceptance the Contractor may be forced to stand in readiness for a long time. The Contractor would also be forced to start contractual activities, such as the preparation of the Performance security under Clause 10.1, and preparation of the Lump Sum prices breakdown of under Clause 57.2 in order to submit these within 28 days from the date of the Letter of Acceptance. This would be so even if the Notice to Proceed had not been issued by the Engineer after 28 days from the Letter of Acceptance. Such a text change creates a risk that cannot be managed by the Contractor and should not be incorporated. An Employer may have many internal problems to overcome to commence the project such as land compensation, arrangement of budget and staff arrangement. It may be difficult to predict how long these tasks will take to solve and that may be the reason to make a text change so as not to stipulate a time limit in the Appendix. However, managing these various procedures is not the Contractors problem but is the Employer's responsibility. Managing these procedures is a prerequisite for the smooth execution of construction works.

Check Point

FIDIC Clause

24

42.2

Is there a restriction on the Contractor’s right to claim for extension of time and additional cost for delay in possession and or access to the Site? Further, is there any possibility of the Engineer being unfairly influenced by the Employer when making a decision on the Contractor’s right to an extension of time and additional cost for such events? Failure to Give Possession

Any delay in giving possession of, and access to, the site is necessarily the responsibility of the Employer. Such matters cannot be managed by any Contractor. If a delay to either of these activities actually affects the critical path of the Works, an extension of time is unavoidable. Text changes to impose responsibility for these activities on the Contractor therefore should be avoided. If there is a text change that requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to extension of time and additional cost, the Engineer’s fair decision may be affected greatly by the Employer's views. Any such text 22

changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point FIDIC Clause

25 44.1

Are there any restrictions on the Contractor’s right to claim for extension of time for Completion? Extension of Time for Completion

Any amendment which changes the conditions for, or deletes entirely, any of the five reasons for extensions of time and of the Contractor’s right to claim for extension of time should be avoided. Such an amendment attempts to impose on the Contractor risks that he cannot manage. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point FIDIC Clause

26 47.1

Are amounts and limits of liquidated damages which may be imposed on the Contractor appropriate? Liquidated Damages for Delay

The Guidelines for Procurement under JBIC ODA Loans published January 2005 recommend liquidated damage at a rate of 0.1% per day of the Contract price or 0.5 % per week of the Contract Price. It also recommends an upper limit in the range of between 5% and 10% of the Contract Price. Any text change which deletes the upper limit of liquidated damages and has the possibility of deducting extremely large amounts of money may be judged as a penalty if a dispute proceeds to arbitration. Any decision that liquidated damages are a penalty causes there to be a doubt on the effectiveness of the whole liquidated damages provision. Contractors may include a contingency in their bid price to cover the risk of extremely large amounts of liquidated damages set out in the bid documents. If the Works are not delayed then the contingency is an unnecessary expense for the Employer. There is also the possibility that capable contractors will be deterred from bidding as described in Checkpoint 12. Such text changes have no advantage for the Employer or the Contractor.

23

Check Point

FIDIC Clause

27

48.1

Is there any possibility of the Engineer being unfairly influenced by the Employer when making a decision to issue the Taking-Over Certificate? Taking-Over Certificate

If there is a text change which requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to issue of a Taking-Over Certificate, the Engineer’s fair decision may be affected greatly by the Employer's intention. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point FIDIC Clause

28 49.1

Is the defects liability period excessive? Defects Liability Period

The Defects Liability Period set out in the FIDIC Red Book Appendix to Tender is usually one year for civil works. There is also an implication that the Engineer's monitoring of the Works as a third party during the construction process functions to ensure that the economic life of the civil works and structure will generally be durable in the range of between 30 and 50 years. Any text change which imposes an excessive risk on the Contractor by unreasonably extending the defects liability period may increase the bid price and make the project more expensive for the Employer. There is also the possibility that capable contractors would be deterred from bidding as described in Checkpoint 12. Such text changes have no advantage for the Employer or the Contractor.

Check Point FIDIC Clause

29 49.2

Has the Contractor’s scope of the responsibility for defects liability been expanded excessively? Completion of Outstanding Work and Remedying Defects

The Contractor cannot control natural wear and tear caused by operation of facilities during the Defects Liability Period, even if such a text change is made to impose such a responsibility on the Contractor. Wear and tear of facilities and structures is natural when they are put into use under normal operating conditions. To impose such responsibility on the Contractor is an unfair expansion of the Contractor’s obligations and may increase the bid price and expense to the Employer. 24

There is also the possibility that capable contractors will be deterred from bidding as described in Checkpoint 12. Such text changes have no advantage for the Employer or the Contractor.

Check Point

FIDIC Clause

30

50.1

Is there any possibility of the Engineer being unfairly influenced by the Employer when making a decision on the additional cost to be paid to the Contractor for rectification of defects? Contractor to Search

If there is a text change which requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to additional cost, the Engineer’s fair decision may be affected greatly by the Employer's view. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FIDIC Clause

31

51.1

Is there an infringement on the rights of the Contractor such as the Employer reserving the unconditional right to omit parts of the Works? Variations

FIDIC Red Book Clause 51.1(b) provides that "to omit any such work" is a part of a variation. However, the right of the Employer is conditional on the fact that such omission shall not be for the purpose of having that work carried out by the Employer or by another contractor. It is necessary to avoid any text change which deletes such provision because this is a violation of the right of the Contractor to carry out the contractual work.

Check Point

FIDIC Clause

32

52.3

Is the percentage applied in this clause reasonable? Is the formula by which the Contractor's right is calculated provided for? Further, is there any possibility of the Engineer being unfairly influenced by the Employer when making a decision on the amount of addition or deduction to the Contract Price? Variations Exceeding 15 percent

25

The basis of this clause is to balance the Employer's and the Contractor's risk for increases or decreases of the Effective Contract Price. To accomplish this balance of risk it is necessary to allow for the adjustment of the Effective Contract Price if such increase or decrease of variations adversely the affects the proportion and therefore recovery of indirect construction costs. The Effective Contract Price shall be adjusted in relation to the amount of contract variations. Any text change which specifies an unreasonably high percentage for variations before adjustment is made should be avoided. If there is a text change that requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to increase or decrease amount of the Effective Contract Price, the Engineer’s fair decision may be affected greatly by the Employer's intention. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point FIDIC Clause

33 53.1

Is there an unfair limitation in the period of time during which the Contractor has a right to claim? Notice of Claims

The basic philosophy behind a claim notice period being set as 28 days is that the Employer and the Contractor are able, in good time, to identify which contemporary records will be required to substantiate the claim and to take any action that may be appropriate. Clearly memory alone is not a good basis as it becomes fainter as time goes by. There is also a common sense view that a 28 days period is appropriate for the Contractor to recognize that an event may developed into a claim. A text change to shorten this 28 days period should be avoided because of possible unfair restriction of the Contractor’s rights. The FIDIC Red Book Clause 53.3 requires the Contractor to send to the Engineer, with an explanation of the grounds upon which the claim is based, with an account giving detailed particulars of the amount claimed. According to the Contract, the assessed value of the claim will be paid to the Contractor when the Engineer has determined that the amount claimed was reasonable in the light of the facts and rights under the Contract.

26

Check Point FIDIC Clause

34 54.3

Have the provisions on the Employer’s assistance to the Contractor been deleted or reduced? Customs Clearance

FIDIC Red Book Clause 54.3 sets out the range of support to be offered by the Employer to the Contractor regarding customs clearance. The clause does not clearly specify the details of such support. The Employer must therefore describe in Part II of the Conditions of Contract, the details of the Employer's support. What support the Employer provides actually varies in different countries and projects. Any text change which deletes such support from the Employer may not only expand the Contractor’s obligation but also obstruct execution of the Project. Customs departments usually require endorsement by the Employer for re-export of the Contractor’s construction equipment after the construction in accordance with FIDIC Red Book Clauses 33.1 and 54.1.

Check Point

FIDIC Clause

35

59.2

Is the Contractor's right to reasonable objection to the Employer's selection of nominated subcontractor been limited or deleted? Nominated Subcontractors; Objection to Nomination

Under FIDIC Red Book Clause 59.2(a) all nominated subcontractors should undertake towards the Contractor such obligations and liability that will enable the Contractor to discharge his own obligations and liabilities towards the Employer. Any text change which prevents the Contractor from rejecting any subcontractor selected by the Employer who will not undertake such responsibility shall be avoided because it prejudices the Contractor's chance of keeping the quality of work and time period stipulated in the Contract.

Check Point FIDIC Clause

36 59.4

Does the Contractor have the right to set out in the Contract his attendances and profit on Nominated Subcontractors? Payments to Nominated Subcontractors

The Contractor shall submit his method statement, applications for approval of construction materials, and selection of subcontractors. It is a right of the Contractor to 27

receive profit and payment for services which he provides to the subcontractors. The rate of profit and payment for charges must be at the Contractor’s discretion. The Tender document must include a format sheet to include the appropriate rate of profit and payment for charges in the build up of the Contract Price. This format sheet shall provide separate columns for the rates for his own work and subcontracted work as the Contractor’s management input is different in each case. Therefore FIDIC Red Book Clause 59.4(c) should have no text change to fix the rates to a single rate to avoid violation of the Contractor’s right.

Check Point FIDIC Clause

37 60.1

Is the party to pay for the bank commissions and fees etc. clearly defined in the contract? Monthly Statements

The JBIC Sample Bidding Document recommends a clause for Certificates and Payment. The numbering system of this recommended clause is different from FIDIC Red Book but the effect of the clause is the same. If the Employer intends to pay the bank for opening letters of credit, making remittance and other bank charges including those incurred by the Contractor then it is necessary to clearly specify this in the Contract. The Contractor can request payment for these bank fees under Clause 60.1(e) and include them as “any other sum to which the Contractor may be entitled under the Contract” in both the FIDIC Red Book and the JBIC Sample Bidding Documents.

Check Point

FIDIC Clause

38

60.2

Is the Contractor's right limited by extending the time limit for the Employer to honour a payment certificate issued by the Engineer? Monthly Payments

Both the FIDIC Red Book and the JBIC Sample Bidding Documents specify the time limit for the Employer to honour an Engineer’s certificate for payment as 28 days. Any text change to extend the 28 day honouring period will extend the time limit for payment by the Employer and will probably increase the Contract Price. There is also the possibility of deterring capable contractors from bidding as stipulated in Checkpoint 28

12. Therefore such text changes should be avoided from the perspective of economic rationality.

Check Point FIDIC Clause

39 -

Has an excessive obligation been forced on the Contractor with regard to amortisation of the Advanced Payment? Advance Payment

The provision of an advance payment allows the Contractor to pay for preparation of the site and temporary works until receipt of the first interim payment. The advance is amortised by the Employer deducting a defined amount from an otherwise due interim payment. The JBIC Sample Bidding Document recommends that repayment should be calculated so as to obtain full recovery of the advance payment by the time 80% of the Contract Price has been certified for payment. Any text change to make the Contractor repay the advance payment much before interim payments have reached 80% of the Contract Price should be avoided as they may undermine the original purpose of the advance payment.

Check Point FIDIC Clause

40 60.3

Has an excessive obligation been imposed on the Contractor in respect of amount or timing of release of retention money? Payment of Retention Money

FIDIC Red Book Clause 60.3 provides that the first half of the retention money shall be returned to the Contractor upon the issue of the Taking-Over Certificate with respect to the whole of the Works. This recognises the fact that the Employer’s risk from the default by the Contractor is reduced at this time. The second half of the retention money is still held by the Employer to cope with the risk of the Contractor not remedying defects in workmanship. For this reason the second half of the retention money is released only at the end of the defects liability period at the same time as the performance security is also returned to the Contractor. Any text change to request the Contractor to submit a bank bond in exchange for the return of the first half of the retention money may impose on the Contractor an excessive obligation beyond the FIDIC Red Book model. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

29

Check Point FIDIC Clause

41 60.10

Is the Contractor's right to payment in a specified period prolonged, or is he denied interest for delayed payment? Time for Payment

The JBIC Sample Bidding Documents recommend 56 days as the time for payment in FIDIC Red Book Clause 60.8.. Any text change which allows the Employer to delay payment beyond the standard time limit of 56 days and / or deletes the obligation to pay interest for delayed payment may push up the Contract Price. Such a text change could deter capable contractors from submitting a bid as stipulated in Checkpoint 12 and should be avoided from the point of view of economic rationale. It is important that the payment obligation of the Employer should be clearly specified in FIDIC Red Book Clause 60.10. The actual time of payment by the Employer could vary according to the particular contract definition. Payment could be the time of delivery by the Employer of necessary documents to the Contractor, or delivery to JBIC, or at the time of actual payment into the Contractor’s bank account. The FIDIC Red Book Clause 60.10 should clearly specify the time of payment to define the starting date for calculation of interest.

Check Point

FIDIC Clause

42

65.3

Is there any possibility of the Engineer being unfairly influenced by the Employer when making a decision on the amount to be reimbursed for the Contractor to rectify or replace any Works damaged by Special Risks? Damage to Works by Special Risks

If there is a text change that the Engineer requires the Employer's prior permission to exercise his discretion on cost related to damage caused by Special Risks, the Engineer’s fair decision may be affected greatly by the Employer's intention. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

43

Is there any possibility of the Engineer being unfairly influenced by the Employer when making a decision on the amount of increased cost arising from Special Risks? 30

FIDIC Clause

65.5

Increased Costs arising from Special Risks

If there is a text change that requires the Engineer to get the Employer's prior permission to exercise his discretion on the amount of increased cost arising from Special Risks, the Engineer’s fair decision may be affected greatly by the Employer's view. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FI DIC Clause

44

65.8

Is there any possibility of the Engineer being unfairly influenced by the Employer when making a decision on the additional cost at the termination of the Contract arising from Special Risks? Payment if Contract Terminated

If there is a text change that requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to additional cost, the Engineer’s fair decision may be affected greatly by the Employer's view. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point FIDIC Clause

45 67.1

When the DAB procedure is used, has the cost been examined sufficiently? Engineer’s Decision

Chapter 11 of the JBIC Sample Bidding Documents provides for the use of a Dispute Adjudication Board (DAB). The DAB comprises three (3) members in the case of a project in which the contract price exceeds 42 million US$ (equivalent to 5.0 billion Japanese Yen) as the optional method for the settlement of disputes. Under the FIDIC Red Book Clause 67.1 this option is included at the discretion of the Employer as a method of resolving differences over any Engineer’s decision. There have been projects where the establishment of a DAB was suspended because of the large sums of money to be paid for the DAB by both the Employer and the Contractor. Even if the sharing of such cost was stipulated in the FIDIC Red Book the cost of a DAB can be exceptionally high especially if the adjudicators come from third countries. The Employer should have understood that such expenses are inevitable when the DAB procedure was selected.

31

Check Point FIDIC Clause

46 67.3

Is the selection of the arbitration procedure and the method of selection of arbitrators properly international? Arbitration

There should be proper consideration given to the selection of the dispute settlement procedure incorporated in an international contract especially in the case of the nomination of an arbitration rules / organization which is based in the country of the Employer and (usually) the country where the Works are to be carried out. The general rule should be to appoint a truly international and neutral rules / organization such as International Chamber of Commerce (ICC).

Check Point

FIDIC Clause

47

69.1

Are the Contractor’s rights limited by shortening the notice period, or providing for a prolonged grace period for the effectiveness of termination of the Contract by reason of an Employer’s default? Default of Employer

The FIDIC Red Book Clause 60.10 (a) provides a period of 28 days within which payment should be made by the Employer for interim certificates and 56 days for the Final Certificate. The FIDIC Red Book Clause 69.1 also provides a period of 14 days for the effectiveness of a notice of termination for Employer's failure to pay as required. Proper consideration should be give to these periods taking into account the implementation method and the context of the country where the Works are to be carried out. The specification of these time limits shall be subject to sufficient investigation especially when the executing agency has no authority to make a decision on the issue related to this clause and is required to consult with other government authorities. It is necessary to investigate all the circumstances surrounding the executing agency at the same time as considering the rights of Contractor stated and implied in the Contract.

Check Point

48

Is there any possibility of the Engineer being unfairly influenced by the Employer when making a decision on extensions of time and additional cost at the termination of the Contract or suspension of the Works caused by Employer’s default? 32

FIDIC Clause

69.4

Contractor’s Entitlement to Suspend Work

If there is a text change that requires the Engineer to get the Employer's prior permission to exercise his discretion in relation to extension of time and additional cost, the Engineer’s fair decision may be affected greatly by the Employer's intention. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FIDIC Clause

49

70.1

Is the Contractor’s right to price adjustment limited by the Employer selecting an unreasonable adjustment formula or providing a very large non-adjustable range? Increase or Decrease of Cost

The JBIC Sample Bidding Documents recommend alternative provisions to FIDIC Red Book Clauses 70.1 to 70.7 in Part II of the Conditions of the Contract. It is necessary to avoid any text change to restrict the Contractor’s right which deletes this clause, or specifies unreasonable formula, or automatically cuts a certain percentage of price escalation, or limits adjustment to the cases of drastic movement in price.

Check Point

FIDIC Clause

50

70.2

Is the Contractor’s right to claim for additional cost for changes in legislation limited? Further, is there any possibility of the Engineer being unfairly influenced by the Employer when making a decision for the amount of increase or decrease cost due to changes in legislation? Subsequent Legislation

The FIDIC Red Book Contract stipulates that the Contractor is entitled to additional costs incurred due to changes in legislation and any text changes that limits the Contractor's right to price adjustment only in circumstance when the additional amount would exceed a certain limit are unfair. The limits of price adjustment under Clause 70.1 can be ambiguous as described in the Commentary on Clause 70.1 above. A description which clarifies adjustment to be made under Clause 70.1 is required in a particular project. If there is a text change that requires the Engineer to get the Employer's prior permission to exercise his discretion on increase or decrease cost caused by changes in legislation, 33

the Engineer’s fair decision may be affected greatly by the Employer's view. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FIDIC Clause

51

72.2

Is the provision of ratio of currencies of payment reasonable, does it unfairly restrict the Contractor’s right and does it avoid conflict with any other clause? Currency Proportion

When the Employer specifies his obligation to pay, in more than one currency, an unbridgeable gap in the Contractor's actual cash flow may be caused if the text changes fix that ratio. There is also the possibility that the bid price will be increased by the contractor making provisions for this exchange risk and the restriction on the recovery for Clause 70.1 price adjustment. Any such text changes should be avoided as being against FIDIC Red Book principles and unfair.

34

Appendices

Appendix -1

Procedure of Claim and Dispute Settlement㩷 䋨FIDIC RedBook -1987䋩

67.1 67.2

Occurrence of Claimable Event 67.1

Notice to Engineer of Intention to Claim

53.1䋨Cost䋩

䋨Within 28 days䋩

44.2䋨Time䋩

Reference of dispute to 㪍㪎㪅㪈㩷 *1 DAB

Reference of dispute to Engineer

67.1 67.2 67.1

Engineer’s Decision

DAB’s Decision*1

䋨Within 84 days䋩

䋨Within 84 days䋩

㪍㪎㪅㪈㩷

Notice of ground and details of Claim

53.3䋨Cost䋩

䋨Within 28 days䋩

44.2䋨Time䋩

Yes

Engineer’s Determination after consultation with parties

Agreement to Engineer’s

Settlement

or DAB’s Decision

of Dispute

53.5䇮52.2䋨Cost䋩 44.1䋨Time䋩

No 67.1

Notice to commence Arbitration Agreement to the Determination

Yes

Settlement

䋨Within 70 days䋩

of Claim 67.2

Attempt at Amicable

No

Settlement 䋨Within 56 days䋩

Occurrence of Dispute

Yes Amicable Settlement

of Dispute

No Arbitration

67.3

(under ICC Rule䌳) Note 1* If a Dispute Adjudication Board (DAB) has been Final Settlement of Dispute

appointed by the modification of Part II Conditions of Particular Application.

AP-1

Settlement

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JAPAN BANK FOR INTERN ATIONAL COOPERATION

Japan Bank for International Cooperation Head Office 4-1 Ohtemachi 1-chome, Chiyoda-ku, Tokyo 100-8144, Japan Telephone : Tokyo 81- 3 - 5 2 1 8 - 9 6 1 1 Facsimile: Tokyo 81 - 3 - 5 2 1 8 - 9 6 4 0 URL: http://www.jbic.go.jp E-mail: [email protected]