The enhanced claims provisions of the 2017 FIDIC contracts

This article is based on a talk by the author given at the FIDIC Conference in Johannesburg in October 2018

In December 2017, the long-awaited updates of the 1999 editions of the FIDIC Red, Yellow and Silver books were launched with much fanfare. Regular users of the 1999 editions may perhaps have been expecting a leaner and more user-friendly version of the contracts; if so, they were to be disappointed.

One of the principal intents of the drafters of the updated forms is to provide users with clarity, transparency and certainty, so as to reduce the risk of disagreements regarding the interpretation of terms. The achievement of this intent has resulted in the updated forms containing at least 50% more words and the introduction of significantly more prescriptive, complex, and particularly for the non-native English user, often difficult to understand provisions.

This review of the enhanced claims provisions of the updated contracts identifies potential areas of concern and how easily deficient application of terms could quickly lead to disagreement, dispute and delayed recovery of, or loss of, entitlement.

The review is based on the FIDIC Red Book, Conditions of Contract for Construction, 2017 Edition.

Structural changes

The first obvious change from the 1999 books is that two main clauses now exist in place of one, with Clause 20 of the 2017 books dealing only with claims, and a new Clause 21 dealing with disputes and arbitration. The reason for this division into two clauses, apparently, is to more obviously convey the message that claims do not [necessarily] have to become disputes before they can be resolved. Whether this subtle change will in fact influence or cause contracting parties to act differently to the way they currently deal with claims administration under the FIDIC forms remains to be seen. 

The second obvious change is that Clause 20 is now titled ‘Employer’s and Contractor’s Claims’. This means that a single and same procedure is to apply to both Contractor and Employer claims. For an Employer, this might come as a real shock: no longer can notice and particulars of claim be submitted ‘as soon as practicable after the Employer [factually] became aware of the event…’, and with no sanction of time-bar.  Sub-clause 2.5 Employer’s Claims of the 1999 edition is no more. Instead, under the 2017 forms, an Employer must satisfy exactly the same tests and criteria as a Contractor must satisfy: notice is to be given ‘as soon as practicable, and no later than 28 days after the claiming Party became aware, or should have become aware, of the event…’, with any failure to do so risking the sanction of time-bar. But more on this later.

The third obvious change from the 1999 forms is the significant increase in the length of the claim and dispute provisions, from a total of 4.5 pages in the 1999 forms to more than 10.5 pages in the 2017 versions. If you then throw in the enhancements made to Sub-Clause 3.5 [Determinations] of the 1999 editions –  an essential component of the claims administration process – which increases the length of the provision from 2 paragraphs or 0.2 of a page into a procedure [SC 3.7 – Agreement or Determination] of some 3 pages and numerous paragraphs, means that the poor claims administrator will in future have to give regard to some 13.5 pages of detailed provisions and procedures, as opposed to less than 5 under the previous edition.

The cause of this huge expansion of provisions is the deliberate elevation by FIDIC of the claim administration process into a very formalised, detailed and prescriptive set of rules and procedures. The thinking goes that greater prescription gives absolute clarity on requirements, the steps to be taken and the timescales to be met, which will result in claims being dealt with and resolved efficiently and without delay. But in reality, this greater level of prescription, detail and complexity will simply increase the likelihood of disputes occurring if required steps or timescales are not fully understood or taken correctly, in time, or at all.

New Defined Terms

The 2017 FIDIC conditions introduce a number of new defined terms, including those for ‘Claim’, ‘Dispute’ and ‘Notice’. Whilst seeking to bring certainty of meaning to these terms, it is not difficult to see how a user (and in particular a non-native English user) may innocently misconstrue, for example, the distinction between Claim (with a capital ‘C’ and therefore a defined term) and claim (with a small ‘c’ and meaning something else). As an example, the definition of “Dispute’ makes reference to both a ‘claim’ as well as a ‘Claim’, then further complicating matters in stating that a ‘claim’ could be a ‘Claim’ under certain circumstances.

The level of contract awareness and administration required under the 2017 forms may be understood by considering the defined term Notice. Sub-clause 1.3 has been expanded and requires that to be valid, a Notice must be:a paper or electronic original signed by the authorised representation of the Employer, Contractor, or Engineer, as the case may be;

  1. A paper or electronic original signed by the authorised representation of the Employer, Contractor, or Engineer, as the case may be;
  2. Formally identified as a Notice;
  3. Delivered by hand (against receipt) transmitted in a manner stated in the Contract; and
  4. Delivered, sent or transmitted to the address of the recipient stated in the Contract.

Given the formal requirements that have to be satisfied to become a valid Notice, it is not difficult to see that challenges and disputes could easily arise as to whether such formalities have been satisfied or not. Moreover, as the 2017 conditions contain nearly 350 separate references to Notice, contracting parties and the Engineer will be faced with the constant challenge of ensuring that required Notices are not only issued in time, but in each case satisfy the stated criteria to be recognised as a valid Notice.

Why is this a concern? Because getting it wrong could lead to disputes, delayed or loss of entitlement, and significant financial losses.

Simon Longley DAB Dispute Adjudication Board Dispute Resolution HKA Event Conference Tokyo Japan DRBF

The introduction of significantly more prescriptive, complex, and particularly for the non-native English user, often difficult to understand provisions, will present immense challenges to users.

Simon Longley, Partner

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