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Somewhere over the rainbow - The road to the FIDIC Green Book 2021

  • United Kingdom
  • Construction and engineering

08-04-2022

FIDIC (the International Federation of Consulting Engineers) produces a range of standard form contracts for international construction and engineering projects.  Each of these is identified by a specific colour, which is why it is sometimes referred to as the rainbow suite of contracts.  The contract known as the “Green Book” is a short form of contract, which is designed for use on small value construction projects, where there is a perceived low level of risk.  It has been in use since 1999, yet in December 2021 FIDIC decided to issue their first update to this well-used contract.  Here we consider the changes made and why they have been introduced.

Why has a new edition been introduced? 

When it was first issued, the FIDIC Green Book was “recommended for engineering and building work of relatively small capital value…most likely to be suitable for fairly simple or repetitive work or work of short duration.”  It was expected to be used on small projects, which were notionally those with a value of $500k or less and an expected duration of approximately six months. According to research conducted by FIDIC in 2018 however, it was found that the FIDIC Green Book was being used on a much wider range of projects.  It was mostly used on works of around $1million in value which sometimes lasted over two years.  Consequently, it became apparent to FIDIC that the market required greater risk allocation between the parties (to reflect the type of works being employed), but without the more significant administration requirements in other types of FIDIC contract.

There was also a practical need to issue a new edition to ensure a consistent approach with other contracts in the suite.  In 2017 FIDIC produced revised versions of the Red Book, Yellow Book, and Silver Book, which introduced new terminology and approaches.  FIDIC was keen to ensure that these were also mirrored in the Green Book, so that those using the range of contracts become increasingly familiar and comfortable with the updates.  This reflects FIDIC’s overarching philosophy that clearer contracts help to avoid disputes.

Engineer to administer the contract

The 2021 edition is administered by the Engineer (rather than by the Employer’s Representative, as previously).  This means that a greater standard of professionalism is required for this role, as they are to act as a “skilled professional” (clause 3.2.1).  This reflects the fact that the Green Book is being used for more complicated works than first anticipated and this requires more sophisticated contract management.  FIDIC’s guidance notes state that it considers it more likely (but not mandatory) that the Engineer will be an external independent consulting engineering firm, rather than someone within the Employer’s own organisation.

Nevertheless, the guidance notes stress that the most important concern is to see that the Engineer acts according to their duties under the Green Book. Clause 3.2.1 states that the Engineer “shall be deemed to act for the Employer”.  However, whenever the Engineer is called upon to agree or determine any matter under the contract it is required under clause 3.5.1 “to act neutrally between the Parties and shall not be deemed to act for the Employer”.  The Engineer is also under an obligation when certifying payment to the Contractor under clause 8.4.1 that the payment certificates reflect the fair value of the works executed by the Contractor.  The Engineer also has increased duties to facilitate early resolution of disputes and act neutrally when endeavouring to reach an agreement (clause 3.5.1).  This is not unusual as many other standard form contracts have a dual role for the contract administrator, where they are employed by the Employer but expected to act impartially when required.

Pre-determined losses

The second edition introduces several pre-determined losses in the contract.  Liquidated damages (as a pre-agreed contractual rate of damages) were previously used for delay.  The 2021 edition however also applies liquidated damages to termination and prolongation costs. There is a pre-determined loss of profit figure, setting it at 10% of the value of the omitted work. Prolongation costs are calculated using a formula based on the value of the works carried out at the time of the delay event and the average onsite and offsite overheads for delay. 

This is designed to avoid the parties having to measure damages after the event, and possibly having to engage an expert to determine.  This would otherwise be disproportionately expensive and time-consuming for the parties, especially as the Green Book is intended to be used on smaller scale projects.

Time limit, rather than a time bar, for claims

The Green Book uses a notice provision in clause 13 for claims where the Contractor believes they are entitled to additional time or money, or where the Employer considers they are entitled to additional payment or relief.  The notice describing the event or circumstance, giving rise to the claim, is to be provided within 28 days, with a full detailed claim following within 56 days, of the date that the claiming party became aware or should have been aware of the event or circumstance.  However, unlike other FIDIC contracts, if the claiming party fails to comply with this provision there is no time bar, or loss of right.  Instead, any entitlement shall be reduced to take into account the lost opportunity to mitigate or investigate the claim arising from the delayed notice. This relaxation in having a time limit, rather than a time bar, reflects the nature of the works under the Green Book. There may not be the same level of resource to administer the contract, when compared with other forms of contract. An example form of notice is included as an Annex to the accompanying guidance notes, but this is only a guide and is not compulsory.

Contractor’s entitlement

Clause 11 sets out a table setting out what events are considered as the Employer’s risk and what the Contractor’s potential entitlement is for an extension of time and/or cost.  This has been provided for ease of reference, so that the contract can be more easily managed (rather than the parties having to locate these rights throughout the contract). 

Adjudication and dispute resolution

A new contractual adjudication procedure has been introduced at clause 14, which provides that any dispute that is not resolved amicably between the parties can be referred by either party to adjudication. The adjudicator’s decision will be binding on both parties, even if either or both parties are not satisfied with it.  This will apply regardless of the fact that the statutory right of adjudication under the Housing Grants, Construction and Regeneration Act 1996 provides that a decision is temporarily binding unless and until finally determined by court or arbitration proceedings.  FIDIC’s approach is to quickly resolve disputes and enable the parties to move on with the project

There is also an option for the parties to instruct the adjudicator on an informal basis to aid in the resolution of disputes.  This involvement will not be binding upon the parties but may help the parties reach an amicable settlement.  Such assistance can either be regular or provided as and when required. This is an unusual provision, but in some way appears to be a scaled down alternative to having a Dispute Resolution Board, which is often used in large scale FIDIC contracts.  The contract thereby provides for a neutral third party (with some ongoing involvement in the dispute) to act as a sounding board.  This is intended to enable the prompt resolution of any disagreements before they become full blown disputes.

Conclusions

The revisions to the Green Book are well-intended to facilitate additional features to balance risk, whilst keeping contract administration to a well-defined minimum.  The objectives of FIDIC are to keep the project streamlined and efficient by having clearer and more pre-determined outcomes.  Given this approach, it is strange that this has been accompanied by a requirement to have an Engineer rather than an Employer’s Representative who perhaps could have been equally up to the task.  The parties may wish to retain some flexibility over this role to reflect whether there is a need for an Engineer in practice, given the actual scale of the project.  We also expect the parties to migrate several common amendments to the 1999 edition over to the 2021.  Alongside the new edition are several additional guidance notes, communication forms and user-friendly flowcharts.  Given the sensible nature of the changes and the ease that they have been communicated, we expect to see parties gradually moving away from the 1999 edition and towards using the 2021 edition in due course.