NEW CLAIMS REGIME MAY DELAY UPTAKE OF 2017 FIDIC CONTRACTS
Since the launch of the new FIDIC suite of contracts in December 2017, much has been said and written about the broad implications of the second editions of the Red, Yellow and Silver Books.
We have noted several areas of potential interest to our clients that warrant further discussion and have prepared a series of newsflashes on these. We start with the new claims provisions and the emphasis on dispute avoidance, along with a few general observations.
Changes signal greater rigour
The changes in the FIDIC suite introduce a more rigorous approach to procedure and generally bring more certainty and predictability. They are to be welcomed on the whole, not least because they mirror what some in the marketplace have been doing anyway (depending on the type of deal and who has the upper hand in the negotiation).
Some say that the more stringent rules, time-bars and deeming provisions might mean that more 'NEC-style' project management tools will be needed to assist in the day-to-day delivery of FIDIC contracts. However, there will be plenty of industry players who will shy away from this due to the resource and cost implications. In jurisdictions such as Kenya, Tanzania and Uganda, we are already seeing industry players showing reluctance to use the new suite of FIDIC contracts, solely on this basis.
The new contracts certainly reflect a much more balanced risk allocation between Contractors and Employers, with claims provisions now the same for both. This will not be popular among Employers and may cause a slow uptake in the use of the new suite.
Our prediction in the short to medium term is that the market will continue to use the 1999 edition and simply 'cherry pick' aspects of the new conditions to suit their needs.
Parity in claims provisions
The newly equalised claims provisions are a major shift from the 1999 edition, where the Employer’s claims procedure was considerably less onerous than the Contractor’s.
Parity means that Employers will face extra procedural hurdles which will require careful navigation, particularly during critical stages of a project where, for example, the Employer may need to claim liquidated damages.
Contractors will be pleased that Engineers/ Employers can no longer 'sit on' claims until it is convenient to use them for bargaining power, which should in theory lead to more efficient decision-making and speedier outcomes.
That said, the time-bars have been diluted. Both parties can now challenge whether or not a claim is out of time or provide justifications for this. Softening the application of the time-bars in this way may cause more delays and uncertainty, and will no doubt be the subject matter of a number of disputes.
In some jurisdictions, such as Kenya, time-bars are not strictly applied anyway, especially if a claim is out of time by only a few days and there is no material adverse effect on the counterparty to the claim, so the new provisions may not represent a fundamental shift. However, this is not universally the case. In South Africa for example, there has been a tendency to uphold time-bars. The Constitutional Court in Barkhuizen v Napier [2007(5) SA 323 (CC)] upheld the application of this type of clause, confirming that it was not contrary to public policy. So we may find that, over time, the in-built relaxations in the new FIDIC provisions alter the state of play on time-bars in South Africa and elsewhere.
Emphasis on dispute avoidance
A key theme of the new suite is FIDIC’s desire to focus more on dispute avoidance than dispute resolution by introducing the Dispute Avoidance and Adjudication Board (DAAB).
Unlike the former ad hoc Dispute Adjudication Board, the DAAB is a standing board across all three contracts. The rationale is to involve the DAAB from day one so that it can make quick, informed decisions when issues arise.
While the logic of this is hard to argue against, the reality may well be different. With a DAAB ready and waiting, it may be easier and quicker to pursue a dispute – although not necessarily more cost-effective – potentially increasing the number of disputes.
Also disappointing is that it will not be mandatory for parties to follow the new dispute avoidance option of asking the DAAB for informal, non-binding assistance.
A useful addition is the new advance warnings clause. Although it lacks the same clout as NEC early warnings, failing to serve an advance warning under FIDIC could nevertheless work against the claiming party.
We will send the next article on the new FIDIC suite soon. We are also arranging client sessions to go into the FIDIC changes and implications in more detail. Feel free to contact Alex Njage in Kenya, Tumisang Mongae in South Africa, or any other member of the construction team to discuss the issues further - click here for contact details.