Amending FIDIC Contracts - Why, What, and How?

Why to change?

FIDIC contract forms are standard, but the projects on which they are used are rarely “standard”. By definition, some changes may be required to be made in the standard forms. FIDIC has always envisaged that its contract conditions would be supplemented by project specific contract provisions (Particular Conditions, or PCs) that address the particular requirements of the site location, the unique features of the specific project and (usually) the Employer’s preferences. It may be necessary for such PCs to amend the General Conditions to comply with mandatory laws that apply to the site or to comply with the governing law of the contract.

Though, before starting to think about why, what and how to change in the FIDIC contracts, the initial question should be whether the FIDIC contract forms are relevant to the project. in general, depending on the chosen procurement route, different forms of contract within the FIDIC suite (organized around the extent of design and other responsibilities assumed by the Employer and the Contractor) may be used. Consider the primary reason for selecting a FIDIC form. Is it the fair and balanced risk allocation, or a funding requirement? FIDIC contracts are quite complex, and their proper administration and management requires considerable resources, experience and knowledge. One should weigh all pros and cons between standard and bespoke contracts for the particular project.

What to change?

The amendments may be categorized as follows:

• Project-specific (to address the chosen procurement method, industry, pricing, etc.);

• Governing law-specific (to ensure compliance with the laws, for example, limitation of liability, standard of care, indemnities, delay damages, ownership of plants and materials, etc.);

• Party-specific (to address the requirements of funders);

• Improvements to the general conditions (to fill gaps, or to address omissions or developments in industry practice, for example, on intellectual property, confidentiality, BIM, etc.);

• Other amendments depending on the draftsman preference.

Terms used in the GCs, such as “or as otherwise agreed”, “except as otherwise agreed”, “unless otherwise agreed by both parties”, etc, generally indicate that the provision may be amended in a reasonable manner by the PCs without being in conflict with the GPs.

What is commonly changed?

Some common examples of amendments are:

• Deleting DAB/DAAB and/or arbitration provisions and substituting them with the local courts provisions;

• Enhancing confidentiality requirements;

• Stating which clauses survive the termination;

• Clarifying the standards the works should comply with;

• Changing the provisions on the role of the Engineer as to require the Employer’s approval before making any determination of a Contractor’s claim or granting any extension of time;

• Transferring risk of Unforeseeable physical conditions to the Contractor in the Red, Yellow, or Pink Books (this risk is allocated to the Contractor by default under the Silver Book);

• Deleting provisions requiring the Employer to provide reasonable evidence that financial arrangements have been made and are being maintained;

• Changing the provisions as to require the Contractor to design the major parts of the works under the Red Book (this obligation is assigned to the Contractor by default under the Yellow Book);

• Adding provisions on what a notice of claim should include;

• Changing time periods;

• Amending provisions on parties’ limitation of liability;

• Amending provisions on parties’ indemnities;

• Amending provisions on insurances to be provided;

• Adding provisions on contract administration, such as management meetings;

• Obliging the Contractor to co-ordinate works with other contractors;

• Adding provisions on safety measures;

• Clarifying the intellectual property provisions;

• Adding software-specific provisions;

• Defining percentage of the reasonable profit;

• Adding provisions on penalties for specific contract breaches, for example X amount per each overdue day for the submission of the time program.

Some of these amendments may not be relevant for the new 2017 FIDIC forms, as one of the main purposes of the new forms was to fill the gaps existing in the previous editions.

How to change?

Some of the examples mentioned above are reasonable, while some are not. The following should be considered while drafting amendments to the GCs:

• Comply with the FIDIC Golden Principles

In 2019, FIDIC published the FIDIC Golden Principles (available for free at FIDIC website). FIDIC explains the necessity of such principles as follows:

More and more frequently, FIDIC now experiences applications
of “FIDIC contracts”, where significant changes to the General Conditions are made by means of replacing, changing or omitting part of the wording of the GCs through the Particular Conditions (PCs). The replacements and changes introduced have lately been found to be substantial and of such extent, that the final contract no longer represents the FIDIC principles, and thus are jeopardizing the “FIDIC brand”, and misleading tenderers and the public.

Thus, the purposes of the Golden Principles (GPs) are to avoid, first, undermining FIDIC brand, and, second, misleading tenderers and the public. The intention is to discourage users from making significant changes to the contracts that deranges the fair balance of parties’ rights and obligations that FIDIC claims to be incorporated in its standard contract forms.

It should be understood that the GPs are of guiding nature and for them to have a desired effect, the industry should accept them as the best practice. They could be used as a useful tool in the negotiation of the contracts, the GPs being referred to as a benchmark.

The five Golden Principles are as follows:

GP1:  The duties, rights, obligations, roles and responsibilities of all the Contract Participants must be generally as implied in the General Conditions, and appropriate to the requirements of the project.

GP2:  The Particular Conditions must be drafted clearly and unambiguously.

GP3:  The Particular Conditions must not change the balance of risk/reward allocation provided for in the General Conditions.

GP4:  All time periods specified in the Contract for Contract Participants to perform their obligations must be of reasonable duration.

GP5:  Unless there is a conflict with the governing law of the Contract, all formal disputes must be referred to a Dispute Avoidance/Adjudication Board (or a Dispute Adjudication Board, if applicable) for a provisionally binding decision as a condition precedent to arbitration.

The publication on the FIDIC Golden Principles include examples of the compliant and non-compliant provisions.

Other practical tips to consider may include:

• Consider cost (and time) effect of each amendment

Each amendment is likely to have its cost effect that should be properly considered in advance. Amendments may also imply time effect - for example, if the DAB and/or arbitration provisions are deleted and substituted with the local courts, one should evaluate time needed for the case to be resolved at the courts, not forgetting about judges’ familiarity with FIDIC forms. All parties should understand the effect of the amendments.

• Keep amendments to a minimum

Numerous amendments may lead to uncertainty and inconsistency. It also increases the risk of drafting errors. Do not make unnecessary amendments (grammatical, for example) that do not materially make any difference. FIDIC states that such “cosmetic” changes should only be made for good reasons.

• Get familiar with the guidance for the preparation of the Particular Conditions

The printed versions of the FIDIC contracts contain useful guidance for the preparation of the Particular Conditions and include some example wordings that may be incorporated in the contract.

• Ensure that all amendments are prepared by someone knowledgable and experienced with FIDIC forms

Engaging a lawyer having expertise in using FIDIC contracts in the drafting process may significantly reduce the risk of inconsistency between the provisions, drafting errors, and avoid potential disputes.