WELCOME AMENDMENTS TO FIDIC’S 2017 CONTRACTS
WELCOME AMENDMENTS TO FIDIC’S 2017 CONTRACTS
Partner of Counsel, White & Case, Paris; Legal Advisor, FIDIC Contracts Committee.
In November 2022, FIDIC made changes to its Red, Yellow and Silver Book standard forms2 which will be of particular interest to lawyers as they involve, among other things, amended definitions of key terms like “Claim” and “Dispute” and a definition of a “matter to be agreed [by the Parties] or determined [by the Engineer]”, a new concept in the 2017 contracts which, however, they had left undefined. These and other changes are to be found in reprints, published in November 2022, of the 2017 Red, Yellow and Silver Books.3
The 2022 changes are numerous and affect most of the 21 clauses of the general conditions of each standard form as well as its ancillary documents. Many of the amendments are quite minor – such as replacing references to “Dispute Avoidance/Adjudication Agreement” with “DAAB Agreement”, correcting lines or sub-paragraphs that are wrongly indented, replacing references to “an entity” with “a legal entity” and generally clarifying language – and will not be discussed here. But, whether minor or major, all the amendments are welcome as, in the view of the author, they significantly improve FIDIC’s 2017 forms.
This paper will discuss three changes which appear most important from a legal perspective, as follows:
- 1. The amended definition of the term “Claim”;
- 2. The definition of a “matter to be agreed or determined”; and
- 3. The amended definition of the term “Dispute”.
Amended definition of “claim”
Claims play a central role in the functioning of a FIDIC contract as it is through their submission by a Party to the Engineer and action by the Engineer – namely, consultation with the Parties to encourage them to reach agreement, failing which the Engineer will determine the claim by a decision binding on the Parties – that the contract price and/or time for completion are often adjusted. Nevertheless, although the FIDIC forms had contained a list of defined terms before 2017, they had provided no definition of “claim”. The 2017 editions of the Red, Yellow and Silver Books do so, as follows:
“‘Claim’ means a request or assertion by one Party to the other Party for an entitlement or relief under any Clause of these Conditions or otherwise in connection with, or arising out of, the Contract or the execution of the Works.”4
Thus, a “Claim” is broadly defined. It covers not only a “request or assertion” by one Party to the other arising from an entitlement “under any Clause” of the Conditions (i.e., a Contractor’s claim for additional payment and/or an Extension of Time or EOT, or an Employer’s claim for payment and/or extension of the Defects Notification Period or DNP) but also (because of the words “or otherwise in connection with, or arising out of, the Contract or the execution of the Works”) a claim relating to the contract (including its termination), or the Works, arising under the applicable law, whether in contract, tort or otherwise.
While the definition was fine as far as it went, it failed to distinguish between a “Claim”, on the one hand, and a new concept in the 2017 contracts, namely, a “matter” or “matter to be agreed [by the Parties] or determined [by the Engineer]”, referred to in sub-clause 3.7 of the Red and Yellow Books,5 on the other hand, whereas other provisions indicated that there was a difference between the two. For example, under sub-clause 3.7.3,6 the date of commencement of the time limit for the Engineer to give a Notice7 of agreement was different depending on whether the dispute related to “a matter to be agreed or determined”, or a “Claim”. As another example, the definition of “Dispute” in the Red and Yellow Books stipulated that a “claim” made by one Party against the other Party “may be a Claim, as defined in these Conditions, or a matter to be determined by the Engineer under these Conditions …”.8 As the definition of Claim was very broad, and there was no formal or clear definition of a “matter” or a “matter to be agreed or determined”, it was unclear whether and, if so when, a “matter” was not a Claim.9
FIDIC has now clarified this issue with two amendments: first, by providing for a definition of a “matter to be agreed or determined” in sub-paragraph (a) of sub-clause 3.7 of the Red and Yellow Books,10 as discussed below, and, second, by expressly excluding a “matter to be agreed or determined” from the definition of “Claim” in the three Books. The new definition of a “Claim” in the Red and Yellow Books provides as follows (the new words being emphasised):
“‘Claim’ means a request or assertion by one Party to the other Party (excluding a matter to be agreed or determined under sub-paragraph (a) of Sub-Clause 3.7 [Agreement or Determination]) for an entitlement or relief under any Clause of these Conditions or otherwise in connection with, or arising out of, the Contract or the execution of the Works.”11
Definition of “matter to be agreed or determined”
As mentioned above, the 2017 forms introduced a separate category from a “Claim”, namely, a “matter” or “matter to be agreed [by the Parties] or determined [by the Engineer]”. This referred to or, perhaps more accurately, was intended to refer to, events or circumstances that might otherwise be considered as giving rise to Claims where it was thought by FIDIC to be unjustified and unnecessary to require a Party to comply with the Claims procedure, which is more burdensome and time-consuming in the 2017 forms than in those of 1999.12 Accordingly, in the case of a “matter” or a “matter to be agreed or determined”, a Party is relieved from having to give a Notice of Claim within 28 days – subject to a time bar13 – and otherwise from having to comply with that procedure. Instead, after simply a Notice14 from, or submission by, the Contractor (or other specified originating action), the Engineer15 is required, pursuant to sub-clause 3.7 of the Red and Yellow Books16 and within specified time periods, to consult with the Parties to try to persuade them to reach agreement, failing which the Engineer is to make a determination of the “matter”.
While “matters” are readily identifiable now, thanks to the 2022 amendments, they were not readily discernible in the Red, Yellow and Silver Books (the “Rainbow Suite”) 2017. The original wording of the second paragraph of sub-clause 3.7 of the Red and Yellow Books17 had provided simply:
“Whenever these Conditions provide that the Engineer shall proceed under this Sub-Clause to agree or determine any matter or Claim, the following procedure shall apply.” (Emphasis added.)
While the general conditions contained numerous sub-clauses providing that “the Engineer shall proceed under Sub-Clause 3.7” to agree or determine a particular issue, they did not specify or make clear whether in those cases the issue was necessarily to be considered a “matter” or a “Claim”. Yet the distinction was ‒ and is ‒ important, as should a Party mistakenly treat a Claim as a “matter” and hence neglect to submit a Notice of Claim within 28 days, pursuant to sub-clause 20.2.1, its Claim could, as mentioned above, be time barred.
The 2022 amendments rectify this shortcoming in the 2017 Rainbow Suite by expanding this paragraph so that it now provides, in the case of the Red Book (the new words are emphasised), as follows:
“Whenever these Conditions provide that the Engineer shall proceed under this Sub-Clause 3.7 to agree or determine either:
(a) any matter, as provided for in Sub-Clauses 4.7.3, 10.2, 11.2, 12.1, 12.3, 13.3.1, 13.5, 14.4, 14.5, 14.6.3, 15.3, 15.6 and 18.5, identifying in the same Sub-Clause the date of commencement of the corresponding time limit for agreement under Sub-Clause 3.7.3 [Time limits]; or
(b) any Claim,
the following procedure shall apply.”
By identifying in sub-paragraph (a) each of the sub-clauses which provides for a “matter” or “matter to be agreed or determined”, a user is now clearly informed of the cases to which this term or expression applies. As can be seen above, in the Red Book there are 13 such cases. The same sub-clause (sub-clause 3.7) of the Yellow Book provides for 12 such cases and the corresponding sub-clause of the Silver Book, sub-clause 3.5, provides for 9 of them.
Examples of “matter(s)” are: whether or not there was an error in the items of reference (for setting out the Works) under sub-clause 4.7 of the Red and Yellow Books; whether instalments for payment in the Schedule of Payments need to be revised under sub-clause 14.4 of the Red, Yellow and Silver Books because actual progress is found to differ from that on which the Schedule of Payments was based; and valuation of work done and other amounts to which the Contractor is entitled under sub-clause 15.6 of the Red, Yellow and Silver Books in the case of termination of a contract for the Employer’s convenience.
Amended definition of “dispute”
The term, “dispute”, has always had great importance under FIDIC contracts as, unless there existed a dispute in a particular case, there could be no valid referral to the Engineer under clause 67 (Settlement of Disputes) of the fourth edition of the Red Book, 1987, or to a dispute board18 under subsequent editions of the forms comprising the Rainbow Suite, and later, if necessary, to international arbitration.19 The definition of dispute in the original 2017 Rainbow Suite was similar to the one in FIDIC’s Conditions of Contract for Design, Build and Operate Projects, 2008 (the “Gold Book”).20 In the Red and Yellow Books it defined a “Dispute” as arising where a Party made a claim (or there was a matter to be determined) against the other Party which was rejected, or deemed to have been rejected, by the other Party or the Engineer, and to which rejection the first Party did not acquiesce. The full definition in sub-clause 1.1.29 of the original 2017 Red and Yellow Books provided as follows:
“‘Dispute’ means any situation where:
(a) one Party makes a claim against the other Party (which may be a Claim, as defined in these Conditions, or a matter to be determined by the Engineer under these Conditions, or otherwise);
(b) the other Party (or the Engineer under Sub-Clause 3.7.2 [Engineer’s Determination]) rejects the claim in whole or in part; and
(c) the first Party does not acquiesce (by giving a NOD21 under Sub-Clause 3.7.5 [Dissatisfaction with Engineer’s determination] or otherwise),
provided however that a failure by the other Party (or the Engineer) to oppose or respond to the claim, in whole or in part, may constitute a rejection if, in the circumstances, the DAAB or the arbitrator(s), as the case may be, deem it reasonable for it to do so.”22
As a result of both the amended definition of “Claim” (as discussed above) and the definition of a “matter to be agreed or determined” (as also discussed above), it was considered (in 2022) no longer necessary or advisable to refer in the definition of Dispute to a claim with a small “c”.23 In addition, in order for the reference to a “matter to be agreed or determined” to be meaningful in the definition of Dispute, it had to include reference to its new definition in sub-paragraph (a) of sub-clause 3.7.24 But, of no less importance, FIDIC wanted the definition of Dispute to be written in such a way that a Party could no longer bypass the Engineer (the Employer’s Representative in the Silver Book) in its agreement/determination role under clause 3 and refer a Dispute directly to the DAAB, as Parties had been able to do, in the case of the DAB, under the 1999 FIDIC forms.
For these reasons, the new definition of “Dispute” in sub-clause 1.1.29 of the Red and Yellow Books provides that it refers to any situation where:
“(a) one Party has made a Claim, or there has been a matter to be agreed or determined under sub-paragraph (a) of Sub-Clause 3.7 [Agreement or Determination];
(b) the Engineer’s determination under Sub-Clause 3.7.2 [Engineer’s Determination] was a rejection (in whole or in part) of:
(i) the Claim (or there was a deemed rejection under sub-paragraph (i) of Sub-Clause 3.7.3 [Time limits]); or
(ii) a Party’s assertion(s) in respect of the matter
as the case may be; and
(c) either Party has given a NOD under Sub-Clause 3.7.5 [Dissatisfaction with Engineer’s determination].”25
Satisfying this definition is more demanding than satisfying the original definition in the 2017 contracts as, to do so, a Party must give a Notice of Dissatisfaction (“NOD”)26 with respect to an Engineer’s determination which was not necessarily required by the original definition. By requiring a NOD, it effectively obliges a Party having a Claim to proceed under the Claims procedure27 as doing so is a condition to being able to refer it to the Engineer for a determination28 and later, if necessary, to the DAAB and international arbitration.
However, after reflection, FIDIC concluded that compliance with these relatively onerous procedures as a condition for a referral of a Claim to the DAAB should not be insisted upon in all cases. Specifically, in the case of the Red and Yellow Books,29 it should not be required:
- (1) where, under sub-clause 16.2.1, the Engineer had failed to certify a Statement of the Contractor or the Employer had failed to pay a Payment Certificate of the Engineer;
- (2) where, under sub-clause 14.8, the Employer had failed to pay financing charges that were due to the Contractor; and
- (3) where, under sub-clauses 15.2, 16.2, 18.5 or 18.6, the Parties were in disagreement about a Party’s entitlement to give either a Notice of intention to terminate the contract or a Notice of termination of the contract.
Accordingly, it was decided that in each of these cases a “Dispute” (as defined) should be deemed to have arisen, which the Contractor could refer to the DAAB directly without the need to comply with the Claims procedure, or for the referral to have to be made to the DAAB within 42 days of the giving or receiving of a NOD, as is normally required by sub-clause 21.4.1(a).
To implement this decision, a new second paragraph has been added to sub-clause 21.4 (Obtaining DAAB’s Decision) providing in the Red and Yellow Books30 that, in addition to the situation described in the definition of “Dispute” in those forms, a “Dispute” is deemed to have arisen if:
“(a) there is a failure as referred to under sub-paragraph (b), or a non-payment as referred to under sub-paragraph (c), of Sub-Clause 16.2.1 [Notice];
(b) the Contractor is entitled to receive financing charges under Sub-Clause 14.8 [Delayed Payment] but does not receive payment thereof from the Employer within 28 days after his request for such payment; or
(c) a Party has given:
(i) a Notice of intention to terminate the Contract under Sub-Clause 15.2.1 [Notice] or Sub-Clause 16.2.1 [Notice] (as the case may be); or
(ii) a Notice of termination under Sub-Clause 15.2.2 [Termination], Sub-Clause 16.2.2 [Termination], Sub-Clause 18.5 [Optional Termination] or Sub-Clause 18.6 [Release from Performance under the Law] (as the case may be);
and the other Party has disagreed with the first Party’s entitlement to give such Notice”.
In each of these circumstances, sub-clause 21.4 provides that the Dispute may be referred by either Party to the DAAB without the need for either Party to have given a NOD and sub-clause 3.7 [Agreement or Determination] and sub-paragraph (a) of sub-clause 21.4.1 [Reference of a Dispute to the DAAB] shall not apply.
While one might think of other cases where it would be unreasonable to require a Party to comply with those provisions as a condition to a referral to the DAAB, the three cases listed in sub-paragraphs (a), (b) and (c) above were the only ones where it appeared plainly unjustified to require such compliance. Consequently, only in those cases is a Party authorised, by the new amendments, to bypass clause 20 and sub-clauses 3.731 and 21.4.1(a) and refer an issue directly to the DAAB.32
The amendments to the 2017 Red, Yellow and Silver Books are welcome, as they clarify the meaning of legally important terms such as “Claim” and “Dispute” that could otherwise themselves be contentious. It is also extremely helpful that sub-clause 3.7 of the Red and Yellow Books (sub-clause 3.5 of the Silver Book) lists the specific sub-clauses which provide for a “matter” or a “matter to be agreed or determined”, as this eliminates a major uncertainty that had existed in the original 2017 forms of contract.
1 Christopher is the author of a forthcoming book, The FIDIC Red Book Contract: An International Clause-by-Clause Commentary, to be published in 2023 by Kluwer International. The views expressed in this article are solely those of the author and not of any firm, organisation or committee with which he is affiliated.
2 The Red Book being entitled Conditions of Contract for Construction, 2017, the Yellow Book being entitled Conditions of Contract for Plant and Design-Build, 2017, and the Silver Book being entitled Conditions of Contract for EPC/Turnkey Projects, 2017.
3 FIDIC had previously published two errata sheets for the Red, Yellow and Silver Books (the Rainbow Suite) in 2018 and 2019, respectively. However, the new changes are rightly described by FIDIC not merely as errata but as amendments or significant changes to the Rainbow Suite.
4 Sub-clause 1.1.6 of the Red Book, sub-clause 1.1.5 of the Yellow Book and sub-clause 1.1.3 of the Silver Book.
5 Sub-clause 3.5 of the Silver Book.
6 Sub-clause 3.5.3 of the Silver Book.
7 A Notice is defined in sub-clause 1.1 [Definitions] of the Rainbow Suite as a written communication identified as a Notice and issued in accordance with sub-clause 1.3 [Notices and Other Communications].
8 Sub-clause 1.1.29 of the Red and Yellow Books. Sub-clause 1.1.26 of the Silver Book is similar.
9 It was also unclear how a claim, referred to in sub-clause 1.1.29 of the Red and Yellow Books and 1.1.26 of the Silver Book, was to be distinguished from a Claim.
10 Sub-paragraph (a) of sub-clause 3.5 of the Silver Book.
11 Sub-clause 1.1.6 of the Red Book and sub-clause 1.1.5 of the Yellow Book. Sub-clause 1.1.3 of the Silver Book is similar.
12 See clauses 20 of the Red, Yellow and Silver Books and sub-clause 3.7 of the Red and Yellow Books and 3.5 of the Silver Book.
13 As required by sub-clause 20.2.1. of the Red, Yellow and Silver Books.
14 For which there is no time limit or time bar.
15 The Employers Representative in the case of the Silver Book.
16 Sub-clause 3.5 of the Silver Book.
18 Other than for dispute avoidance such as where a Party merely sought the dispute boards opinion. See, for example, sub-clause 20.2, seventh paragraph, of the Red Book, 1999.
19 See Seppälä, C R, The Arbitration Clause in FIDIC Contracts for Major Works,  ICLR 4.
20 See sub-clause 1.1.31 of the Gold Book.
21 A Notice of Dissatisfaction as defined in sub-clause 1.1 [Definitions] of the Rainbow Suite.
22 The corresponding provision in the Silver Book was sub-clause 1.1.26.
23 As the result of the 2022 amendments, claim with a small c is now only used for claims by or against non-Parties such as a claim under the Performance Security (sub-clause 4.2.2 of the Red, Yellow and Silver Books), a third party intellectual property right infringement claim (sub-clause 17.3 of the Red, Yellow and Silver Books) or third party claims to be insured against (sub-clause 19.2.5 of the Red, Yellow and Silver Books).
24 Sub-clause 3.5(a) in the case of the Silver Book.
25 Sub-clause 1.1.26 of the Silver Book is similar.
26 The NOD must itself satisfy particular requirements see sub-clause 3.7.5 of the Red and Yellow Books (sub-clause 3.5.5 of the Silver Book).
27 Clause 20 of the Red, Yellow and Silver Books and sub-clause 3.7 of the Red and Yellow Books and 3.5 of the Silver Book.
28 See, notably, sub-clause 20.2.5 of the Red, Yellow and Silver Books. In the case of the Silver Book, the determination is by the Employers Representative.
29 The Silver Book is to similar effect except that it does not refer to the Engineer.
30 A similar paragraph is contained in sub-clause 21.4 of the Silver Book.
31 Sub-clause 3.5 of the Silver Book.
32 A Dispute is also deemed to arise allowing avoidance of the Claims procedure and of the requirement that a referral be made to the DAAB within 42 days where the Engineer (the Employers Representative in the Silver Book) fails to determine a matter to be agreed or determined under sub-clause 3.7 (sub-clause 3.5 in the Silver Book) within the relevant time limit. Sub-clause 3.7.3(ii) (sub-clause 3.5.3(ii) in the Silver Book). This is to prevent a matter from getting stalled by inaction of the Engineer (or the Employers Representative) and thus not proceeding to orderly resolution under the contract.