AACE International - Certification Paper - 52284

| COVER SHEET i

COVER SHEET AACE International

209 Prairie Avenue, Suite 100

Morgantown, WV 26501

U.S.A.

In accordance with the requirements of partial fulfillment for recognition as a Certified Cost Engineer by AACE International, I hereby submit the paper entitled:

Risks Allocated to the Employer according to FIDIC 1999 (Red Book)

Conditions of Contract for Construction

For building and engineering works designed by the Employer

Candidate No.: 52284

June 2009.

| FRONT MATTER ii

FRONT MATTER

Risks Allocated to the Employer according to

FIDIC 1999 (Red Book)

Conditions of Contract for Construction

For building and engineering works designed by the Employer

Candidate No.: 52284

Date: June 2009.

| FRONT MATTER iii

CONTENTS

COVER SHEET ................................................................................................................................................. i

FRONT MATTER ............................................................................................................................................. ii

CONTENTS .................................................................................................................................................... iii

ACKNOWLEDGMENT ..................................................................................................................................... v

ABSTRACT ..................................................................................................................................................... vi

BRIEF HISTORY OF FIDIC ................................................................................................................................ 1

RELATIONSHIPS OF PARTIES TO THE CONTRACT .......................................................................................... 2

Traditional Relationship of Parties – FIDIC 1987 ...................................................................................... 2

New Relationship of Parties – FIDIC 1999. ................................................................................................ 3

INTRODUCTION TO THE EMPLOYER’S RISKS ACCORDING TO NEW FIDIC 1999 ........................................... 5

Risk categories (Risk Breakdown Structure – RBS) ....................................................................................... 8

1 – TECHNICAL RISKS ..................................................................................................................................... 9

Allocation of Risks according to FIDIC 1999 .............................................................................................. 9

Clause 1.9: Delayed drawings & instructions ............................................................................................ 9

Clause 4.7: Setting out of original points. ........................................................................................... 10

Clause 7.4: Testing delays by the Employer. ....................................................................................... 11

Clause 4.12: Unforeseeable Physical Conditions. ............................................................................... 12

2 - PROJECT MANAGEMENT RISKS .............................................................................................................. 13

Clause 2.1: Right of access to site ....................................................................................................... 13

Clause 8.9: Consequences of suspension of works order by the Employer. ...................................... 14

3 - FINANCIAL RISKS .................................................................................................................................... 15

Clause 12.4: Omission of Bill of Quantities works through Variation Orders (Employer bears the responsibility of the loss of Overheads) ............................................................................................. 15

Clause 13.8: Adjustment for changes in rates due to increase in prices. ........................................... 15

Clause 14.8: Delayed Payments. ......................................................................................................... 15

Typical sequence of Payment Events Envisaged in Clause 14 ............................................................ 16

4 EXTERNAL RISKS ....................................................................................................................................... 17

Clause 4.24: Fossils. ............................................................................................................................ 17

Clause 8.4: Exceptionally adverse climate conditions. ....................................................................... 18

Clause 8.5: Delays caused by Authorities. .......................................................................................... 18

Clause 17.4: Consequences of Employer’s Risks. ................................................................................ 19

| FRONT MATTER iv

Clause 19.4: Consequences of Force Majeure. ................................................................................... 19

Typical sequence of Dispute Events envisaged in Clause 20 .............................................................. 19

5 CONCLUSION ............................................................................................................................................ 20

Appendix A ..................................................................................................................................................... I

Clause 1.9: Delayed drawings & instructions ......................................................................................... I

Clause 2.1: Right of access to site .......................................................................................................... I

Clause 4.7: Setting out of original points. ............................................................................................. II

Clause 4.12: Unforeseeable Physical Conditions. ................................................................................ III

Clause 4.24: Fossils. ............................................................................................................................. IV

Clause 7.4: Testing delays by the Employer. ........................................................................................ IV

Clause 8.4: Exceptionally adverse climate conditions. ......................................................................... V

Clause 8.5: Delays caused by Authorities. ............................................................................................ V

Clause 8.9: Consequences of suspension of works order by the Employer. ........................................ V

Clause 12.4: Omission of Bill of Quantities works through Variation Orders (Employer bears the responsibility of the loss of Overheads. ................................................................................................ V

Clause 13.8: Adjustment for changes in rates due to increase in prices. ............................................ VI

Clause 14.8: Delayed Payments. .......................................................................................................... VI

Clause 17.4: Consequences of Employer’s Risks. ................................................................................ VII

Clause 19.4: Consequences of Force Majeure. ................................................................................... VII

Clause 20.1: Contractor’s Claims. ....................................................................................................... VII

Bibliography .................................................................................................................................................. X

| ACKNOWLEDGMENT v

ACKNOWLEDGMENT

My sincere acknowledgements are due to my boss Mr. Sheldon R.

Hall (Project Executive) - Hill International Project Management &

Claims Consultants. Mr. Sheldon kindly accepted my request and

proof read the entire paper. Also, my Special thanks are due to G.

Farooq Quadir , CCE, PMP of AACE International Kuwait Chapter

for his useful guidance and support.

| ABSTRACT vi

ABSTRACT

The purpose of this paper is to identify the risks allocation for “The Employer” according

to the stipulations in the FIDIC 1999 (Red Book), Conditions of Contract for building and

engineering works designed by the Employer. Lack of adequate awareness of the

stipulated risks may result into disputes and losses. It is truly said “a stitch in time saves

nine” or “prevention is better than cure”. Identified risks can be mitigated by

appropriate assessment, analysis and timely actions.

In principle, the FIDIC 1999 (Red Book) allocates the risks in line with the philosophy that

the Employer is held responsible to take on those risks which experienced contractors

could not reasonably be expected to foresee, which are outside the control of the

parties and which are not readily capable of being covered by insurance.

The audiences of this paper are the professionals and organizations associated with

construction industry, working for “The Employer” and / or his Representatives,

Construction Management firms, “The Engineer”, Contract Administration / Project

Management Offices and Engineer’s Representative or A/E (Architect’s Engineer) firms.

The goal of this paper is to clearly identity the risks allocated to the Employer so they

can be managed and ultimately mitigated in a timely manner.

Note: In the text of the paper only the Clause numbers from FIDIC 1999 are referred, the actual text of the clause as included in the FIDIC 1999 is included in Appendix A of this paper.

| BRIEF HISTORY OF FIDIC 1

BRIEF HISTORY OF FIDIC

FIDIC is a French acronym for Federation Internationale Des Ingenieurs Counsels, in

English which means “ the International Federation of Consulting Engineers”. FIDIC was

originally founded in 1913 by France, Belgium and Switzerland. FIDIC expanded in 1945

to include 40 National Associations of Consulting Engineers. In 2007 FIDIC had 73

International Association members with its headquarters in Geneva, Switzerland.

The first edition of the Conditions of Contract for Works of Civil Engineering

Construction (International) was prepared on behalf of FIDIC and Federation

Internationale des Batiment et des Travaux Publics (FIBTP) which was published in

August 1957. Since then 4 editions of standard Conditions of Contract have been

published as required by the dynamics of the construction industry and considering the

developments in procurement of engineering works which show increasing variety in

the commercial approach adopted in such procurements and in order to harmonize the

clauses, definitions and wordings wherever found necessary and to make these

conditions more user friendly; the FIDIC Organization published new standard forms of

contracts (new standard conditions of contract) in 1999.

| RELATIONSHIPS OF PARTIES TO THE CONTRACT 2

RELATIONSHIPS OF PARTIES TO THE CONTRACT

Traditional Relationship of Parties – FIDIC 19871

The Red Book FIDIC Conditions of Contract for Construction for Building and Engineering

Works Designed by the Employer deals with the Contract between the Employer and

the Contractor.

FIDIC also stipulates the responsibilities of the Engineer, who has a separate direct

Contract with the Employer. According to the FIDIC 1987 Red Book IV edition, the

Employer enters into Contract with the Contractor and hires the Engineer who

administers the Contract, i.e., issues drawings, instructions etc. on behalf of the

Employer, monitors the operation of Contract and makes interpretations; acting

impartially.

1 ECV / FIDIC module 1 training course 2007- course material page no. 6

The Contract between Employer and / Engineer (Possibly FIDIC white Book)

Employer

Engineer

Contractor

Contract between Employer / Contractor New Red or Traditional Book

The Engineer to Administer Contract on behalf of the Employer


New Relationship of Parties – FIDIC 1999.2

According to the FIDIC 1999 Red Book, the Employer enters into Contract with the

Contractor and hires the Engineer

FIDIC also stipulates the responsibilities of the Engineer, who is supposed to administer

the Contract, i.e. issue drawings; instructions etc. on behalf of the Employer, monitor

the operation of Contract and, make determinations acting impartially.

Whereas, in FIDIC 1999 Red Book, there is a further provision of DAB (Dispute

Adjudication Board) for which one or three members are jointly selected by the parties

to the Contract to act pro-actively to resolve potential disputes and claims when they

arise.

2 ECV / FIDIC module 1 training course 2007- course material page no. 6

The Contract between Employer and / Engineer (Possibly FIDIC white Book)

Employer

Engineer

Contractor

Contract between Employer / Contractor New Red or Traditional Book

DAB Contract between Employer / Contractor & 1 or 3 Members of DAB

The Engineer to Administer Contract on behalf of the Employer


Generally the FIDIC Red Book was written as a Re-measurement Contract with Bill of

Quantities representing the works to be measured. The quantities and sums in the

tender bill of quantities are estimates only and actual quantities are to be calculated and

applied during the term of Contract. However, the same Conditions of Contract with

minor adjustments can be used for Lump Sum Contracts also.

| INTRODUCTION TO THE EMPLOYER’S RISKS ACCORDING TO NEW FIDIC 1999 5

INTRODUCTION TO THE EMPLOYER’S RISKS ACCORDING TO

NEW FIDIC 1999

Any efficiently written construction contract should clearly specify who bears the risk of

matters involving delays and additional cost which might or might not occur. FIDIC 1999

(Red Book) allocates the risks in line with the philosophy that the Employer is held

responsible to take on those risks which experienced contractors could not reasonably

be expected to foresee, which are outside the control of the parties (force majeure

consequences), and which are not readily capable of being covered by insurance. The

Employer’s principal duties are to provide the design in a timely manner to the

Contractor, support to obtain statutory approvals, avoidance of disputes, facilitate to

resolve the disputes and timely discharge of payments, all of which carry risks.

Construction contracts involve a great deal of monies, as any other project the Employer

and Architect/Engineer should take care to ensure that the ideas, concepts and project

requirements are transformed into detailed plans and specifications which will be used

by the Contractor to construct the project. Therefore it is essential that the Employer

and the Architect/Engineer pay adequate attention early in the design stages to make

decisions with due care prior to issuing the tender documents. The Tender Documents

should include the maximum possible details in the Contract Documents to allow for

minimum changes during the construction.


According to PMBOK project risk is always in the future, Risk is uncertain event or

condition that, if it occurs, has an effect on at least one project objective. Objectives can

include scope, schedule, cost and quality. A risk may have one or more causes, if it

occurs, it may have one or more impacts3.

Project risk has its origins in the uncertainty present in all projects. Known risks are

those that have been identified and analyzed making it possible to plan responses for

those risks. Specific unknown risks cannot be managed pro-actively, which suggests that

the project team should create a contingency plan4.

Management of risk for construction projects should begin from the very early stages of

project planning and continue through construction until completion and hand-over.

Risks should be identified and addressed systematically during the project planning,

contract formation and contract administration phases of the project. If followed, these

techniques will both reduce the risks of major claims on the construction projects and

keep the Employer in a good position to successfully defend against potential claims

that may arise during the Contract.

3 PMBOK (R) Guide – Fourth Edition Page 275. 4 PMBOK (R) Guide – Fourth Edition Page 275.


An experienced professional project management team should have a risk management

strategy which describes how risk management will be approached, structured, and

performed on the project. Please refer to the following page for a quick reference list

for risk categories (Risk Breakdown Structure – RBS).

| Risk categories (Risk Breakdown Structure – RBS) 8

Risk categories (Risk Breakdown Structure – RBS)5

Technical Risks:

1) Technical Risks:

a) Requirements

b) Technology

c) Complexity and interfaces

d) Quality.

2) External Risks:

a) Government Laws / Rules / permits

b) Market strategy

c) Financial Impact

d) Force Majeure

3) Organizational Risks:

a) Resource Availability

b) Funding

c) Project Dependencies

d) Environmental Factors.

e) Prioritization.

4) Project Management:

a) Lack of Skills

b) Poor Estimation

c) Poor Communication.

5 PMTI fast-forward PMP ® Exam prep course book Rel. 2006.4 Page 100

| 1 – TECHNICAL RISKS 9

1 – TECHNICAL RISKS

The FIDIC 1999 Red Book is based on concept that the engineering works are designed

by the Employer; hence it is the obligation of the Employer to provide the drawings and

instruction in a manner which does not delay the Contractor’s progress of works.

It is prudent that the Employer should perform a thorough review of the complete

investigations of the existing sub-soil conditions, existing services, existence of fossils,

and statutory requirements to ensure that all the ambiguities, inconsistencies and

conflicts are eliminated. Proper estimates should be performed with the employer to

ensure availability of sufficient funds and contingencies to meet the project

requirements.

Allocation of Risks according to FIDIC 1999

Clause 1.9: Delayed drawings & instructions

This Clause put emphasis on the responsibility of the Employer and the Engineer to

provide to the Contractor drawings and instructions in a timely manner. Otherwise, the

Contractor becomes entitled for extensions of time.


However, at the same time this Clause holds the Contractor responsible to give notice to

the Engineer whenever the works are likely to get delayed or disrupted due to delayed

issuance of such drawings and instructions.

Therefore the Employer and the Engineer should take the best care possible to deliver

all the essential drawings and instructions in a timely manner, and leave no chance for

the works to get delayed resulting in claims of breach of contract.

**In the FIDIC IV edition 1987 red book, similar conditions were included in its Sub-

Clause 6.4 – Delays and Cost of Delay of Drawings.

Clause 4.7: Setting out of original points.

This Clause stipulates the responsibility on the part of the Employer to ensure the

correctness of the original points, lines and levels of the references specified in the

Contract or notified by the Engineer. Even though the Contractor is held responsible to

exert his best endeavour to verify the accuracy before their usage, the Contractor

preferably should request the Engineer to confirm the description, nature and location

of datum markers. If the Contractor suffers delays and / or incurs costs from executing

additional works due to Employer.


However, the FIDIC 1999 stipulates the responsibility on the Contractor to serve notice

according to Clause 20.1 and thereafter the Engineer shall proceed with his obligation

according to Clause 3.5 Determination of the extent of the damages suffered by the

Contractor in terms of time as well as cost.

**In the FIDIC IV edition 1987 red book, similar conditions were included in its Article

17.1 – Setting Out.

Clause 7.4: Testing delays by the Employer.

The FIDIC 1999 allocates the responsibility on the Employer to make sure that the

Contract Document clearly and explicitly includes all tests required. However if the

Employer instructs the Contractor to perform additional tests, which are not included in

the Contract Documents, the decision should be taken in a timely manner and only if the

Employer has made certain that there is a high probability of detecting non-compliance

through such tests. The Employer is liable of all consequential cost and time if it is

proved that prior to this additional test the works performed by the Contractor were

compliant with the Contract Specifications and quality requirements. However, if the

tests fail, the Contractor must remedy the works and retest to prove the compliance.



36.5 – Engineer’s Determination where Tests not provided for.

Clause 4.12: Unforeseeable Physical Conditions.

The Sub-Clauses 4.10 and 4.11 put considerable onus on the Contractor, but the Sub-

Clause 4.12 may provide some relief. This Sub-Clause provides for the Contractor to

recover costs and / or be granted Extension of Time, if unforeseeable physical

conditions are found. This Clause gives full defense to the Contractor for unlimited risk

due to conditions which an experienced contractor cannot predict based on the

information provided the Employer and other known sources.

However, like all other events of claims the Contractor must submit notice of claims and

detailed substantiation to the Engineer in timely manner as stipulated in the Clause 20.1

and the Engineer shall proceed with his obligation to agree with or issue determination

according to the stipulations in the Clause 3.5.


12.2 – Not Foreseeable Physical Obstructions or Conditions.

| 2 - PROJECT MANAGEMENT RISKS 13

2 - PROJECT MANAGEMENT RISKS

In case of large projects the Employer should ensure that qualified and experienced

project management team is employed who should be able to professionally administer

the project. The Employer should take all necessary precautions to ensure that all

arrangements are done ahead of time to provide the Contractor with timely access to

site as stipulated in the Contract Documents and mitigate all the events that trigger any

suspensions of works.

Clause 2.1: Right of access to site

This Clause defends the Contractor in case the right of access to site is hindered by the

Employer, FIDIC emphasizes the responsibility of the Employer and the Engineer to

provide the Right of access to site in a timely manner. Otherwise, the Contractor

becomes entitled for extension of time as well as cost and reasonable profit provided

the delay is not attributable in any part by the Contractor.

**It is noteworthy to mention that in the FIDIC 1987 old Red Book the provision is for

extension of time and for cost in the event of delay in giving possession of site by the

employer and not the profit.

| 2 - PROJECT MANAGEMENT RISKS 14

However, the FIDIC stipulates the responsibility on the Contractor to give notice

according to the Engineer and thereby the Engineer must proceed with Determinations

according to Clause 3.5.

Therefore it is prudent for the employer to ensure that the once the Contract is signed

the Contractor will be provided with the access to site as stipulated in the Contract.


42.2 – Failure to Give Possession.

Clause 8.9: Consequences of suspension of works order by the Employer.

This Sub-Clause clearly stipulates that if works are suspended by the Employer, which

suspensions could affect the timely completion of works, then the Contractor has the

right to claim for Extension of Time as well of compensation for any damages suffered.


40.1 – Suspension of Work.

| 3 - FINANCIAL RISKS 15

3 - FINANCIAL RISKS

Clause 12.4: Omission of Bill of Quantities works through Variation Orders

(Employer bears the responsibility of the loss of Overheads)

This Clause provides shelter to the Contractor from the damages / losses the Contractor

would incur due to Omission of works which includes costs which cannot be covered by

the other works in the original scope of Contract which have not been omitted in full or

part for which the Contractor has the rights to submit the claim.

Clause 13.8: Adjustment for changes in rates due to increase in prices.

The FIDIC 1999 Red Book allows provision for the Contractor to claim for adjustment of

rates in case of a rise of fall occurs in prices, therefore, the Employer shall be prepared

with the possible contingencies / management reserves to avoid possible shortages of

funds.

Clause 14.8: Delayed Payments.

The FIDIC 1999 Red Book qualifies the Contractor to be entitled for compensation of

financing charges in case of delay of payments by the employer.

| 3 - FINANCIAL RISKS 16

The Employer is now required to submit under Sub-Clause 2.4, reasonable evidence

within 28 days after receipt of request from the Contractor that financial arrangements

have been made to ensure payment to the Contractor in accordance with the payment

schedule, failing which the Contractor can give 21 days’ notice to suspend the work or

reduce rate of works as per Clause 16.1.


60.10 – Time for payment.

Typical sequence of Payment Events Envisaged in Clause 146

6 FIDIC 1999 figure

<56 d

<28 d d

<28 d <56 d

14.11 Contractor submits draft final statement to the Engineer

Each of the monthly or (otherwise) interim payments

14.3 Contractor submits statement to the Engineer

14.6 Engineer issues interim Payment Certificate

14.7 Employer makes the payment to the Contractor

14.7 Employer makes the payment to the Contractor

14.13 Engineer issues Final Payment Certificate

14.11 Contractor submits Final Statement and the 14.12 discharge

Engineer verifies the statement, Contractor submits information

| 4 EXTERNAL RISKS 17

4 EXTERNAL RISKS

Clause 4.24: Fossils.

This clause implies that the items of values or interest discovered on the site belong to

the Employer. The Contractor shall take steps to preserve such articles and inform the

Engineer immediately and follow the instruction from the Engineer. Albeit this clause

puts additional responsibility on the Contractor to protect all the fossils, coins, articles

of value or antiquity etc. but at the same time it also defends the Contractor against the

consequences of time or cost implications in dealing with such fossils. Once again, the

FIDIC stipulates the responsibility on the Contractor to submit notification according to

Clause 20.1 and thereafter responsibility on the Engineer to agree of issue

determination according to Clause 3.5.

Here in such cases, the Employer / the Engineer must take all possible precautions to

prevent any controllable delays in issuing instruction in dealing with the fossils to

control the cost and time implications as effectively as possible.


27.1 – Fossils.


Clause 8.4: Exceptionally adverse climate conditions.

Extension of Time for Completion,

The FIDIC allocates the eligibility to the Contractor to submit Extension of Time claims to

the Employer if the Contractor suffers delays from exceptionally adverse climatic

conditions which cannot be predicted reasonably by and experienced Contractor.

Clause 8.5: Delays caused by Authorities.

If the Contractor has discharged his due diligence in following the procedures by the

Authorities in a timely maner, but Authorities do not give approvals / permits in a timely

manner, then the Contractor becomes entitled for the corresponding Extension of Time

for Completion according to Clause 8.4 of FIDIC. However, Contractor shall submit

notice according to the Clause 20.1 and seek necessary help from the Employer to liaise

with the statutory authorities.


26.1 – Compliance with Statutes, Regulations.


Clause 17.4: Consequences of Employer’s Risks.

FIDIC relieves the Contractor from the risks arising from war, hostilities, invasion, act of

foreign enemies, rebellion, terrorism etc., which are out of its control and hence the

Contractor is allowed to submit claims for consequential time and cost.


20.4 – Employer’s Risks.

Clause 19.4: Consequences of Force Majeure.

The New Red Book FIDIC 1999 relieves the Contractor from the consequences of Force

majeure.


20.3 – Loss of Damage due to Employer’s Risk.

Typical sequence of Dispute Events envisaged in Clause 207

7 FIDIC 1999

8.1 Commencement Date

20.2 Parties appoint DAB

20.4 A Party may issue a “notice of dissatisfaction”

20.6 A Party may initiate arbitration

20.4 A Party refers a dispute to the DAB

Parties present submissions to the DAB

DAB gives its decision

Arbitrator/s appointed

<28 d <84 d <28 d >56 d

| 5 CONCLUSION 20

5 CONCLUSION

The objectives of project risk management are to increase the probability and impact of

positive events and decrease the probability and impact of events adverse to the project

objectives. Construction risks can be managed with risk management processes with

reasonable adequacy.8

Having identified the technical, project management, financial and external risks

allocated to the Employer, relevant measures can be taken to apply good practices of

risk management including but not limited to the following measures:

Timely issuance of drawings and instructions.

Thorough verification of all the reference points, levels and lines before being

issued to the Contractor.

Ensure that all the essential tests are included in the Technical Specification in

the Contract.

Thoroughly investigate the site to identify physical conditions based on the

history of the project site, especially regarding those which are unforeseeable to

the Contractor.

8 Construction extension to the PMBOK 3RD EDITION (Page 95)

| 5 CONCLUSION 21

Make all the necessary arrangements and proper planning in terms of dates of

handing over site access to the Contractor.

Make all necessary arrangements and coordination to prevent any suspension of

works.

Have contingency funds to overcome unforeseeable price rise or fall.

Ensure the availability of finance based on the planned cash-flow diagrams.

The Employer should investigate historical data of the project site and

surrounding areas to predict the likelihood of encountering / handling fossils.

The Employer should keep good records of history of climatic conditions to

clearly define adverse climatic conditions.

The Employer shall have made all necessary arrangements for obtaining essential

permits and services from various statutory authorities.

The Employer shall keep contingency fund to take care of unforeseeable

Employer’s Risk.

| Appendix A I

Appendix A

Clause 1.9: Delayed drawings & instructions9 The Contractor shall give notice to the Engineer whenever the Works are likely to be delayed or disrupted if any necessary drawing or instruction is not issued to the Contractor within a particular time, which shall be reasonable. The notice shall include details of the necessary drawing or instruction, details of why and by when it should be issued, and details of the nature and amount of the delay or disruption likely to be suffered if it is late. If the Contractor suffers delay and/or incurs Cost as a result of a failure of the Engineer to issue the notified drawing or instruction within a time which is reasonable and is specified in the notice with supporting details, the Contractor shall give a further notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to:

(a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost plus reasonable profit, which shall be included in the Contract Price.

After receiving this further notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. However, if and to the extent that the Engineer's failure was caused by any error or delay by the Contractor, including an error in, or delay in the submission of, any of the Contractor's Documents, the Contractor shall not be entitled to such extension of time, Cost or profit.

Clause 2.1: Right of access to site10

The Employer shall give the Contractor right of access to, and possession of, all parts of the Site within the time (or times) stated in the Appendix to Tender. The right and possession may not be exclusive to the Contractor. If, under the Contract, the Employer is required to give (to the Contractor) possession of any foundation, structure, plant or means of access, the Employer shall do so in the time and manner stated in the Specification. However, the Employer may withhold any such right or possession until the Performance Security has been received.

9 FIDIC 1999 page 7 10 FIDIC 1999 page 8

| Appendix A II

If no such time is stated in the Appendix to Tender, the Employer shall give the Contractor right of access to, and possession of, the Site within such times as may be required to enable the Contractor to proceed in accordance with the programme submitted under Sub-Clause 8.3 [Programme]. If the Contractor suffers delay and/or incurs Cost as a result of a failure by the Employer to give any such right or possession within such time, the Contractor shall give notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to:

(a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost plus reasonable profit, which shall be included in the Contract Price.

After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. However, if and to the extent that the Employer's failure was caused by any error or delay by the Contractor, including an error in, or delay in the submission of, any of the Contractor's Documents, the Contractor shall not be entitled to such extension of time, Cost or profit.

Clause 4.7: Setting out of original points.11 The Contractor shall set out the Works in relation to original points, lines and levels of reference specified in the Contract or notified by the Engineer. The Contractor shall be responsible for the correct positioning of all parts of the Works, and shall rectify any error in the positions, levels, dimensions or alignment of the Works.

The Employer shall be responsible for any errors in these specified or notified items of reference, but the Contractor shall use reasonable efforts to verify their accuracy before they are used. If the Contractor suffers delay and/or incurs Cost from executing work which was necessitated by an error in these items of reference, and an experienced contractor could not reasonably have discovered such error and avoided this delay and/or Cost, the Contractor shall give notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor's C/aims] to:

(a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and

11 FIDIC 1999 page 15

| Appendix A III

(b) payment of any such Cost plus reasonable profit, which shall be included in the Contract Price.

After receiving this notice, the Engineer shall proceed in accordance with Sub- Clause 3.5 [Determinations] to agree or determine (i) whether and (if so) to what extent the error could not reasonably have been discovered, and (ii) the matters described in sub-Paragraphs (a) and (b) above related to this extent.

Clause 4.12: Unforeseeable Physical Conditions.12 The Sub-Clauses 4.10 and 4.11 put considerable onus on the Contractor, but the Sub-Clause 4.12 may provide some relief. This Sub-Clause provides for the Contractor to recover costs and / or be granted Extension of Time, if Unforeseeable physical conditions are met, excluding climate conditions. If and to the extent that the Contractor encounters physical conditions which are Unforeseeable, gives such a notice, and suffers delay and/or incurs Cost due to these conditions, the Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to:

(a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost, which shall be included in the Contract Price.

After receiving such notice and inspecting and/or investigating these physical conditions, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine (i) whether and (if so) to what extent these physical conditions were Unforeseeable, and (ii) the matters described in subparagraphs (a) and (b) above related to this extent. However, before additional Cost is finally agreed or determined under subparagraph (ii), the Engineer may also review whether other physical conditions in similar parts of the Works (if any) were more favourable than could reasonably have been foreseen when the Contractor submitted the Tender. If and to the extent that these more favourable conditions were encountered, the Engineer may proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine the reductions in Cost which were due to these conditions, which may be included (as deductions) in the Contract Price and Payment Certificates. However, the net effect of all adjustments under sub-paragraph (b) and all these reductions, for all the physical conditions encountered in similar parts of the Works, shall not result in a net reduction in the Contract Price. The Engineer may take account of any evidence of the physical conditions foreseen by the Contractor when submitting the Tender, which may be made available by the Contractor, but shall not be bound, by any such evidence.

12 FIDIC 1999 page 16

| Appendix A IV

Clause 4.24: Fossils.13 All fossils, coins, articles of value or antiquity, and structures and other remains or items of geological or archaeological interest found on the Site shall be placed under the care and authority of the Employer. The Contractor shall take reasonable precautions to prevent Contractor's Personnel or other persons from removing or damaging any of these findings. The Contractor shall, upon discovery of any such finding, promptly give notice to the Engineer, who shall issue instructions for dealing with it. If the Contractor suffers delay and/or incurs Cost from complying with the instructions, the Contractor shall give a further notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to:

(a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost, which shall be included in the Contract Price.

After receiving this further notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters.

Clause 7.4: Testing delays by the Employer.14 The Engineer may, under Clause 13 [Variations and Adjustments], vary the location or details of specified tests, or instruct the Contractor to carry out additional tests. If these varied or additional tests show that the tested Plant, Materials or workmanship is not in accordance with the Contract, the cost of carrying out this Variation shall be borne by the Contractor, notwithstanding other provisions of the Contract. The Engineer shall give the Contractor not less than 24 hours' notice of the Engineer's intention to attend the tests. If the Engineer does not attend at the time and place agreed, the Contractor may proceed with the tests, unless otherwise instructed by the Engineer, and the tests shall then be deemed to have been made in the Engineer's presence. If the Contractor suffers delay and/or incurs Cost from complying with these instructions or as a result of a delay for which the Employer is responsible, the Contractor shall give notice to the Engineer and shall be entitled subject to Sub- Clause 20.1 [Contractor's Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost plus reasonable profit, which shall be included in the Contract Price. After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. The Contractor shall promptly forward to the Engineer duly certified reports of the tests.


| Appendix A V

When the specified tests have been passed, the Engineer shall endorse the Contractor's test certificate, or issue a certificate to him, to that effect. If the Engineer has not attended the tests, he shall be deemed to have accepted the readings as accurate.

Clause 8.4: Exceptionally adverse climate conditions.15 Extension of Time for Completion,

Clause 8.5: Delays caused by Authorities.16 If the following conditions apply, namely:

(a) the Contractor has diligently followed the procedures laid down by the relevant legally constituted public authorities in the Country, (b) these authorities delay or disrupt the Contractor's work, and (c) the delay or disruption was Unforeseeable,

Then this delay or disruption will be considered as a cause of delay under subparagraph (b) of Sub-Clause 8.4 [Extension of Time for Completion].

Clause 8.9: Consequences of suspension of works order by the Employer.17 If the Contractor suffers delay and/or incurs Cost from complying with the Engineer's instructions under Sub-Clause 8.8 [Suspension of Work] and/or from resuming the work, the Contractor shall give notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to:

(a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost, which shall be included in the Contract Price. After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters.

The Contractor shall not be entitled to an extension of time for, or to payment of the Cost incurred in, making good the consequences of the Contractor's faulty design, workmanship or materials, or of the Contractor's failure to protect, store or secure in accordance with Sub-Clause 8.8 [Suspension of Work].

Clause 12.4: Omission of Bill of Quantities works through Variation Orders (Employer bears the responsibility of the loss of Overheads.18 15 FIDIC 1999 page 24 16 FIDIC 1999 page 28 17 FIDIC 1999 page 29 18 FIDIC 1999 page 36

| Appendix A VI

Whenever the omission of any work forms part (or all) of a Variation, the value of which has not been agreed, if:

(a) the Contractor will incur (or has incurred) cost which, if the work had not been omitted, would have been deemed to be covered by a sum forming part of the Accepted Contract Amount; (b) the omission of the work will result (or has resulted) in this sum not forming part of the Contract Price; and (c) this cost is not deemed to be included in the evaluation of any substituted work;

Then the Contractor shall give notice to the Engineer accordingly, with supporting particulars. Upon receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine this cost, which shall be included in the Contract Price.

Clause 13.8: Adjustment for changes in rates due to increase in prices.19 The New Red Book FIDIC 1999 allows provision for the Contractor to claim for adjustment of rates in case of increase of prices. If this Sub-Clause applies, the amounts payable to the Contractor shall be adjusted for rises or falls in the cost of labour, Goods and other inputs to the Works, by the addition or deduction of the amounts determined by the formulae prescribed in this Sub-Clause. To the extent that full compensation for any rise or fall in Costs is not covered by the provisions of this or other Clauses, the Accepted Contract Amount shall be deemed to have included amounts to cover the contingency of other rises and falls in costs.

Clause 14.8: Delayed Payments.20 If the Contractor does not receive payment in accordance with Sub-Clause 14.7 [Payment], the Contractor shall be entitled to receive financing charges compounded monthly on the amount unpaid during the period of delay. This period shall be deemed to commence on the date for payment specified in Sub-Clause 14.7 [Payment], irrespective (in the case of its sub-paragraph (b)) of the date on which any Interim Payment Certificate is issued. Unless otherwise stated in the Particular Conditions, these financing charges shall be calculated at the annual rate of three percentage points above the discount rate of the central bank in the country of the currency of payment, and shall be paid in such currency. The Contractor shall be entitled to this payment without formal notice or certification, and without prejudice to any other right or remedy.


| Appendix A VII

Clause 17.4: Consequences of Employer’s Risks.21 If and to the extent that any of the risks listed in Sub-Clause 17.3 above results in loss or damage to the Works, Goods or Contractor's Documents, the Contractor shall promptly give notice to the Engineer and shall rectify this loss or damage to the extent required by the Engineer. If the Contractor suffers delay and/or incurs Cost from rectifying this loss or damage, the Contractor shall give a further notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to:

(a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost, which shall be included in the Contract Price. In the case of sub-paragraphs (f) and (g) of Sub-Clause 17.3 [Employer's Risks], reasonable profit on the Cost shall also be included.

After receiving this further notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters.

Clause 19.4: Consequences of Force Majeure.22 The New Red Book FIDIC 1999 relieves the Contractor from the responsibilities from the consequences of Force majeure. If the Contractor is prevented from performing any of his obligations under the Contract by Force Majeure of which notice has been given under Sub-Clause 19.2 [Notice of Force Majeure], and suffers delay and/or incurs Cost by reason of such Force Majeure, the Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) if the event or circumstance is of the kind described in sub-paragraphs (i) to (iv) of Sub-Clause 19.1 [Definition of Force Majeure] and, in the case of subparagraphs (ii) to (iv), occurs in the Country, payment of any such Cost. After receiving this notice, the Engineer shall proceed in accordance with Sub- Clause 3.5 [Determinations] to agree or determine these matters.

Clause 20.1: Contractor’s Claims.23

21 FIDIC 1999 page 52 22 FIDIC 1999 page 57 23 FIDIC 1999 page 58

| Appendix A VIII

If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Engineer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance. If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim. Otherwise, the following provisions of this Sub-Clause shall apply. The Contractor shall also submit any other notices which are required by the Contract, and supporting particulars for the claim, all as relevant to such event or circumstance. The Contractor shall keep such contemporary records as may be necessary to substantiate any claim, either on the Site or at another location acceptable to the Engineer. Without admitting the Employer's liability, the Engineer may, after receiving any notice under this Sub-Clause, monitor the record-keeping and/or instruct the Contractor to keep further contemporary records. The Contractor shall permit the Engineer to inspect all these records, and shall (if instructed) submit copies to the Engineer. Within 42 days after the Contractor became aware (or should have become aware) of the event or circumstance giving rise to the claim, or within such other period as may be proposed by the Contractor and approved by the Engineer, the Contractor shall send to the Engineer a fully detailed claim which includes full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed. If the event or circumstance giving rise to the claim has a continuing effect: (a) this fully detailed claim shall be considered as interim; (b) the Contractor shall send further interim claims at monthly intervals, giving the accumulated delay and/or amount claimed, and such further particulars as the Engineer may reasonably require; and (c) the Contractor shall send a final claim within 28 days after the end of the effects resulting from the event or circumstance, or within such other period as may be proposed by the Contractor and approved by the Engineer. Within 42 days after receiving a claim or any further particulars supporting a previous claim, or within such other period as may be proposed by the Engineer and approved by the Contractor, the Engineer shall respond with approval, or with disapproval and detailed comments. He may also request any necessary further particulars, but shall nevertheless give his response on the principles of the claim within such time. Each Payment Certificate shall include such amounts for any claim as have been reasonably substantiated as due under the relevant provision of the Contract. Unless and until the

| Appendix A IX

particulars supplied are sufficient to substantiate the whole of the claim, the Contractor shall only be entitled to payment for such part of the claim as he has been able to substantiate. The Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine (I) the extension (if any) of the Time for Completion (before or after its expiry) in accordance with Sub-Clause 8.4 [Extension of Time for Completion], and/or (ii) the additional payment (if any) to which the Contractor is entitled under the Contract. The requirements of this Sub-Clause are in addition to those of any other Sub-Clause which may apply to a claim. If the Contractor fails to comply with this or another Sub-Clause in relation to any claim, any extension of time and/or additional payment shall take account of the extent (if any) to which the failure has prevented or prejudiced proper investigation of the claim, unless the claim is excluded under the second paragraph of this Sub-Clause.

| Bibliography X

Bibliography

FIDIC’s New Suite of Contracts – Clause 17 to 19, Risk, Responsibility, Liability, Insurance,

and Force Majeure by Nael G. Bunni. This paper was printed in the International

Construction Law Review “ICLR” Vol 18, Part 3, July 2001.

Owner’s Perspective: A guide to avoiding and responding to construction claims; by

Andrew D. Ness Howrey LLP – printed, Nov, 20, 2000.

Claims: Mystries unraveled. 2nd Edition, Rojer Knowles.

Contractor’s claims under the FIDIC contracts for major works, by R.Seppala.

Construction law journal, London, printed in 2005.

FIDIC: An overview, the latest developments, comparisons, claims and force majeure by

Jeremy Glover, printed on 11th September 2007.

Introduction to FIDIC form of contract for construction 1999, by K.S. Kharb (Fellow

Emeritus & past President of Institution of Surveyors and CASLE (Asia region).

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