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CW 2017 (1)

Collective Wisdom Annual Lecture – 2017

MDA’s annual Collective Wisdom conference was held in Johannesburg recently and brought together international and local experts to discuss the impact of changes to the FIDIC Rainbow Suite of standard form construction contracts.

Presenters covered:

  • the use of FIDIC contracts in South Africa,
  • details of changes made to the FIDIC Rainbow Suite since its first edition published in 1999,
  • the Emerald Book which deals specifically with tunnelling and underground works and
  • expert opinions on the possible local impact of the latest edition of the FIDIC Rainbow Suite.

Imbalanced risk sharing
One of the principal drafters of the FIDIC Yellow Book, Siobhan Fahey – a qualified engineer, attorney and adjudicator – unpacked the changes to the FIDIC Rainbow Suite, which is due to be published after prolonged friendly review, later this year.

Fahey explained that imbalanced risk-sharing in FIDIC contracts typically results in

  1. higher tender prices;
  2. delays to completion;
  3. additional time and cost claims; and, in the worst cases,
  4. major protracted disputes leading to arbitration, and sometimes to contract termination.

“No two projects are the same, so FIDIC acknowledges that special conditions will be required for project specific issues. Much like a three-legged stool, our contracts require employers, contractors and engineers to play their respective roles in reducing uncertainty for construction projects. The last update to the FIDIC suite of construction contracts was 10 years ago, so with this iteration we have addressed common issues gleaned from years of using the Rainbow Suite,” she said.

One of the most noteworthy changes is that contractors and engineers are expected to play more proactive roles in conveying information back and forth. Reciprocity is ingrained and employer’s requirements have been tightened given that this has been the source of many disputes in the past.

FIDIC contracts and African construction projects
Also speaking at the event was Bahati Mbembe, a Tanzanian contract administration expert, who highlighted aspects of the Red Book that are particularly applicable in African construction projects. “In African construction projects, contractors are often concerned about the neutrality of the engineer, who is often perceived to be personnel of the employer,” he said.

Another common issue in Africa is outlined in Clause 8.5 of the Red Book and deals with delays caused by authorities. “It could be that the processes of tax exemption, port clearance and permits take longer than anticipated, so my advice to contractors is to appoint someone to deal specifically with this issue,” says Mbembe.

Clarifying roles
MDA Consulting Director, Euan Massey, highlighted a number of specific clauses in the FIDIC Rainbow Suite which primarily deal with time and money and clarify the roles of the employer and the engineer.

“Dispute avoidance mechanisms have been introduced and there is an overarching bias towards trying to reach agreement between the parties,” he explained.
Massey underscored the importance of complying with the provisions of the contract to ensure that greater complexity is not created in the event of a dispute.

Regulating contractual appointments
The FIDIC White Book regulates the contractual appointment between the client (either the contractor or the employer) and the consultant and was also updated in April 2017.

MDA Consulting Director, Odette Potgieter, unpacked the amendments and new provisions. “The new edition has corrected shortcomings in the previous version. As a result, we think that the FIDIC White Book will be used with more confidence going forward. Even though this is a longer document, the changes have added clarity to the contract,” she said.

Underground and tunnelling contracts
Matthias Neuenschwander, an international expert who chairs FIDIC Task Group 10, unpacked the provisions of the new Emerald Book via Skype from Zurich. The Emerald Book was drafted specifically for tunnelling and underground works.

The Emerald Book assigns performance-related risks. “Balance is the key. Not all anticipated risks are likely to materialise, so all risks cannot be allocated to one party. If the employee takes all the risk, the contractor doesn’t have an incentive to perform. Likewise, if the geology is poorer than anticipated in the planning process, leading to an extension of time, the contractor should be paid for time extensions but neither party suffers nor gains from the situation,” said Neuenschwander.

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