In this blog post, Steering Committee member, Mark Watson, answers a variety of questions related to FIDIC 1987 and 1999 forms of contract. These questions are excerpted from our seventh Construction Clinic session, which took place in May 2020. The entire webinar may be viewed on-demand on YouTube.

Question 1

Question: This question relates to the 1999 edition of the Red Book. The contract has a PCoC clause introducing milestones into the project. Whilst the contract decided on the requirements necessary to achieve milestone completion and issuance of the milestone certificate, is it correct to assume the requirements would be the same as required by Clause 10 (Taking-Over of the Works, Sections, or parts of the Works)?

Answer: In the first instance, I’m assuming that PCoC is the acronym for Particular Conditions of Contract. Before I answer the question, I must qualify that I have not considered the construction of the PCoC nor have I had sight of this clause. Therefore, my response will be based on the FIDIC 1999 standard form of contract. If you consider that a standard form contract, and specifically under Sub-clause 11.9 (Performance Certificate) provides the performance certificate will be issued when the Employer has accepted the works.

There is a difference between a Performance Certificate provided under Sub-clause 11.9 and a Taking Over Certificate provided under Clause 10 under the standard form contract. In terms of Sub-clause 11.9, a Performance Certificate is issued once the Contractor has completed his obligations under the contract. Whereas a completion of a milestone would not constitute completion of the Contractor’s obligations under the Contract. The primary reason, therefore, is that completing a milestone would generally relate more to the partial completion of the works. However, if your milestone relates to Sub-clause 8.2 (Time for Completion), then those requirements would be the same as required by sub-clause 10 (Taking Over the Works and Sections).

As an example, if the contract requires lift 1 to be completed by a specific milestone date under Sub-clause 8.2 then the system related to lift 1 would be those described under Sub-clause 10 [SC 8.2]. In other words, the entire system related to lift 1 should be operational: the lift shaft, the structural components and mechanical elements, etc. The finishes to the lift should also be completed.

Now, I’ve also seen contracts that list the delivery of specific equipment under Sub-clause 8.2. By way of example, the Employer may require a pump or motor (etc.) to be on site by a specific date. In this circumstance, Sub-clause 10 would not apply to the delivery of the equipment.

Question 2

Question: (Part 1 of 2) Is a DAB decision under the FIDIC 1999 Red Book enforceable under UAE law?

Answer: I must qualify my response – I’m not a practicing lawyer. My responses will be related to the contract and I’m utilizing the standard form contract as I do not have the details of your specific contract.

Under the standard 1999 FIDIC contract, Sub-clause 20.4 (Obtaining Dispute Adjudication Board’s Decision), provides that either of the parties may provide or issue the other party with a Notice of dissatisfaction relating to the DAB’s decision. It also states that this decision is binding and can be overturned in two ways. The first is if the parties come to an agreement and they settle, and the second is where an arbitrary award is made and the decision is changed in terms of the award.

The standard form of contract does not spell out enforcement of awards but says it is binding. Depending on the jurisdiction the contract is under, some jurisdictions have in place statutory adjudication rights. In those circumstances, where you have statutory adjudication rights, you would have recourse to have the Adjudicator’s decision enforced.

Where the jurisdiction does not provide for statutory adjudication rights, the answer would be, no, you cannot have it enforced. The reason is that your remedy would be limited to that provided under the contract.

Now, the contract says the parties agree to abide by or consent to the Adjudicator’s decision. In the case that either party doesn’t execute the decision, that is in breach of adjudication, and you can apply for breach of contract. So it depends on the jurisdiction whether you can enforce it. With no jurisdiction, the remedy will sit under the contract.

Question 3

Question: (Part 2 of 2) Should a party claim and file for costs, including legal fees separately from an arbitration or compensation? The contract is FIDIC 1999 Red Book Design.

Answer: What you must understand is that an arbitration award is not made under FIDIC 1999 Red Book Design nor is arbitration undertaken under the FIDIC 1999 Red Book Design, or any contract for that matter. An arbitration is undertaken in terms of the arbitration agreement entered into between the parties. Now, your contact, such as FIDIC, can refer to or can set out the arbitration part of the process, but that is not the arbitration agreement. The parties can agree to anything under the arbitration agreement and, therefore, I cannot give you an answer in terms of this.

Recovered costs, including legal fees under the arbitration agreement, would depend upon two things. The first is, what did the parties agree to? Did the parties agree upfront on how they would get those costs? Or did the parties agree that they would give the power to the arbitrator to make the award of those costs? Without having seen the arbitration agreement, I cannot give you an answer. I would recommend that you refer to the arbitration agreement and take a legal opinion on this matter.

Question 4

Question: If the Contractor has not opened a policy under Clause 20-25 under FIDIC 1987, does it mean the parties have lost the opportunity to lodge a claim under the contract?

Answer: If I consider the provisions of the contract. The contract states that the Contractor has the obligation to provide those insurances required under the contract. “Obligation” because in the wording of the contract, it uses the word “shall”. That is non-negotiable; he shall provide those insurances under the contract.

In the event that the Contractor does not provide those insurances required by the contract, the Employer has an option to decide whether to provide those insurances or not. I say this because the wording is “the Employer may”; while “shall” is non-negotiable, “may” is optional.

If the Employer decides to provide those insurances as required by the contract, the Employer has recourse to recover those monies from the Contractor. The Employer will not lose any remedy to recover those monies because the wording of the contract is clear.

It says the Employer will only lose his rights to claim against those insurances in the circumstances where he acts outside of those provisions of the insurance policies. However, if there is no insurance policy then the Employer will never be in a position where it will fail to comply with the requirements of the policy.

The liability still vests with the Contractor in the circumstances where an event occurs and the Contractor is unable to call upon the insurance he was obliged to provide under the Contract.

The questions covered in this blog were answered by ICCP Steering Committee member, Mark Watson

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