FIDIC has recently published its annual report for 2022-2023. Amongst other things, the annual report provides an "update on publications", referring to new and upcoming FIDIC initiatives and summarising key recent publications. We provide some detail below on the publications launched by FIDIC in the past 12 months, as well as other initiatives expected within the next 12-18 months.
2022 reprints of the 2017 Red, Yellow and Silver Books
The first editions of the FIDIC Red, Yellow and Silver Books were published in 1999 and remain the most widely used standard forms of contract internationally. They are often referred to as the 'Rainbow Suite', sometimes together with other standard forms in the FIDIC suite, which are characterised by their individual colour labels. These include the Green Book (short form of contract) – also published in first edition in 1999 and since updated in the 2021 second edition – as well as the Pink Book (multilateral development bank edition), Gold Book (design-build-operate), Blue-Green Book (dredging and reclamation works) and Emerald Book (underground works).
In 2017, FIDIC published second editions of the Red, Yellow and Silver Books. In November 2022, FIDIC published a series of reprints of the 2017 Red, Yellow and Silver Books (the 2022 reprints), comprising:
- FIDIC Construction Contract 2nd Edition (2017 Red Book, Reprinted 2022 with amendments)
- FIDIC Plant and Design-Build Contract 2nd Edition (2017 Yellow Book Reprinted 2022 with amendments)
- FIDIC EPC/Turnkey Contract 2nd Edition (2017 Silver Book Reprinted 2022 with amendments).
The 2022 reprints incorporate errata which had been identified previously, as well as new amendments including for example:
- Amending the definition of "claim" to specifically exclude matters "to be agreed or determined" under Sub-Clause (SC) 3.7(a);
- Amending the definition of "Dispute" and introducing the concept of "deemed" Disputes in SC 21.4;
- Clarifying that "Exceptional Events" under SC 18.1 are still required to be "exceptional" (see below for more detail on this);
- Amending some of the procedural rules which apply to the Dispute Avoidance/Adjudication Board or "DAAB".
Parties who have already signed contracts based on the 2017 forms should be aware that the changes will not automatically apply: contracts will need to be specifically amended to incorporate the amended provisions if so desired.
Guidance on effects of inflation and unavailability of goods and labour
In March 2023, FIDIC published a memorandum entitled "FIDIC guidance on the effects of inflation and unavailability of goods and labour following the global COVID-19 pandemic and the war in Ukraine". This is intended to assist FIDIC users in understanding how its contractual mechanisms may be used to address the effects of inflation and shortages of goods and labour in the aftermath of the COVID-19 pandemic and the war in Ukraine.
In order to constitute Force Majeure (under the 1999 Books) / an "Exceptional Event" (2017 Books) (FM / EE), an event must be "exceptional" and be:
- beyond a Party's control;
- one which the Party could not reasonably have provided against before entering into the Contract;
- one which having arisen, such Party could not reasonably have avoided or overcome; and
- not substantially attributable to the other Party.
In addition, the affected party will only be excused from performance if it "is or will be prevented from performing any obligations under the Contract" as a result of the event of FM / EE.
The guidance memorandum sets out ten potential "scenarios" involving supply shortages, sanctions and inflation. The scenarios all arise out of an example set of facts, which range from:
- difficulty procuring rebar in 2021 following the first wave of COVID-19, and the significant increase in cost of both procuring and shipping rebar;
- inability to procure rebar which was due to be shipped from Ukraine following the outbreak of war; to
- inability to procure rebar from Russian suppliers due to sanctions / ban on trading.
The guidance memorandum discusses how the FM / EE provisions of the FIDIC contracts may be applied to each of the scenarios. For example, war – including "hostilities (whether war be declared or not)" – will constitute an event of FM / EE under the relevant FIDIC clauses, provided the affected party has been prevented from performing its obligations as a result and has given the requisite notices.
Certain events of FM / EE (such as natural catastrophes) only give rise to an entitlement to an extension of time. However, the outbreak of war – even if it is not in the country where the works are being undertaken – may give rise to an entitlement to cost as well as time relief.
Difficulty in procuring, or increased cost of materials, on the other hand, are unlikely to constitute FM / EE: although procurement may be more difficult, onerous, or costly, this will not generally prevent performance. In such cases it will be important to review any price adjustment formula that may be included in the contract terms, and any relief that may be provided by virtue of hardship provisions in the governing law.
We explore force majeure/exceptional events under FIDIC and how FIDIC's contractual mechanisms operate to address these in more detail in our latest article: 'FIDIC: remedies available under Red Book 1999/2017'.
Looking forward - what can we expect in the next 12 months and beyond?
In late 2022, FIDIC also announced the establishment of a task group to develop a new Engineering, Procurement and Construction Management (EPCM) contract.
Following the recent publication of the Institution of Chemical Engineers' (IChemE) Blue Book EPCM contract, the FIDIC EPCM form is expected to be launched to market towards the end of 2023.
New contract for offshore wind projects?
In July 2023, FIDIC announced that it had established a task group to work on a new offshore wind farm contract.
Whilst existing FIDIC forms, particularly the Yellow Book (design-build contract), are frequently used for both onshore and offshore wind farm projects due to the familiarity of developers and operators with the FIDIC forms, they are traditionally onshore contracts and require significant amendments when used offshore. Particular care must be taken with regard to matters such as weather risk and the relationship with a marine warranty surveyor (often insisted upon by insurance providers in offshore projects). The development of a form of FIDIC contract which is dedicated to the offshore wind farm sector and addresses its specific requirements will be a welcome step for the industry.
2023 also marked the creation of a new task group within FIDIC tasked with considering net zero clauses. Potential options include incentivising or setting targets for contractors and subcontractors to reduce emissions, or levying liquidated damages for failure to meet pre-agreed net zero targets.
In June 2023, FIDIC also published a report entitled "Digital Technology on a Path to Net Zero", considering the role of digital technology in meeting net zero goals. The report makes several recommendations, including capitalising on the lessons learned from the COVID-19 pandemic and the rapid adoption of digital technologies in the infrastructure sector and greater deployment of digital solutions to retrofit existing infrastructure, enhance energy efficiency, reduce carbon emissions and prolong lifespan.
If you have any questions about this article, please get in touch with Gordon Bell, Mike Stewart or Paul Green.