Cover Page

Contents

List of Figures

List of Tables

The Author

Preface

Acknowledgements

Part I Background and Concepts of the Red Book

Chapter 1 Background of the Red Book

1.1 The ACE Form

1.2 The First Edition of the Red Book

1.3 The Second and Third Editions of the Red Book

1.4 The Fourth Edition of the Red Book

1.5 The 1996 Supplement to the Red Book

1.6 Concepts of the Red Book

1.7 The new suite of FIDIC contracts

Chapter 2 The Red Book is Based on a Domestic Contract

2.1 Introduction

2.2 Diversity of legal systems

2.3 The applicable law in international construction

2.4 The applicable law of the contract

2.5 Law governing procedure

2.6 Law governing enforcement of awards

2.7 Grouping of the contemporary legal systems

2.8 The Romano-Germanic group

2.9 The common law group

2.10 The law in Islamic countries

Chapter 3 Legal Concepts Based on the Common Law System

3.1 The law applicable to the contract

3.2 Conflict

3.3 Some specific concepts under the common law

3.4 Tort

3.5 Contract – general principles

3.6 Privity of contract

3.7 Performance of a contract

3.8 The contents of a contract

3.9 Remedies for breach of contract

3.10 Exclusion clauses

3.11 The responsibility to complete

Chapter 4 Drafting Principles

Chapter 5 The Concept of a Trusted Independent Engineer

5.1 Introduction

5.2 Other suppliers of consulting services

5.3 Services provided by the consulting engineer

5.4 Independence

Chapter 6 A Traditional Re-measurement Contract

6.1 Factors governing choice of contract

6.2 The allocation of essential functions

6.3 Re-measurement contracts

6.4 Cost-reimbursable contracts

6.5 Lump sum contracts

Chapter 7 Sharing of Risks

7.1 Introduction

7.2 The definition of ‘risk’

7.3 Measurement of risk

7.4 Risk management

7.5 Allocation of risks and their management

7.6 Allocation of risks in the Red Book

7.7 Responsibility and liability

7.8 Indemnity and insurance

Chapter 8 The Concepts in Practice

8.1 The Red Book in use

8.2 Areas of conflict

8.3 EIC/FIDIC survey of 1996

8.4 A brief summary of Part I

Part II The Fourth Edition: A Commentary

Chapter 9 The Revisions – Purposes and Consequences

9.1 Introduction

9.2 Clause 1

9.3 Clause 2

9.4 Sub-clause 5.2

9.5 Sub-clauses 6.1, 6.4 and 6.5

9.6 Clause 7

9.7 Clause 8

9.8 Clause 10

9.9 Sub-clause 12.2

9.10 Clause 13

9.11 Sub-clauses 14.1 and 14.3

9.12 Clause 15

9.13 Clause 19

9.14 Clause 20

9.15 Clause 21

9.16 Clause 23

9.17 Clause 25

9.18 Clause 27

9.19 Clause 28

9.20 Clause 30

9.21 Clauses 34 and 35

9.22 Sub-clause 36.5

9.23 Clause 37

9.24 Clause 40

9.25 Clause 41

9.26 Sub-clause 42.3

9.27 Clause 44

9.28 Clause 46

9.29 Clause 51

9.30 Sub-clause 52.3

9.31 Clauses 53 and 54

9.32 Sub-clause 57.2

9.33 Clause 60

9.34 Sub-clauses 65.4 and 66.1

9.35 Clause 67

9.36 Clause 69

9.37 Other changes made in the 1992 Reprint

9.38 Concluding remarks

Part III The Fourth Edition in Practice

Chapter 10 Role of the Engineer

10.1 Introduction

10.2 The engineer as a designer

10.3 The engineer as the employer’s agent

10.4 The engineer’s proactive duties and authority

10.5 The engineer’s reactive duties and authority

10.6 The engineer’s passive duties and authorities

10.7 The engineer as a supervisor

10.8 The engineer as certifier

10.9 The engineer as adjudicator or quasi-arbitrator

10.10 Concluding remarks

Chapter 11 Responsibility and Liability of the Engineer

11.1 Introduction

11.2 Responsibility of the engineer towards the employer

11.3 Responsibility of the engineer towards the contractor

11.4 The responsibility of the engineer towards third parties (other than the contractor)

11.5 The responsibility of the engineer towards society; employees; and the engineer himself

11.6 Liability in construction

11.7 Levels of liability

Chapter 12 The Employer’s Obligations

12.1 Introduction

12.2 Identification of specific elements of the project

12.3 Appointment of engineer

12.4 Possession of site

12.5 To provide instructions as and when they are required

12.6 The employer is to refrain from taking any action which would impede or interfere with the progress of the works

12.7 The employer is to supply materials and carry out works if these form part of the work as defined in the contract

12.8 The employer is to nominate specialist sub-contractors and suppliers as and when they are required

12.9 To permit the contractor to carry out the whole of the works

12.10 To make payments and to make them on time

12.11 Additional obligations for the employer under the Fourth Edition of the Red Book

Chapter 13 The Contractor’s Obligations

13.1 Introduction

13.2 The contractor’s obligations during the tendering stage

13.3 The contractor’s obligations following the letter of acceptance and during the construction stage up to substantial completion

13.4 Contractor’s obligations after substantial completion of the works

Chapter 14 Risks, Liabilities, Indemnities and Insurances

14.1 Introduction

14.2 The Red Book provisions relating to risk, responsibility, liability, indemnity and insurance

14.3 Clause 20 of the Red Book – ‘20.1: care of the works’; ‘20.2: responsibility to rectify loss or damage’; ‘20.3: loss or damage due to employer’s risks’; and ‘20.4: employer’s risks’

14.4 Clause 65 of the Red Book (sub-clauses 65.1 to 65.8) – special risks

14.5 Clause 21 of the Red Book – insurance

14.6 Clause 22 of the Red Book – indemnity for damage to persons and property other than the works

14.7 Clause 23 of the Red Book – third party insurance

14.8 Clause 24 of the Red Book – injury to workmen and insurance

14.9 Clause 25 of the Red Book – general insurance requirements

14.10 Part II of the Red Book – insurance arranged by the employer

14.11 Definitions

Chapter 15 Performance and other Securities

15.1 Introduction

15.2 The spectrum of securities

15.3 Types of securities

15.4 Characteristics of performance bonds and guarantees

15.5 The ICC Uniform Rules for Demand Guarantees

15.6 Uniform Rules for Contract Bonds

15.7 Insurance against unfair calling

15.8 Performance securities under the Red Book

15.9 Examples of securities provided

15.10 Other securities associated with a construction contract

15.11 Concluding remarks

Chapter 16 Claims and Counterclaims

16.1 Introduction

16.2 Definition and legal basis of claims and counterclaims

16.3 A claim under the contract and based on its provisions

16.4 A claim arising out of or in connection with the contract

16.5 Procedure for claims for additional payment – clause 53

16.6 The presentation of claims

16.7 Quantum

16.8 Failure to follow the claims procedure

16.9 Concluding remarks

Chapter 17 Delay in Completion and Claims for Extension of Time

17.1 Time is of fundamental importance

17.2 Clauses 43, 44, 46, 47 and 48 of the Red Book

17.3 Relevant clauses of the Fourth Edition of the Red Book to an extension of time under clause 44

17.4 Programming

17.5 Concurrent delays

17.6 Claims for both extension of time and money

17.7 Liquidated damages

17.8 The Society of Construction Law Delay and Disruption Protocol

Chapter 18 Certificates and Payments

18.1 Introduction

18.2 Interim payment certificates

18.3 Taking-over certificate

18.4 Defects liability certificate

18.5 Final payment certificate

18.6 The engineer is to certify a valuation at date of termination

18.7 Common requirements

18.8 Late certification

Chapter 19 Disputes Settlement by Arbitration

19.1 Introduction and background

19.2 Advantages of arbitration

19.3 What is a dispute?

19.4 What is arbitration?

19.5 The arbitration agreement

19.6 Sources of law in arbitration

19.7 The arbitrator

19.8 The arbitration agreement under clause 67 of the Red Book

19.9 The 1996 supplement to the Fourth Edition of the Red Book

19.10 The ICC Rules of Arbitration

19.11 Why does arbitration in construction disputes continue to lose favour?

19.12 Concluding remarks

Chapter 20 Amicable Settlement Using Alternative Dispute Resolution

20.1 Introduction

20.2 Methods of dispute settlement

20.3 Direct negotiation

20.4 Mediation

20.5 Conciliation

20.6 Mini-trial procedure

20.7 Dispute Board, Dispute Review Board and Dispute Adjudication Board

20.8 Adjudication

20.9 The ICC Rules for Amicable Dispute Resolution

20.10 Pre-arbitral referee procedure

20.11 The ICC Rules for Expertise

20.12 Concluding remarks

Part IV Other Documents Related to the Red Book

Chapter 21 FIDIC’s Other Forms of Contract (1993–1999)

21.1 Introduction

21.2 The Yellow Book, third edition

21.3 The Orange Book, first edition

21.4 The conditions of subcontract for works of civil engineering construction

21.5 Other publications of FIDIC

Part V The 1999 Green Book; The 1999 Red Book; The 1999 Yellow Book; The 1999 Silver Book; Dispute Boards

Chapter 22 The 1999 FIDIC Suite of Contracts

22.1 Introduction

22.2 Differences in format

22.3 Differences in concept

22.4 The 1999 Green Book

Chapter 23 The 1999 Red Book

23.1 Introduction

23.2 The 1999 Red Book: concepts and content

23.3 The 1999 Red Book: new concepts

23.4 Some highlights of the 1999 Red Book

Chapter 24 The 1999 Yellow Book

24.1 Introduction

24.2 Tendering under, and using, the 1999 Yellow Book

24.3 The 1999 Yellow Book: The employer’s requirements

Chapter 25 The 1999 Silver Book

25.1 Introduction

25.2 The 1999 Silver Book: the shifted risks

25.3 The 1999 Silver Book: concepts and content

Chapter 26 Dispute Boards

26.1 Introduction

26.2 Main advantages of the Dispute Board

26.3 Background and evolution

26.4 Types of Dispute Boards

26.5 Varieties of Dispute Boards

26.6 Dispute Adjudication Boards under the FIDIC Contracts

26.7 The role of the Dispute Adjudication Board

26.8 Establishment of the Dispute Adjudication Board

26.9 Obligations of the parties and the members of the Dispute Adjudication Board

26.10 Powers of the Dispute Adjudication Board

26.11 Procedures relating to site visits and meetings

26.12 Procedures relating to referral of a matter to the Board for its opinion

26.13 Procedures relating to referral of a dispute to the Board for its decision

26.14 Remuneration of the members of the Dispute Adjudication Board

26.15 Cost of maintaining the members of the Dispute Adjudication Board

26.16 The decision of the Dispute Adjudication Board

Part VI Comparison between text of the three 1999 Major Books: Red, Yellow and Silver Books

Chapter 27 A Precise Record of the Alterations, Omissions and Additions in the 1999 Yellow and Silver Books as compared with the 1999 Red Book

Appendices

A Editorial Amendments in the 1988 Reprint of the Fourth Edition of the Red Book

B Further Amendments in the 1992 Reprint of the Fourth Edition of the Red Book

C Part II – Conditions of Particular Application

References

Table of Cases

Index

The FIDIC Forms of Contract

Third Edition

In September 1999, FIDIC introduced its new Suite of Contracts, which included a ‘new’ Red, Yellow, Silver and Green forms of contract. The ‘new’ Red Book was intended to replace the 1992 Fourth Edition of the Red Book, with the ambition that its use would cease with time. This ambition has not materialised and is unlikely to do so in the future.

Despite the importance of the 1999 forms, there has been very little published on the new concepts adopted in them and how they interact with the previous forms. This important work considers these aspects together with the many developments affecting the Fourth Edition of the Red Book that have taken place since 1997, when the second edition of this book was published, and relates them to key contracting issues. It is written by a chartered engineer, conciliator and international arbitrator with wide experience in the use of the FIDIC Forms and in the various dispute resolution mechanisms specified in them.

Important features of this book include:

— background and concepts of the various forms of contract;
— a detailed comparison of the wording of the 1999 three main forms, which although similar in nature nevertheless significantly differ in certain areas due to their intended purpose;
— analysis of the rights and obligations of the parties involved in the contract and the allocation of risks concerned;
— a range of ‘decision tree’ charts analysing the main features of the 1992 Red Book, including risks, indemnities and insurances, claims and counterclaims, variations, procedure for claims, programme and delay, suspension, payments and certificates, dispute resolution mechanisms, and Dispute Boards;
— a much enlarged discussion of the meaning of ‘claim’ and ‘dispute’ and the types of claim with a discussion of the notice provision in the 1999 forms of contract for the submittal of claims by a contractor and by an employer;
— the FIDIC scheme of indemnities and insurance requirements; and the methods of dispute resolution provided by the various forms of contract; and
— five new chapters in this third edition, four chapters dealing with each of the 1999 forms and the fifth chapter focusing on the topic of Dispute Boards.
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© 2005 Nael G. Bunni

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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher.

First edition published 1991

Reprinted 1993, 1994, 1996

Second edition published 1997

Reprinted 1998, 2000, 2001, 2004

Third edition published 2005

Library of Congress Cataloging-in-Publication Data

Bunni, Nael G.

The FIDIC forms of contract : the fourth edition of the Red Book, 1992, the 1996 Supplement, the 1999 Red Book, the 1999 Yellow Book, the 1999 Silver Book / Nael G. Bunni.—3rd ed.

p. cm.

Rev. ed. of: The FIDIC form of contract, 2nd ed. 1997.

Includes bibliographical references and index.

ISBN 13: 978-14051-2031-9 (alk. paper)

ISBN 10: 1-4051-2031-2 (alk. paper)

1. Engineering contracts. 2. Standardized terms of contract. I. Bunni, Nael G. FIDIC form of contract. II. International Federation of Consulting Engineers. III. Title.

K891.B8B86 2005

343′.07862—dc22

2005041189

ISBN 10: 1-4051-2031-2

ISBN 13: 978-14051-2031-9

A catalogue record for this title is available from the British Library

The publisher’s policy is to use permanent paper from mills that operate a sustainable forestry policy, and which has been manufactured from pulp processed using acid-free and elementary chlorine-free practices. Furthermore, the publisher ensures that the text paper and cover board used have met acceptable environmental accreditation standards.

For further information on Blackwell Publishing, visit our website:

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List of Figures

Figure 2.1 Areas of the law affecting construction in the Romano-Germanic group.
Figure 2.2 Areas of the law affecting construction in legal systems based on common law.
Figure 3.1 Remedies for breach of contract in the common law system.
Figure 7.1 Risks in construction under the FIDIC Red Book, Fourth Edition.
Figure 7.2 Indemnities and possible insurance covers for a construction project.
Figure 13.1 Acceptance of tender and commencement of works.
Figure 14.1 Flow of risk into responsibility, liability, indemnity and insurance.
Figure 14.2 Indemnities and insurances relating to risks of injury and damage under the Fourth Edition of the FIDIC Red Book.
Figure 14.3 Indemnity and insurance relating to financial risks, etc.
Figure 14.4 Consequences of risks eventuating.
Figure 14.5 The insurance scheme as in the Fourth Edition of the Red Book.
Figure 15.1 The two alternatives of issuing a performance guarantee.
Figure 16.1 Claims and counterclaims.
Figure 16.2 Variation orders.
Figure 16.3 Suspension.
Figure 16.4 Procedure for claims.
Figure 17.1 Programme – time – delay – rate of progress.
Figure 17.2 An example of a network analysis.
Figure 17.3 Critical path diagram associated with the network analysis in Figure 17.2.
Figure 18.1 Certificates and payments.
Figure 19.1 Procedure under clause 67 of the Red Book.
Figure 19.2 Procedure under the provisions of the new alternative version of clause 67 contained in the 1996 Supplement.
Figure 23.1 Number of words in the FIDIC forms.
Figure 23.2 Number of sub-clauses in the 1999 Red Book.
Figure 26.1 Agenda for the first meeting and site visit, to be adjusted for other visits.

List of Tables

Table 9.1 Determination by the engineer in favour of the contractor.
Table 9.2 Determination by the engineer in favour of the employer.
Table 9.3 Determination by the employer against the contractor.
Table 10.1 The engineer’s proactive duties and authority.
Table 10.2 The engineer’s reactive duties and authority.
Table 10.3 The engineer’s passive duties.
Table 12.1 Notices required to be given by the employer to the contractor under the contract.
Table 13.1 The phases of a construction project in chronological order.
Table 13.2 Notices required to be given by the contractor under the contract.
Table 23.1 The Fourth Edition of the Red Book and the corresponding conditions in the 1999 Red Book.
Table 23.2 The 1999 Red Book and the corresponding conditions in the Fourth Edition of the Red Book.
Table 23.3 Cost, with or without profit.
Table 23.4 Sub-clauses relating to extension of time.

The Author

Nael G. Bunni

Dr Bunni is a chartered engineer, conciliator/mediator and registered chartered arbitrator. He is Past President of the Association of Consulting Engineers of Ireland and Past President of the Chartered Institute of Arbitrators and Past Chairman of its Irish Branch. He received his MSc from Manchester University and his PhD from London University. He has extensive experience in civil and structural engineering design, supervision of construction, contract management, construction insurance, arbitration and other methods of dispute resolution. He has acted as an expert witness, dispute board member, conciliator/mediator or arbitrator in hundreds of domestic and international disputes (as a sole arbitrator, member or chairman of a tribunal in over 105 cases of dispute with values in excess of £1m, involving parties from over 45 different jurisdictions).

Dr Bunni is a member of various technical committees in Ireland and abroad, including: the Dispute Resolution Panel of the Institution of Engineers of Ireland; the Board of Directors of the London Court of International Arbitration; the Commission on International Arbitration of the ICC, Paris; the Standing Committee of the ICC International Centre for Expertise, Paris; and the Board of Trustees of the Dubai International Arbitration Centre. Dr Bunni is a member of the Panel of Arbitrators of a number of Arbitral Institutions and Organisations. He is Past Chairman of FIDIC’s Standing Committee on Professional Liability; FIDIC’s Task Committee on Construction, Insurance and Law; and its follow-up committee.

Dr Bunni was appointed Visiting Professor at Trinity College Dublin in December 1996, a position he continues to hold, and in March 2000 he was elected a member of the International Council for Commercial Arbitration, ICCA, which is a gathering by co-option of the foremost leaders in the field of dispute resolution.

Besides this book, Dr Bunni is the author of a large number of technical papers and two books on construction insurance, the latest of which is now in its second edition under the title Risk & Insurance in Construction, published by Spon Press, London, in 2003.

Dr Bunni has lectured extensively and has been invited to speak in many countries in Europe, Asia, Africa, North and South America and in New Zealand. He has organised and lectured at courses on various topics relating to construction contracts for FIDIC, the World Bank, the Munich Reinsurance Company, the Institution of Engineers of Ireland, the Chartered Institute of Arbitrators and other organisations.

Dr Bunni has been awarded a number of awards for: innovation; structural design for work he has done; and in November 1995 he was awarded the Institution Prize by the Institution of Engineers of Ireland (its premier prize) for his work and series of lectures on its Conciliation Procedure. He was awarded this prestigious prize once again in March 2004 for his ‘contribution of outstanding merit … to the benefit of the members (of the Institution)’. Only very few have received this prize twice.

Preface

The Fourth Edition of the Red Book was published in 1987. It was first subjected to minor editorial amendments in 1988 and was later amended more significantly in 1992. The 1992 form was such a success that the World Bank adopted it in its Standard Bidding Documents in January 1995, albeit with some further mandatory amendments of its own. The most important of these mandatory requirements concerned the role of the engineer under clause 67 of the Red Book and the adoption by the Bank of the concept of a Dispute Review Board to replace the engineer in the process of dispute resolution. FIDIC responded in 1996 by introducing its Supplement to the Fourth Edition of the Red Book, which was published in November 1996. By that time, the Orange Book had already been published in 1995 as a standard form for design and build contracts. The second edition of this book, which was published in 1997, dealt with all these developments in contract forms.

Although the 1992 Fourth Edition of the Red Book with the 1996 Supplement formed an excellent combination in providing a standard form of contract that answered most of the criticisms at the time, and although its good and bad points were understood by its users, FIDIC decided in 1999 to replace it with a different form rather than introduce a fifth edition that could have simply tackled some of the issues that had developed in the meantime. The ‘new’ Red Book was intended to replace the 1992 Fourth Edition of the Red Book, with the ambition that the use of the Fourth Edition would cease with time and that new projects that were being contemplated at that time should immediately utilise the 1999 forms of contract. However, this ambition did not materialise as there appeared to be significant reservation on the part of users to adopt a form that was untested and untried within the industry. It is also unlikely to happen to any large extent in the future, for many reasons.

The main reason is perhaps that users are by now very familiar and comfortable with the provisions of the Fourth Edition of the Red Book, and particularly their version of it if they have changed the standard form to suit their own particular needs.

Furthermore, after 40 years of use, the meaning of most of the provisions of the Fourth Edition of the Red Book has become known through court decisions and some arbitral awards. Users were and are reluctant to start the process of adopting a new form of conditions of contract as they believe, maybe rightly so, that it is likely to cause further disputes and problems in an industry that is already overloaded with conflict.

The 1999 Red Book was accompanied by a new Yellow Book to replace the Orange Book, and a totally new Silver Book where most of the risks were allocated to the contractor. However, despite that spectrum of colour, the Fourth Edition of the Red Book stood the test of time and remained as a major source for conditions of contract for civil engineering projects worldwide, and particularly in certain regions of the world, such as the Middle East.

Hence, it became necessary for a third edition of this book to be published encapsulating these developments, but leaving the text of the Fourth Edition of the Red Book as the main feature and reference point. This decision was taken mainly because of the continued use and popularity of the Fourth Edition and because of the fact that the 1999 Red Book has retained most of the principles and many of the concepts of the Fourth Edition of the Red Book. However, despite retaining the 1992 Red Book as the main feature of this book, each of the 1999 forms has been allocated a separate chapter, with the anticipation that many of the problems that exist in these forms would demand Second Editions in the very near future for which more detailed commentaries would be appropriate.

The third edition of this book also takes into account the constructive comments that were received from reviewers and the changes and events that have taken place since 1997, for example: the changes which have taken place in the statutes and bye-laws of FIDIC and its Code of Ethics; the latest edition of the ICC Arbitration Rules, published in 1998; developments in claim and dispute procedures; the ADR Rules of the ICC; and developments in Dispute Boards and the very recent ICC Rules relating to them.

Chapters 7 ‘Sharing of Risks’ and 14 ‘Risks, Liabilities, Indemnities and Insurances’ were reconsidered in view of the Australian and New Zealand Standards relating to the topic of risk and risk management. Chapters 16 and 17 on claims and counterclaims were enlarged to consider new developments on the topic of delay and extension of time and to take into account the recent experiences in that field, including some of the new publications.

Chapter 19 ‘Dispute Settlement by Arbitration’ was extended to incorporate various aspects of the topic of arbitration and material relevant to clause 67 of the Fourth Edition of the Red Book, including some problems encountered in arbitration as a method of dispute resolution; and finally some recommendations towards a more cost effective and speedy arbitration procedure.

A new part has been added to the book. Part V comprises five new chapters: Chapter 22 provides an overview of the 1999 FIDIC forms of contract; Chapter 23 deals with the 1999 Red Book; Chapter 24 deals with the 1999 Yellow Book; Chapter 25 deals with the 1999 Silver Book; and Chapter 26 provides a comprehensive description of Dispute Boards: their advantages and disadvantages; types; the procedures that should be followed; a typical agenda; and experiences of their use.

Part VI replaces the chapter in the previous edition that provided the alterations, omissions and additions made in producing the Fourth Edition, and in this edition of the book gives a comparative analysis of the text of the 1999 three main forms of contract. This analysis was carried out by denoting the differences that exist between the three forms using the Red Book as the reference text.

Finally, I have deviated from the convention of using ‘he or she’ and adopted the use of the masculine pronoun; this should be taken to refer to both male and female.

Nael G. Bunni

January 2005

Acknowledgements

I am indebted to the Fédération International Des Ingénieurs-Conseils (FIDIC) for the permission granted to me to quote and reproduce some material from the various FIDIC forms of contract published by FIDIC from 1992 to date. These publications are the copyright of FIDIC and can be purchased directly from FIDIC’s offices at PO Box 311, CH-1215 Geneva 15, Switzerland, or from any of FIDIC’s member associations in over 60 different countries around the world. My thanks are also due to FIDIC for permission to have this book available for purchase from their bookshop, at the above address and at www.fidic.org/bookshop

I would like to express my gratitude to those people who helped in producing this edition of the book. I am especially indebted to a number of my colleagues for their specialist commentary and input into certain passages of this edition of the book. Although not mentioned individually, they will recognise themselves.

I owe special gratitude to Mary Farrell, my secretary, for patiently word-processing the successive drafts of the new material in this edition. I also gratefully acknowledge the assistance of Ms Siobhan Fahey BA, BAI, LLB, CEng, MIEI, MCIArb, for reading and commenting on the manuscript for the new material in this edition, for her valued research that followed and her suggestions.

To my daughters Lara and Lydia, I owe a special tribute. To Lara, BSc, HDipAppSc, for her IT input. In particular, however, I gratefully acknowledge the help extended by my daughter Lydia, LLB, LLM, ACIArb, to whom I owe special gratitude for her valuable research, suggestions and secretarial assistance throughout the preparation of this edition of the book.

Finally, I wish to add a special word of thanks to Julia Burden of Blackwell Publishing for her continued encouragement, patience and support during the production of this edition of the book.

The Third Edition

To Anne

Without her own help, support and understanding

this third edition would not have been possible

Part I

Background and Concepts of the Red Book

Chapter 1

Background of the Red Book

In the commercial activities of today’s highly complex society, standard forms of contract have become an essential part of the day-to-day transactions of most agreements. The majority of standard forms have been developed by commercial organisations for the purpose of efficiency, to build on the experience gained from the repeated use of these forms, but most of all for the optimum protection of one or both parties’ interests. Standard forms of contract developed for construction activities, however, have mostly been drawn up by independent professional organisations, rather than by one or other of the parties to the contract, in order to establish or to consolidate a fair and just contract. Knowledge accumulated through experience and recurrent use over a long period of time has brought about revisions and modifications in construction standard forms with the aim either of achieving greater certainty in the intention of the wording or of providing a response to the needs of the parties and/or society. The use of a standard form in construction contracts where tendering is the conventional method of obtaining quotations has also ensured a common basis for the comparison and evaluation of tenders.

In Europe, and more particularly in the United Kingdom and in Ireland, such forms were produced as early as the nineteenth century. A standard form for building contracts was used under the aegis of the Royal Institute of British Architects some time towards the end of the nineteenth century. This led to what became known as the ‘RIBA Form’ which was published in successive editions between 1909 and 1957. It later developed into what became known as the JCT Form (Joint Contracts Tribunal) when the 1963 and the 1980 Editions were published. In Ireland, the RIBA Form was followed by the RIAI Articles of Agreement and Schedule of Conditions of Building Contract, issued by the Royal Institute of the Architects of Ireland.

In civil engineering contracts, various forms which were used by different employers prior to the Second World War were combined by the Institution of Civil Engineers and the Federation of Civil Engineering Contractors in the United Kingdom into an agreed standard document. This was published in December 1945, and the document was thereafter known as the General Conditions of Contract and Forms of Tender, Agreement and Bond for Use in Connection with Works of Civil Engineering Construction, in short the ICE Form. In January 1950 it was revised and issued with the added agreement of the Association of Consulting Engineers, London. Other revisions followed in March 1951 (Third Edition); in January 1955 (Fourth Edition which was later amended in 1969); in 1973 (Fifth Edition); and in 1991 (Sixth Edition). These revisions reflected some changes in the law and in the practice of civil engineering.

1.1 The ACE Form

To the credit of those responsible for drafting the ICE Form, many professional institutions all over the world modelled their own conditions of contract on its text, making only minor amendments to accommodate differences in local matters of law and nomenclature. The ICE Form was, however, drawn up mainly for the domestic scene in the United Kingdom. The obvious need for a similar form in the international construction field prompted the Association of Consulting Engineers in the United Kingdom, jointly with the Export Group for the Construction Industries in the United Kingdom, and with the approval of the Institution of Civil Engineers, to prepare a document for use in other parts of the world. It was published in August 1956 and became commonly known as the Overseas (Civil) Conditions of Contract (the ACE Form). Although in text and format this latter Form differed only slightly from the ICE Form, there were some minor changes in forty clauses as well as a small number of major alterations.

The most important of the minor changes were as follows:

(a) a definition of the word ‘approved’ was added;
(b) a clarification statement was added in clause 3 in relation to assignment;
(c) the words ‘which shall not be unreasonably withheld’ were added in respect of the consent of the engineer to the contractor to sub-let any part of the works;
(d) the words ‘touching or concerning the Works’ were added in clause 13 to describe the engineer’s directions;
(e) clause 15 in relation to contractor’s superintendence was expanded;
(f) the exception relating to damage to crops in clause 22 was re-worded;
(g) the words ‘affecting the safety of the Works’ were added in sub-clause 40(l)(b) to describe the weather conditions as a reason for suspension of the works; and
(h) the day as a unit of measurement of time replaced the week for the purpose of calculating liquidated damages in clause 47.

The major alterations were as follows:

(a) the document was published in two parts: Part I which incorporated 68 clauses as general conditions of contract; and Part II which included notes and a number of new clauses to be considered for inclusion in Part I. Part II was intended as ‘a guide in the preparation of clauses (some of which are referred to in Part I)’ but which were expected to ‘vary as necessary to take account of the circumstances and locality of the works.’ These additional clauses were intended to be drafted for each particular project to cover matters such as, definitions; labour; temporary reinstatement; material and plant; and certificates and payment. Part II was referred to as ‘Conditions of Particular Application’;
(b) a greater involvement and authority was given to the engineer’s representative under a number of the clauses of the ACE Form as compared with the ICE Form;
(c) the explicit procedural provisions under clause 12 in the case of adverse physical conditions and artificial obstructions were deleted;
(d) allocation of the risk of damage due to unforeseen forces of nature was shifted in clause 20 from the contractor to the employer by including the following words into the excepted risks:

‘any such operation of the forces of nature as reasonable foresight and ability on the part of the Contractor could not foresee or reasonably provide against’.

Whilst this shift in risk in respect of accidental damage to the works was implemented in clause 20, a similar shift in risk was not implemented in respect of financial loss resulting from suspension of work, under sub-clause 40(l)(b), due to weather conditions which are also a form of the forces of nature;

(e) the requirement that joint insurance for the employer and the contractor be provided against third party liability risks was deleted from clause 23 of the ACE Form;
(f) a change in clause 26 was made in connection with payment of fees under foreign statutes, ordinances and bylaws;
(g) a new sub-clause (4) was added to clause 30 in respect of water-borne traffic;
(h) the provision for labour under clause 34 was recommended to be drafted for each contract;
(i) temporary reinstatement as referred to in clause 49 of the ICE Form was omitted in the corresponding clause of the ACE Form;
(j) a condition was incorporated in the ACE Form requiring an amendment of the amount of the contract price in the case where the ‘net effect of all variations’ is found to result in a reduction or an addition greater than 15 per cent of the sum named in the tender;
(k) reference to the standard method of measurement was omitted from clause 57 of the ACE Form;
(l) failure by the contractor to proceed with the works with due diligence was deleted from the list of grounds entitling the employer to determine the contract under clause 63(l);
(m) a major revision was made to clause 65 which deals with special risks under which the employer was required to provide an indemnity to the contractor in respect of increased costs arising from these risks;
(n) a new clause was added under the title ‘Default of Employer’ entitling the contractor to determine the contract where no payment is made by the employer within a set period of time or where the employer interferes with or obstructs the issue of any certificate or where the employer becomes bankrupt; and
(o) a number of new clauses were included in Part II of the ACE Form to be considered for inclusion in Part I depending on the circumstances and locality of the works. These new clauses related to conditions of contract for price variations, customs duties and other dues, taxation, bribery and corruption, non-disclosure of information, other matters peculiar to the specific contract and finally, but most importantly, the law governing the contract.

1.2 The First Edition of the Red Book

The ACE Form as published in 1956 included a standard Form of Tender, an Appendix and a standard Form of Agreement. It was published in a blue cover which helped to distinguish it from the ICE Form. It was, perhaps, the first standard form of international conditions of contract for civil engineering works. In concept and style, however, it remained faithful to the original domestic form.

The ACE Form had only been used for a short period of time when the Conditions of Contract (International) for Works of Civil Engineering Construction was published in August 1957. This was based on the ACE Form, described above, and was also published in two parts. Perhaps because of its long title, in a very short time it became popularly known as the ‘Red Book’ (its cover was printed in red). It was prepared by the Fédération Internationale des Ingénieurs Conseils (the International Federation of Consulting Engineers, FIDIC) and the Fédération Internationale du Bâtiment et des Travaux Publics (the International Federation of Building and Public Works, now known as the International European Construction Federation, FIEC).

FIDIC is the international Federation of duly elected associations of consulting engineers representing the profession in their respective countries. Membership in the Federation is restricted to one association for each country. To qualify for membership, an association must demonstrate that its statutes, bylaws and regulations ensure that its members comply with the ethics and professional code of practice of a consulting engineer as outlined and according to the principles endorsed by FIDIC.1.1 These principles have developed over the years and significant changes were recently introduced as explained later in Section 5.1 of this book.

In addition to some editing changes and a few minor revisions in clauses 1, 16, 31, 34, 40, 53, 60, 65 and 69(2), a number of important modifications were made to the ACE Form in the evolution of the first edition of the Red Book. These were:

(a) a reference to the ruling language of the contract was incorporated in clause 6(l);
(b) the reference to sureties in clause 10 was changed to performance bond;
(c) it was provided in clause 11 of the Red Book that the tender is to have been based on data supplied by the employer;
(d) the reference in the ACE Form to weather conditions or conditions due to weather conditions in clause 12 was deleted;
(e) a provision for the payment of a bonus under clause 47 for early completion of the works or any part thereof was added in Part II;
(f) in clause 52(l) of the ACE Form, the words ‘If the Contract shall not contain any rates applicable to the extra or additional work then reasonable prices shall be fixed by the Engineer’ were changed to:

‘If the Contract shall not contain any rates applicable to the extra or additional work then suitable prices shall be agreed upon between the Engineer and the Contractor. In the event of disagreement the Engineer shall fix such prices as shall in his opinion be reasonable and proper.’

(g) it was provided in the Red Book that the appointment of the arbitrator (or arbitrators) for the settlement of disputes under the contract was to be under the Rules of Conciliation and Arbitration of the International Chamber of Commerce in Paris (ICC); and
(h) two clauses were added at the end of the general conditions: the first provided for any increase or decrease in the costs of labour and/or materials or any other matters affecting the cost of execution of the works; the second provided for currency restrictions or devaluation.

1.3 The Second and Third Editions of the Red Book

The Second Edition of the Red Book was published in July 1969, when the document was approved and ratified by the International Federation of Asian and Western Pacific Contractors’ Associations. A supplementary section containing Conditions of Particular Application to Dredging and Reclamation Work was then added as Part III. The Second Edition, however, included no changes in the text. A reprint of the Second Edition in 1973 added the approval and ratification by the Associated General Contractors of America and the Inter-American Federation of the Construction Industry.

However, the publication of the controversial Fifth Edition of the ICE Form in June 1973 provided an impetus for a further revision of the Red Book. This Fifth Edition of the ICE Form provided the civil engineering industry in the United Kingdom with a document which included major departures from the practice followed in its Fourth Edition. Three main commentaries were published in July and November 1973, analysing the effect of these changes. Both Abrahamson and Akroyd criticised the style, language and lack of clarity of the document. Akroyd inquired as to ‘whether this new document forms a contractor’s charter to riches?’1.2 Duncan Wallace, in an article published in November 1973 (with the title ‘The Modest Revision which Became a Torrent of Change’) called the Fifth Edition of the ICE Form ‘a new and radically revised contract’.1.3

The Fifth Edition of the ICE Form obviously provided food for thought for those responsible for the Red Book, and so it was in March 1977 that the Third Edition of the Red Book was published, incorporating some significant changes. These changes, however, did not follow in all respects those made in the ICE Fifth Edition. In the preface to his book on the Fifth Edition of the ICE Form,1.4 Duncan Wallace wrote:

‘… it is apparent that they [the draftsmen of the Third Edition of the Red Book] evidently considered and studiously avoided, all the principal difficulties (and indeed innovations) in the Fifth Edition, as well as a number of the anomalies in the Fourth Edition (with the single exception of the difficult Maintenance Certificate provisions in Clause 62, which have been swept away, quite rightly, in the Fifth Edition, but which are retained unchanged in the 1977 FIDIC Contract).’

As well as editing and other minor changes, a full list of the revisions is given in a supplement to a book by Duncan Wallace, dealing with the Red Book.1.5 The most significant revisions made for the Third Edition of the Red Book were as follows:

(a) the definition of the word ‘cost’ was added as a new sub-clause 1(4) of the Third Edition, providing for cost ‘to include overhead costs whether on or off the site’. It replaced the word ‘expense’ in some of the clauses of the previous edition which led to the inference that profit should not be paid to the contractor in a claims situation under these clauses of the contract. Such situations, for example, arose in:
(i) sub-clause 5(2), under ambiguities or discrepancies in the contract documents,
(ii) sub-clause 6(4), under a failure or inability of the engineer to issue drawings or orders within a reasonable time,
(iii) clause 12, under conditions which could not have been reasonably foreseen by an experienced contractor;
(b) the duties and power of the engineer were defined under sub-clause 2(l) of the Third Edition and for the first time it was accepted that the engineer may be required under the terms of his appointment by the employer to obtain the latter’s specific approval for the execution of any part of these duties in which case this information was to be set out in Part II of the Conditions.
In clause 2, it was clearly stated that the engineer’s representative is responsible to the engineer;
(c) clause 5 of the Second Edition which specified the extent of the contract was enlarged and incorporated into a new clause 8 within the section dealing with the general obligations of the contractor. These obligations were explicitly stated. However, the obligation of the contractor to complete the works which is accepted in most, if not all, construction contracts was replaced by the term ‘execute and maintain the Works’. Similarly under clauses 12 and 13, this obligation to complete was omitted. This omission was criticised: although some may argue that it is implicit in construction contracts that the contractor must complete, it would have been much clearer had this requirement remained in explicit terms. This is because the remaining clauses in the general conditions assume such an obligation and, perhaps more importantly, because such an obligation is not necessarily implied in all legal jurisdictions;
(d) sub-clause 6(1) of the Second Edition became sub-clause 5(1) of the Third Edition. It was expanded to include both the ruling language and the applicable1.6 law of the contract;
(e) the concept of disruption to the progress of the works in the case of nonavailability of information which is considered necessary for the implementation of the contract, was incorporated in the Third Edition by the inclusion of sub-clause 6(3). Sub-clause 6(4) was added to deal with extensions of time and payment to the contractor as a result of such disruption.
Under the Second Edition, delay in the receipt of information or instructions which resulted in extra cost to the contractor could have formed a valid claim for damages for breach of contract. This was because it is an implied term of the contract that the contractor is entitled to receive such information or instructions within a reasonable time before the date on which the relevant work is required to be executed.1.7 See Section 3.8 for further commentary on implied and express terms. Reference should also be made to Section 17.4.2 where the question of calculating the cost of disruption is discussed;
(f) under clause 11 of the Third Edition, distinction was made between the data provided by the employer and the contractor’s interpretation of such data. It is worth noting that the effect of the risks associated with the site is recognised and allocated to the contractor ‘in so far as is practicable’;
(g) clause 14 of the Third Edition was amended slightly and expanded making it necessary for the contractor to submit a programme within a certain period after the acceptance of his tender. The required programme in the Third Edition deals only with the proposed ‘order of procedure and not the method of working previously stipulated’. If required, the contractor was also obliged under the latter edition to revise his programme;
(h) the provision in the Second Edition that the contractor is not liable to insure against the necessity for the repair or reconstruction of any work constructed with materials or workmanship not in accordance with the requirement of the contract, was omitted from the Third Edition. This change was criticised as there did not seem to be any reasonable explanation for the decision to omit this sentence and as drafted it contradicted the requirement in the clause itself that all loss or damage for which the contractor is responsible must be insured. Accordingly, unless the contractor was able to insure against defective materials and workmanship, he would automatically be in breach of contract;