Download PDF - Fidic Silver Book - Conditions Of Contract For Epc Turnkey Projects (2nd Edition 2017) d0nvvgow4oqz. The FIDIC Contracts: Obligations of the Parties is presented in an easily-referenced, tabular format. The Red, Pink, Red Book Subcontract, Yellow, Silver, Gold, Pink, Green and White Books are all included and for ease of reference, each contract is separated into sections relating to the Employer, the Contractor, the Engineer (or the. The FIDIC Silver Book – Impact for Project Financed EPC contracts – a detailed analysis Published: 14/05/18. In recent years the FIDIC Silver Book has become the de facto starting position for EPC contracts in project financed transactions in Sub-Saharan Africa and other emerging markets. For the purposes of this article, our. Since 2013 FIDIC is providing online training courses focused on the practical use of the main FIDIC Contracts. The FIDIC online courses are successfully attended by consulting engineers, project managers, lawyers and other professionals of the construction consulting industry, wishing to increase their knowledge of FIDIC contracts and benefit from practical insights.
By Jeremy Glover, Partner, Fenwick Elliott
My colleague Jesse Way has written separately about the termination issues that arose in the case of PBS Energo AS v Bester Generacion UK Ltd & Anr;1 the case also considered the meaning of “unforeseeable ground conditions” and the judgment includes a useful summary of the position making reference to previous caselaw such as the Obrascon decision.
The 2017 FIDIC Suite of Contracts contain new versions of the Yellow, Red and Silver books, which are updates of the 1999 editions. The 2017 FIDIC Suite of Contracts contain more detailed and prescriptive provisions compared to the 1999 editions. Some may find such changes burdensome and inflexible.
In short, the overall dispute concerned a biomass energy plant in North Wales that was never built. The contract was an amended version of the FIDIC Silver Book 1999 for EPC or turnkey projects and one of the many disagreements related to who was responsible for the risk of the asbestos which was found under the surface and which had to be removed to get planning permission finalised.
Sub-clause 4.10 of the contract provided that:
“4.10 Site data
Subject to Clauses 4.18 (Protection of the Environment) and 4.25 (Lease), the Parties acknowledge and agree that the Employer has made available to the Contractor for his information, prior to the date of execution of this Contract, all relevant data in the Employer’s possession on subsurface and hydrological conditions at the Site, including environmental aspects. The Employer shall similarly make available to the Contractor all such data which come into the Employer’s possession after the date of execution of this Contract. The Contractor shall be responsible for interpreting all such data. The Employer shall have no responsibility for the accuracy, sufficiency or completeness of such data.
The condition of the Site (including Sub-Surface Conditions) shall be the sole responsibility of the Contractor and the Contractor is deemed to have obtained for itself all necessary information as to risks, contingencies and all other circumstances which may affect the Works, the remedying of Defects and the selection of technology and (save where otherwise set out in this Contract) the Contractor accepts entire responsibility for investigating and ascertaining the conditions of the Site including, without limitation, ground, load-bearing and other structural parts, suitability of the utilities and incoming services, hydrological climatic, access, environmental, weather and other general conditions and the form and nature of the Site including both natural and man-made conditions.”
Whilst sub-clause 4.12 provided that:
“Except for Unforeseeable Difficulties and except as otherwise stated in the Contract:
(a) the Contractor shall be deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may influence or affect the Works;
(b) by signing the Contract, the Contractor accepts total responsibility for having foreseen all difficulties and costs of successfully completing the Works; and
(c) and subject to Clause 13 (Variations and Adjustments), the Contract Price shall not be adjusted to take account of any unforeseen difficulties or costs.”
There was a disagreement between the parties about how the contract operated to transfer the risks associated with obtaining planning permission, but this article concentrates on the risk of the ground conditions and the discovery of asbestos, strictly, the second discovery of asbestos. The first discovery of asbestos by PBS was not due to any error or incompleteness in the reports and had not in fact caused critical delay.
As Mrs Justice Cockerill noted, the difficulty for PBS was that it had quite a lot of information prior to the contract as to the presence of asbestos. For example, it knew that there was asbestos disclosed by testing in just a few limited areas; and it knew from the trial pit results that this asbestos included bits which were deeper than 0.1 metres. PBS would need to say that the extent of the deeper asbestos was unforeseeable, even though the presence of some deeper asbestos was known about.
Helpfully, the Judge referred to previous decisions, in particular the decision of Mr Justice Coulson in Van Oord UK Ltd v Allseas UK Ltd2 and the Court of Appeal decision in Obrascon Huarte Laine SA v Her Majesty’s Attorney General for Gibraltar3 where Mr Justice Akenhead had refused a claim based on allegedly unforeseen ground conditions, saying that:
“I am wholly satisfied that an experienced contractor at tender stage would not simply limit itself to an analysis of the geotechnical information contained in the pre-contract site investigation report and sampling exercise. In so doing not only do I accept the approach adumbrated by Mr Hall [the defendant’s geotechnical expert] in evidence but also I adopt what seems to me to be simple common sense by any contractor in this field.”
The Court of Appeal agreed:
“Every experienced contractor knows that ground investigations can only be 100% accurate in the precise locations in which they are carried out. It is for an experienced contractor to fill in the gaps and take an informed decision as to what the likely conditions would be overall.”
This was exactly what had happened here. A contractor cannot rely on an argument claiming that the ground investigations were 100% accurate. In Obrascon there was fuller documentation than here indicating that contaminants had been identified which raised “a large flag” to an incoming contractor. However, Mrs Justice Cockerill said that in Van Oord, Mr Justice Coulson made a more general point that what matters is the information itself. Is the information such as to put a contractor on inquiry: “such that he can then only complain if what emerges is unforeseeable – in the light of what he does have”.
Therefore it was not enough for PBS to point to the discovery of asbestos in more granular detail than previous reports had suggested. It had to show that the asbestos discovered was unforeseeable. This was something it could not do, even though a Geotechnics Report which referred to the discovery of asbestos was only disclosed after the contract was concluded. That report did not “come out of the blue”. Pre-contract, PBS were informed about trial pit results. The Judge noted that the trial pit results were important, even though they represented a detailed investigation of ground conditions at various places across the site. This led to a clear analogy to Obrascon: “this was not a case of asbestos being a possibility – it was clear that asbestos contamination was a reality, and potentially at some depth in some places, though the extent of the problem was not clearly delineated.”
Since ground conditions were at PBS’s risk, it was for PBS to satisfy itself as to the state of play as regards asbestos. If there were public documents available these should have been taken account of. PBS had a good picture of the situation as regards the presence of asbestos on the site.
PBS further either chose not to, or were unable to, call evidence which, in the words of the Judge, “grappled with the detail of what was found”. For example, there was no evidence as to what would, in accordance with “Good Industry Practice”, have been foreseeable from the baseline of knowledge which PBS had. The asbestos discovered was not a new discovery, or different from what had been indicated by the previous findings, but simply a more detailed manifestation of what was shown by the earlier materials. It followed, therefore, that PBS had either actual or constructive knowledge of the asbestos prior to the Contract. It was not unforeseeable.
Under sub-cause 1.1.77 of the 2017 FIDIC Silver Book, unforeseeable is defined as meaning:
“not reasonably foreseeable by an experienced contractor by the Base Date”.
There are a number of references to the “experienced” contractor in the 2017 Form, but there is no contractual definition of this phrase. It is therefore a question of fact. What would or should an experienced contractor have done in the particular circumstances. When it comes to tender documentation, the experienced contractor cannot simply rely on the information provided by others. In the Obrascon case, the English Court of Appeal, when considering the 1999 Yellow Book, noted that when assessing tender data:
“an experienced contractor would make its own assessment of all available data … Clauses 1.1 and 4.12 of the FIDIC conditions require the contractor at tender stage to make its own independent assessment of the available information. The contractor must draw upon its own expertise and its experience of previous civil engineering projects. The contractor must make a reasonable assessment of the physical conditions which it may encounter. The contractor cannot simply accept someone else’s interpretation of the data and say that is all that was foreseeable.”
Words any contractor in any jurisdiction should take on board.
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- 1. [2020] EWHC 223 (TCC) (07 February 2020).
- 2. [2015] EWHC 3071 (TCC).
- 3. [2015] EWHC 3071 (TCC).
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An Employer may be torn between using the FIDIC Yellow Book and FIDIC Silver Book. The Yellow Book, a design-build contract, may give greater flexibility and a lower tender price. The Silver Book, an EPC or turnkey contract, should provide greater cost certainty and risk transfer. That tension may lead to an Employer trying to get the best of both worlds, by shifting Silver Book principles into what is ostensibly a Yellow Book contract.
One recent example of this trend is forms of highways contracts let in Romania and other CEE (Central and Eastern Europe) States. This post considers some of the ways an Employer may try to include Silver Book principles in a Yellow Book contract.
Contract administration: the role of the Engineer reduced to an Employer’s Representative
The role of the Engineer under the Yellow Book is sometimes controversial because he is an agent of the Employer, who must also be a fair decision-maker for key matters under the Contract. Public sector employers in CEE countries frequently restrict the Engineer’s authority by requiring the Engineer to obtain the express approval of the Employer, before deciding those key matters.
In theory, that requirement does not prevent the Engineer from making determinations fairly. However, there is a risk that the Employer may instruct the Engineer to withhold his determination or direct him to make a particular determination. If this happens, in effect the Engineer’s role will then be limited to an agent of the Employer.
Ultimately, if the Employer were to instruct the Engineer to withhold his determination or to instruct him to make a particular determination, then the Employer would be in breach of its undertaking under Sub-Clause 3.1 not to place any further constraints on the authority of the Engineer. The Contractor may also be able to rely on Sub-Clause 1.3 [Communications] which provides that any:
“Approvals, certificates, consents and determinations shall not be unreasonably withheld or delayed.”
Extra risk transfer to the Contractor
In a number of CEE States such as Poland and Romania, key risks borne by the Contractor under the Silver Book are now being allocated to the Contractor, even in design and build projects where the Silver Book is not suitable. Those risks include errors in the Setting Out data, inaccurate or incomplete Site data, Unforeseeable physical conditions and errors in the Employer’s Requirements.
Setting out data
The key difference between the two forms of contract is that, under the Yellow Book, the Contractor is entitled to time and Cost plus profit for work that was necessitated by an error in the setting-out data, which an experienced contractor could not reasonably have discovered. However, under the Silver Book, the Contractor takes responsibility for any errors in the setting out data contained within the Employer’s Requirements.
Inaccurate or incomplete Site data
Under Sub-Clause 4.10 of both the Yellow Book and the Silver Book, the Employer must make available to the Contractor all relevant data in the Employer’s possession on sub-surface and hydrological conditions on the Site. Some employers in CEE countries have sought either to expressly exclude the Employer’s responsibility for the accuracy or completeness of such data, as in the Silver Book, or (for example, in Poland) to insert a wording limiting that obligation to the tender stage and expressly excluding the Contractor’s right to claim for an extension of time and/or additional payment in the event of inaccurate or incomplete information.
Unforeseeable physical conditions
The risk of encountering unforeseeable adverse physical conditions, in particular ground conditions, may be one of the greatest risks in a construction project. The FIDIC Yellow and Silver Books provide two radically different approaches. Under the Yellow Book, that risk is borne by the Employer to the extent that such physical conditions could not reasonably be foreseeable by an experienced contractor. However, the Silver Book generally places that risk on the Contractor.
Fidic Silver Book Pdf
The most extreme example of risk transfer for unforeseeable physical conditions is once again in Romania, where the wording of the Silver Book has replaced Sub-Clause 4.7 of the Yellow Book for public work contracts in the road sector.
Errors in the Employer’s Requirements
Instead of tackling errors in the Employer’s Requirements by improving the quality of the project documentation, some employers have chosen simply to adopt the regime of design responsibility of the Silver Book by allocating that risk to the Contractor. The problem is that they did so without allowing sufficient time at tender stage and certainly without accepting the cost premium attached to this significant risk.
Cap on adjustments to the Contract Price
Fidic Silver Book Pdf
To obtain almost a guarantee of certainty with the Contract Price, the Romanian Government went as far as including a cap on any adjustment to the Contract Price, save for adjustments resulting from changes in legislation under Sub-Clause 13.7 and changes in costs under Sub-Clause 13.8 (if the Contract include a price escalation mechanism). Its form of contract provided that the Contract Price shall not be increased by more than 10% of the Accepted Contract Amount, meaning that any payment of variations instructed by the Engineer will be capped to that level.
Conclusion
Admittedly, the Employer’s clear objective in some CEE countries is to obtain a higher degree of certainty. This is because many public works projects in those countries rely on EU financing (frequently in the region of 75-85% of the original Contract Price) and very limited state funds exist to finance a cost overrun on these projects.
However, some CEE countries may have taken that objective a step too far. For example, the Romanian government’s approach has attracted a great deal of attention among contractors bidding for highways work in the region, and, beyond Romania, there is a growing trend for significant risks, traditionally borne by the Employer under the FIDIC Yellow Book, to be transferred to the Contractor.
I would argue that this trend calls for a rapid change in EU secondary legislation to ensure that EU-financed contracts reflect FIDIC’s principles of balanced risk sharing.