FIDIC 4th Edition 1987/1992 SOME OF THE IMPORTANT CONTRACT CLAUSES, BOTH TERMS & CONDITIONS, WHICH HAVE

E ATTENDANT RISKS FOR THE CONTRACTOR ARE OUTLINED HEREBELOW WITH MY COMMENTS FOR YOUR REFERENCE. Clause 2.1 Engineers Duties and Authority The Contractor must ensure that the Engineer has obtained the specific approval of the Employer before acting on any of the Engineers requirements, say for additional works / variations, otherwise the contractor runs the risk of not being paid for a disputed variation. However in the event that an instruction is issued by the Engineer which the Contractor believes to be a variation, but which is contested by the Engineer, the contractor is duty bound to comply, but must make his stand very clear that he considers the Engineers requirement to be a variation involving time and cost and submit his claim in accordance with clauses 44 or 53, otherwise he runs the risk of losing his right to time and costs under the contract. Clauses 2.2 Authority of the Engineers Representative And 2.3 The Engineer may delegate to the Engineers Representative any of the duties and authorities vested in the Engineer. The Contractor must make sure that he receives a copy of such delegation, otherwise he runs the risk that he will act in accordance with the Resident Engineers instructions but without having appropriate recourse under the contract. Clause 2.5 Instructions in Writing Any oral instruction issued by the Engineer must be confirmed within 7 days by the Contractor in writing to the Engineer, and such confirmation must not be contradicted by the Engineer in writing within 7 days, otherwise the Contractor runs the risk of not being able to recover costs and / or time. Clause 3.1 Assignment of Contract The Contractor shall not, without the prior consent of the Employer, assign the Contract or any part thereof, etc. otherwise the Contractor runs the risk of being in breach of a main condition of the contract, and being terminated under clause 63.1. Clause 4.1 Subcontracting The Contractor shall not subcontract the whole of the Works, and in addition shall not subcontract any part of the works without the prior consent of the Engineer, failing which he risks termination under clause 63.1. Clause 6.3 Disruption of Progress The Contractor must give Notice to the Engineer whenever planning or execution of the Works is likely to be delayed or disrupted unless any further drawing or instruction is issued by the Engineer within a
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Clause 7.3

Clause 8.1

Clause 8.2

Clause 10.1

Clause 11.1

Clause 12.1

reasonable time. Failure to give such notice may well place at risk the Contractors entitlement for any requests for additional time and / or costs. Permanent Works Designed by Contractor The Contractor remains liable for his design even if approved by the Engineer, and therefore runs the risk of any cost or delay arising from any fault in the design to the extent that it is not covered by Insurance. Contractors General Responsibilities The Contractor shall provide all things necessary and shall execute and complete the Works with due care and diligence, failure of which render him liable to additional costs. The Contractor has a duty to give prompt notice to the Engineer of any error, fault, or other defect in the design of or Specification of the Works which he discovers, otherwise he runs the risk of any resultant additional costs or delays. Site Operations and Method of Construction The Contractor shall take full responsibility (the risk) for the adequacy, stability, and safety of all site operations and methods of construction. Performance Security This tends to be an on demand bond. The risk here is that an unscrupulous Employer may well call upon the bond in circumstances when he is not contractually entitled to do so, and the Contractor has no remedy except to go to the Courts to try to stop the calling of the bond, which is an extremely difficult task. This can be time consuming and costly, with the added risk that if the Employer calls the bonds when he is in financial difficulties, it will be too late if a year later the Courts or Arbitrators decide that the calling of the bonds was wrongful, at which stage, the Employer may have already gone into liquidation. This is why it is important to contract with a reputable Employer. A further risk here arises under clause 60.2, that in the event that the Contractors performance security is delayed, the Engineer does not have to certify any amount for payment whilst the performance security is outstanding. Inspection of Site The Contractor shall be deemed to have based his Tender on the data made available by the Employer. The risk here is that if it is established during the construction period that the information provided by the Employer was incorrect, the Contractor will only be able to seek recompense for time and cost if he can demonstrate to an arbitral tribunal that it was not practicable for him to have carried out during the tender period, having regard to considerations of cost and time, the type of inspection and examination required to have established the accuracy or otherwise of the information provided. Sufficiency of Tender
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The Contractor runs the risk that his prices may not have taken into consideration all his obligations under the Contract. Clause 12.2 Not Foreseeable Physical Obstructions or Conditions The Contractor must forthwith (immediately) give Notice to the Engineer of any unforeseeable physical obstructions or conditions he encounters, failing which he runs the risk that his claim for time and cost may not be entertained. Clause 14.1 Programme to be Submitted The Contractor must pay particular attention to the preparation of the programme. Although the FIDIC conditions do not refer to the Critical Path, most applications for an Extension of Time under Clause 44 do refer to the impact of a delaying event on the critical path. Therefore care must be taken to ensure that the programme covers the full contractual period with the minimum of float, (zero float is preferable), otherwise the Contractor will run the risk that he may not be able to recover time and cost for any delaying event for which otherwise he would have been entitled, as the delay may be such as to take up only part or all of the float. Clauses 15.1 Contractors Superintendence and Employees And 16.1 If the Contractor does not provide the necessary superintendence, skilled technical assistants and the necessary level of skilled workforce, the Contractor runs the risk of delays and losses. Clause 17.1 Setting-out If the Contractor does not carry out the setting out properly and with the proper survey equipment, he runs the risk of having to remedy any errors at his own cost. Clause 19.1 Safety, Security, and Protection of the Environment If the Contractor does not pay attention to safety and environmental issues, he runs the risk of being subjected to fines imposed by the Authorities, as well as stop work orders, either by the relevant Authorities or by the Engineer. Clause 20.1 Care of the Works Clause 20.2 Responsibility to Rectify Loss or Damage The Contractor carries the risk of caring for the Works, and for the materials and plant for incorporating therein, to the extent that such risks are not the Employers risks under clause 20.4, are not covered by the exclusions and exceptions under clauses 21.4 and 22.2 respectively, or are not covered under the insurance policies stipulated in clauses 21 through to 25. Clause 20.4 Employers Risks The Contractor retains the risk for any riot, commotion, or disorder solely restricted to the Employees of the Contractor or of his sub-contractors, for any loss or damage arising from any part of the
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Clause 21.1

Clause 22.1

Clause 23.1 Clause 23.2

Clause 24.1 Clause 24.2

Clause 25.2

Clause 26.1

Clause 29.1

Clause 30.1 Clause 30.2

works that have been designed by the Contractor, and for any operation of the forces of nature that an experienced contractor could reasonably have been expected to take precautions. Insurance of Works and Contractors Equipment The Contractor carries the risk for any excesses or deductibles stipulated in the insurance policies for the items that are not covered in clauses 20.4, 21.4, and 22.2. Damage to Persons and Property The Contractor carries the risk of indemnifying the Employer against all losses and claims which are not included in the exceptions defined in clause 22.2 and which are not covered by the insurance policies stipulated in the Contract. Third Party Insurance (including Employers Property) Minimum Amount of Insurance The Contractor carries the risk of liability for any amount over and above the minimum amount stipulated in the Appendix to Tender as well as any deductible stipulated in the insurance policy. Accident or Injury to Workmen Insurance Against Accident to Workmen The Contractor carries the risk for any exclusions or deductibles stipulated in the insurance policy. Adequacy of Insurances The Contractor carries the risk of inadequate insurance cover and therefore additional costs in the event that there are significant changes to the nature, extent, or programme for the execution of the Works and he neglects to inform the insurers. Compliance with Statutes, Regulations The Contractor carries the risk of penalties and liability in the event that he fails to conform in all respects with the rules, regulations, statutes, ordinances, or other laws of duly constituted authorities, public bodies, etc. Interference with Traffic and Adjoining Properties The Contractor carries the risk of liability arising from interfering unnecessarily or improperly with the convenience of the public, or access to, use and occupation of roads / properties. Avoidance of Damage to Roads Transport of Contractors Equipment or Temporary Works The Contractor is deemed to have priced the risk of damaging any roads or bridges, or the cost of strengthening the same to avoid damage.

Clause 32.1 Contractor to Keep Site Clear

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Clause 36.4 Clause 37.4

Clause 38.2

Clause 39.1

Clause 41.1

Clause 42.2

Clause 44.2

Clause 45.1

Clause 46.1

Failing which, the contractor runs the risk of being fined or having a stop work order imposed on the site, in the event that the state of the site constitutes a safety hazard. Cost of Tests not Provided for Rejection The Contractor runs the risk of paying for additional tests required by the Engineer in the event that the test results show that the materials, plant, or workmanship are not in accordance with the provisions of the Contract. Breach of Clause 37.4 further carries the risk of termination under clause 63.1(c). Uncovering and Making Openings In the event that the Contractor covers up work in breach of clause 38.1, he runs the risk of having to pay for all costs arising from his having to carry out any of the Engineers instructions in this regard, such as uncovering the work, making openings, etc. Removal of Improper Work, Materials or Plant Breach of this clause by the Contractor exposes him to a two fold risk. The first is that the Contractor may have to pay for the costs of another contractor brought in by the Employer to do this work (clause 39.2), and the second, a much more serious risk, is termination under clause 63.1(c). Commencement of Works If the Contractor fails to commence the works without reasonable excuse, he runs the risk of termination in accordance with clause 63.1(b)(i). Failure to Give Possession This would entitle the Contractor to Claim an Extension of Time for completion under clause 44. However, the Contractor runs the risk that the Engineer may not make a determination (he is not bound to) in relation to the Contractors claim, in the event that the Contractor does not give adequate notice under the provisions of clause 44.2. Contractor to Provide Notification and Detailed Particulars In the event that the Contractor fails to provide notification and detailed particulars, the Contractor runs the risk that the Engineer may not make a determination (the clause says the Engineer is not bound to) in relation to the Contractors claim for an Extension of Time. Restriction on Working Hours The Contractor is to note that working nights or on public holidays, runs the risk of disapproval by the Engineer, or of the local authorities for noise pollution / disturbance. Rate of Progress If the Contractors rate of progress is slow, for issues that do not entitle him to an extension of time, he runs the risk of either termination under

Clause 63.1(b)(ii), or being asked to expedite the Works to comply with the Time for Completion at his own cost.

Clause 47.1 Liquidated Damages for Delay If the Contractor fails to comply with the Time for Completion, he runs the risk of having liquidated damages levied against him, which depending on the period of delay, can amount to as much as 10% of the contract sum. Clause 49.4 Contractors Failure to Carry Out Instructions During the Defects Liability Period, the Contractor shall, within a reasonable time, carry out any instructions of the Engineer to execute any remedial works required as a result of faulty materials, plant or workmanship, failing which he runs the risk of being liable to the Employer of the costs of instructing another contractor to carry out the work. Clause 51.1 Variations The Contractor shall carry out any variations validly issued to him by the Engineer under the Contract, which shall be valued at the rates and prices set out in the Contract. The Contractor here runs the risk that if his overhead and profit is not uniformly distributed throughout his rates, the Employer / Engineer may decide to omit or vary a highly priced item, or increase the quantities of a low priced item, resulting in reduced profitability or loss for the Contractor. Clause 52.2 Notice required for Variations No varied work instructed to be done by the Engineer shall be valued under sub-clauses 52.1 & 52.2 unless, within 14 days of the date of such instruction and, other than in the case of omitted work, before the commencement of the varied work, notice shall have been given of the intention to claim extra payment or a varied price or rate. The Contractor here runs the risk that if he does not give his notice as required under the clause, he will not be able to claim for the varied work. Clause 53.4 Failure to Comply To successfully lodge a claim under the Contract, the Contractor must give the required notices and detailed information required under clauses 53.1, 53.2, and 53.3. Failing which, the Contractor runs the risk of being paid an amount that will not exceed such amount as can be verified by contemporary records. Clause 54 Contractors Equipment, Temporary Works, and Materials Although the Employer has an obligation to assist the Contractor in importing his equipment and materials into the country, this remains at the Contractors risk. Clause 57.2 Breakdown of Lump Sum Items
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The Contractor runs the risk of any mistakes during his quantity take off to arrive at any lump sum price items in the Contract. Clause 59 Nominated Subcontractors The concept of the Nominated Subcontractor arises from the Employers desire to secure preferential rates from specialist subcontractors. The latter are keener to offer more competitive prices directly to the Employer either due to repeat business with or guaranteed payments from the Employer. The Contractors mark up onto the nominated subcontractors price for co-ordination and attendance tends to be minimal varying from 2.5% to 12.5%. This is normally not enough to cover his risk, for once he has given his acceptance to the nomination, the Contractor becomes fully liable for the performance of the nominated subcontractor to the same extent that he is liable for his own domestic subcontractors performance. The only advantage to the Contractor of such an arrangement is the reduction in the payment risk as he does not have to pay the nominated subcontractor until after the corresponding payment is received by the Employer. However, this is becoming more and more a thing of the past, as many jurisdictions have now outlawed pay when paid clauses such as the United Kingdom, Australia, and Singapore, to name but a few. Clause 60.5 Statement at Completion In his statement at completion, the Contractor must include all claims on any matter arising out of or in connection with the Contract or execution of the Works, otherwise he runs the risk of being barred from raising these claims at any time in the future, unless such issues arise after the date of the Statement of Completion. Clause 60.10 Time for Payment The General Conditions of Contract allow the Contractor two remedies for delayed payments. Interest at the rate stated in the Appendix to Tender, and the Contractors entitlement to slow down or suspend the Works under clause 69. These rights are sometimes deleted in the Conditions of Particular Application, with the Contractor running the risk of potentially damaging delays and costs as a result of payments that are excessively and unduly delayed. Clause 63.1 Default of Contractor Many of the risks related to this clause have already been highlighted earlier. Suffice it to say here that the Contractor must remain vigilant and be aware of any notice issued to him under the Contract which could lead to the invoking of this clause by the Engineer. Clause 65.2 Special Risks This refers to clause 20.4(b) and excludes rebellion, revolution, insurrection, or military or usurped power, or civil war, unless they
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relate to the country in which the Works are to be executed. This transfers the risk back on to the Contractor in a situation where he has ordered materials from abroad and which are unavoidably delayed as a result of any one of these risks taking place in the country of origin of these materials. Clause 66.1 Release from Performance If any circumstance outside the control of both parties arises after the issue of the Letter of Acceptance which renders it impossible or unlawful for either or both parties to fulfill his or their contractual obligations, or under the law governing the Contract the parties are released from further performance, then the Parties shall be discharged from the Contract. Clause 67.1 Engineers Decision If the Contractor is not satisfied with the Engineers decision under this clause he must give notice of his intention to commence arbitration within 70 days of receiving such decision, otherwise the Engineers decision becomes final and binding. Clause 70 Changes in Cost and Legislation The Contractors risk related to changes in costs either as a result of price fluctuation or changes in legislation is transferred to the Employer to the extent stated in the Conditions of Particular Application. Clause 71 Currency Restrictions Clause 72 Rates of Exchange The Contractors risk related to currency restrictions and changes in the rates of exchange of a foreign currency where the Contract provides that part or whole payment is made in that currency is transferred to the Employer.