The Contractors’ Carol: FIDIC’s Five Golden Principles
12 Drummers Drumming
On 5 December, after nearly 20 years, FIDIC released its new suite of contracts (the “2017 Contracts”) at the biggest ever FIDIC Users’ Conference and to a fanfare perhaps best described as the construction world’s equivalent of 12 drummers drumming.
FIDIC’s 1999 suite of contracts are the most widely used construction contracts globally, and have set a baseline for fair and balanced risk allocation in contracting that in many regions has arguably developed into its own “soft” law. That being said, in other regions the baseline set by FIDIC is frequently re-drawn by employers to such an extent that the fundamental characteristics of the FIDIC contracts is being lost.
In preparing the 2017 Contracts therefore, FIDIC made it an explicit priority to define and protect what it deems to be the fundamental, and inviolable, features of a FIDIC Contract. It has done this through the Five Golden Principles.
Ten Lords a Leaping - when is a FIDIC contract no longer “FIDIC”?
The two parts of the FIDIC contract are the General Conditions of Contract (“GCCs”) and the Particular Conditions of Contract (“PCCs”). The GCCs are the standard terms for each of the forms of contract, which set out the parties’ obligations, how the contract is to be administered, and what FIDIC believes to be a fair and reasonable risk/reward allocation. The PCCs are amendments included by the parties to tailor the GCCs to the specific project requirements and governing law requirements. The issue that FIDIC wants to prevent is parties, employers in particular, using the PCCs to fundamentally change the risk allocation and therefore the very nature of a FIDIC contract.
"The issue that FIDIC wants to prevent is parties, employers in particular, using the PCCs to fundamentally change the risk allocation and therefore the very nature of a FIDIC contract."
Five Golden Principles
FIDIC has now set out Five Golden Principles, in the Guidance section of the 2017 Contracts, that it deems necessary to ensure its contracts remain recognisable as “FIDIC”. These are as follows:
- The duties, rights, obligations, roles and responsibilities of all the Contract Participants must be generally as implied in the General Conditions, and appropriate to the requirements of the Project.
- The Particular Conditions must be drafted clearly and unambiguously.
- The PCs must not change the balance of risk/reward allocation provided for in the GCs.
- All time periods specified in the Contract for Contract Participants to perform their obligations must be of reasonable duration.
- All formal disputes must be referred to a Dispute Avoidance/Adjudication Board (or DAB, if applicable) for a provisionally binding decision as a condition precedent to arbitration.
FIDIC “strongly recommends” that drafters of the PCC abide by the Five Golden Principles. However, they are not incorporated into the contracts by default and so for the time being at least they are merely an expression of FIDIC’s intent. As many FIDIC users know all too well, FIDIC’s intentions are not always respected by its contract users even when they are made explicit, with the April 2013 Guidance Memorandum on enforcing DAB decisions one such example.
Conclusion - Two Turtle Doves?
FIDIC has taken great care in the 2017 Contracts to comprehensively set down what it believes to be a balanced and reasonable risk/reward allocation between the employer and contractor, and to protect this balancing as a fundamental feature of FIDIC contracts. Contractors in particular will welcome the recognition of and deliberate effort to address a trend of increasingly employer-friendly PCCs.
From a practical perspective the detailed GCCs will make it more difficult to fundamentally alter the risk allocation through the PCCs, and the Five Golden Principles provide a clear statement of intent for all parties seeking to use the 2017 Contracts. How the construction industry will respond remains to be seen. Two turtle doves may be an overly optimistic vision of contractor-employer relations under the 2017 Contracts, but then just maybe FIDIC can pull off a Christmas miracle. As they say, the proof will be in the pudding.