FIDIC gives green light on new edition
By Jeremy Glover, Partner, Fenwick Elliott
The second edition of the FIDIC Green Book (or Short Form of Contract) was formally released at the FIDIC International Contract Users’ Conference on 7-9 December 2021. Originally a part of the 1999 Rainbow Suite, the Green Book was intended for use on relatively small projects, with a value of $500k or less, with a duration of six months or less.
It turned out that the contract was used on slightly larger projects. As discussed at the 2021 Users’ Conference, FIDIC carried out research in 2018 which indicated that the contract was being used mostly on contracts with a value of under $1milllion (although 18% were used where the value was under $10million) and on 70% of contracts, the project was due to last less than a year, but the duration of some 11% was over two years.
Why have FIDIC updated the Green Book?
The most obvious reason why the second release was produced was to ensure that the terminology and approach of the contract, mirror the updates made to the rest of the Rainbow Suite in 2017. It achieves this, for example by introducing a split between claims and disputes, here to be found in clauses 13 and 14. There are also new grounds for termination, including the failure to comply with an Engineer’s or Adjudicator’s determination.
At the Users’ Conference FIDIC said that they wanted the new edition of the Green Book to:
“Serve as alternative to the 2017 FIDIC Red & Yellow Book Contracts for projects where the perceived level of risk is low and/or Parties wish to use a form which does not require significant contract administration management resources.”
What are the key changes/updates in the 2021 version from the previous 1999 version?
Length of contract
The 1999 Green Book had 15 clauses which ran to 10 pages. The 2021 has 14 clauses but is now 26 pages long. Taking into account Appendices, Notes and Guidance, the overall contract document has increased from 44 pages to 155, so it is no longer as short as it was. It still is, of course, considerably shorter than the 2017 Forms with the Yellow Book running to 109 pages plus Appendices, Particular Conditions and other details.
One of the headline changes is the removal of the FIDIC time bar for claims, or at least the substitution of a less prescriptive alternative. Clause 13 which treats the Employer and Contractor in the same way again as per the 2017 Rainbow Suite, requires the giving of a claims notice, within 28 days describing the event or circumstances, and a fully detailed claim within 56 days, of the date the claiming party become aware or should have become aware of the event. This is in line with the traditional FIDIC approach.
However, if a party fails to comply with this condition, the result is not the loss of the right to make the claim as it is with the 2017 Contracts. Instead, any entitlement shall take account of the extent to which that failure has prejudiced proper investigation of the claim or a mitigation of the effects of the claim. The reasons for the change in approach is to reflect the lower level of management resources likely to be used on these smaller scale projects.
In fact, the wording of this new subclause 13.2.2, notes that a failure to comply with any subclause shall be taken onto account, not just the 28-day deadline. This is not something that can be found in the 2017 suite. This might affect, for example the new requirement at subclause 13.2.2 to use reasonable endeavours to mitigate the effects of claim events or the advance warning requirements to be found at subclause 6.3.
Subclause 7.2.1 expressly makes clear that any entitlements flowing from the variation procedures are not subject to the claims procedures and timelines set out in Clause 13.
The contract also provides a sample of the notice that the parties might give. This is one of 40 such sample forms which are included in an Annex to the Guidance Notes, one reason of course for the length of the overall contract book. These samples are not compulsory but are stated be there “to assist and guide the Parties in the performance of their Contract administration duties.”
Risk and Responsibility
There are other innovations which are designed to assist the Parties. For example, clause 11, which deals with Risk and Responsibility, contains a Table setting out in one place (rather than scattered throughout the contract), details the Contractor’s potential entitlement, whether it is to an extension of time only or time plus cost. This Table includes reference to Prolongation Costs. Not only is this a defined term, but there is also a set formula in the Contract Data detailing how to calculate the compensation for on Site and off-Site overheads per day of compensable extension of time. FIDIC within the Guidance Notes, describe the approach as acting “as a liquidated damages provision, for ease of use by the Parties”.
The Contract Data (and Clause 8) also makes provision for alternative Options A-E (from Lump Sum A to Cost Plus E) again with specific comment on how the value of the Works is to be calculated.
This is all in line with FIDIC’s philosophy of trying to make their contracts clearer, so that everyone knows where they stand – and so help avoid disputes.
Another example of this is expanded use of liquidated damages (expressed in percentages) to calculate payments to be made in the event the Employer omits works which are executed by another contractor or termination.
The 1999 Form did not contain a limitation of liability provision or seek to exclude consequential loss. The Contractor's total liability is now capped at the sum stated in the Contract Data and neither Party will be liable for indirect or consequential loss except as expressly stated.
Dispute avoidance and Resolution
The 1999 Form had an Employer’s Representative who has been replaced by the Engineer, bringing the contract into line with the Red and Yellow Books. Many of the Engineer’s duties are taken from the 2017 Suite, including an increased role in dispute avoidance and the requirement to act neutrally when seeking to agree, or failing that when determining any matter.
The 2021 Form, in line with the 2017 approach, provides for the mobilisation of an Adjudicator (given the likely capital value of the projects, this is Adjudicator in the singular, not a full three-person Dispute Avoidance Adjudication Board) at an early stage, within 28 days of the Contract coming into effect. FIDIC recognise that practise suggests that it is easier to make such an appointment at an early stage on the project.
FIDIC also recognise the value of early access to informal assistance. However, the Green Book 2021 leaves it up to the Parties to decide, they want to make use of the Adjudicator, setting out three options:
Option 1: Only for binding decisions;
Option 2: Time to time informal decisions and binding decisions;
Option 3: Regular informal assistance, including site visits and binding decisions.
Where a binding decision is required, the Adjudicator must make a decision within 56 days if there is no hearing or 84 days where there is a hearing.
The Adjudicator’s rules contain a nod to Covid-19 and recent virtual practice by stating that the Adjudicator’s activities can be carried out online or in person - as the Adjudicator decides, following discussion with the Parties. The DRBF has prepared guidance for Adjudicators to assist in the carrying out of virtual site visits or hearings.1
Finally, in line with FIDIC’s approach to adjudicators, any dispute that is referred to arbitration, is to be settled by one arbitrator, using the ICC expedited rules and procedures.
Is it likely that practitioners and clients will start using the new 2021 version in the short-medium term, or stick with the older 1999 version for the time being?
This is always a difficult question to answer. Will parties stick with what they know or move on? FIDIC had done their research into how the 1999 Green Form was being used and this will have influenced the changes seen in the 2021 edition. FIDIC has further come to a number of arrangements with the development banks over the use of their 2017 contract forms and the new Green Book will no doubt fall within those agreements. Parties may also appreciate the enhanced dispute avoidance provisions. This would suggest in at least the medium term, we will start to see, the take-up of the new Green Book.
- 1. These can be accessed here: Best-Practice-Guidelines-for-Virtual-Dispute-Board-Proceedings-5-August-2020.pdf (disputeboard.org)