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Majority of Gulf construction contractors support 'more proactive' FIDIC project management provisions


The most commonly used standard form suite of construction contracts used in the Gulf needs revision, according to a survey of industry professionals by Pinsent Masons, the law firm behind Out-Law.com.

The International Federation of Consulting Engineers (FIDIC) is currently in the process of redrafting and updating its suite of contracts, with a new version due to be published later this year or early in 2016. Consultants, contractors and other construction professionals surveyed by Pinsent Masons said that they agreed with FIDIC's plans to embed a more "proactive" approach to both project management and dispute resolution within the contracts, with 90% backing this approach.

Respondents suggested that this could be done through improved 'early warning' procedures or through the use of detailed and more prescriptive programming requirements. The largest proportion of respondents said that the existing conditions could be improved by allowing more opportunities for increased dialogue between the parties, according to the results of the survey.

"A project delivery focus in contracting is long overdue," said projects expert William Marshall of Pinsent Masons.

"A number of respondents noted that claims management should be much more prescriptive with options for delay costs and availability charges and that advisors to the public sector and government procurers should do more to shift thinking to collaborative delivery mechanisms," he said.

The survey found that almost three quarters of market participants had worked on projects using "heavily" or "very heavily" amended FIDIC contracts, affecting 55% and 15% of respondents respectively. Marshall said that making too many changes to the contracts undermined the main advantages to the industry of standard form contracts.

"FIDIC, and indeed most drafters of standard form contracts, presuppose the use of their contracts with minimal amendments," he said. "This represents part of the benefit of using a standard form suite, offering a balanced risk allocation and an administration process which becomes familiar and common to the market."

"It also allows the development of a 'jurisprudence' around the resolution of disputes under a standard form suite. The consequence of heavy amendments to the FIDIC suite is that contracts can differ significantly from project to project, depriving the market of some of this jurisprudential development," he said.

Most of the respondents to the survey by Pinsent Masons were either consultants or contractors, although a few were employers or owners. The respondents were involved with a diverse range of projects delivered using a FIDIC contract, primarily in the property development, retail and hotel sectors. Half of the projects were civil works, while just under half were a combination of civil and process works.

Around 75% of the projects delivered using FIDIC contracts involved some element of contractor design, despite most of these projects using the 'Red Book' FIDIC contracts which are intended to be used primarily on 'construct only' projects. The Red Book also provides that the contractor shall "design (to the extent specified in the contract)". Over half of the survey respondents noted that this provision was problematic, and three quarters felt that the general concept and drafting around issues of 'design' in the Red Book could be improved.

"The references to 'design' in the Red Book create a number of significant potential problems for contractors," said construction disputes expert Jed Savager of Pinsent Masons.

"First, there is the risk of incremental scope creep whereby the contractor is instructed to perform variations with design requirements. Not only may this be outside the necessary expertise of the contractor but it may also create insurance difficulties or costs for a contractor in circumstances where it does not hold any existing professional indemnity insurance. Another potential problem for contractors is the risk of the employer seeking to allocate blame to the contractor in the event of a design failure, especially where the contractor may have worked up an existing design or completed shop drawings or installation works," he said.

Respondents also confirmed that there was scope for an improved claims procedure in the FIDIC contract, in terms of both time and money; although most survey respondents considered that it could be improved simply by clarifying the procedure. There was a varied response on the issue of whether the 28-day time limit for the initial notification of claims by the contractor under clause 20.1 of the Red Book was sufficient, with half agreeing that it was but 40% saying that the existing limit was too short and more time was needed. When asked whether a 'long stop' date setting a fixed time within which the engineer should make a decision should be introduced, 80% of respondents agreed.

"This is clearly a major issue for contractors, as the failure of the engineer to provide a timely response to claims and notifications renders it difficult for a contractor to manage their own programme and resources and to know the extent of their potential exposure to liquidated damages or costs of acceleration," said Savager. "Whether or not delayed responses to claims are strategic, it appears that the dialogue between parties and the efficiency of project delivery could be improved if engineers were required to provide determinations by a long stop date, with the contractual obligation resting on the employer to ensure compliance by the engineer with this requirement."

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