Check List for One Sided Contracts

For use withSample Bidding Documents under JBIC

ODA Loans - Procurement of Civil WorksNovember
1999 Edition

December 2006

Procurement Policy and Supervision Division

Project Development Department
Japan Bank for International Cooperation
(JBIC)
Version 1.0

PREFACE

To realize effective and prompt implementation of projects financed by JBIC ODA

Loans, it is essential to set out the rights and obligations of the Borrower and the
Consultant in a consultancy contract and those of the Borrower and the Contractor in a
construction contract, clearly and properly . (See Section 2.02 of Guidelines for
Employment of Consultant under JBIC ODA Loans and Section 4.04 of Guidelines for
Procurement under JBIC ODA Loans).
JBIC recommends all the Borrowers to use The Sample Bidding Documents under
JBIC ODA Loans for Procurement of Civil Works in drafting civil work contracts.
These sample documents adopt the 1987 Edition of FIDIC conditions of contract (the
FIDIC Red Book) under which the balanced risk allocation between the Employer and
the Contractor is maintained. However, it is sometimes observed that contract
documents prepared by the Borrower contain one-sided contract provisions, changing a
fair allocation of contractual risks between the parties. Such one sided contracts actually
affect negatively the smooth implementation of projects and consequently are considered
to be disadvantageous to the Borrowers due, amongst other things, to the late completion
of the project.
With this thought in mind JBIC commissioned the Association of Japanese Consulting
Engineers (AJCE) to prepare a check list to encourage to avoid such one sided contract
provisions. This check list is based on samples actually observed in JBIC ODA projects.
It is intended to be used by the Borrowers in preparation of fair contract conditions.
JBIC will also use it when reviewing draft contract documents prepared by the
Borrowers. JBIC recognizes that, even contract conditions maintain a balanced risk
allocation, if these conditions are not properly applied, smooth project implementation
cannot be achieved. However, to set out the proper provisions is essential for the smooth
implementation..
JBIC will make a continuous effort to improve project implementation by close
discussion and cooperation with Borrowers. JBIC hopes that this check list will
contribute to the improvement.

Context of this Document

Check List for One Sided Contract
A check list is set out in the first part of this document. This check list is prepared to avoid one
sided provisions effecting the rights, obligations and risk of contracting parties.

It can be used

during preparation and review of contracts documents for construction works under JBIC ODA
loans.
Chapter 1 : Purpose of Check List
The purposes of the Check List are described in chapter 1 together with the background behind the
necessity of such a check list.
Chapter 2 : Distinctive Features of FIDIC Red Book
The general features and basic concepts of the FIDIC Red Book, which should be well understood
by writers of construction contracts under JBIC ODA loans, are set out in chapter 2.
Chapter 3 : Factors which create One Sided Contract
The factors which create contracts one sided are examined in chapter 3 by categorizing the effects
into 3 groups.
Chapter 4 : Commentary on the Check List
A commentary on the Check List is set out in chapter 4 as a guide to users.

1. Purposes of Check List

A contract is a document which stipulates rights, responsibilities and risks to be undertaken by
each of the contracting parties. It is therefore a very important document to be used for smooth
implementation of the project by the various stakeholders. Japan Bank for International
Cooperation (JBIC) recommends that executing agencies of loan recipient countries utilize the
"Sample Bidding Documents under JBIC ODA Loans (Procurement of Civil Works)" published
by JBIC in 1999 (hereinafter called as JBIC Sample Bidding Documents) in preparation of
bidding documents for construction works.

These sample bidding documents use the FIDIC

Red Book 1987 as general conditions of contract.

FIDIC Red Book provides a well-balanced

allocation of risks as between the Employer and the Contractor.

The FIDIC general conditions of contract may be modified in consideration of the actual project
circumstances and requirements by adding conditions of particular applications in Part II of the
FIDIC Red Book.

If modifications for any particular project alter the originally contemplated

risk distribution to a large extent and the risks allocated to the Contractor become excessively
high, the following problems may occur:(1)

Higher bid price

(2)

Bid failure and disruption of project implementation

(3)

Non-participation in the bid of conscientious and capable contractors

(4)

Contract award to a bidder who fails or was not capable of estimating the risks properly

(5)

Poor construction quality and delay to the progress of the work due to lack of risk
contingency

(6)

Undermining the relationship of mutual trust and respect between the Employer and the
Contractor

(7)

Repetition of groundless claims from the Contractor

(8)

Frequent disputes between the Employer and the Contractor

(9)

In an extreme case eventual termination of the contract

These situations interfere with the smooth implementation of projects financed by Japanese
ODA loans and, as a result, may impose larger financial burdens on the Employer.
The Check List is prepared for the purpose of elimination of one sided provisions from the
contract.

It is recommended to the executing agencies of loan recipient countries to utilize this

Check List as a reference guide in preparation of bid documents under JBIC Loans in order to

Conditions of Contract for Works of Civil Engineering Construction

allocate risks and liabilities fairly between contracting parties as well as to keep fairness of the
Engineer .
The Check List is drafted based on actual experience on pervious construction contracts financed
by Japanese ODA loans.

2. Distinctive Features of FIDIC Red Book

The JBIC Sample Bidding Documents adopt FIDIC Red Book 1987 as general conditions of
contract. FIDIC has a long history in drafting various conditions of contract for construction
works. In particular, FIDIC Red Book2 (first published in 1957) is recognized as a de facto
standard for civil and building works contracts in international projects.

FIDIC Red Book is

adopted in standard bidding documents for most multilateral development banks including
World Bank and Asian Development Bank3.
While JBIC is examining revision of the Sample Bidding Documents incorporating new FIDIC
Red Book 1999, the Engineers roles described hereinafter will remain unchanged in principle
except for the matters indicated in foot notes 3 and 4 on Page 4.
The FIDIC conditions of contract comprise Part 1: General Conditions of Contract and Part 2:
Conditions of Particular Application. Part II has the following functions:(1) to supplement and complete Sub-clause 1.1

2.1

5.1

14.1

14.3

68.2 in Part I

(2) to add particular provision required by local conditions such as characteristics of execution
agency, project, region and country, etc.
(3) to add to particular requirements or recommendations of the project financer
If the Part II additions, supplementations and or modification of Part I alter the basic balance of
the FIDIC Red Book the contract may become unfairly advantageous to the drafting party.
The basic concepts and framework of the FIDIC Red Book are summarized below:1) Design by Employer
FIDIC Red Book is suitable for Design-Bid-Build projects.

The Employer designs the

The first edition of FIDIC Red Book was issued in 1957 and it was drafted based on ICE conditions of contracts in
UK.
3 World Bank and Asian Development Bank issued Harmonized Edition of Sample Bidding Documents based on
FIDIC Red Book 1999 in May 2005. Both banks adopted FIDIC Red Book 1987 in their previous versions of Sample
Bidding Documents.

permanent work except for the works to be designed by Contractor in accordance with Clause
7.2, and the contractor executes the work according to those drawings and specifications
provided with the bid documents.

The design work is usually carried out by a consulting

engineer appointed by the Employer and the design liability lies with the Employer

refer to

Sub-clauses : 6.1, 6.4, 7.1, 7.2, 8.1).

The design of the civil work structure largely depends on the site conditions including
topography and geology. Since it is not entirely possible to know the actual geological conditions
in the pre-investigation, design modification is frequently required during construction.
Sub-clauses 51.1 Variations, allows such unforeseeable variations to be efficiently achieved
without contractual problems.
2) Presence of Engineer
One of the distinctive features of FIDIC Red Book is the appointment of "The Engineer".

The

Engineer is not a contracting party but his duties and authority are stipulated in the contract and
the Engineer plays an essential role in the contract administration process.

Employer
(Construction

(Consultancy

Contract)

Agreement)
(Report, Notice,
Application)

Contractor

Engineer
(Supervision, Notice, Instruction,

Determination, Approval, Consent)

The roles of the Engineer can be classified into three categories in administration of construction
contracts.
(1) Employers agent

The Engineer has three main functions in the administration of FIDIC Red Book based
construction contracts:Production of detailed design drawings under Sub-clauses 6 and 7
Issuance of instructions for variation of the works under Sub-clause 51
Review of plans and drawings submitted by the Contractor under Sub-clause 7.2

Carrying out project management services including time and cost management,
quality control, testing and inspection, safety and environmental management under
various Sub-clauses especially 36-39, 49 and 50
(2) Certifier

The Engineer issues various certificates certifying the quality of the Contractors
performance and payment therefor at the Engineer discretion. The Engineers certificates
have a strong binding effect on both the Employer and the Contractor.
Taking-over certificate under Sub-clause 48.1
Certification of work completion date under Sub-clause 62.1
Interim payment certificate under Sub-clause 60.2
Defect liability certificate under Sub-clause 62.1
Final payment certificate under Sub-clause 60.8
(3) Decision maker in claim and dispute settlement

The Contractor is entitled to submit claims, as set out in the FIDIC Red Book, to the
Engineer if the Contractor encounters events which are unforeseeable at the time of bidding
or are deviations from the contract provisions. The Engineer will evaluate such claims and
give his determination to the Employer and Contractor.

If either party is dissatisfied with the

Engineers decision a dispute arises and such dispute can be referred to the Engineer for his
decision under Sub-clause 673.
The Engineer therefore has three distinct and different roles:1) As Employers agent,
2) As certifier, and
3) As decision maker in claim and dispute settlement

In carrying out the last two roles the Engineer is obliged to remain independent and to act
impartially as described in Sub-clause 2.64.
2.6 Engineer to Act Impartially
Wherever, under the Contract, the Engineer is required to exercise his discretion by:
(a)

giving his decision, opinion or consent, or

3 Under FIDIC Red Book 1999, a dispute shall be referred to Dispute Adjudication Board (DAB) in accordance with Sub-clause
20.2.
4 Under FIDIC Red Book 1999, the Engineer shall make his determination fairly in accordance with Sub-clause 3.5.

(b)

expressing his satisfaction or approval, or

(c)

determining value, or

(d)

otherwise taking action which may affect the rights and obligations of the Employer
or the Contractor

he shall exercise such discretion impartially within the terms of the Contract and having
regard to all the circumstances. Any such decision, opinion, consent, expression of
satisfaction, or approval, determination of value or action may be opened up, reviewed or
revised as provided in Clause 67.
It is usual to appoint consulting engineers as the Engineer under the contract with the Employer
in JBIC ODA loan projects.

JBIC Guideline for Employment of Consultants stipulates that the

nature and the limit to delegation of authority to the consultant, as well as he scope and the
nature of the responsibilities which the consultant is to assume shall be clearly defined in the
contract between the Borrower and the consultant.
3) Claim and Dispute Settlement Procedure
Construction work is susceptible to many external influences such as variable subsurface and,
metrological conditions as well as social, economic and environmental factors.

It is impossible

to eliminate all uncertainties from construction work and unforeseen events are likely to occur
during any lengthy construction period.
Under FIDIC Red Book, the Contractor has an entitlement to extensions of time for completion
of the work if he suffers delay from specified events and payment of qualifying additional cost
he incurs as a result of such events.

The FIDIC Red Book sets out, in detail, a claims and

dispute settlement procedure to cope with uncertainties involved in construction works.

Appendix-1 shows a flowchart of the claims and dispute resolution procedures under FIDIC Red
Book 1987.
4) Balanced Risk Allocation
It is said that the FIDIC Red Book is drafted so as to allocate the risk to the contracting parties in
a fair manner using the following principles:
The party who can best manage the risk, takes such risk.
Risks for which neither the Employer nor the Contractor can control, is in principle taken
by the Employer as the initiator of the project.
5) Unit Price/Re-measurement Contract
5

The payment to the Contractor is based on the actual quantities of work done at the unit prices
set out in the contract Bill of Quantities.

The quantities set out in the contract Bill of Quantities

are provisional estimates of the work to be done. The actual work quantities are measured by the
Engineer in the presence of the Contractor. The Engineer certifies interim payment amounts,
usually monthly on the basis of the measurement of the work carried out during the relevant
period.

3. Factors which create One sided Contract

There are three potential factors which make any contract one sided as follows:(1)

the Contractors contractual rights are unreasonably limited.

(2)

the Contractors contractual responsibilities are unreasonably expanded.

(3)

the Engineers powers, discretions and or authority are excessively restricted.

All three factors can be introduced in the preparation of Conditions of Particular Application and
result in an enhanced risk to the Contractor.
Examining each of these factors in turn:1) Limitation of Contractors right
The entitlement to claim (if an unforeseeable event occurs, or when there is a deviation from the
contract provision not attributable to the Contractor) is one of the most important contractual
rights given to the Contractor.

If such entitlement is unreasonably restricted then the risk taken

by the Contractor are increased.

The FIDIC Red Book 1987 allows the Contractor to exercise his entitlement to extensions of
time and consequent additional cost arises in the following situations:-

Event
1
2
3
4
5

Sub-clause

Delay of Drawing and instruction by the

Engineer
Occurrence of unforeseeable physical
obstructions and conditions
Error in position, levels, dimension, and
alignment of the works given by the
Engineer
Loss or damage due to Employers risk
event
Discovery of fossil, coins, article of value,

Add.
Cost

*1

EoT*2

Process*3

6.4

12.2

17.1

20.3

27.1

etc.

31.2

36.5

38.2

40.2

42.2

49.3

12

Facilities for other contractors

Execution of additional test required by the
Engineer
Uncovering of the work not attributable to
the Contractor
Suspension of the work instructed by the
Engineer
Employers failure to give possession of the
site
Remedying defect not attributable to the
Contractor
Search not attributable to the Contractor

50.1

13

Valuation of Variation

52.1

14

Variation exceeding 15% of contract price

52.3

15

Delayed payment

60.10

16

65.3

65.5

18

Damage to the works by Special risk

Increased costs arising from Damage to the
works by Special risk
Contractors entitlement to suspension

69.4

19

Increase of market price

70.1

20

Change to legislation

70.2

6
7
8
9
10
11

17

Notes:
*1 : Additional Cost
*2 : Extension of Time
*3 : The Engineer is central to the decision making process to determine the Contractors
entitlement to an extensions time and additional cost. The determination and analysis
is carried out in three categories Type A, B, and C as follows:Type A:

To be determined by the Engineer after due consultation with the Employer

and the Contractor.

Type B:

To be determined by the Engineer.

Type C:

To be determined by rules stipulated in the contract

2) Expansion of Contractors responsibility

The Contractors contractual responsibility is considered to be increased unreasonably if no
maximum amount is set for Liquidated Damages or an excessively long Defects Liability Period
is stipulated.
The following are typical examples of Employers obligations and responsibilities under the
FIDIC Red Book 1987:-

1. to give possession of the site to the Contractor under Sub-clause 42.1

2. to give necessary instructions, consents, approvals and notices to the Contractor

under various clauses

3. to avoid delay, impediment or prevention by the Employer under Sub-clause 44.1
4. to be responsible for damage to transportation routes when the Employer is liable for

this under Sub-clause 30.3

5. to supply goods or execute specified work when the Employer is responsible

therefore
6. to pay the Contractor according to Sub-clause 60.10, etc.
7. to be responsible for the Employers risk items under Sub-clause 20.3, 20.4 and 21.3
8. to settle disputes amicably under Sub-clause 67.2

If any of the above items are excluded entirely or partially from the Employers obligations or if
such responsibilities are in all circumstances or even in certain specified circumstances
transferred to the Contractor then the Contractors contractual responsibilities would be
considered to be increased unreasonably.
3) Restriction of the Engineers authority
The Engineer is required to exercise his authority impartially in giving approval, consent,
certification and determination as described in Chapter 2.

However, under Sub-clause 2.1 of

Conditions of Particular Application, it is possible to impose the Employers prior approval as a

precondition for the exercising of such Engineers authority.
2.1 Engineer's Duties and Authority
(b)

The Engineer may exercise the authority specified in or necessarily to be

implied from the Contract, provided, however, that if the Engineer is required,
under the terms of his appointment by the Employer, to obtain the specific
approval of the Employer before exercising any such authority, particulars of
such requirements shall be set out in Part II of these Conditions.

Similarly, the Engineers authority may be diminished if words such as subject to prior approval
of the Employer are inserted in the independent clauses as listed in Chapter 3-1, in which the
Engineers authority is described.
Excessive use of Employers prior approval as a precondition for the exercise of the Engineers
authority may tend to bias the Engineers independent decision making ability and thereby
increase the one sided tendency of a contract.

As described in section 3-1) above, the Engineer shall make determinations about alleged claims
after due consultation with the Employer and the Contractor.

This will ensure that the

Employers views can be deemed to have been considered in the decision making process
undertaken by the Engineer.

4. Commentary on Checklist
To draft Conditions of Contract in accordance with FIDIC Red Book's fundamental
concepts and at the same time to avoid a one sided contract to be unreasonably
advantageous to the drafting party as listed above, the following commentary is provided
for to assist in the understanding and intention of the check list.

Check Point
FIDIC Clause

01

Are the Bidding Documents based on the JBIC Sample

Bidding Documents?

Whole

<Interpretation>
JBIC recommends that bidding documents are prepared based on Sample Bidding
Documents under JBIC ODA Loans (Civil Works) Nov.1999 (the JBIC Sample
Bidding Documents). The JBIC Sample Bidding Documents are based on FIDIC Red
Book 1987 (FIDIC Red Book) as the de facto standard for international civil
construction contracts. FIDIC Red Book is considered to be a fair balance of risk
between the Employer and the Contractor.
It is strongly recommended that bidding documents are prepared in line with the JBIC
Sample Bidding Documents. If local standard bidding documents are used instead of the
JBIC Sample Bidding Documents, the following problems have been encountered:
Examination of the specially drafted conditions of contract takes a great deal of
time as the clause numbers may not be consistent.
The provisions may deviate from usual international standard contractual
practice.
The contract document may not be complete.

Check Point

FIDIC Clause

02

Has FIDIC Red Book Part II Conditions of Particular

Application been completed and checked by a specialist who
has the necessary experience?

Whole All

<Interpretation>
FIDIC Red Book consists of two parts; Part I Conditions of Contract, and Part II
Conditions of Particular Application. Part II is prepared:

10

To provide the necessary details left blank in Part I (for example clauses: 1.1,
2.1, 5.1, 14.1, 14.3, 68.2, etc.),
To provide information specific to the project, specific to the region and specific
to the country where the project is to be carried out, and
To provide information on terms required or recommended by the financing
bank (for example JBIC).
The Part I provisions have been improved through use on many projects and its
provisions reflect a standard policy that has a high degree of professionalism. Great care
is also necessary to coordinate Part I and Part II. Any rewriting may destroy the entire
balance of the provisions and introduce referencing errors. For example when Clause
20.4 "Employer's Risk" is changed, it is possible to create inconsistency with Clause
65.2 "Special Risks". Completion and checking the consistency of Part I and Part II
should only be undertaken by a specialist with the following necessary experience:
(1)
(2)
(3)
(4)
(5)

A thorough knowledge of the international construction contracts,

An understanding of the basic concepts of FIDIC Red Book,
A technical understanding of the scope of construction work to be executed,
A knowledge of construction cost estimates and time scheduling,
English language and drafting skills.

Check Point
FIDIC Clause

03

Has an independent engineer been appointed to administer

the contract?

Whole

<Interpretation>
One of the main features of the FIDIC Red Book is that it provides for defined
decisions, and for the contract administration (described in Chapter 2) to be undertaken
fairly, by an independent engineer.
Some execution agencies in developing countries acting as Employers have a tradition
of providing an employee or related organisation to serve as the Engineer. In some other
countries the Employer also holds the post of the Engineer, and the Engineer then
appoints an independent consultant as the Engineers Representative. Even in this
situation, the Engineers Representative may face difficulty in remaining impartial,
unless a great deal of the power and authority of the Engineer is delegated completely to
him. Where it is usual that execution agencies are both the Employer and the Engineer it
11

is highly recommended that this procedure be changed and that such execution agencies
appoint an independent consultant to maintain the Engineers impartiality. Independence
of the Engineer is an integral part of the FIDIC Red Book philosophy.
Check Point
FIDIC Clause

04

Is the design executed by the Employer, and does the

Employer have design responsibility?

Whole

<Interpretation>
The Design-Bid-Build method is the assumed method of executing any project under the
FIDIC
ed Book. The Employer designs the permanent works, and the bidding is done
based on that design. The Employer assumes the liability for defective design (for
example under clauses: 6.1, 6.4, 7.1, 7.2, and 8.1).
It would be a fundamental deviation from the JBIC Sample Bidding Documents and the
FIDIC Red Book to impose liability on the Contractor for defective design and
additional cost for construction due to the modified design. If the Design-Bid-Build
method is used then such text change should be avoided as it increases the Contractor's
risks too greatly.

Check Point

05

When the Engineer exercises an authority or power are the

circumstances under which he is required to get the
Employer's prior approval excessive?

FIDIC Clause

2.1

Engineers Duties and Authority

<Interpretation>
Another feature of the FIDIC Red Book is that the Engineer is required to be impartial
in administering the contract as described in Clause 2.6 and Chapter 2. Clause 2.1(b)
specifies that if any Engineer's decision to approve, prove, determine or decide is subject
to the acquisition of specific prior approval from the Employer then such decisions shall
be set out in FIDIC Red Book Part II.
It is preferable to minimize the number of matters which need the prior approval of the
Employer. This encourages the Engineer to make impartial judgments in line with the
basic philosophy of the FIDIC Red Book. If there are many matters which need the prior
approval of the Employer then there is the possibility that the Employer's view will
excessively be reflected when the Engineer's exercises any discretion. Similarly when
the text of FIDIC Red Book Part I and II is changed in this fundamental issue then

12

neutral judgment could be obstructed.

As described in section 3-1)) above, the Engineer shall make hisdeterminations about alleged
claims after due consultation with the Employer and the Contractor. This will ensure that the
Employers views can be deemed to have been considered in the decision making process
undertaken by the Engineer (Refer to Clauses 27.1, 36.5, 40.2, 42.2, 65.5, 69.4 and 70.2).

FIDIC Red Book clause 1.5 specifies that any consent, approval, certificate or
determination shall not unreasonably be withheld or delayed. If the Employer's prior
approval is required then the Contractor may consider such approval procedures
represent an unjustifiable delay.
The FIDIC Guidelines for Preparation of Part II clauses do not indicate which
discretions should be subject to approval. To consider the circumstances under which
restraints may be placed on the Engineers authority it would be necessary to take into
account the factors specific to the country in which the works are to be carried out. The
JBIC Sample Bidding Documents recommend that the following five situations should
be subject to prior approval from the Employer:(a)
(b)
(c)
(d)

approving subletting of any part of the Works under Clause 4,

certifying additional cost determined under Clause 12,
determining an extension of time under Clause 44,
issuing a variation order under Clause 51, except in an emergency situation or if
such variation would increase the Contract Price by less than xx %,
(e) fixing rates or prices under Clause 52.
The issuance of the certificates under Clauses 48.1 "Taking-Over", 60.2 and 60.8
"Payments", and 62.1 "Defects Liability" should be assumed to be the sole discretion of
the Engineer, and should not be included in the matters requiring Employer's prior
approval.

Check Point

06

Is any restriction on the Engineer's ability to make an

impartial decision fair?

FIDIC Clause

2.6

Engineer to Act Impartially

<Interpretation>
As stated in Checkpoint 5 the FIDIC Red Book imposes on the Engineer an obligation
to make impartial decisions when he has to exercise a discretion. From a broader point
of view when any Engineer follows the FIDIC Red Book requirements faithfully then
13

his decisions will in fact be thought of as fair and impartial.

If there is a text change that requires the Engineer to get the Employer's prior permission
to exercise the Engineers authority under this clause, then the fairness of the Engineers
decision may be affected greatly by the Employers view. Such text change should be
avoided.

Check Point

07

Is the specified language of the contract, considered an

international well understood neutrally regarded language?

FIDIC Clause

5.1

Language/s and Law

<Interpretation>
The JBIC Sample Bidding Documents recommend that English be nominated to be a
language of the Contract.
If the Conditions of Contract are made in two languages (e.g. English, French, or
Spanish plus language of the country where the Works are to be carried out or language
of the Employer's country) it is advisable to avoid specifying languages other than
English, French, and Spanish as the ruling language for interpretation in the event of
contradictions. This is advisable as all the stake holders in the Contract (the Employer,
the Contractor, the Engineer, and JBIC) can regard English, French, and Spanish as
neutral.

Check Point

08

Is the priority order of documents forming the contract

clearly defined?

FIDIC Clause

5.2

Priority of Contract Documents

<Interpretation>
The priority of documents forming the contract recommended in the JBIC Sample
Bidding Documents is as follows:(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)

the Contract Agreement (if completed);

the Letter of Acceptance;
the Bid and the Appendix to Bid;
the Conditions of Contract Part II;
the Conditions of Contract Part I;
the Specifications;
the Drawings; and
the priced Bill of Quantities.
14

Contract amendments such as "The document which describes the content in detail shall
be given priority over a more general document." should be avoided. Such provisions if
included regardless of the definition of priority, create uncertainty.
Additional provisions dealing with the priority of documents should be drafted carefully
so as not themselves, to create discrepancies and contradictions in the interpretation of
the priority provisions whether the additional provisions are in the Contract Agreement,
the Conditions, or the Letter of Acceptance.

Check Point

09

Are the Contractor's rights to extension of time, and / or

additional cost limited for delay in issuance of drawings and
instructions?

FIDIC Clause

6.4

Delays and Cost of Delay of Drawings

<Interpretation>
Under the FIDIC Red Book, the Engineer has a duty to issue construction drawings at
the times set out in the construction time schedule submitted by the Contractor under
Clause 14.1. The Contractor then prepares detailed drawings based on the construction
drawings. The lead time for preparation of those drawings by the Contractor should be
agreed at the time of the Contract.
The Contractor suffers delay and / or incurs cost for waiting time in preparation of shop
drawings and / or a delay in the Works arises from delay by the Engineer in issuing the
construction drawings. Such delay and / or incurred cost are risks that the Contractor
cannot manage and should not be asked to take responsibility for.
As a matter of fairness to the Contractor it is necessary to avoid text changes which
restrict the Contractors right to claim for extensions of time and the additional cost
arising from delayed issue of drawings and instructions.

Check Point

10

Has the Contractor's general obligation been extended so as

to impose design responsibility?

FIDIC Clause

8.1

Contractors General Responsibilities

<Interpretation>
The JBIC Sample Bidding Documents recommend that the provision the Contractor
shall promptly notify the Employer and the Engineer of any error, omission, fault or
15

other defect in the design. is added.

Any text change which makes the Contractor assume the responsibility for the design
carried out by the Employer excessively expands the Contractor's obligations. Such text
changes should not be made and the Contractor should not be responsible for any design
which he has not prepared.

Check Point
FIDIC Clause

11
10.2

Has the Contractor's obligation been expanded by extending

the performance security's validity period?
Period of Validity of Performance Security

<Interpretation>
FIDIC Red Book Clause 62.1 provides for the validity of the performance security to
expire on the issuance of the Defects Liability Certificate. The performance security
document shall be returned to the Contractor within 14 days of the issuance of the
Defects Liability Certificate.
FIDIC Red Book Clause 61.1 provides that the Contract shall only be regarded as
complete upon issuance of the Defects Liability Certificate in accordance with Clause
62.1. The Contractors contractual obligations are at an end upon the issuance of this
Certificate. Any text change that excessively expands the Contractor's obligation by
requesting a performance security to remain valid beyond that date keeps the
Contractors obligation alive unfairly.

Check Point

FIDIC Clause

12

11.1

Is the Contractor made to bear responsibility for the site

conditions, and are extensions of time and additional cost for
the presence of unforeseeable site conditions limited?
Inspection of Site

<Interpretation>
Any text change or additional provision which makes the Contractor assume all the
responsibilities for the inaccuracy and / or insufficiency in information given by the
Employer deviates from the FIDIC Red Book and imposes an excessive and unfair
responsibility on the Contractor.
In case of inaccuracy of the site data, a claim can be submitted by the Contractor under
Clause 12.2. Even if there is a text change attempting to limit this right the Employer
may still be held responsible as the drafter of the tender / contract documents. If such a
claim develops into arbitration, an award could go against the Employer. An arbitration
16

tribunal could decide that a bidder had insufficient time to investigate and verify the site
data provided by the Employer and it would have been necessary and reasonable for the
Contractor to have relied on the accuracy of the site data to calculate the tender price.
The JBIC Sample Bidding Documents recommend adding a new Clause 11.2. This new
clause allows the bidders to access data provided elsewhere in the Contract. This
provision is helpful as it permits the bidders to understand site conditions in more detail.
The critical factor is to select a proper contractor at an appropriate price by providing a
thorough understanding of the site situation at the time of the tender.

Check Point

FIDIC Clause

13

12.2

Are the Contractor's right to claim for an extension of time

and additional cost for unforeseeable physical obstructions or
the conditions limited? Further, is there any possibility of the
Engineer being unfairly influenced by the Employer when
making a decision on such extension of time and additional
cost?
Not Foreseeable Physical Obstructions or Conditions

<Interpretation>
No Contractor can manage risks arising from physical obstructions or conditions which
an experienced contractor could not reasonably have foreseen. Imposing a risk on a
Contractor which he cannot manage may lead the bid evaluator to select a bidder
without the maturity and / or experience to reflect such a risk in the price. In these
circumstances there is a high possibility of spoiling another very suitable bidder who has
properly reflected the risk in his tender price.
Any text change which restricts or limits the Contractors right to claim for extension of
time and additional cost shall be avoided to prevent from disadvantage for both the
Employer and the Contractor.
If there is a text change to the effect that the Engineer requires the Employer's prior
permission to exercise his discretion in relation to extension of time and additional cost,
the Engineers fair decision may be affected greatly by the Employer's views. Any such
text change should be avoided as being against FIDIC Red Book principles and unfair.

Check Point
FIDIC Clause

14
14.3

Has the right to receive progress payments for work carried

out been limited by the Employer's capital plan?
Cash Flow Estimate to be Submitted
17

<Interpretation>
FIDIC Red Book Clause 60 sets out the payment procedure which is invariably to be
payment according to work progress. However, payment by some executing agencies /
Employers is limited by an annual government budget. This limit is stipulated in the
Contract. In such cases payment can only be made within the limit of the budget
regardless of the amount due according to the FIDIC Red Book work progress
procedures.
The construction time schedule is prepared by the Contractor in accordance with their
own construction methods. A cash flow plan is established referring to this construction
time schedule. Any text change by which the Employer limits the Contractors cash flow
plan should not be made.

Check Point

FIDIC Clause

15

17.1

Have the Contractor's obligations expanded to include

responsibility for the original points, lines and levels given
by the Engineer?
Setting-out

<Interpretation>
Any text change to make the Contractor assume responsibility for the accuracy of the
original points, lines and levels given to the Contractor by the Engineer changes the
procedure stipulated in FIDIC Red Book Clause 17.1. Such a change imposes too much
risk on the Contractor and any such text changes should be avoided as being unfair and
against FIDIC Red Book principles.

Check Point

FIDIC Clause

16

Has any of the Employer's risk been imposed on the

Contractor and consequently has the Contractor's obligation
been expanded?

20.3 & Loss or Damage Due to Employer Risks and other related
others issues

<Interpretation>
FIDIC Red Book Clause 21.2 provides that insurance shall be in the joint names of the
Contractor and the Employer. Such insurance shall include all the Employers risks
except the Special Risks stipulated in Clause 65. Any loss or damage not insured or not
recovered from the insurers, pursuant to Clause 21.3, shall be borne by the Employer or
the Contractor in accordance with their respective responsibility set out under the FIDIC
Red Book or at law. Any amount not recovered from the insurers is described
18

as Excess and/or "Deductibles. Any insurable event not covered by the policy for any
reasons is described as an "Exclusion.
Any text changes which transfers the Employers risks to the Contractor increases the
Contractors obligation and would mean that the Contractor is required to bear any loss
and or damage not recovered from the insurer.
If a text change is made to delete an exclusion from FIDIC Red Book Clause 21.4 and
such event occurs then the Contractors responsibility will have been unreasonably
enlarged. It is necessary to avoid such text changes that move those normally excluded
risks to the Contractor. Those risks cannot be managed and are not insurable at normal
premiums.

Check Point

FIDIC Clause

17

27.1

Is there any possibility of the Engineer being unfairly

influenced by the Employer when making a decision
regarding obstruction to the Contractor during construction
of the Works for which he is not responsible?
Fossils

<Interpretation>
If there is a text change which requires the Engineer to get the Employer's prior
permission to exercise Engineer's discretion in relation to extension of time and
additional cost caused by removal of obstruction by fossils, the Engineers ability to
make a fair decision may be affected by the Employer's views. Any such text changes
should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FIDIC Clause

18

30.3

Has the responsibility for compensation for damaged road

and bridges that the Employer should assume been imposed
to the Contractor?
Transport of Materials or Plant

<Interpretation>
Any text change to FIDIC Clause 30.3 which imposes the Employers liability to
compensate for damage to roads and bridges on the Contractor regardless of the law and
the regulations, forces the Contractor to bear a risk that he cannot manage. Any such text
changes should be avoided as being against FIDIC Red Book principles and unfair.

19

Check Point

FIDIC Clause

19

31.2

Is there any possibility of the Engineer being unfairly

influenced by the Employer when making a decision with
regard to the Contractors additional cost for facilities for
other contractors?
Facilities for Other Contractors

<Interpretation>
If there is a text change which requires the Engineer to get the Employer's prior
permission to exercise his discretion in relation to additional cost, the Engineers fair
decision may be affected greatly by the Employer's views. Any such text changes should
be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FIDIC Clause

20

36.5

Is there any restriction on the Contractors right to claim for

extension of time and additional cost for testing not provided
for? Further, is there any possibility of the Engineer being
unfairly influenced by the Employer when making a decision
for such extension of time and additional cost?
Engineers Determination where Tests not Provided for

<Interpretation>
Any text change to FIDIC Red Book which removes the Contractors entitlement to a
claim for extension of time and additional cost for the tests not provided for in the
Contract may lead to restriction on the Contractors rights. Such tests are unplanned
work and an extension of time would be unavoidable if this work is on the critical path.
Further, such cost could not have been included in the Contract Price. It is necessary to
avoid any such text change that imputes such risk that cannot be managed.
If there is a text change which requires the Engineer to get the Employer's prior
permission to exercise his discretion in relation to extension of time and additional cost,
the Engineers fair decision may be affected greatly by the Employer's views. Any such
text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FIDIC Clause

21

38.2

Is there any restriction on the Contractors right to Claim for

additional cost for uncovering and making openings?
Further, is there any possibility of the Engineer being
unfairly influenced by the Employer when making a decision
for such additional cost?
Uncovering and Making Openings
20

<Interpretation>
Any text change to FIDIC Red Book Clause 38.2 which deletes the Contractors right to
an additional cost for making openings of any part of the Works covered up in proper
manner would impose an unmanageable risk to the Contractor.
If there is a text change which requires the Engineer to get the Employer's prior
permission to exercise his discretion in relation to additional cost, the Engineers fair
decision may be affected greatly by the Employer's views.
Both such text changes should be avoided as being against FIDIC Red Book principles
and unfair.

Check Point

FIDIC Clause

22

40.2

Is there any possibility of the Engineer being unfairly

influenced by the Employer when making a decision with
regard to the Contractors additional cost and extension of
time arising from work suspension ordered by the Engineer?
Engineers Determination following Suspension

<Interpretation>
If there is a text change which requires the Engineer to get the Employer's prior
permission to exercise his discretion in relation to extension of time and additional cost,
the Engineers fair decision may be affected greatly by the Employer's intention. Any
such text changes should be avoided as being against FIDIC Red Book principles and
unfair.

Check Point

FIDIC Clause

23

41.1

Is there a possibility of delay and idling time for the

Contractor before the Contractor can start work even though
the Letter of Acceptance had been issued?
Commencement of Works

<Interpretation>
The issuance date of the Notice to Proceed marks the commencement of the contractual
construction period. The FIDIC Red Book requires the Contractor to submit a
programme under Clause 14.1, and Cash Flow forecast under Clause 14.3 within the
number of days stipulated in Part II such period counting from the date of the Letter of
Acceptance. The Contractor is also required to submit the Performance Security under
Clause 10.1, and a breakdown of the Lump Sum prices under Clause 57.2.
A time limit for the issuance of the Notice to Proceed is usually stipulated in the
21

Appendix to Tender in relation to the date of issuance of the Letter of Acceptance by the
Employer. The Contractor is not able to schedule the Works when the Notice to Proceed
and Letter of Acceptance are delayed. Therefore if there is a text change which deletes
the time limit for issue of the Notice to Proceed from the date of the Letter of
Acceptance the Contractor may be forced to stand in readiness for a long time. The
Contractor would also be forced to start contractual activities, such as the preparation of
the Performance security under Clause 10.1, and preparation of the Lump Sum prices
breakdown of under Clause 57.2 in order to submit these within 28 days from the date of
the Letter of Acceptance. This would be so even if the Notice to Proceed had not been
issued by the Engineer after 28 days from the Letter of Acceptance. Such a text change
creates a risk that cannot be managed by the Contractor and should not be incorporated.
An Employer may have many internal problems to overcome to commence the project
such as land compensation, arrangement of budget and staff arrangement. It may be
difficult to predict how long these tasks will take to solve and that may be the reason to
make a text change so as not to stipulate a time limit in the Appendix. However,
managing these various procedures is not the Contractors problem but is the Employer's
responsibility. Managing these procedures is a prerequisite for the smooth execution of
construction works.

Check Point

FIDIC Clause

24

42.2

Is there a restriction on the Contractors right to claim for

extension of time and additional cost for delay in possession
and or access to the Site? Further, is there any possibility of
the Engineer being unfairly influenced by the Employer
when making a decision on the Contractors right to an
extension of time and additional cost for such events?
Failure to Give Possession

<Interpretation>
Any delay in giving possession of, and access to, the site is necessarily the responsibility
of the Employer. Such matters cannot be managed by any Contractor. If a delay to either
of these activities actually affects the critical path of the Works, an extension of time is
unavoidable. Text changes to impose responsibility for these activities on the Contractor
therefore should be avoided.
If there is a text change that requires the Engineer to get the Employer's prior permission
to exercise his discretion in relation to extension of time and additional cost, the
Engineers fair decision may be affected greatly by the Employer's views. Any such text
22

changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point
FIDIC Clause

25
44.1

Are there any restrictions on the Contractors right to claim

for extension of time for Completion?
Extension of Time for Completion

<Interpretation>
Any amendment which changes the conditions for, or deletes entirely, any of the five
reasons for extensions of time and of the Contractors right to claim for extension of
time should be avoided. Such an amendment attempts to impose on the Contractor risks
that he cannot manage. Any such text changes should be avoided as being against FIDIC
Red Book principles and unfair.

Check Point
FIDIC Clause

26
47.1

Are amounts and limits of liquidated damages which may be

imposed on the Contractor appropriate?
Liquidated Damages for Delay

<Interpretation>
The Guidelines for Procurement under JBIC ODA Loans published January 2005
recommend liquidated damage at a rate of 0.1% per day of the Contract price or 0.5 %
per week of the Contract Price. It also recommends an upper limit in the range of
between 5% and 10% of the Contract Price.
Any text change which deletes the upper limit of liquidated damages and has the
possibility of deducting extremely large amounts of money may be judged as a penalty
if a dispute proceeds to arbitration. Any decision that liquidated damages are a penalty
causes there to be a doubt on the effectiveness of the whole liquidated damages
provision.
Contractors may include a contingency in their bid price to cover the risk of extremely
large amounts of liquidated damages set out in the bid documents. If the Works are not
delayed then the contingency is an unnecessary expense for the Employer. There is also
the possibility that capable contractors will be deterred from bidding as described in
Checkpoint 12. Such text changes have no advantage for the Employer or the
Contractor.

23

Check Point

FIDIC Clause

27

48.1

Is there any possibility of the Engineer being unfairly

influenced by the Employer when making a decision to issue
the Taking-Over Certificate?
Taking-Over Certificate

<Interpretation>
If there is a text change which requires the Engineer to get the Employer's prior
permission to exercise his discretion in relation to issue of a Taking-Over Certificate, the
Engineers fair decision may be affected greatly by the Employer's intention. Any such
text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point
FIDIC Clause

28
49.1

Is the defects liability period excessive?

Defects Liability Period

<Interpretation>
The Defects Liability Period set out in the FIDIC Red Book Appendix to Tender is
usually one year for civil works. There is also an implication that the Engineer's
monitoring of the Works as a third party during the construction process functions to
ensure that the economic life of the civil works and structure will generally be durable in
the range of between 30 and 50 years.
Any text change which imposes an excessive risk on the Contractor by unreasonably
extending the defects liability period may increase the bid price and make the project
more expensive for the Employer. There is also the possibility that capable contractors
would be deterred from bidding as described in Checkpoint 12. Such text changes have
no advantage for the Employer or the Contractor.

Check Point
FIDIC Clause

29
49.2

Has the Contractors scope of the responsibility for defects

liability been expanded excessively?
Completion of Outstanding Work and Remedying Defects

<Interpretation>
The Contractor cannot control natural wear and tear caused by operation of facilities
during the Defects Liability Period, even if such a text change is made to impose such a
responsibility on the Contractor. Wear and tear of facilities and structures is natural
when they are put into use under normal operating conditions.
To impose such responsibility on the Contractor is an unfair expansion of the
Contractors obligations and may increase the bid price and expense to the Employer.
24

There is also the possibility that capable contractors will be deterred from bidding as
described in Checkpoint 12. Such text changes have no advantage for the Employer or
the Contractor.

Check Point

FIDIC Clause

30

50.1

Is there any possibility of the Engineer being unfairly

influenced by the Employer when making a decision on the
additional cost to be paid to the Contractor for rectification
of defects?
Contractor to Search

<Interpretation>
If there is a text change which requires the Engineer to get the Employer's prior
permission to exercise his discretion in relation to additional cost, the Engineers fair
decision may be affected greatly by the Employer's view. Any such text changes should
be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FIDIC Clause

31

51.1

Is there an infringement on the rights of the Contractor such

as the Employer reserving the unconditional right to omit
parts of the Works?
Variations

<Interpretation>
FIDIC Red Book Clause 51.1(b) provides that "to omit any such work" is a part of a
variation. However, the right of the Employer is conditional on the fact that such
omission shall not be for the purpose of having that work carried out by the Employer or
by another contractor. It is necessary to avoid any text change which deletes such
provision because this is a violation of the right of the Contractor to carry out the
contractual work.

Check Point

FIDIC Clause

32

52.3

Is the percentage applied in this clause reasonable? Is the

formula by which the Contractor's right is calculated
provided for? Further, is there any possibility of the Engineer
being unfairly influenced by the Employer when making a
decision on the amount of addition or deduction to the
Contract Price?
Variations Exceeding 15 percent

<Interpretation>
25

The basis of this clause is to balance the Employer's and the Contractor's risk for
increases or decreases of the Effective Contract Price. To accomplish this balance of risk
it is necessary to allow for the adjustment of the Effective Contract Price if such
increase or decrease of variations adversely the affects the proportion and therefore
recovery of indirect construction costs.
The Effective Contract Price shall be adjusted in relation to the amount of contract
variations. Any text change which specifies an unreasonably high percentage for
variations before adjustment is made should be avoided.
If there is a text change that requires the Engineer to get the Employer's prior permission
to exercise his discretion in relation to increase or decrease amount of the Effective
Contract Price, the Engineers fair decision may be affected greatly by the Employer's
intention. Any such text changes should be avoided as being against FIDIC Red Book
principles and unfair.

Check Point
FIDIC Clause

33
53.1

Is there an unfair limitation in the period of time during

which the Contractor has a right to claim?
Notice of Claims

<Interpretation>
The basic philosophy behind a claim notice period being set as 28 days is that the
Employer and the Contractor are able, in good time, to identify which contemporary
records will be required to substantiate the claim and to take any action that may be
appropriate. Clearly memory alone is not a good basis as it becomes fainter as time goes
by. There is also a common sense view that a 28 days period is appropriate for the
Contractor to recognize that an event may developed into a claim. A text change to
shorten this 28 days period should be avoided because of possible unfair restriction of
the Contractors rights.
The FIDIC Red Book Clause 53.3 requires the Contractor to send to the Engineer, with
an explanation of the grounds upon which the claim is based, with an account giving
detailed particulars of the amount claimed. According to the Contract, the assessed value
of the claim will be paid to the Contractor when the Engineer has determined that the
amount claimed was reasonable in the light of the facts and rights under the Contract.

26

Check Point
FIDIC Clause

34
54.3

Have the provisions on the Employers assistance to the

Contractor been deleted or reduced?
Customs Clearance

<Interpretation>
FIDIC Red Book Clause 54.3 sets out the range of support to be offered by the
Employer to the Contractor regarding customs clearance. The clause does not clearly
specify the details of such support. The Employer must therefore describe in Part II of
the Conditions of Contract, the details of the Employer's support. What support the
Employer provides actually varies in different countries and projects.
Any text change which deletes such support from the Employer may not only expand
the Contractors obligation but also obstruct execution of the Project.
Customs departments usually require endorsement by the Employer for re-export of the
Contractors construction equipment after the construction in accordance with FIDIC
Red Book Clauses 33.1 and 54.1.

Check Point

FIDIC Clause

35

59.2

Is the Contractor's right to reasonable objection to the

Employer's selection of nominated subcontractor been
limited or deleted?
Nominated Subcontractors; Objection to Nomination

<Interpretation>
Under FIDIC Red Book Clause 59.2(a) all nominated subcontractors should undertake
towards the Contractor such obligations and liability that will enable the Contractor to
discharge his own obligations and liabilities towards the Employer.
Any text change which prevents the Contractor from rejecting any subcontractor
selected by the Employer who will not undertake such responsibility shall be avoided
because it prejudices the Contractor's chance of keeping the quality of work and time
period stipulated in the Contract.

Check Point
FIDIC Clause

36
59.4

Does the Contractor have the right to set out in the Contract
his attendances and profit on Nominated Subcontractors?
Payments to Nominated Subcontractors

<Interpretation>
The Contractor shall submit his method statement, applications for approval of
construction materials, and selection of subcontractors. It is a right of the Contractor to
27

receive profit and payment for services which he provides to the subcontractors. The
rate of profit and payment for charges must be at the Contractors discretion.
The Tender document must include a format sheet to include the appropriate rate of
profit and payment for charges in the build up of the Contract Price. This format sheet
shall provide separate columns for the rates for his own work and subcontracted work as
the Contractors management input is different in each case.
Therefore FIDIC Red Book Clause 59.4(c) should have no text change to fix the rates to
a single rate to avoid violation of the Contractors right.

Check Point
FIDIC Clause

37
60.1

Is the party to pay for the bank commissions and fees etc.
clearly defined in the contract?
Monthly Statements

<Interpretation>
The JBIC Sample Bidding Document recommends a clause for Certificates and
Payment. The numbering system of this recommended clause is different from FIDIC
Red Book but the effect of the clause is the same.
If the Employer intends to pay the bank for opening letters of credit, making remittance
and other bank charges including those incurred by the Contractor then it is necessary to
clearly specify this in the Contract.
The Contractor can request payment for these bank fees under Clause 60.1(e) and
include them as any other sum to which the Contractor may be entitled under the
Contract in both the FIDIC Red Book and the JBIC Sample Bidding Documents.

Check Point

FIDIC Clause

38

60.2

Is the Contractor's right limited by extending the time limit

for the Employer to honour a payment certificate issued by
the Engineer?
Monthly Payments

<Interpretation>
Both the FIDIC Red Book and the JBIC Sample Bidding Documents specify the time
limit for the Employer to honour an Engineers certificate for payment as 28 days.
Any text change to extend the 28 day honouring period will extend the time limit for
payment by the Employer and will probably increase the Contract Price. There is also
the possibility of deterring capable contractors from bidding as stipulated in Checkpoint
28

12. Therefore such text changes should be avoided from the perspective of economic
rationality.

Check Point
FIDIC Clause

39
-

Has an excessive obligation been forced on the Contractor

with regard to amortisation of the Advanced Payment?
Advance Payment

<Interpretation>
The provision of an advance payment allows the Contractor to pay for preparation of the
site and temporary works until receipt of the first interim payment.
The advance is amortised by the Employer deducting a defined amount from an
otherwise due interim payment. The JBIC Sample Bidding Document recommends that
repayment should be calculated so as to obtain full recovery of the advance payment by
the time 80% of the Contract Price has been certified for payment.
Any text change to make the Contractor repay the advance payment much before
interim payments have reached 80% of the Contract Price should be avoided as they
may undermine the original purpose of the advance payment.

Check Point
FIDIC Clause

40
60.3

Has an excessive obligation been imposed on the Contractor

in respect of amount or timing of release of retention money?
Payment of Retention Money

<Interpretation>
FIDIC Red Book Clause 60.3 provides that the first half of the retention money shall be
returned to the Contractor upon the issue of the Taking-Over Certificate with respect to
the whole of the Works. This recognises the fact that the Employers risk from the
default by the Contractor is reduced at this time. The second half of the retention money
is still held by the Employer to cope with the risk of the Contractor not remedying
defects in workmanship. For this reason the second half of the retention money is
released only at the end of the defects liability period at the same time as the
performance security is also returned to the Contractor.
Any text change to request the Contractor to submit a bank bond in exchange for the
return of the first half of the retention money may impose on the Contractor an
excessive obligation beyond the FIDIC Red Book model. Any such text changes should
be avoided as being against FIDIC Red Book principles and unfair.

29

Check Point
FIDIC Clause

41
60.10

Is the Contractor's right to payment in a specified period

prolonged, or is he denied interest for delayed payment?
Time for Payment

<Interpretation>
The JBIC Sample Bidding Documents recommend 56 days as the time for payment in
FIDIC Red Book Clause 60.8..
Any text change which allows the Employer to delay payment beyond the standard time
limit of 56 days and / or deletes the obligation to pay interest for delayed payment may
push up the Contract Price. Such a text change could deter capable contractors from
submitting a bid as stipulated in Checkpoint 12 and should be avoided from the point of
view of economic rationale.
It is important that the payment obligation of the Employer should be clearly specified
in FIDIC Red Book Clause 60.10. The actual time of payment by the Employer could
vary according to the particular contract definition. Payment could be the time of
delivery by the Employer of necessary documents to the Contractor, or delivery to JBIC,
or at the time of actual payment into the Contractors bank account. The FIDIC Red
Book Clause 60.10 should clearly specify the time of payment to define the starting date
for calculation of interest.

Check Point

FIDIC Clause

42

65.3

Is there any possibility of the Engineer being unfairly

influenced by the Employer when making a decision on the
amount to be reimbursed for the Contractor to rectify or
replace any Works damaged by Special Risks?
Damage to Works by Special Risks

<Interpretation>
If there is a text change that the Engineer requires the Employer's prior permission to
exercise his discretion on cost related to damage caused by Special Risks, the Engineers
fair decision may be affected greatly by the Employer's intention. Any such text changes
should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

43

Is there any possibility of the Engineer being unfairly

influenced by the Employer when making a decision on the
amount of increased cost arising from Special Risks?
30

FIDIC Clause

65.5

Increased Costs arising from Special Risks

<Interpretation>
If there is a text change that requires the Engineer to get the Employer's prior permission
to exercise his discretion on the amount of increased cost arising from Special Risks, the
Engineers fair decision may be affected greatly by the Employer's view. Any such text
changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FI DIC Clause

44

65.8

Is there any possibility of the Engineer being unfairly

influenced by the Employer when making a decision on the
additional cost at the termination of the Contract arising from
Special Risks?
Payment if Contract Terminated

<Interpretation>
If there is a text change that requires the Engineer to get the Employer's prior permission
to exercise his discretion in relation to additional cost, the Engineers fair decision may
be affected greatly by the Employer's view. Any such text changes should be avoided as
being against FIDIC Red Book principles and unfair.

Check Point
FIDIC Clause

45
67.1

When the DAB procedure is used, has the cost been

examined sufficiently?
Engineers Decision

<Interpretation>
Chapter 11 of the JBIC Sample Bidding Documents provides for the use of a Dispute
Adjudication Board (DAB). The DAB comprises three (3) members in the case of a
project in which the contract price exceeds 42 million US$ (equivalent to 5.0 billion
Japanese Yen) as the optional method for the settlement of disputes. Under the FIDIC
Red Book Clause 67.1 this option is included at the discretion of the Employer as a
method of resolving differences over any Engineers decision.
There have been projects where the establishment of a DAB was suspended because of
the large sums of money to be paid for the DAB by both the Employer and the
Contractor. Even if the sharing of such cost was stipulated in the FIDIC Red Book the
cost of a DAB can be exceptionally high especially if the adjudicators come from third
countries. The Employer should have understood that such expenses are inevitable when
the DAB procedure was selected.

31

Check Point
FIDIC Clause

46
67.3

Is the selection of the arbitration procedure and the method

of selection of arbitrators properly international?
Arbitration

<Interpretation>
There should be proper consideration given to the selection of the dispute settlement
procedure incorporated in an international contract especially in the case of the
nomination of an arbitration rules / organization which is based in the country of the
Employer and (usually) the country where the Works are to be carried out. The general
rule should be to appoint a truly international and neutral rules / organization such as
International Chamber of Commerce (ICC).

Check Point

FIDIC Clause

47

69.1

Are the Contractors rights limited by shortening the notice

period, or providing for a prolonged grace period for the
effectiveness of termination of the Contract by reason of an
Employers default?
Default of Employer

<Interpretation>
The FIDIC Red Book Clause 60.10 (a) provides a period of 28 days within which
payment should be made by the Employer for interim certificates and 56 days for the
Final Certificate. The FIDIC Red Book Clause 69.1 also provides a period of 14 days
for the effectiveness of a notice of termination for Employer's failure to pay as required.
Proper consideration should be give to these periods taking into account the
implementation method and the context of the country where the Works are to be carried
out. The specification of these time limits shall be subject to sufficient investigation
especially when the executing agency has no authority to make a decision on the issue
related to this clause and is required to consult with other government authorities.
It is necessary to investigate all the circumstances surrounding the executing agency at
the same time as considering the rights of Contractor stated and implied in the Contract.

Check Point

48

Is there any possibility of the Engineer being unfairly

influenced by the Employer when making a decision on
extensions of time and additional cost at the termination of
the Contract or suspension of the Works caused by
Employers default?
32

FIDIC Clause

69.4

Contractors Entitlement to Suspend Work

<Interpretation>
If there is a text change that requires the Engineer to get the Employer's prior permission
to exercise his discretion in relation to extension of time and additional cost, the
Engineers fair decision may be affected greatly by the Employer's intention. Any such
text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FIDIC Clause

49

70.1

Is the Contractors right to price adjustment limited by the

Employer selecting an unreasonable adjustment formula or
providing a very large non-adjustable range?
Increase or Decrease of Cost

<Interpretation>
The JBIC Sample Bidding Documents recommend alternative provisions to FIDIC Red
Book Clauses 70.1 to 70.7 in Part II of the Conditions of the Contract.
It is necessary to avoid any text change to restrict the Contractors right which deletes
this clause, or specifies unreasonable formula, or automatically cuts a certain percentage
of price escalation, or limits adjustment to the cases of drastic movement in price.

Check Point

FIDIC Clause

50

70.2

Is the Contractors right to claim for additional cost for

changes in legislation limited? Further, is there any
possibility of the Engineer being unfairly influenced by the
Employer when making a decision for the amount of
increase or decrease cost due to changes in legislation?
Subsequent Legislation

<Interpretation>
The FIDIC Red Book Contract stipulates that the Contractor is entitled to additional
costs incurred due to changes in legislation and any text changes that limits the
Contractor's right to price adjustment only in circumstance when the additional amount
would exceed a certain limit are unfair.
The limits of price adjustment under Clause 70.1 can be ambiguous as described in the
Commentary on Clause 70.1 above. A description which clarifies adjustment to be made
under Clause 70.1 is required in a particular project.
If there is a text change that requires the Engineer to get the Employer's prior permission
to exercise his discretion on increase or decrease cost caused by changes in legislation,
33

the Engineers fair decision may be affected greatly by the Employer's view. Any such
text changes should be avoided as being against FIDIC Red Book principles and unfair.

Check Point

FIDIC Clause

51

72.2

Is the provision of ratio of currencies of payment reasonable,

does it unfairly restrict the Contractors right and does it
avoid conflict with any other clause?
Currency Proportion

<Interpretation>
When the Employer specifies his obligation to pay, in more than one currency, an
unbridgeable gap in the Contractor's actual cash flow may be caused if the text changes
fix that ratio. There is also the possibility that the bid price will be increased by the
contractor making provisions for this exchange risk and the restriction on the recovery
for Clause 70.1 price adjustment. Any such text changes should be avoided as being
against FIDIC Red Book principles and unfair.

34

Appendices

Appendix -1

Procedure of Claim and Dispute Settlement

FIDIC RedBook -1987

67.1
67.2

Occurrence of Claimable Event

67.1

Notice to Engineer of Intention to Claim

67.1
67.2

53.1 Cost

Within 28 days

Reference of
dispute to
DAB*1

Reference of
dispute to
Engineer

44.2 Time

67.1

Within 84
days

53.3 Cost

Within 28 days

DABs
Decision*1

Within 84
days
Notice of ground and details of Claim

Engineers
Decision

44.2 Time

Yes
Agreement to Engineers
or DABs Decision

Engineers Determination after

consultation with parties

Settlement
of Dispute

53.5 52.2 Cost

44.1 Time

No
67.1

Notice to commence
Arbitration
Agreement to
the Determination

Yes

Settlement

Within 70 days

of Claim
67.2

Attempt at Amicable

No

Settlement
Within 56 days

Occurrence of Dispute

Yes
Amicable Settlement

of Dispute

No
Arbitration

67.3

(under ICC Rule )

Note 1*
If a Dispute Adjudication Board (DAB) has been
Final Settlement of Dispute

appointed by the modification of Part II Conditions

of Particular Application.

AP-1

Settlement

J BI C

JAPAN
BANK FOR
INTERN ATIONAL
COOPERATION

JapanBankforInternationalCooperation
Head Office
4-1 Ohtemachi 1-chome, Chiyoda-ku,
Tokyo 100-8144, Japan
Telephone : Tokyo 81- 3 - 5 2 1 8 - 9 6 1 1
Facsimile: Tokyo 81 - 3 - 5 2 1 8 - 9 6 4 0
URL: http://www.jbic.go.jp
E-mail: pdds@jbic.go.jp