روعه Fidic Red Book 1999 Clauses Risks - CORBETT&CO

Clause 1
Summary
Clause 1 sets out many of the boilerplate clauses within the Contract and provides a
number of definitions which are used thereafter. The Clause has been substantially
changed from the Red Book 4th edn with a raft of new clauses added.
Sub-Clause 1.3 deals with communications and states that approvals, certificates, consents
and determinations shall not be unreasonable withheld or delayed.
The assignment provisions in Sub-Clause 1.7 have now changed so that restriction on
assignment applies to both the Contractor and Employer.
Delayed Drawings and Instructions is dealt with at Sub-Clause 1.9. This was previously
dealt with at Clause 6.4 of the Red Book 4th edn and it is unclear why such an important
provision has now been rolled up in the General Provisions clause.
Origin of Sub-Clause
Similar provisions to those within Clause 1 of FIDIC 1999 are found within the Red Book 4th
edn at Clause 1, 3, 5, 6, 9, 26 and 68
Cross Reference
The Definitions and General Provisions are found in every clause within FIDIC 1999.
Sub-Clause 1.1 Definitions
The definitions appear throughout FIDIC 1999. The definitions are important with regard to the
Parties’ obligations, insurance and ownership rights. The purpose of the definitions section is to
ensure that there is consistency in the interpretation of the obligations of the parties.
The introductory words of the definition section state that words indicating persons or parties
include corporations or other legal entities, except where the context requires otherwise. The
main significance of this change is that the Engineer can now be a company.
1
The content of this commentary is not legal advice. You should always consult a suitably qualified lawyer regarding a particular
legal issue or problem that you have. Please contact us if you require legal assistance.
© Corbett & Co International Construction Lawyers Ltd 2016

Sub-Clause 1.1.1 – The Contract
“Contract” – the definition lists the different documentation making up the Contract in the same
order as the order of the priority of documents contained at Sub-Clause 1.5. There is also
provision for further documentation to make up the Contract, as further documents can be
included in either the Contract Agreement or in the Letter of Acceptance.
“Contract Agreement” – an example of the Contract Agreement is contained within the Forms,
found at the end of FIDIC 1999. The Contract Agreement can also include further documentation
which will then form part of the Contract and therefore it is important that any further
documentation is recorded correctly and easily identifiable. The use of the words “if any” within
the definition reflects the fact that the Parties, naturally, may opt out of the need for a Contract
Agreement should they wish. The Contract Agreement is reviewed in greater detail within the
commentary on Sub-Clause 1.6 [Contract Agreement].
“Letter of Acceptance” – the Letter of Acceptance will only be construed as an acceptance if it

is accepting the Letter of Tender and is signed by the Employer. As with most signed documents
one must undertake some due diligence to ensure that who is signing the document on behalf of
the Employer has the authority to do so. “It is important to ensure that the Letter of Acceptance
matches the tender or, if there have been subsequent negotiations, an amended version of that
tender. Otherwise, the Letter of Acceptance would be more like a counter-offer which would
require a further acceptance from the Contractor before a contract was formed” 1.
The importance of the drafting of the Letter of Acceptance is further heightened by the fact that
it is second only to the Contract Agreement in the priority of documents contained at Sub-Clause
1.5. The Contract Agreement should be reviewed in detail to make sure that it does not change
any of the terms and conditions contained in the Letter of Acceptance (unless of course this is the
intention) as if there is any discrepancy between the 2 documents the Contract Agreement will
take priority.
The Letter of acceptance also acts as a trigger for the timings of certain activities. These are as
follows:-
- Sub-Clause 1.6 [Contract Agreement] – the Contract Agreement must be entered into
within 28 days after the Contractor receives the Letter of Acceptance
1
FIDIC 4th A Practical Legal Guide page 44, Edward C Corbett
2

- Sub-Clause 4.2 [Performance Security] – the Contractor shall deliver the Performance
Security to the Employer within 28 days after receiving the Letter of Acceptance
- Sub-Clause 8.1 [Commencement of Work] – unless otherwise stated in the Particular

Conditions the Commencement Date shall be within 42 days after the Contractor receives
the Letter of Acceptance
- Sub-Clause 14.7 [Payment] – the Employer shall pay to the Contractor the first
instalment of the advance payment within 42 days after issuing the Letter of Acceptance
or within 21 days after receiving the documents in accordance with Sub-Clause 4.2
[Performance Security] and Sub-Clause 4.2 [Advance Payment], whichever is the later.
Three of the four timings referred to above are dependent upon receipt of the Letter of
Acceptance by the Contractor, perhaps a slightly trivial point but the Employer should most
certainly ensure that the Contractor acknowledges receipt of the Letter of Acceptance, so that
there are no arguments as to the date of receipt which will in turn affect the timings referred
to above.
“Letter of Tender” – other than within the definitions, the Letter of Tender is only referred
to at Sub-Clause 1.5 [Priority of Document] of the Conditions of Contract. There is a useful
example of a Letter of Tender contained at the Forms section of FIDIC 1999. As with the
Letter of Acceptance it is worth undertaking some due diligence on the person who has
signed the Letter of Tender on behalf of the Contractor, to make sure that this person has the
authority to do so.
The Contractor must ensure that all of the documents which it intends to form part of its
Tender are attached to the Letter of Tender otherwise any such documents will not form part
of the Contractor’s Tender. The Letter of Tender is ranked number 3 in the order of priorities
but it is very likely that many of the documents attached to the Letter of Tender will not be
superseded by documents contained in the Letter of Acceptance or Contract Agreement
Sub-Clause 1.1.2 Parties and Persons
“Party” – is a new definition to FIDIC 1999 and is used throughout the FIDIC 1999 in both
singular and plural (“Parties”) form. Parties of course meaning both the Employer and the
Contractor and does not include the Engineer.
“Employer” – the Employer is named in the Appendix to Tender. This definition has been
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amended from the FIDIC 4th edition. The FIDIC 4th edition referred to the person named in Part
II of the Conditions as opposed to the Appendix to Tender. The Employer includes the legal
successors in title to the originally named Employer.
A successor in title is a term commonly used in relation to restrictive covenants and easements
and means the successive owners of the titled land are bound by the said agreement. If the
Employer owns the land on which the project has been constructed then a subsequent purchaser
of the land will obtain with conveyance of the land all the rights under the Contract which the
Employer possesses. Where, however, the Employer does not have title then the only way in
which he can transfer rights to a third party is by assignment. An assignee is different to a
successor in title. As detailed below at Sub-Clause 1.7, there has been a significant change to the
assignment provisions so that a Contractor has sole discretion whether to agree to an assignment
of the Employer’s rights. This issue needs to be carefully considered by an Employer when
deciding to progress with a project.
“Contractor” – refers back to the person named as the contractor in the Letter of Tender which
has been accepted by the Employer. In many cases there is a substantial time lag between the
date of the Letter of Tender and the Letter of Acceptance (12 months or more in many cases).
Therefore, it is advisable that the Employer should carry out some due diligence on the named
contractor in order to ensure that at the time the Contract is executed the Contractor has not
changed its name on the company register etc. As with the definition of Employer, Contractor
includes the legal successors in title.
“Engineer” – the key amendment to this definition when compared to the FIDIC 4th edition is
the reference to the fact that the Engineer is also the person who has been notified to the
Contractor as a replacement of the Engineer under Sub-Clause 3.4 [Replacement of the
Engineer]. Unlike the FIDIC 4th edition, under Sub-Clause 3.4 the Employer is entitled to replace
the Engineer subject to the Contractor not raising any reasonable objection, this issue is covered
in more detail at Clause 3.
The Engineer is a “person”. This is defined in the introductory section of Clause 1.1 to include
“corporations and other legal entities, except where the context requires otherwise”. If the
Engineer is a company, an individual can be named but it is the company and not that individual
who comprises the Engineer as defined. That person must have been both (i) appointed by the
Employer, and (ii) named in the Appendix to Tender. This gives the Contract clarity and the
Contractor certainty regarding whom he will be liaising with. However, as the provision is
drafted in the past tense, it appears to conflict with the first sentence in Sub-Clause 3.1, which
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states that, the “Employer shall appoint the Engineer”. It is clearly contradictory for the
Employer to have a right to appoint at some future date an already appointed and named person.
There is provision for the Employer to replace the Engineer under Sub-Clause 3.4 in the same
way that the 3rd edition and ICE 5th and 6th defined the "Engineer appointed from time to time by
the Employer". In the 4th edition (which provides for the Engineer to be a firm, corporation or
other organisation having legal capacity) there was no such ability (see below). There is no
provision for the Contractor to replace the Engineer under Sub-Clause 3.4. However, if the
Contractor considers the Engineer’s staff to be incompetent, he may proceed to allege that their
incompetence constitutes a breach of Sub-Clause 3.1.
“Contractor’s Representative” – is only found in the definition of Contractor’s Personnel

(1.1.2.7), Sub-Clause 4.3 [Contractor’s Representative], Sub-Clause 6.9 [Contractor’s
Personnel] and Sub-Clause 12.1 [Works to be Measured]. This is a new definition not previously
contained in the FIDIC 4th Red Book edn.
It is advisable that the Contractor name the Contractor’s Representative in the Contract as any
subsequent nomination will be subject to the Engineer’s approval. The FIDIC Guide
Commentary also advises the Contractor to name alternates in its Tender in case the preferred
representative becomes unavailable during the period of the validity of the Tender. The role of
the Contractor’s Representative is more particularly described in Sub-Clause 4.3 [Contractor’s
Representative].
“Employer’s Personnel” - includes the Engineer, his delegated staff and all other employees of
the Employer and the Engineer. In addition the Employer is entitled to designate any other
people as Employer’s Personnel. Sub-Clause 1.1.2.6 appears to have been drafted so as to avoid
including other contractors working on the Site within the definition of Employer’s Personnel. It
probably achieves this object but there is a degree of ambiguity. For example it is not
immediately clear whether staff and labour of other contractors will be treated as Employer’s
Personnel for the purposes of this definition. The same applies for other consultants on Site.
Employer’s Personnel have the benefit of the indemnities under Sub-Clause 17.1 and it would
seem logical that these apply to all people who might suffer as a result of any act by the
Contractor.
“Contractor’s Personnel” – includes all personnel whom the Contractor utilises on Site. The
definition goes on to say “who may include the staff... of each Subcontractor”. The determining
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factor as to whether or not an employee of a Subcontractor forms part of the Contractor’s
Personnel is quite simply whether or not this employee is being utilised on Site. If the answer is
in the affirmative then the employee forms part of the Contractor’s Personnel.
The term Contractor’s Personnel is found within various Sub-Clauses within FIDIC 1999 and it
is important for the Contractor to note that many of these Sub-Clauses hold the Contractor
responsible for the actions of the Contractor’s Personnel, as already stated above this may well
include the employees of a Subcontractor.
By way of example under Sub-Clause 6.4 [Labour Laws], the Contractor must ensure that all
Labour Laws applicable to the Contractor’s Personnel are complied with and Sub-Clause 17.1
(b) (ii) [Indemnities] provides that the Contractor must indemnify the Employer from any loss or
damage of any property if caused by the negligence, wilful act or breach of the Contract by the
Contractor’s Personnel.
From the above it is clear that the actions of, for example, an employee of a Subcontractor could
cause the Contractor to be in breach of its obligations under the Contract. One way in which the
Contractor could protect itself from any loss which may arise out of such a breach is to transpose
the Contractor’s obligations within the Contract into any sub-contract, so that the Subcontractor
owes the same obligations to the Contractor as the Contractor does to the Employer.
Sub-Clause 15.2 (f) (ii) [Termination by the Employer] allows the Employer to terminate the
Contract if the Contractor’s Personnel offer a bribe, gift, gratuity, commission or other thing of
value as an inducement or reward for doing amongst other things any action in relation to the
Contract. So Contractors beware, a small bribe from a Subcontractor to customs to get his
equipment through faster would give rise to a right to terminate for the Employer. The
Contractor must also obtain insurance for the Contractor’s Personnel against liability for claims,
damages, losses and expense arising from injury, disease or death, see commentary on Sub-
Clause 18.4 [Insurance for Contractor’s Proposal].
“Subcontractor” – is any person named in the Contract as a subcontractor or any person

appointed as a subcontractor for part of the Works. The advantage to the Contractor in naming as
many Subcontractor’s as possible in the Contract is that it will reduce the number of
Subcontracts which the Contractor will have to obtain consent from the Engineer during the
Works. If the Engineer were to reject a Subcontractor for a valid reason this may well delay the
Works, by containing as many Subcontractors as possible in the Contract it will reduce the
chances of such an event occurring.
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“DAB” – the Dispute Adjudication Board is the standard procedure for dispute resolution.
Although DAB’s were not contained in the FIDIC 4th edition they did appear in the Supplements
to the FIDIC 4th edition and in the 1995 Orange Book. A dispute of any kind whatsoever
between the Parties may be referred to the DAB. The DAB is made up of either 1 or 3 members,
depending on what is stated in the Appendix to Tender, if the Appendix to Tender is silent on
this issue and the Parties cannot agree on the number of DAB members then the DAB shall
comprise of 3 members, see Sub-Clause 20,2 [Appointment of the DAB]. The make-up and
significance of the DAB is commented on in detail at Clause 20.
“FIDIC” – this definition does not appear anywhere else within FIDIC 1999. As stated in the
FIDIC Guide commentary the definition has been included in case the Contract may refer to it,
with the President of FIDIC being named as the person resolving any disagreement under Sub-
Clause 20.3 [Failure to Agree DAB] being a prime example of this.
Sub-Clause 1.1.3 Dates, Tests, Periods and Completion
“Base Date”- is a new definition and is referred to at Sub-Clauses 4.10, 13.7, 13.8, 14.15(e),
17.5(b)(ii), and 18.2 (final paragraph). It is used throughout the Contract as a cut-off date. For
example, it is referred to as the date: (a) when the Employer has to provide information to the
Contractor; (b) after which changes in legislation will entitle the Contractor to time and Cost;
and (c) which exchange rates should be measured if not specified in the Appendix to Tender.
“Commencement Date” – is referred to in Sub-Clauses 1.1.3.3 and 8.1 [Time for Completion] and
[Commencement of Works]. It is also used as a date on or from which the Contractor must carry
out certain tasks such as proposing the Contractor’s Representative or providing a breakdown of
each lump sum price in the Schedules.
“Time for Completion” - this is the contractual completion date as set out in the Contract subject
to any extension of time under Sub-Clause 8.4 [Extension of Time for Completion], calculated from
the Commencement Date. The Taking-Over Certificate must be issued by this date, failing which
delay damages will be payable under Sub-Clause 8.7 [Delay Damages].
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“Tests on Completion” - these tests are specified in the Contract or agreed by both Parties or
instructed as a Variation, and will often include commissioning. The Tests on Completion are
relevant to the Taking-Over of the Works under Sub-Clause 10.1 [Taking Over of the Works and
Sections].
“Taking-Over Certificate” – No form is prescribed for this Certificate although there is proposed
wording within the FIDIC Guide. Sub-Clause 10.1 states that the Taking-Over Certificate need
only state the date on which the Works or Section were completed in accordance with the Contract.
“Tests after Completion” – these are the tests (if any) which need to be defined in the
Employer's Requirements and which are carried out in accordance with the provisions of the
Particular Conditions after the Works or a Section (as the case may be) are taken over by the
Employer. These Tests are required to be carried out as soon as possible after Taking Over, in
order to determine whether the Works (or a Section, if any) comply with specified performance
criteria.
“Defects Notification Period” – this is defined in the FIDIC Guide as meaning the period
specified in the Contract for notifying defects, calculated from the date on which the Works (or,
possibly, a Section) are completed and Taken Over.
“Performance Certificate” - this is defined in the FIDIC Guide as meaning the certificate which
is issued under the Contract when the specified certifier considers that the Contractor has
performed all obligations under the Contract.
“day” – is defined as a calendar day and “year” means 365 days. This definition is unusual as
many statutes define a ‘year’ by reference to calendar months rather than days so as to avoid
problems with leap years. The FIDIC Guide states that time periods specified in years commence
on the beginning of the day following the date of the act which constitutes the starting-point.
Sub-Clause 1.1.4 Money and Payment
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“Accepted Contract Amount”- is defined as the amount accepted in the Letter of Acceptance for
the Works and the remedying of any defects. The Contractor shall be deemed to have satisfied
himself that the Accepted Contract Amount is sufficient to carry out all his obligations under the
contract – see Sub-Clause 4.11. This is a new term used within FIDIC 1999 which is different to
the Contract Price. While the Contract Price is subject to change due to the actual and correct
quantities of work executed and Variations instructed, the Accepted Contract Amount stays static.
“Contract Price” - means the price defined in Sub-Clause 14.1 [The Contract Price]. There is
significant change from the FIDIC Red Book 4th edn. Under that contract the Contract Price was
“a fixed lump sum as stated in the Letter of Acceptance and the term does not include any
adjustments to the contract price for variation, etc.” Under the FIDIC Red Book 4th edn the
definition of Contract Price was therefore analogous to Accepted Contract Amount (see above).
Under Sub-Clause 14.1 the Contract Price shall be “agreed or determined under Sub-Clause 12.3
[Evaluation] and be subject to adjustments in accordance with the Contract...”
“Cost” - the definition includes all expenditure reasonably incurred (or to be incurred) by the
Contractor ... including overhead and similar charges, but does not include profit. Cost will
therefore only be payable where the Contractor has (a) incurred expenditure or will incur it and
(b) where that expenditure is reasonable. It may include overhead and similar charges but may
not incur profit.
The wording of the Sub-Clause is very clear that the expenditure must be incurred in relation to
the event where the Cost is claimed. This means that it will not always be possible for the
Contractor to claim overhead and similar charges. 2 It does not follow that simply because an
additional Cost is incurred the Contractor’s overhead will necessarily increase. An example is
the situation where the Contractor claims under Sub-Clause 13.7 for a change in Cost resulting
from a change in law. If the price of a commodity has increased as a result of an increase in
taxes, the only consequences will be the requirements that the Contractor pay a larger amount
and possibly finance a heavier cash-flow. There would be no reason to apply general overhead
charges as the simple payment of an extra amount would not lead the Contractor to incur
additional expenditure other than that amount.
2
See, for example, Final Award in Case 12048 (2006), Seppälä C., ICC International Court of Arbitration Bulletin
Vol. 23 No. 2, page 23
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“Final Payment Certificate” - refers to the payment certificate issued under Sub-Clause 14.13
[Issue of Final Payment Certificate].
“Final Statement” - refers to the statement defined in Sub-Clause 14.11 [Application for Final
Payment Certificate]. The Contractor is required under Sub-Clause 14.12 [Discharge] to submit a
written discharge when submitting the Final Statement. The Final Statement is also referenced in
Sub-Clause 14.14 [Cessation of the Employer’s Liability].
“Foreign Currency” - refers to the currency in which part (or all) of the Contract Price is payable,
but not the Local Currency. There is only one other reference to Foreign Currency3 and this is at
Sub-Clause 14.14 [Currencies of Payment].
“Interim Payment Certificate” - means a payment certificate issued under Clause 14 [Contract
Price and Payment], other than the Final Payment Certificate. There are references to an Interim
Payment Certificate at Sub-Clauses 16.1 and 16.2. If the Engineer fails to issue an Interim
Payment Certificate within the period specified in Sub-Clause 14.6, the Contractor may notify
the Employer that he will be suspending (or reducing the rate of) work on a stated date.
Similarly if the Engineer fails to issue a Payment Certificate within 56 days after receiving a
Statement and supporting documents the Contractor may, upon giving 14 days’ notice to the
Employer, terminate the Contract.
“Local Currency” - there are two references to Local Currency within the Contract; one is in the
definition of Foreign Currency and also at Sub-Clause 14.14 [Currencies of Payment].
“Payment Certificate” - references to the Final Payment Certificate and the Interim Payment
Certificate arise throughout the Contract. However there are also references to the term Payment
Certificate, which is intended to include either an Interim or Final Payment Certificate.
“Provisional Sum” - refers to Sub-Clause 13.5 [Provisional Sums] which explains the purpose and
the use of Provisional Sums.
3
Sub-Clause 14.15 in fact refers to Foreign Currencies
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“Retention Money” - is only referred to at Sub-Clause 14.3 [Application for Interim Payment
Certificates] and Sub-Clause 14.9 [Payment of Retention Money]. The percentage of retention to
be deducted should be stated in the Appendix to Tender with a limit. This limit is determined by
reference to a percentage of the Accepted Contract Amount. Payment of the retention occurs when
the Taking-Over Certificate has been issued and after the latest of the expiry dates of the Defects
Notification Period.
“Statement” - refers expressly to a statement submitted by the Contractor as part of an

application, under Clause 14 [Contract Price and Payment], for a payment certificate.
Sub-Clause 1.1.5 Works and Goods
The definition section has been re-ordered from the Red Book 4th edn so that it now reads in
alphabetical order. It is important that when the tender documentation is being prepared that the
wording mirrors the definitions within the Contract. The FIDIC Guide warns against using
expressions such as: ‘Permanent Equipment’ or ‘Constructional Plant’.
“Contractor’s Equipment” – the definition is similar to that used in the FIDIC 4th edition. It
refers to all apparatus, machinery, vehicles and other things required for the execution and
completion of the Works. The list of apparatus, machinery, vehicles will shape the definition of
“other things.” Where a genus can be found in the list of words preceding the word “other” then
the ejusdem generis rule will apply. The basis of the ejusdem generis rule is that the word "other"
is to be read as if it meant "similar" - see Quazi v Quazi [1980] AC 744, per Lord Diplock. There
is a genus created by the words apparatus, machinery and vehicles so that Contractor’s Equipment
will include things such as power tools but will not include stationery.
The definition of “Contractor’s Equipment” was criticised in FIDIC 4th a Practical Legal Guide4
as being circular with the definition of ‘Temporary Works.’ This leads to confusion as to what
amounts to Temporary Works and what amounts to Contractor’s Equipment. For example, is a site
hut part of the Contractor’s Equipment or Temporary Works? If it is the latter then a failure to
mobilise in accordance with the programme may in fact be a ground for termination - see Sub-
Clause 15.2(c)(i) and Clause 8.
4
EC Corbett, 1991, Sweet & Maxwell at page 46
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“Goods” – This is a new Sub-Clause and is defined as including “Contractor’s Equipment,
Materials, Plant and Temporary Works, or any of them as appropriate.” The draftsmen of FIDIC
obviously found this new definition difficult because on occasion we see references to Plant and
Goods. The inclusion of the phrase ‘Temporary Works’ does not always fit comfortably in the
Contract. For example, at Sub-Clause 4.16 [Transport of Goods] reference is made to the giving
of notice when “any major item of other Goods will be delivered to Site.” Whether one must look
at the Temporary Works as a whole or the value of each part of the Temporary Works is unclear.
The word “Goods” is used in Sub-Clause 15.2. On termination by the Employer the Contractor is
required to leave the Site and deliver any required Goods to the Engineer. The Employer or other
contractor may then use these Goods to complete the Works. “The Employer shall then give notice
that the Contractor’s Equipment and Temporary Works will be released to the Contractor at or near
the Site.” The assumption is that Plant and Materials will have been used in the Works but this
may not always be the case. There may be surplus materials on Site or the Plant which the
Contractor has brought to Site may be rejected. The Employer should not be able to keep these
Materials or Plant without payment.
“Materials” – are defined as being things (other than Plant) intended to form or forming part of the
Permanent Works. It therefore appears that materials intended to form part of the Temporary
Works are excluded from this definition.
“Permanent Works” – the definition is circular and unhelpful. Permanent Works are defined as
being “the permanent works to be executed by the Contractor under the Contract.” This must be
read in conjunction with the definition of Works and Temporary Works. In FIDIC 4th there was a
specific reference to Plant in the definition of Permanent Works. This, however, has been removed
in FIDIC 1999. The omission is not significant.
“Plant” – is defined as meaning apparatus, machinery and vehicles intended to form or forming
part of the Permanent Works. There is therefore a distinction between what is ordinarily
understood as being plant and the FIDIC definition. Plant is commonly understood to mean the
apparatus, machinery and vehicles with which the Contractor will carry out the works. Under
FIDIC 1999 this equipment is described as Contractor’s Equipment. Plant, in FIDIC 1999, refers
to items like generators which form part of the Works.
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“Section” – is defined as meaning a part of the Works specified in the Appendix to Tender as a
Section (if any). Sections are therefore specifically identified parts of the Works whereas a part is
either unspecified or a sub-division of a Section. The distinction between parts and Sections is
important when considering the obligations relating to Taking-Over and delay damages. Taking-
Over a Section will give relief from delay damages for that Section whereas Taking-Over a part
will give rise to a reduction in the amount of delay damages claimable (see Sub-Clause 10.2 and
8.7).
“Temporary Works” – the definition is circular and unhelpful. Temporary Works is defined as
meaning “all temporary works of every kind (other than Contractor’s Equipment) required on Site
for the execution and completion of the Permanent Works and the remedying of any defects.”
Regard should also be had to the definition of Goods, which includes Temporary Works. On
termination by the Employer under Sub-Clause 15.2 the Contractor must leave the Temporary
Works to the Employer.
The final paragraph of Sub-Clause 15.2 permits the Employer to sell the Contractor’s Temporary
Works and the Contractor’s Equipment if a payment has not been made to the Employer after
termination. This may be both legally and practically difficult especially where the Contractor
does not own the equipment. This issue is considered further at Sub-Clause 4.17 [Contractor’s
Equipment].
“Works” – is defined as meaning the Permanent Works and the Temporary Works, or either of
them as appropriate. The completion of the Works is linked to the Time for Completion (Sub-
Clause 8.2); and the expiry of the Defects Notification Period (Sub-Clause 11.1). The Contractor’s
general obligations are also linked to the requirement to complete the Works (Sub-Clause 4.1), as
is the Engineer’s obligation to measure the Works (Sub-Clause 12.1) and thus the Employer’s
obligation to pay for the Works.
Sub-Clause 1.1.6 Other Definitions
“Contractor’s Documents” – refers to calculations, computer programs and other software,

drawings, etc. supplied by the Contractor under the Contract. There is nothing within the General
Conditions that stipulates which design documents need to be supplied. Sub-Clause 4.1 refers to
the Contractor providing: “Plant and Contractor’s Documents specified in the Contract.” It is
therefore anticipated that within the Specification or another document there will be a list of
specific documents that the Contractor has to supply. It follows that not all calculations, computer
programs etc. need to be supplied by the Contractor or are classified as Contractor’s Documents.
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Sub-Clause 1.10 supports this conclusion as it refers to Contractor’s Documents and other design
documents.
“Country” – refers to the place where the Permanent Works are carried out; i.e. the Site. If the
majority of the Works are going to be designed and manufactured in a country other than the place
where the Permanent Works are to be constructed (and then shipped to that country) then the
parties may wish to consider making amendments to the Contract. For example the Force Majeure
provisions of the contract may need to be changed as their applicability is limited in certain cases
to the Country.
“Employer’s Equipment” – includes specified apparatus, machinery and vehicles (if any) made
available by the Employer for the use of the Contractor in the execution of the Works. The
General Conditions do not imply that the Employer will make any equipment available to the
Contractor and if the Employer is to provide such equipment this must be specified elsewhere
with the Contract. Reference should be made to Sub-Clause 4.20, which deals with the parties’
responsibilities where Employer’s Equipment is provided.
“Force Majeure” – the definition of Force Majeure refers simply to Clause 19. Force Majeure, as
defined within FIDIC 1999, is much broader in scope than it would be under many national laws.
“Laws” – the definition of laws includes all national (or state) legislation, statutes, ordinances and
other laws, and regulations and by-laws of any legally constituted public authority.
The reference to “other laws” within the definition has to be interpreted subject to the ejusdem
generis rule. Ejusdem generis is a rule of statutory interpretation that has been extended to the
interpretation of contracts. The rule of interpretation applies where several words precede a
general word - commonly lists of words. The meaning of the general words is restricted to the
subjects or classes of the preceding words. The words “other laws” are therefore limited to
meaning other statutory law and not case law. Sub-Clause 1.13 then deals with compliance with
applicable Laws.
However, this restriction is unlikely to have any practical effect on the Contract. Reference must
also be had to Sub-Clause 1.4, which states that the Contract is to be governed by the law of the
country (or other jurisdiction) stated in the Appendix to Tender.
14

Laws, as defined within the definition section, are not restricted to a particular Country. The
word ‘Laws’ is thereafter used in the General Conditions by reference to ‘applicable Laws’ or
the ‘Laws of the Country.’ Applicable Laws may include the substantive law of the Contract as
referred to in Sub-Clause 1.4, the law of the place of performance, the law of the place of
domicile of the Contractor or any other applicable law depending on where the Plant and Goods
are being manufactured and shipped. ‘Country’ is a defined term so that the Laws of the Country
refer to the place where the Site (or most of it) is located.
If the parties choose a neutral law to govern their contractual arrangement they should check that
there are not any clashes between that law and the ‘applicable Laws’ or the ‘Laws of the
Country’.
“Performance Security” – refers to the security (or securities, if any) that are provided under Sub-
Clause 4.2 [Performance Security].
“Site” – refers to the places where the Permanent Works are to be executed and to which Plant and
Materials are to be delivered. It also refers to any other place which is specified in the Contract as
forming part of the Site. One of the fundamental obligations under any construction contract is the
Contractor’s right to possession and access to the Site, although possession need not be exclusive.
Under English common law the Contractor is presumed to be granted a licence to occupy the Site
in order to complete the Works: H. W. Neville (Sunblest) Ltd v William Press & Son Ltd. 5 That
licence can be terminated by the Employer if it gives a notice of termination under Clause 156 and
a court will only look behind such a notice in limited circumstances. 7
5
(1981) 20 BLR 83
6
Tara Civil Engineering Ltd v Moorfield Developments Ltd (1989) 46 BLR 74. The case involved termination
under clause 63 of the ICE 5th conditions but the principle would apply equally to termination under Clause 15 of
FIDIC 1999.
7
Wiltshier Construction (South) Ltd v Parkers Development Ltd (1997) 13 Constr. LJ No 2 129
15

“Unforeseeable” – is referred to at various places throughout the Contract. The word
‘Unforeseeable’ is used not only in respect of events (see Sub-Clauses 4.12, 8.4(d), 8.5 and 17.3)
but also in relation to Cost (see Sub-Clause 4.6). Unforeseeable is defined by reference to what is
reasonably foreseeable by an experienced contractor at the date for submission of the Tender. A
party that intends to rely on this provision will need to produce evidence of what could be foreseen
at the time of the tender.8
The distinction between Unforeseeable events and Unforeseeable cost is important. For example,
where the Contractor encounters adverse physical conditions under Sub-Clause 4.12 he need only
show that these conditions were Unforeseeable. He does not need to show that the costs that flow
from the event were also Unforeseeable. Once the Contractor has established that the event is
Unforeseeable he can claim, under English law, all the costs which were a direct consequence of
the Unforeseeable event, subject to any limitation on liability. 9
In contrast any Cost resulting from an Instruction by the Engineer, which gives appropriate
opportunities for other contractors to work on Site, will only be recoverable if it is Unforeseeable.
As illustrated in the decision of the Privy Council in Overseas Tankship (U.K.) Ltd. v. Morts
Dock & Engineering Co. Ltd. (The Wagon Mound) 10, the consequence which may flow from an
event can be both foreseeable and unforeseeable. If such losses occur then the Contractor under
Sub-Clause 4.6 would only be entitled to recover the Unforeseeable Cost and not all its costs.11
“Variation” – is defined as meaning “any change to the Works” instructed or approved as a
variation under Clause 13 [Variations and Adjustments]. The list of types of Variations at Sub-
Clause 13.1 is therefore only indicative.
Sub-Clause 1.2 Interpretation
Sub-Clause 1.2 includes a number of boilerplate clauses. These are standard forms of wording
for the interpretation and general operation of the contract, rather than for particular subjects.
Boilerplate terms are an important part of a construction agreement. However, the parties who
negotiate the contract rarely give sufficient attention to these particular provisions.
FIDIC 1999 states that “provisions including the word ‘agree’, ‘agreed’ or ‘agreement’ require the
8 Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC) at para 26.
9
Hadley v. Baxendale (1854) 9 Exch. 341. In other countries the costs that may be recoverable could be more
limited because of the way limitation of liability clauses are interpreted – see Environment Systems Party Ltd v
Peerless Housing Pty Ltd [2008] VSCA 26
10
[1961] A.C. 388
11
See also Platform Home Loans Ltd v Oyston Shipways Ltd and Others [1999] UKHL 10; [2000] 2 AC 190; [1999]
1 All ER 833; [1999] 2 WLR 518
16

agreement to be recorded in writing”. It was the intention of the FIDIC draftsmen that if the
parties orally agree at a meeting on a particular course of action, for example the use of email for
communication, but this is not written down it should not be binding. However, recent case law
indicates that the courts are ready to construe an oral agreement as binding, especially where the
parties act on that agreement: Reveille Independent LLC v Anotech International
The marginal words and other headings are not to be taken into consideration in the
interpretation of the Conditions. However, often the conditions within FIDIC are placed within
the context of headings or marginal notes and may be much wider in application than the parties
think. The parties should consider in the Particular Conditions whether there are other boilerplate
clauses that should be included. For example, the parties may wish to incorporate one or more of
the following:
Entire Agreement Clause

“This Contact constitutes the entire agreement between the parties concerning its subject
matter, and supersedes any previous accord, understanding or agreement, express or
implied.”
No Waiver Clause
“In no event shall any delay, neglect or forbearance on the part of any party in enforcing
any provision of this Contract be or deemed to be a waiver thereof or in any way
prejudice any right of that party under this Contract.”
Non Reliance Clause

“Each party confirms that it has not relied upon any representation not recorded in this
Contract inducing it to enter into this Contract.”
Severance Clause
“No clause, sub-clause or their relevant parts in this Contract may be held to be
unenforceable or void except for the judgment of a court of competent jurisdiction.
Should any clause, sub-clause or part thereof be so held to be unenforceable or void the
remaining clauses, sub-clauses and their relevant parts shall remain in full force and
effect to the extent that they are capable of remaining operative having taken account of
the said court’s judgment.”
17

The parties may also wish to include a “Reasonable/Best Efforts Clause” or an “Exclusion of
Third Party Rights” depending on the substantive law of the contract.
Sub-Clause 1.3 Communications
Sub-Clause 1.3 applies only to “approvals, certificates, consents, determinations, notices and
requests”. Where the Conditions refer to any one of the above, then these have to be in writing.
Writing is defined in Sub-Clause 1.2(d) to mean “hand-written, type-written, printed or electron-
ically made, and resulting in a permanent record.” The written approval, certificate, consent etc.
has then to be delivered “by hand (against receipt), sent by mail or courier, or transmitted using any
of the agreed systems of electronic transmission as stated in the Appendix to Tender.”
This definition could therefore lead to the absurd result that a notice etc. is recorded in writing by
email but cannot be sent by email if email is not one of the agreed systems of electronic
transmission as stated in the Appendix to Tender.
Given that email is now so commonly used for construction and engineering projects around the
world it is hoped that this definition will be changed in any new editions of the FIDIC contracts.
Sub-paragraph (b) deals with the place to which the notices etc. should be sent. The Sub-Clause
states that notices etc. etc. are to be sent to the “address for the recipient’s communications as
stated in the Appendix to Tender”. There are two exceptions:
• a particular type of communication, and/or those from a particular author, may be
required to be sent to a particular recipient (for example, communications are typically
exchanged directly between resident staff on the Site); and
• irrespective of the normal address for an approval or consent, these types of
communication will be binding if they are sent directly to the person or office which
requested the approval or consent.
A party who fails to have regard to this provision may find that certain notices that it believes it
has given are ineffective. For example, if a party serves a Notice of Termination under either
Clause 15 or 16, such act may be considered to be ineffective if it is sent to the wrong address
and may amount to a repudiatory breach of contract– see Gulf Agri Trade Fzco v Aston Agro
Industrial AG.12 Each case has to be considered on its own facts and by the substantive law of
the contract. However, in the recent case of Obrascon Huarte Lain SA v Her Majesty's Attorney
12
[2008] Int.Com.L.R. 06/06
18

General for Gibraltar 13 Akenhead J stated at para 368:
“In line with the whole concept of a commercially realistic interpretation being put on
what parties agree (see above), courts in the past have been slow to regard non-
compliance with certain termination formalities including service at the ‘wrong’ address
as ineffective, provided that the notice has actually been served on responsible officers of
the recipient.”
The final paragraph of Sub-Clause 1.3 states that certain communications are not to be
unreasonably withheld or delayed. As stated in the FIDIC Guide: “The importance of this
requirement, and the serious consequences of non-compliance, should not be under-estimated”.
There is no definition of what constitutes “unreasonableness” when giving consent. English
common law has however considered this phrase in the context of leases and the following
principles derived from case law may be relevant when considering English law.
1. A party is not entitled to refuse his consent on grounds which have nothing whatsoever to
do with the relationship of the parties in regard to the subject matter of the contract.
Further, the reason for withholding consent must be something affecting the subject
matter of the contract which forms the relationship between the parties, and it must not be
something wholly extraneous and completely dissociated from the subject matter of the
contract: International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986]
Ch 513.
2. Where the requirements of the first principle are met, the question whether a party’s
conduct was reasonable or unreasonable will be one of fact to be decided by the tribunal
of fact: Bickel v Duke of Westminster. 14
3. A party who refuses consent does not need to show that his conduct was right or
justifiable, he has to show that it was reasonable. As Danckwerts LJ held in Pimms Ltd v
Tallow Chandlers Company: 15 "it is not necessary for the landlords to prove that the
conclusions which led them to refuse consent were justified, if they were conclusions
which might be reached by a reasonable man in the circumstances ... Subject always to
the first principle outlined above, I would respectfully endorse the observation of
Viscount Dunedin in Viscount Tredegar v Harwood [1929] AC 72, 78 that one ‘should
read reasonableness in the general sense’. There are few expressions more routinely used
13 [2014] EWHC 1028 (TCC) (16 April 2014)

14
[1977] QB 517
15
[1964] 2 QB 547, 564
19

by British lawyers than ‘reasonable’, and the expression should be given a broad,
common sense meaning in this context as in others."
See also Iqbal v. Thakrar 16 and Sargeant & Anor v Macepark (Whittlebury) Ltd. 17
When considering “unreasonable delay” regard should also be had to the Contractor’s
programme for the Works. An Engineer cannot unilaterally specify a period of time for
approvals, determinations or consents (say a period of 28 days) where none is set out in the
Contract, if this would delay the Contractor. The Engineer must, in each case, consider all the
surrounding circumstances when being asked to give an approval, determination, certificate or
consent.
Sub-Clause 1.4 Law and Language
The parties should always specify the law of the contract because if they fail to do so the
arbitrators will have to decide on conflict of law principles which law to apply. This can often
be time consuming and complex and may result in a choice of law to which one party would
object.
Under most legal systems the Parties are entitled to choose whatever law they prefer, but many
Governments, when acting as Employer, insist on the use of their own national law. Domestic
parties are likely to have a better understanding of their own legal system and thus gain an
advantage if they are allowed to select their domestic legal system.
Although each legal system has its peculiarities, most systems reach broadly similar conclusions
on contract interpretation. However a Party which is familiar with the legal system chosen has a
definite advantage.
The choice of a particular system of law does not prevent the law of the country in which the
works are taking place applying in certain respects. There are almost always certain domestic
laws which are mandatory and which cannot be avoided. It is thus important, even if another
system of law is chosen by the Parties to have the Contract reviewed by a local lawyer familiar
with contract and construction law and to ask them to identify any mandatory local law which
will have an effect on the way in which the Contract will be carried out.
16
[2004] EWCA Civ. 592
17
[2004] EWHC 1333
20

Some examples of local laws which may apply are the following:
In some jurisdictions
• an unpaid subcontractor has the right to claim payment direct from the Employer and the
Employer has the right to recover the amount from the Contractor.
• the Employer has the right to reject a subcontractor chosen by the Contractor.
• a party is not bound to an arbitration clause unless the signatory to the contract has been
specifically authorised to agree to arbitration.
• penalties may not be imposed for breaches of contract.
• parties are not permitted to limit their liability.
Regardless of the choices of law, regulatory provisions such as health and safety law will apply.
When a law, other than the domestic one, is chosen in the Contract, it is nevertheless common
for the Contractor to enter subcontracts with local subcontractors using the local law. This may
cause problems if the subcontract attempts to impose on the subcontractor provisions in the main
contract which are interpreted differently under the domestic law. Although it is rare for there to
be major problems it is normally best to ensure that subcontracts are made under the same law as
the main contract.
It is also important to specify the language of communications – the fall-back position expressed
in the Clause “the language in which the Contract (or most of it) is written”, will usually be
enough to define the language, but may be ambiguous or uncertain if the Contract documents are
not all in one language.
Sub-Clause 1.5 Priority of Documents
This order of priority within this Sub-Clause reflects the common sense proposition that a later
document which is different from an earlier one is likely to reflect the true intention of the
Parties. The Sub-Clause does not say precisely what the effect of the order of priority is. In
terms of normal rules of contract interpretation the consequence of giving an order of priority to
documents is to ensure that a provision higher in the order of priorities takes precedence over one
lower. Thus the order of priority can have the effect that a qualification in the tender has the
effect of altering the Contractor’s obligations or rights.
Despite this, it is common to find that there is an ambiguity or discrepancy in the documents
21

which cannot be resolved simply by considering which document has priority. The Engineer has
the power to resolve this. The clause does not specify who may trigger this action nor,
unusually, is there any notice provision.
There is no requirement in this Sub-Clause for either Party to bring any ambiguity or discrepancy
to the notice of the other Party or of the Engineer. However under Sub-Clause 1.8 [Care and
Supply of Documents] both parties are obliged to if they “become aware of any error or defect of
technical nature in a document which was prepared for use in executing the Works” to give
notice to the other Party (i.e. not specifically the Engineer). The reference to “defect of a
technical nature” is clearly intended to distinguish this obligation from any obligation to draw
attention to ambiguities or discrepancies between or within non-technical documents. However
there will be instances where two technical specifications differ in some crucial respect and this
will be both a defect of a technical nature and a discrepancy which will need to be resolved.
For these purposes it may be important to understand what amounts to an ambiguity and what
amounts to a discrepancy. An ambiguity is a statement in the document which is capable of
being understood in more than one sense. A discrepancy is conflict between two otherwise clear
statements. In either case the Engineer’s decision may have a considerable effect on the burden
undertaken by either the Contractor or the Employer or on their legal rights generally. The
question may then arise as to what compensation either in money or time terms the Contractor
may become entitled to. There is no cross-reference in this Clause to the Engineer’s
Determination procedure in Sub-Clause 3.5. The Engineer thus has a wide discretion in making
his decision and is not obliged to consult the parties. There is no cross-reference to Sub-Clause
8.4 and therefore there is no right to an extension of time. Thus all that remains is the slim
possibility that the Contractor might be entitled to financial compensation.
It is unlikely that the Contractor will be entitled to financial compensation even if what he finds
he has to do differs substantially from what he expected to do. This is because, by definition, an
ambiguous provision could be read in more than one way and whichever way it is read that is
what the Contractor has agreed to do. The same applies to discrepancies – by definition there
must be two conflicting provisions in the Contract and the Contractor will generally not be able
to prove that he agreed to perform one rather than the other.
Faced with this situation the best approach for the Contractor will be to attempt to persuade the
Engineer that there was no ambiguity or discrepancy and that the (cheaper and quicker) course of
action which the Contractor proposed to follow is in fact what the Contract requires. Such
arguments can be difficult but they are sometimes successful.
22

It is probably arguable that if, on principles of contract interpretation, one result rather than the
other would prevail, then there is in fact no ambiguity or discrepancy. Alternatively it could be
argued that the Engineer is obliged to follow these principles. Whichever approach is adopted
the Engineer is obliged to take into account the recognised principles of contract interpretation
when interpreting the Contract. These principles differ between legal systems, the most
significant difference being that under some systems the Engineer (or later the DAB or
arbitrator) may take into account the pre-contract negotiations whereas under other systems he
cannot.
In English law the principles relating to the interpretation of contracts were set out in a House of
Lords judgment in 1998 18 in which the rules are stated as follows:
“I do not think that the fundamental change which has overtaken this branch of the law,
particularly as a result of the speeches of Lord Wilberforce in Prenn v Simmonds [1971]
1 WLR 1381, 1384-1386 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1
WLR 989, is always sufficiently appreciated. The result has been, subject to one
important exception, to assimilate the way in which such documents are interpreted by
judges to the common sense principles by which any serious utterance would be
interpreted in ordinary life. Almost all the old intellectual baggage of "legal"
interpretation has been discarded. The principles may be summarized as follows:
(1) Interpretation is the ascertainment of the meaning which the document would convey
to a reasonable person having all the background knowledge which would reasonably
have been available to the parties in the situation in which they were at the time of the
contract.
(2) The background was famously referred to by Lord Wilberforce as the "matrix of fact,"
but this phrase is, if anything, an understated description of what the background may
include. Subject to the requirement that it should have been reasonably available to the
parties and to the exception to be mentioned next, it includes absolutely anything 19 which
would have affected the way in which the language of the document would have been
understood by a reasonable man.
18
Investors Compensation Scheme v West Bromwich Building Society [1998]1 WLR 896
19 In Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 Lord Hoffmann qualified this
statement.
23

(3) The law excludes from the admissible background the previous negotiations of the
parties and their declarations of subjective intent. They are admissible only in an action
for rectification. The law makes this distinction for reasons of practical policy and, in this
respect only, legal interpretation differs from the way we would interpret utterances in
ordinary life. The boundaries of this exception are in some respects unclear. But this is
not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a
reasonable man is not the same thing as the meaning of its words. The meaning of words
is a matter of dictionaries and grammars; the meaning of the document is what the parties
using those words against the relevant background would reasonably have been
understood to mean. The background may not merely enable the reasonable man to
choose between the possible meanings of words which are ambiguous but even (as
occasionally happens in ordinary life) to conclude that the parties must, for whatever
reason, have used the wrong words or syntax - see Mannai Investments Co Ltd v Eagle
Star Life Assurance Co Ltd [1997] 2 WLR 945.
(5) The "rule" that words should be given their "natural and ordinary meaning" reflects
the common sense proposition that we do not easily accept that people have made
linguistic mistakes, particularly in formal documents. On the other hand, if one would
nevertheless conclude from the background that something must have gone wrong with
the language, the law does not require judges to attribute to the parties an intention which
they plainly could not have had. Lord Diplock made this point more vigorously when he
said in The Antaios Compania Neviera SA v Salen Rederierna AB [1985] 1 AC 191, 201:
"... if detailed semantic and syntactical analysis of words in a commercial contract is

going to lead to a conclusion that flouts business commonsense, it must be made to yield
to business commonsense."
A more recent English judgment, Chartbrook Limited v Persimmon Homes Limited and others, 20
confirms this approach and also considers the other methods which may be used to clarify the
meaning of a contract where the Parties cannot agree on its meaning. Although it confirms that it
is not permissible under English law to review the negotiations in order to discover the intention
of the Parties, it is permissible to review them to see what the Parties must have intended by
certain words used in the final agreement – sometimes people use words to mean something
other than their normal meaning. An example given is where an agreement allowed a Party to
20
Construction Industry Law Letter July/August 2009, 2729
24

terminate a two year contract at will after one year. This is an ambiguous statement because it
could either mean that the right to terminate comes into effect and could only be used at the end
of the first year, or that it could be terminated at any time after the end of that first year – i.e. at
any time during the second year. In the particular case the documents showed that what the
parties intended was that the contract could be terminated only at the end of the first year and
that they did not intend that this right to terminate could take place at any time during the second
year. In some circumstances it can be shown that what was written in the final contract is not
what the parties actually agreed. In that case English law allows “rectification” – i.e. for the final
agreement to be modified to reflect what the parties had actually agreed.
It is submitted that in exercising his power to clarify or issue an instruction, where there is an
apparent ambiguity or discrepancy, the Engineer should consider these principles and not simply
apply an arbitrary standard which seems fair to him at the time. However, what is clear is that
the Engineer should not rectify the contract; however, the difference between interpretation and
rectification is a fine line. 21
A further principle which applies under English law and commonly under other systems of law is
the contra proferentem rule. This rule was expressed in ICC Award No 711022 as follows: “It is
a general principle of interpretation widely accepted by national legal systems and by the
practice of international arbitral tribunals, including ICC arbitral tribunals, that in case of doubt
or ambiguity, contractual provisions, terms or clauses should be interpreted against the drafting
party (contra proferentem)…” Since, in the majority of cases the FIDIC contracts will have been
caused by the Employer any ambiguity or discrepancy will normally have to be resolved against
the Employer.
However this rule may be modified where the contract has been negotiated and particular terms
have been inserted using drafting provided by the Contractor. In such cases where a party is
seeking to rely on an exclusion or limitation of liability clause and there is an ambiguity the
clause will be construed against the person relying on it: Scottish Special Housing Association v
Wimpey Construction UK Ltd (1986) SLT 559. Even under other legal systems these
observations provide useful guidance for interpretation. However there are entire legal textbooks
devoted to the subject of contract interpretation 23.
21 Marley v Rawlings & Anor [2014] UKSC 2 at paras 39 to 42; and see Sir Richard Buxton Construction" and
Rectification after Chartbrook [2010] CLJ 253; and Lewison K, The Interpretation of Contracts (5th ed (2011), para
9.03, footnote 67
22
10 ICC Bull No 2 1999 at 1029 et seq
23
see The Interpretation of Contracts , Sir Kim Lewison, (4th Edition, Sweet and Maxwell 2007)
25

Although there is, as stated above, normally no right for the Contractor or the Employer to
receive compensation where an ambiguity is clarified or where the Engineer issues an instruction
to resolve a discrepancy, there is one situation where the Contractor will feel entitled to some
compensation. If the Contractor has carried out work relying on one part of the contract
documents and the Engineer later decides that in fact he should have relied on another part of the
documents and issues an instruction resolving the discrepancy and requiring the Contractor to
remove the work he has done and replace it with other, there are clearly likely to be cost and time
consequences.
The situation arises quite commonly where the discrepancy is as between the drawings and the
Specification. Contractors tend to rely on the drawings more than on the Specification and
indeed the Specification is often a more general printed document based on a standard form than
the drawings which are very much specific to the particular works. If the order of priority has
not been altered the Specification will take priority, so the Engineer will have no discretion.
However if the Contractor has relied on one part of the Specification and another has a
contradictory provision, the Engineer may later decide to issue the instruction for the Contractor
to remove the work already done and replace it with work according to the part of the
Specification he considers appropriate.
In this case the Contractor will almost certainly suffer delay and will certainly incur Cost, the
question is who will have to pay for it? If the Engineer was under a duty to bring the
discrepancy to the parties’ attention and resolve it earlier the Contractor ought to be entitled to an
extension of time and cost on the basis that the instruction should have been given earlier. If the
Contractor was under an obligation to draw the Engineer’s or the Employer’s attention to a
discrepancy, he will have to suffer the consequences of failing to do so. If neither Party was
under any prior obligation the issue will probably depend on whether the Engineer’s decision can
be shown to be the appropriate one and the best for the Works and not one chosen on an arbitrary
basis. If it is the best for the Works it will be hard for the Contractor to argue that he will be
entitled to any additional payment. It is submitted that if either Party was aware of the
discrepancy before the Contractor began work on one of the choices available it ought to notify
the other. If it has failed to do so it should take the consequences.
It is sometimes argued that a clarification or instruction given under the Sub-Clause is in effect a
variation and that compensation is due as would normally be in the case of a variation. Strictly
speaking the clarification or instruction is a Variation since it substitutes one set of contractual
obligations for one or more others. However the question remains whether this is a variation
which entitles the Contractor to additional remuneration and extension of time – or indeed,
26

whether it is an omission which would entitle the Employer to reduce the price.
The issue has been argued both ways – Contractors arguing that the clarification is a variation for
which they should be compensated and Employers the opposite but because the Contract is not
clear it is difficult to predict which argument will succeed.
The argument for the Contractor will be that, whether or not the Engineer now perceives an
ambiguity or discrepancy, it had priced the Works on the basis of a reading of the Contract which
the Engineer has now used his powers to alter. If the Contractor can demonstrate this by
reference to the Bill of Quantities, a rate breakdown or other solid evidence, this argument is
likely to be successful. If, as is more usual, the Contractor does not have solid proof for this
statement it may still succeed if the Tribunal is sympathetic to its position or believes what the
Contractor says. The Contractor will point to Sub-Clause 3.3 [Instructions of the Engineer]
which makes the general statement that an instruction may constitute a variation and that in that
case Clause 13 [Variations and Adjustments] shall apply. Most if not all ambiguities or
discrepancies will be the result of faulty drafting by the Employer or Engineer and it would be
extremely unjust if the Contractor were obliged to carry the consequences
The Employer will argue that Sub-Clauses 1.5 and 1.8 make no provision for any form of
compensation and do not even refer to the possibility that such a clarification or instruction may
constitute a variation. It will point to the fact that where it is intended that an instruction should
be capable of constituting a Variation the Sub-Clause will say so (see for example Sub-Clause
4.12 [Unforeseeable Physical Conditions]. Further whenever within the Contract it is intended
that a change from the original proposals is intended to give the Contractor the right to
compensation of any sort the Contract normally says so (see for example Sub-Clause 10.2
[Taking Over Parts of the Works], Sub-Clause 8.8 [Suspension of Work]. Most importantly,
however, what Sub-Clause 1.5 does is to place the risk of dealing with ambiguities and
discrepancies on the Contractor and he should make some allowance for this risk in his pricing.
Sub-Clause 1.6 Contract Agreement
A clause similar to Sub-Clause 1.6 appeared in the Red Book 3rd edn and at clause 9 of the Red
Book 4th edn.
The parties will have concluded a contract as soon as the offer comprised in the Tender, which
may have been adjusted during negotiations, in unequivocally accepted by the Employer in his
Letter of Acceptance. There is a subtle difference between the Red Book 4th edn clause 9 and Sub-
27

Clause 1.6. Under the Red Book 4th edn the Contractor was only required to execute the Contract
Agreement if requested to do so. Under Sub-Clause 1.6 the parties shall enter into a Contract
Agreement unless they agree otherwise.
In some countries a formal agreement is required by law or is highly advisable. The parties may
also need to think about counter-signatures, ratification of the agreement, the stamp duty payable
or other requirements of the law of the place where the works are to be executed.
It should be borne in mind that the Letter of Acceptance is used in the contract as the starting point
for various periods of time. For example, the provision of the Performance Security is linked to
the date of the Letter of Acceptance, rather than the Contract Agreement. Conflict and confusion
could therefore be created if the law or practice applicable to the project dictated that a contract
would only come into existence once the Contract Agreement had been signed. In those cases,
relevant clauses should perhaps be amended to make the periods of time run form the signature of
the Contract Agreement.
The Contract Agreement is to be based on the Form annexed to the Particular Conditions. This
Form states that the following documents are deemed to form and be read and construed as part of
the Contract Agreement. These documents are: the Letter of Acceptance; the letter of Tender, the
Addenda nos; the Conditions of Contract; the Specification; the Drawings; and the completed
Schedules. There is no provision within this Form to allow for further documents and if an
Employer attempted to add further documents into the Contract Agreement after the Letter of
Acceptance was sent this may give rise to a dispute.
There appears to be an inconsistency with the draft Form for the Contract Agreement and the
definition of ‘Contract’ at Sub-Clause 1.1.1.1. The definition of ‘Contract’ refers to “further
documents (if any) which are listed in the Contract Agreement or in the Letter of Acceptance.” It
is therefore envisaged that there may be further documents. However, such documents would have
to be agreed and identified prior to the Letter of Acceptance having been sent and these documents
ought to be referenced in Letter of Acceptance. It will often be too late for an Employer to try and
include them for the first time in the Contract Agreement.
Sub-Clause 1.7 Assignment
A similar clause appeared at Clause 3 of the Red Book 4th edn; however, there has been one
fundamental change. Sub-Clause 1.7 now applies to both parties, whereas in the Red Book 4th
edn the restriction against assignment applied only to the Contractor. Under Sub-Clause 1.6
28

neither party may assign the whole or any part of the contract or any benefit or interest in or
under the Contract. The wording used elides the concepts of novation and assignment. A
novation relieves a party of his obligations under a contract whereas an assignment will pass a
benefit. The distinction between novation and assignment was referred to by Collins M.R. in
Tolhurst v Associated Portland Cement 24 at page 668.
“It is, I think, quite clear that neither at law or in equity could the burden of a contract be
shifted off the shoulders of a contractor on to those of another without the consent of the
contractee. A debtor cannot relieve himself of his liability to his creditor by assigning the
burden of the obligation to someone else. This can only be brought about by the consent
of all three, and involves the release of the original debtor.”
FIDIC however have elected to treat assignment and novation in exactly the same way.
However, there is an exception in relation to moneys due or to become due under the contract,
which may be assigned, without consent, to a bank of financial institution as security.
Under English law, an assignment in its legal sense means a transfer of the rights of a party, or
part of those rights, to another person who is a stranger to the contract. This may be done either
by operation of law or by the act of the person originally entitled to those rights. A valid
assignment will allow the stranger to the contract (the assignee) to sue upon the contract in
respect of the rights assigned.
Assignment by Operation of Law
FIDIC 1999 does not attempt to address assignment by operation of law. In a number of specific
circumstances, as defined by the applicable or local law, an assignment will operate by rule of
law. An assignment may operate by statute, and statutory corporations may be set up to take
over rights. Second an assignment may operate on death. Third, and most importantly for
construction and engineering contracts, assignment may take place on bankruptcy. In this case
the liability for non-personal contracts vests in the trustee in bankruptcy or administrator.
Insolvency is not a breach of contract per se although under FIDIC the bankruptcy or insolvency
of a party, or the making of an administrative order, is a ground for termination - see Sub-Clause
15.2(e) and 16.2(g).
24
[1902] 2 KB 660
29

Distinguishing Between Benefit and Burden
As stated above, it is usual to distinguish between benefits and burdens when considering
assignment. Under English law the benefit of a contract, in many situations, could be assigned
without the agreement of the other party. 25 However, the burden of the contract could not be
assigned. In Nokes v Donacaster Amalgamated Properties 26 it was clearly stated that a
Contractor cannot assign his liability to complete the Contract. A burden could only be
transferred by the agreement of the parties. Under Sub-Clause 1.6 the assignment of both benefit
and burden (with one exception) needs the agreement of both parties.
An Assignment is Subject to Equities.
An assignee takes the benefit “subject to all rights of set-off and other defences which were
available against the assignor” – Roxburghe v Cox. 27 An assignee of moneys due under a
contract therefore takes this benefit subject to any claim by the debtor arising out of the contract;
for example, the debtor may claim that the work is defective or in delay. This principle has been
re-affirmed by the English House of Lords in The Trident Beauty 28 which deal with breaches in a
contract for the carriage of goods by sea. Similarly if the right to payment of monies is subject to
the issue of a certificate, as assignee of those moneys cannot insist on payment until the
certificate is issued: Lewis v Hoare 29.
Unassignable Rights.
It is a fundamental principle of English Law that a person cannot assign a bare right to litigate
and any such assignment is void. However the mere fact that an assignment would involve a
right to litigate does not render it void so long as the assignment is an assignment of property, an
interest in that property or a genuine commercial interest is shown. In Circuit Systems Ltd v
Zuken Redac (1996)30 an assignment of a right of action was attempted by a company in
liquidation to its principal shareholder who applied for legal aid to fight the action. It was held
that the assignment was a sham and void for champerty.
Assignments without Consent

25
It some circumstances an assignment was not permitted; for example, where the contract was personal in nature.
26
[1940] AC 1014
27
(1881) 17 Ch D 520, 526.
28
[1994] 1 WLR 1196
29
(1881) 44 LT 66, 67.
30
(1996) June 18 Supreme Court Practice News
30

Where an assignment occurs without the consent of one of the parties then the rights which have
been assigned to the assignee will be unenforceable by the assignee. The assignor may,
however, be permitted in limited circumstances to bring proceedings for the losses suffered by
the assignee. The case of Linden Gardens Ltd v Lenesta Sludge Disposals Ltd 31 involved the
removal of asbestos from a building in Jermyn Street. Practical completion took place in 1980.
In early 1985 more asbestos was found and the owners entered into a contract for its removal
with new contractors. This contract was completed in August 1985. In December 1986 the
owners transferred the whole of the building to new owners for its full market value and in
January 1987 the original owners formally assigned to the new owners their claim in damages
against the original contractors which had begun by writ in 1985 together with all other claims
that they might have in respect of the property.
Further asbestos was found and the later contractors were added to the action as second
defendants. The new owners were substituted as plaintiffs instead of the original owners. Both
of the contractors objected to the assignment. There were provisions in the contract which
prohibited the assignment without consent. Clause 17 of the JCT Conditions 1963 stated that the
“Employer shall not without the written consent of the Contractor assign this contract”. The
House of Lords held that this prohibition prevented the assignees from suing or recovering.
In St Martins Property Corpn Ltd v Sir Robert McAlpine & Sons Ltd 32 the House of Lords was
able to distinguish the Lenesta Sludge case. However, once again it was held that clause 17 of
JCT 1963, which prohibited the assignment of the Contract including the rights of action without
consent, was not to be construed as being against public policy. The assignee could therefore not
recover the losses it had incurred in its own name. However, the House of Lord proceeded to
state that this case was an exception to the rule that a claimant can only recover its own losses
(i.e. under the privity of contract rule). The exception, the House of Lords said, arose if the
contract was entered into for the benefit of a third party and then the assignor could recover the
loss sustained by the assignee. Lord Brown-Wilkinson Stated:
“In my judgment the present case falls within the rationale of the exceptions to the
general rule that a plaintiff can only recover damages for his own loss. The contract was
for a large development of property which to the knowledge of both Corporation and
McAlpine, was going to be occupied and possibly purchased, by third parties and not the
Corporation itself. Therefore it could be foreseen that damage caused by a breach would
31
[1994] AC 85
32
[1994] AC 85
31

cause loss to a later owner and not merely to the original contracting party, Corporation.
As in contracts for the carriage of goods by land, there would be no automatic vesting in
the occupier or owners of the property for the time being who sustained the loss of any
right of suit against McAlpine. On the contrary, McAlpine had specifically contracted
that the rights of action under the building contract could not without McAlpine’s consent
be transferred to third parties who became owners or occupiers and might suffer loss. In
such a case, it seems to me proper, as in the case of carriage of goods be land, to treat the
parties as having entered into the contract on the footing that Corporation would be
entitled to enforce contractual rights for the benefit of those who suffered from defective
performance but who, under the terms of the contract, could not acquire any right to hold
McAlpine liable for breach. It is truly a case where the rule provides ‘a remedy where no
other would be available to a person sustaining loss which under a rational legal system
ought to be compensated by the person who caused it.’”
The House of Lords further stated that if the assignee is able to recover the losses by other means
e.g. if there is a collateral warranty, then any action by way of the assignment would be
estopped. It was further remarked that the assignee however had no power to force the assignor
to bring the action - see also Darlington BC v Wiltshier Northern Ltd 33 and Bovis International
Inc v The Circle Limited 34. The Contracts (Rights of Third Parties) Act 1999 would now cover
the particular situation where a third party is identified in the contract and intended to benefit
from the contract terms.
Sub-Clause 1.6, as stated above, makes a fundamental change, to the previous edition of the Red
Book. The restriction on assignment applies to both parties and both parties have “the sole
discretion” on whether to agree to the assignment. The wording “sole discretion” means that
Sub-Clause 1.3 does not apply and either party may refuse consent, even unreasonably. 35 The
FIDIC Guide only considers the assignment of the Contractor’s rights and obligations when
looking at this Sub-Clause, it does not address the situation where the Employer may need to
assign its rights and obligations under the contract. The FIDIC Guide states:
“The Employer will typically have taken account of the Contractor's reputation and
experience when deciding to enter into the Contract, even if there was no prequalification
procedure. Having done so, the Employer may well be reluctant to agree to any
assignment under Sub-Clause 1.7. If he is persuaded to do so, the Employer may only be
33
[1995] 1 WLR 68
34
(1995) 49 Con LR 12
35
See Further Clause 3 of FIDIC 4th A Practical legal Guide, EC Corbett at page 71
32

prepared to agree subject to certain conditions. In particular, the Employer will wish to
ensure that the Performance Security and other securities provided by the assigning
Contractor will either be replaced or remain valid in respect of both the assigning
Contractor's obligations and the new Contractor's obligations.”
However, there will be many contracts where the Employer will wish to assign its rights under
the Contract. The Employer may for example want to sell its interest in the project to a third
party; for example, a utility provider or manufacturer. An Employer that does this but does not
(or cannot) assign the benefits and burdens of the construction contract will be in a difficult
position. It is suggested that an Employer will need to amend this Sub-Clause of the Contract if
it does not intend to use the plant when completed so that it can freely assign its interest in the
project.
Sub-Clause 1.8 Care and Supply of Documents
As a result of the way ‘Contractor’s Documents’ are defined there are implications for the
Contractor and Employer which are not often realised. The Contractor is required to provide the
Employer with all the Contractor’s Documents, to keep them on Site and to give the Employer
access to them at all reasonable times.
Contractor’s Documents are defined in Sub-Clause 1.1.6.1 as
“the calculations, computer programs and other software, drawings, manuals, models and
other documents of a technical nature (if any) supplied by the Contractor under the
Contract.”
It is not uncommon for the Contractor to fail to provide the Employer with some parts of this
information – most particularly updates of its programme as required under Sub-Clause 8.3
[Programme] and contemporary records of claims as required under Sub-Clause 20.1 [Claims,
Disputes and Arbitration]. The Employer (through the Engineer) is entitled to go the
Contractor’s office and view this information and demand copies.
This power may be very useful to the Employer if there is a dispute as it effectively gives the
Employer a power to demand that the Contractor produce a substantial part of its records. It is
common in disputes for the Contractor to produce documents selectively – for example to cover
up the fact that some delays which it claims were the responsibility of the Employer were in fact
concurrent with more substantial delays caused by its own internal problems. By gaining access
33

to these records the Employer may be able to demonstrate that the delays are caused at least in
part by the Contractor itself.
The Clause provides that if either Party becomes aware of any error or defect of a technical
character they must promptly give notice to the other. This provision might be better placed in
Sub-Clause 1.5 [Priority of Documents] – see the comments on its effects in the commentary on
that Sub-Clause. It is clearly a limited obligation – the defect must be of a technical character,
thus excluding for example ambiguities or discrepancies which are of a financial or legal nature.
Sub-Clause 1.9 Delayed Drawings or Instructions
This Sub-Clause sets out the circumstances in which the Engineer’s delay in issuing a variation
or instruction may give the Contractor the right to an extension of time or financial
compensation. The extension of time is available only if the Contractor gives notice that the
works are likely to be delayed or disrupted if the necessary drawing or instruction is not issued
by a certain date.
It is not uncommon for the Engineer to be late in issuing drawings or instructions – the fact that
he is late being easily shown by reference to the Programme which ought to include a document
release schedule. However mere lateness does not give rise to the right to a claim under this
Sub-Clause.
A failure by the Engineer to give drawings or instructions on time is a breach of contract on the
part of the Employer and may also be a ground for extension of time under Sub-Clause 8.4(e)
i.e. it is a “delay, impediment or prevention caused by or attributable to the Employer …”.
Since it will also be a breach of Contract on the part of the Employer it may also entitle the
Contractor to compensation by way of the Cost and reasonable profit caused by the delay or
disruption. However, the main question is whether the delay has affected the completion for the
purposes of Sub-Clause 10.1.
Sub-Clause 1.9 may, however, add something to the normal rights of claim for breach of contract
and under Sub-Clause 8.4(e) because there is nothing to say that a notice cannot be given prior to
the time when the design or instruction was initially programmed to be given. In the situation
where, for some reason, the Contractor has discovered it needs drawings or instructions earlier
than it had anticipated in the programme because of a planning error, or because it has managed
to get ahead of programme, or, perhaps, has changed the sequence of works and requires
drawings or instructions ahead of schedule, it may give notice under Sub-Clause 1.9 and, so long
34

as the amount of notice is reasonable, place an obligation on the Engineer to provide the
drawings and instructions early. There was a suggestion arising out of some case law that the
Contractor may not own the float to the project: Glenlion Construction v The Guinness Trust. 36
However, the Glenlion case was on a different form of contract and the better view is that when
reading Sub-Clauses 8.2 and 8.4 together it is the Contractor who owns the float. 37
The Engineer might seek to argue that in giving information early, the Contractor is asking more
than the Engineer is required to do under the Contract. Sub-Clause 8.3 provides that the
“Employer’s Personnel shall be entitled to rely upon the programme when planning their
activities.” However, so long as the Contractor gives reasonable notice of an early requirement it
would be difficult to argue that it was not entitled to request drawings and instructions ahead of
schedule.
Although the initial Contractor’s notice is required to state the nature and the amount of delay
and disruption which may be caused by the late drawings or instructions and to give the Engineer
a reasonable time in which to provide the necessary drawing or instruction, the amount of
extension of time it may be entitled to is not tied to the Contractor’s initial demand. If the
Engineer does not provide the drawing or instruction within the time stated, the Contractor is
required to give a further notice and the extension of time is then calculated on the basis of the
actual effects of the Engineer’s non-compliance. The extension of time is calculated by
ascertaining the delay the Contractor is actually likely to suffer or actually suffers as a result of
the Engineer’s non-compliance. Thus it is possible that the consequences of the Engineer’s
delay will be different from those predicted by the Engineer and that the extension will be greater
or smaller than the delay from the expiry of the Notice. 38 The Engineer would be wrong to
refuse an extension on the ground that the forecast consequence had not materialised. He would
also be wrong to tie the extension to the length of time he has been late in complying with the
Notice.
There is scope for debate as to whether the requirements of Sub-Clause 1.9 would be satisfied by
a programme marked up with the critical dates for information and annotated to provide the
details required by the Sub-Clause. Whilst it is reasonably clear that this was not the intention of
the draftsman, it is submitted that such a programme could be capable of complying with the
36
(1987) 39 BLR 89
37
See also Burr A., Delay and Disruption on Construction Contracts (2016) at page 113
38
This could occur when the works are delayed into a period where winter working is prohibited or where there is
then a clash with other contractors working on site.
35

Sub-Clause's requirements - see London Borough of Merton v Leach39 for the position on an
English standard form of contract.
The final paragraph of the Sub-Clause does not appear to be necessary in view of the fact that
any extension of time and costs have to be assessed in accordance with Sub-Clause 20.1, which
in itself would forestall an argument by a Contractor that Sub-Clause 1.9 gives the Contractor an
entitlement to time and costs as a consequence of the late issue of drawings or instructions
regardless of the cause of that late issue. However it puts beyond doubt the fact that if the
Engineer’s delay has in fact been caused in whole or in part by the Contractor’s own errors and
delays, this must be taken into account in calculating any extension of time or compensation.
Sub-Clause 1.10 Employer’s Use of Contractor’s Documents
This is a new Sub-Clause which was not previously in the Red Book 4th edn. The clause states that
the Contractor retains the copyright in the Contractor’s Documents and other design documents
made by (or on behalf of) the Contractor. Copyright is a legal right given by a state to the maker
of an original work. In this regard there are a number of questions regarding which law applies
to a copyrighted work; is it the law of the contract, the law where the copyrighted work was
made, or the law of the domicile of the maker? Copyright applies for a limited period of time. In
most jurisdictions copyright arises upon fixation and does not need to be registered. Copyright
owners have the right to exercise control over copying and other exploitation of the works for a
specific period of time, after which the work is said to enter into the public domain. Copyright
owners may license, transfer or assign their rights to others.
Copyright “does not subsist in ideas; it protects the expression of ideas, not the ideas themselves”
Baigent v Random House Group Ltd40. It follows that not every type of document or computer
programme is subject to copyright. However, original designs may attract copyright.
Both Sub-Clause 1.10 and Sub-Clause 1.11 set out FIDIC’s policy that the designers of the
works should be able to retain the copyright in their designs. The clients are then given a right to
use the designs for the purposes of the project.
This Sub-Clause relates to the Contractor's Documents, which are defined at Sub-Clause 1.1.6.1
to include calculations, computer programs and other software, drawings, manuals, models and
other documents of a technical nature. There may therefore be some debate whether certain
39
(1985) 32 BLR 51
40
[2007] EWCA Civ 247
36

documents fall within the definition of “Contractor's Documents.” It should further be noted that
this clause only refers to copyright rather than patented products. This may be something which
the Employer may wish to address in the Particular Conditions.
The licence that is given to the Employer has specific limitations. It applies:
• only throughout the actual or intended working life of the relevant part of the Works;
• only to a person in proper possession of the relevant part of the Works to copy, use and
communicate the Contractor’s Documents for the purposes of completing, operating,
maintaining, altering, adjusting, repairing or demolishing the Works; and
• in respect of computer programs and other software, permit their use on any computer on
the Site and other places as envisaged in the Contract, including replacements of
computers supplied by the Contractor.
The Contractor's consent (mentioned in the final paragraph) must be given in writing if the
Contractor’s Documents or other design documents are to be copied or communicated to a third
party for purposes other than those permitted under this Sub-Clause. Consent is subject to Sub-
Clause 1.3, which states that it shall not be unreasonably withheld or delayed.
It is relatively easy to think of situations where an Employer will or may breach copyright. For
example, Sub-Clause 1.10(c) refers to “any computer on the Site … including replacements of
any computers supplied by the Contractor.” It therefore appears that if replacement computers
aren’t supplied by the Contractor, the Employer would not be able to install the Contractor’s
programs onto them. Similarly the list at Sub-Clause 1.10(b) does not refer to ‘replacement’ of a
relevant part of the Works.
Where the project is a complex process plant or IT system then the Employer will need to give
particular attention to this Sub-Clause.
Sub-Clause 1.11 Contractor’s Use of Employer’s Documents
Sub-Clause 1.11 deals with the rights of the Employer in respect of the documents he provides to
the Contractor. The FIDIC Guide explains that the opening wording of this Sub-Clause; i.e. “As
between the Parties" was included so that “other parties (such as the Employer's Personnel) may
themselves retain intellectual property rights in respect of their designs, under their respective
design contracts.”
37

The Employer's documents (including the Specification and Drawings) may only be given to
third parties, except as is necessary for the purposes of the Contract, with the consent of the
Employer. Once again consent must be given in writing and should not be unreasonably
withheld or delayed (Sub-Clause 1.3).
Sub-Clause 1.12 Confidential Details
There is no general obligation of confidentiality under the Contract (though there is a proposed
confidentiality provision – applying only to the Contractor in the proposed Particular
Conditions). In the absence of such a provision there is no obligation on either party to keep any
information confidential.
Like Sub-Clause 1.8, this Sub-Clause may be particularly useful to the Employer in the case of a
dispute as it makes it clear that there are substantial limits on what can be treated by the
Contractor as confidential and thus not available to a DAB or Arbitral Tribunal.
A common subject of dispute is whether the delays suffered by the Contractor are the result of its
own problems or breaches or the result of matters for which it is entitled to an extension of time.
Contractors are naturally reluctant to disclose their own problems and the Engineer may not be
aware of them.
However there is an obligation for the Contractor to proceed in accordance with the Sub-Clause
8.4 programme – the only exceptions being where it is prevented by the Employer, or by events
which entitle it to an extension of time. If the Contractor is in fact in delay, the Engineer is
therefore entitled under Sub-Clause 1.12 to demand information from the Contractor of its
resources and its own internal problems in order to verify that the Contractor is not delayed
through its own breaches. It can demand this information both at the time the delays are being
incurred and during the dispute process.
Sub-Clause 1.13 Compliance with Laws
The obligation relates to all applicable Laws – Laws being defined in Sub-Clause 1.1.6.5 to
mean:
“all national (or state) legislation, statutes, ordinances and other laws, and regulations and
by-laws of any legally constituted public authority.”
This definition is not restricted to the laws of the country in which the permanent Works are
38

carried out and the potential number of laws which might apply is therefore very substantial.
The definition is therefore intended to be very far reaching. In countries with substantial state
ownership (particularly of utilities) it will be particularly far-reaching. For example many state
owned authorities and utilities set out their internal rules in regulations and by-laws and these
will be treated as Law for the purpose of this provision. Many such organisations have their own
internal procedures relating to such things as health and safety, working hours, access to
property, internal permits and permissions and the authority of officials to give orders and they
are often described as regulations or by-laws.
It is also possible that in some jurisdictions a privately owned company providing public services
(e.g. water, electricity or transport) will be regarded as a public authority and empowered to
make relevant regulations and by-laws. Such regulations and by-laws may expand such
contractual obligations of the Contractor as are expressly set out in the Contract.
The Contractor is obliged also to pay all taxes, duties and fees required by the Laws.
Unfortunately it is often not easy for the Contractor to find out in advance what such taxes duties
and fees will be. In some jurisdictions some local authorities are entitled by law to levy fees on
goods passing through their jurisdiction. In many countries wages or charges (for example
demurrage) are set by law or regulation. If that is the case it is probably arguable that an increase
in these costs as a result of a change in the law will entitle the Contractor to compensation under
Sub-Clause 11.7 (see below).
Unless the Contractor is very familiar with the local environment he may not be able to predict
the level of his responsibility and would be wise to attempt to persuade the Employer to
incorporate into the Contract an agreement to indemnify the Contractor from such charges except
to the extent they are specifically mentioned in the Contract.
A certain amount of protection is provided for the Contractor by Sub-Clause 2.2 which requires
the Employer to provide reasonable assistance to the Contractor at the Contractor’s request in
obtaining copies of laws of the Country in which the Permanent Works are being carried out and
which are not readily available and in obtaining permits licences or approvals as required under
Sub-Clause 1.13. This right will obviously be of no assistance if the laws the Contractor needs
to know about are those of another country.
In the sort of circumstances outlined above the Contractor should assume that there are laws of
which he does not know and which are (almost by definition) not readily available. The
39

Contractor should, at the commencement of the Contract (and also when he becomes aware that
others Laws may exist), request copies of all applicable Laws of the Country, making it clear that
it also wants all by-laws and regulations of all relevant public authorities.
Since the obligation under Sub-Clause 1.12 is incorporated into the Contract as one of the
Contractor’s obligations any delay or cost incurred in compliance with such law will not be
treated as one giving rise to an extension of time or compensation. However where an applicable
Law conflicts with a requirement under the Contract, the Employer should not, it is submitted, be
entitled to deny the Contractor payment of any costs consequent upon the variation on the
grounds that the Contractor had undertaken to conform with local regulations and therefore
should not be entitled to further payment for doing so. The Contractor has undertaken that he
will conform with the local law in the execution of the Works. He is not undertaking that the
Works as designed so conform. It would, it is submitted, place intolerable burdens upon
tenderers if they had to check the design for compliance.
Under Sub-Clause 13.7, the Contract Price has to be adjusted to take account of any increase or
decrease in Costs resulting from any change in legislation applicable in the Country where the
Permanent Works are being carried out (see discussion under Sub-Clause 13.7). This does not
detract from the Contractor’s obligation to obey all applicable laws, but will mean that costs
resulting from changes to those laws will be compensated and any delay or disruption caused by
them should result in an extension of time. This would entitle the Contractor to compensation
where (for example) the costs of permits is increased by changes to the Law or where Laws
fixing wages or other charges are amended to provide for increases. However this additional
payment will not be available where the change of legislation causing the cost increase occurred
outside the Country.
In some extreme circumstances the applicable Law, or a change to the Law, may make it
impossible for the Contractor to perform some or all of the Works in accordance with the
Contract without acting illegally. In these circumstances he would be in breach of Sub-Clause
1.13 if he complied with his contractual obligation and would therefore be excused from his
contractual obligation. In the absence of an agreement between the Parties or a (paid) variation
to cater for the circumstances, Sub-Clause 19.7 will apply and the Contractor may be discharged
from his obligations. (See discussion under Sub-Clause 19.7).
An example of a situation where illegality may prevent the Contractor complying with the
Contract can arise when part of the Engineer's design is found to conflict with applicable Law. If
the discrepancy is found before the work is executed, the Contractor can seek a variation of the
40

design so that the Works conform with the applicable Law.
If the illegality is discovered after the element of the Works are complete, the Contractor will be
in breach of Contract but as a result of a design which the Employer has provided him. Should
the Employer wish the illegality to be remedied it would again be the Employer’s responsibility
to meet the Costs and time consequences.
Another area of difficulty that frequently occurs is when delays and costs are incurred as a result
of the rules and regulations of the various utilities whose pipes and cables pass under or are
connected to the works. The design of the works is normally the Engineer's concern, but liaison
with the utility companies is the Contractor's responsibility. In many countries, the procedure for
re-routing, for example, a telephone cable may be a long and bureaucratic process. Under
previous FIDIC forms, severe delay of this sort would qualify as "special circumstances"
entitling the Contractor to an extension of time. However the 1999 edition does not include this
general let out provision and unless the utility can be considered identical with the Employer
(which is possible in some circumstances where the Employer and the utility are both State
owned – see the commentary under Sub-Clause 8.4) the mere fact that the utility has delayed in
re-routing the utilities will not entitle the Contractor to an extension of time. The risk of such
delay falls on the Contractor.
It may be arguable in some circumstances, however, that delays caused by utility companies
have deprived the Contractor of access to or possession of the Site and that the Contractor is
entitled to an extension of time under Sub-Clause 2.1 (see discussion under that Sub-Clause).
An interesting question arises when the Employer is an arm of the government of the country in
which the project is sited and the utility concerned is also government-owned. Thus, the
Contractor could be dealing with the Ministry of Public Works as Employer and the Ministry of
Telecommunications in relation to the relocation of a cable. A Contractor will seek to argue that
delays caused by the Ministry of Telecommunications fall within the ambit of "delay,
impediment or prevention caused by or attributable to the Employer" under Sub-Clause8.4(e).
The answer lies within the administrative law of the country in which the project takes place. If
the government can be said to be "one and indivisible" so that the two Ministries are merely
manifestations of the same legal person, the Contractor may well succeed. In civil code
countries, with legal systems based on the French model, a contract with a ministry would
normally be an administrative contract and the doctrine of Fait du Prince could apply: this would
make an act of one arm of government a potential ground for claim under a contract with another
as the state is not regarded as comprising separate entities but as a single whole.
41

The boundary between the Contractor's duty of conformity with applicable Laws on the one hand
and the Employer's responsibility for "planning, zoning or other permission" on the other hand, is
likely to cause difficulty. The Employer is required to indemnify the Contractor from any
consequences of its (the Employer’s) failure to obtain such permission. Thus if the regulation or
by-law of which the Contractor is in breach is one which requires permission before the
Contractor is entitled to carry on some activity, the risk of breach lies with the Employer, not the
Contractor. The term “or other permission” is thus an important one and unfortunately is not
defined in the Contract. If, for example, a local authority has the power to impose a charge
before the Contractor is entitled to commence building or uses a particular road or facility this
can probably best be described as a charge for a permission – and thus be the responsibility of
the Employer. On the other hand where the charge is described as a tax (perhaps for the use of a
quarry or for a refuse disposal area), it has the same effect; yet it might not be correct to describe
it as a permission. Indeed in some places the right to build is subject to payment of an
infrastructure charge, whereas in others the right to build is subject to obtaining of a permit in
return for a similar fee. The description can make a major difference. Such semantic differences
should not make a difference to the liabilities of the Parties but it can be seen that they may do
so. A well-advised Contractor, faced with having to make payments which are effectively made
in order to receive permission to carry on activities, will not make the payment without first
protesting to the Employer that it is in fact obtaining a permit which the Employer is required to
obtain. This will set the basis for a claim under the Contract.
Sub-Clause 1.14 Joint and Several Liability
The effect of this provision is that each Contractor, member of a joint venture, consortium or
other unincorporated group is fully liable not only for its own elements of the Contract but also
for those of the other members. This can be particularly burdensome for a member which has
undertaken a smaller than average proportion of the overall obligations – the rewards will be
proportionately smaller but the risks will be as high as for the other larger participants. Since the
Employer gains considerable extra security as a result of this joint and several obligation it is
likely that if it commences any arbitration proceedings it will name each of the members as
Respondents so that it can have an award enforceable against each of them. This carries the risk
of increased costs as the separate members may decide to have separate legal teams. Clearly
there should be arrangements within the group of Contractors to ensure that the smaller members
are indemnified by the larger and that, as between themselves, each member only bears
responsibility for its share of any claim. Further, if there are any legal proceedings they will be
represented by one set of lawyers.
42

The Sub-Clause has no application to incorporated joint ventures and the shareholders in such
incorporated contracting vehicles will have no joint and several liability.
From an Employer’s point of view it is thus usually preferable that a Contractor be an un-
incorporated joint venture rather than an incorporated one. This is usually made clear in the
invitation to tender. The issue for contractors is more complex as there may be regulatory,
taxation and accounting issues which make it difficult to establish an incorporated vehicle.
However it can be seen that strictly from a contracting point of view it is probably better to
incorporate than not.
Sub-Clause 1.14(c) prevents the Contractor altering its composition or legal status without the
prior consent of the Employer. This Sub-Clause is solely aimed at preventing changes to the
structure of the joint venture. However, Employers will also be concerned where, as is quite
common, the share of the Works allocated to each member is altered. The Employer may have
chosen the particular grouping of contractors in order to get the special expertise of one of its
members. Indeed the Contract may have only been awarded because of the track record of one
of the members. Clause 1.14(c) does not prevent the Contractor grouping passing the share of
the work which the specialised experienced contractor originally intended to do to a less
experienced member. Indeed it is common for joint ventures to be formed between an
inexperienced and an experienced contractor merely to use the “CV” of the experienced
contractor to meet the pre-qualification requirements and with no intention of the experienced
contractor carrying out the share of the work originally indicated. While Sub-Clause 1.14(c)
would prevent the experienced contractor withdrawing entirely from the joint venture or
consortium (this would represent a change in its composition), so long as the experienced
contractor remains nominally a member there is nothing the Employer can do about it.
With this in mind Employers will be well advised to alter this Sub-Clause to prohibit changes to
work share within the joint venture or consortium without the prior consent of the Employer.
Where the Employer does have a right under Sub-Clause 1.14(c) to prevent a change to the
composition or legal status of the joint venture, it must not unreasonably withhold or delay its
consent (see Sub-Clause 1.3).
Drafted by: Andrew Tweeddale & Nick Culatto
43

Clause 2
Summary
Clause 2 sets out certain obligations which are imposed on the Employer;
however, this is by no means all the Employer’s obligations. The obligation to
pay the Contractor, for example, is found in Sub-Clause 14.7 and the obligation
to Take-Over the Works is found at Sub-Clause 10.1. The first obligation
imposed on the Employer under this Clause is to give to the Contractor a right of
access. Sub-Clause 2.1 needs to be read alongside Sub-Clauses 2.3 and 4.6, which
make it clear that possession of the Site need not be exclusive.
Sub-Clause 2.2 imposes on the Employer an obligation to assist the Contractor

when requested to obtain permits, licences or approvals required by the laws of
the Country. The obligation to reasonably assist is not an absolute obligation
and generally will not mean the Employer will have to expend money on
fulfilling the obligation. Sub-Clause 2.3 imposes on the Employer an obligation
similar to that imposed on the Contractor under Sub-Clause 4.6. The Employer
is responsible for any failure by its personnel to co-operate with the Contractor
or to comply with safety regulations, take care of persons on Site, make sure the
Site is reasonably free from unnecessary obstructions, and protect the
environment.
Sub-Clause 2.4 imposes on the Employer an obligation to show that financial

arrangements have been made and are in place to enable it to pay the Contract
Price. Sub-Clause 2.5 deals with the Employer’s Claims and requires that the
Employer give notice and particulars of its claim before the Engineer makes a
Determination under Sub-Clause 3.5. The Employer cannot set-off any claims it
may have against the Contractor unless it complies with this Sub-Clause.
Origin of clause
Sub-Clause 2.1 of FIDIC 1999 is similar to clause 42.1 and 42.2 of the 4th edition.
There was also a similar provision within the 3rd edition. Sub-Clause 2.2 of FIDIC
1999 is similar to clause 54.3 and 54.4 of the 4th edition. Once again there were
similar provisions within the 3rd edition. Sub-Clause 2.3 of FIDIC 1999 is based on
clause 19.2 of FIDIC 4th edition. Sub-Clause 2.4 and 2.5 are new.
Cross-references
Reference to Clause 2 is found in the following clauses:-
The content of this commentary is not legal advice. You should always consult a suitably qualified lawyer
regarding a particular legal issue or problem that you have. Please contact us if you require legal assistance.

Sub-Clause 4.2 Performance Security
Sub-Clause 4.19 Electricity, Water and Gas
Sub-Clause 4.20 Employer’s Equipment and Free-Issue Material
Sub-Clause 4.21 Progress Reports
Sub-Clause 7.5 Rejection
Sub-Clause 7.6 Remedial Works
Sub-Clause 8.6 Rate of Progress
Sub-Clause 8.7 Delay Damages
Sub-Clause 9.4 Failure to Pass Tests on Completion
Sub-Clause 11.3 Extension of Defects Notification Period
Sub-Clause 15.4 Payment after Termination
Sub-Clause 16.1 Contractor’s Entitlement to Suspend Work
Sub-Clause 16.2 Termination by Contractor
Sub-Clause 18.1 General Requirements for Insurances
Sub-Clause 18.2 Insurance for Works and Contractor’s Equipment
Sub-Clause 2.1 - Right of Access to the Site
Although it is headed “Right of Access to the Site” this Sub-Clause deals with three
subjects - access to the Site, possession of the Site and, separately, with possession of
foundations, structures, plant or means of access. Different rules apply to each
category.
Access to and possession of the Site
These two subjects are dealt with together in the Sub-Clause
The definition of Site (see Sub-Clause 1.1.6.7) is very broad. It includes
• the place where the Permanent Works are to be carried out. In certain
circumstances Permanent Works carried out by one Contractor may be the Site
for the following contractor (for example in a hydro-electric dam, the Engine
room will provide the Site for the installer of the turbines);
• the place to which Plant and Materials are to be delivered; and
• other places which are to be considered part of the Site. Common examples
are borrow areas, storage areas for materials, site offices and staff
accommodation.
The Sub-Clause provides two different means of defining when the Employer is
obliged to give the Contractor access to, and possession of the Site.
The first method of defining the Employer’s obligation is by reference to specific

dates stated in the Appendix to Tender. If this approach is not used the right of access

to or possession of the Site is to be given at such times as are necessary to enable the
Contractor to proceed in accordance with the Sub-Clause 8.3 Programme.
Sub-Clauses 4.13 and 4.15 (see separate commentary) provide for responsibility for
paying for and maintaining access.
Possession of Foundations, Structures, Plant Or Means Of Access
The timing is required to be in accordance with the Specification. The Sub-Clause is

not clear that in the absence of a reference to the timing in the Specification the timing
should be such as to enable the Contractor to proceed in accordance with the
Programme because the Sub-Clause only refers to a right to be given access to or
possession of the Site and not the area below the surface of the Site where the
foundations are to be built. However, in our opinion, where no timing is set out in the
Specification then the Employer must give possession in accordance with the
Programme. Under English law, at least, possession of the Site would include both
the ground beneath the land as well as the lower stratum of airspace above. 1
It is not clear why the Sub-Clause requires possession of foundations etc. to be timed
in accordance with the Specification and the Site in accordance with the Appendix to
Tender. It would be sensible to amend the Sub-Clause to require possession and
access to be according to the Appendix to Tender or alternatively in accordance with
the Programme in both cases.
The last sub-paragraph of Sub-Clause 4.6 [Co-operation] is here relevant because it

requires the Contractor to make a timely submission of any documents necessary to
enable the Employer to provide the foundations etc. in accordance with the
Specifications.
Where the right of access or possession is required to be given in accordance with the
Programme, the Employer needs to be aware that the Contractor has the right to
submit a revised programme under Sub-Clause 8.3 whenever the previous programme
is inconsistent with actual progress or the Contractor’s obligations. The Engineer and
the Employer have no right to reject a revised programme if it is provided in these
circumstances unless it does not comply with the Contract. Thus it is possible that the
Employer will find itself in a position of having to provide possession or access
earlier than it had originally planned. If the Employer is unable to provide possession
or access, the Contractor may then have a right to an extension of time and monetary
compensation.
It is possible that after the Contractor has been given access to or possession of the
Site, it later loses it. The Sub-Clause makes it clear that the right is not exclusive – it
1
Grigsby v Melville [1974] 1 WLR 80
3

is possible that other contractors are also working on the Site or that others have
access for reasons unrelated to the Contract. This is particularly likely to be the case
where the Site includes areas which are only to be used for delivery or where they are
not part of the Permanent Works or where the works involve the rehabilitation of an
existing road or railway which must still be operated. Where works are controversial
they may be occupied by protestors or local inhabitants who having been paid to leave
may decide to return. In some circumstances there may even be criminal occupation;
although this may amount to a force majeure event. On its own the Sub-Clause is not
clear as to whether the risk of such interference is the responsibility of the Employer
or of the Contractor.
On one reading of the Sub-Clause the obligation to provide access and possession is a
once only event (“The Employer shall give … right of access … within the time
stated…”). However this reading would not achieve the object of the Sub-Clause
which must be to ensure that the Contractor has the access it needs in order to carry
out the Works. If the Employer had the right to take possession away at any time this
object would be defeated. It is reasonable therefore to conclude that the Employer’s
obligation is to give access and possession and to ensure that that access and
possession continues throughout the period of the Contract. It can therefore be said
that, in the absence of express provision in the Contract, the Employer’s obligation to
provide access and possession is a continuing one. 2 This interpretation also accords
with Sub-Clause 10.2 where if the Employer uses part of the Works, except on a
temporary basis, he is deemed to have taken it over. However the Contractor has
several express obligations as follows:
• Under Sub-Clause 4.6, the Contractor is required to provide appropriate

opportunities for others to carry out work.
• Under Sub-Clause 4.8, the Contractor is obliged to use reasonable efforts to
keep the Site and Works clear of unnecessary obstruction to avoid danger and
to provide fencing, lighting, guarding and watching of the Works.
• Under Sub-Clause 4.13 the Contractor is obliged to bear the costs of rights of
way he may require including for access to the Site.
• Under Sub-Clause 4.14 the Contractor is obliged not to interfere unnecessarily
or improperly with access to and use and occupation of roads and footpaths.
• Under Sub-Clause 4.15, the Contractor is obliged to keep access routes in
good condition.
• Under Sub-Clause 4.23 the Contractor is obliged to keep the Site free of
unnecessary obstruction.
2
See HW Nevill (Sunblest) Ltd v William Press & Son Ltd (1982) 20 BLR 79 at 87 where the court
held: “Although Clause 21(1) uses the word "possession", what it really conferred upon William Press
was the licence to occupy the site up to the date of completion. On completion that licence came to an
end.”
4

Of these Sub-Clauses, 4.8 and 4.23 are qualified (“reasonable” and “unnecessary”). If
despite such reasonable efforts as are required under Sub-Clause 4.8, the Contractor
was unable to achieve his obligations under this Sub-Clause the risk would fall back
on the Employer.
So far as the Contractor’s obligations regarding the Site are concerned, the general
effect is to place the obligation on the Contractor to take responsibility for access and
occupation of the Site. This is relatively straightforward where there is only one
Contractor on the Site. It would probably be only a blatant interference by the
Employer with the Contractor’s use and occupation of the Site which would put the
Employer in breach of the right of continuing occupation under Sub-Clause 2.1.
However, on large Sites where there is more than one Contractor working for the
same Employer, there is great room for confusion and for conflicting needs and rights
between the various contractors. If a contractor working on one part of the Site and
otherwise doing exactly what it is required to do under its contract destroys part of the
access needed by another contractor, who takes responsibility? The answer is found
in Sub-Clauses 17.3 and 17.4 where loss or damage to the Works caused by the use or
occupation by the Employer, except as may be specified in the Contract, is an Employer risk
event.
Or if another contractor, in breach of its obligations under Sub-Clause 4.23, uses an

area of the Site of which the first contractor needs possession as a storage area for un-
used materials, what happens? What would happen if, in breach of its obligations
under Sub-Clause 4.6, one of the contractors fails to co-operate with one or more
other contractors, thus limiting the extent to which they can get the benefit of access
to and possession of the Site?
Sub-Clause 2.3 puts responsibility for lack of access or possession onto the Employer,
by stating expressly that the Employer must use its power to enforce the contractual
obligations of the other contractors. If the Employer (deliberately or not) does not
enforce all contractors’ obligations to allow others to have access to and possession of
the Site, it will be obliged to grant extensions of time and financial compensation to
the others who suffer thereby. Logically the same should apply where one contractor
who is in serious delay – whether for reasons which entitle it to an extension of time
or not – causes disruption to the activities of the other contractors on site because it
prevents them taking possession of completed parts of the works which they may need
access to in order to meet their own programmes.
Remedies
Where the Employer fails to meet its obligations under this Sub-Clause the Contractor
must comply with Sub-Clause 20.1 and has a right to an extension of time and
payment of Cost plus reasonable profit. A serious breach which has the effect of
5

stopping the Contractor working effectively could well form the basis of a
Contractor’s termination under Sub-Clause 16.2(d).
Sub-Clause 2.2 - Permits, Licences or Approvals
This Sub-Clause requires the Employer to provide the Contractor with rather limited
assistance in obtaining copies of laws and obtaining permits and then only at the
request of the Contractor. The obligation is heavily qualified in that the Employer is
only required to provide the assistance “where it is in a position to do so”. Since the
Contractor only has the right to ask for “assistance” and (in respect of copies of Laws)
only for what “is not readily available” this Sub-Clause is not intended to help the
Contractor unless he cannot help himself. What might put the Employer in the
position of not being able to assist is not clear. Nor is there any obligation on the
Employer to have people on its staff that are capable of assisting in this way.
Thus a locally based or government Employer may be better placed to provide such
assistance than the (possibly foreign) Contractor but will not necessarily be so.
The Contractor would be unwise to rely on its Employer’s assistance because, even if
the Employer does not assist it, the Contractor is still obliged to obey the laws and to
obtain the permits. In other words it really has no choice except to find out what laws
may apply and what permits it needs.
It should be noted that the obligation only relates to Laws and permits of the Country
in which the Works are being carried out, yet under Sub-Clause 1.13 the Contractor is
obliged to obey applicable Laws (which may be those of other countries if part of the
Works are performed outside the Country where the main Permanent Works are being
carried out). The same applies to permits.
The Sub-Clause does not include any sanction against an Employer who fails to
provide assistance requested and required by the Contractor. If the failure to assist
causes delay, the Contractor may be entitled to an extension of time under Sub-Clause
8.4(e) – it would probably be considered a delay, impediment or prevention by or
attributable to the Employer. Sub-Clause 8.5 gives the Contractor an entitlement to an
extension of time where delay is caused by an authority delaying or disrupting its
work. Arguably this would include delays caused by late issue of permits. However
the Sub-Clause only takes effect if the Contractor has “diligently followed the
procedures laid down by the relevant legally constituted public authorities …”. If the
problem is that, as a result of a failure by the Employer to respond to a request for
assistance under Sub-Clause 2.2, the Contractor does not know what these procedures
are, it will be difficult to blame the public authority for the delay. Neither Sub-Clause
8.4(e) nor Sub-Clause 8.5 expressly gives the Contractor the right to any monetary
compensation for the delay or disruption caused. However a breach of Sub-Clause

8.4(e) by the Employer would be a breach of contract and the Employer would be
liable for the damages caused by its breach.
Employers sometimes demand payment for assistance under Sub-Clause 2.2. The
Sub-Clause is silent as to whether or not Contractors must pay. In our opinion it is
doubtful that there is a liability and the Employer’s obligation to assist is part of its
contractual obligations.
Sub-Clause 2.3 – Employer’s Personnel
The heading of this Sub-Clause is very misleading as it is not so much about

Employer’s Personnel as about the Employer’s responsibility for making sure that
they and other contractors on Site abide by their contractual obligations.
Employer’s Personnel are defined in Sub-Clause 1.1.2.6 as including the Engineer, his
delegated staff and all other employees of the Employer and the Engineer. In addition
the Employer is entitled to designate any other people as Employer’s Personnel. Sub-
Clause 1.1.2.6 appears to have been drafted so as to avoid including other contractors
working on the Site within the definition of Employer’s Personnel. It probably
achieves this object. Sub-Clause 2.3 focuses on two areas in which it makes it clear
that the Employer’s Personnel (who most importantly include the Engineer) and the
Employer’s other contractors on the Site must co-operate with the Contractor.
These two areas are the limited co-operation obligations which the Contractor has
under Sub-Clause 4.6 (see discussion under Sub-Clause 4.6) and some of the safety
and environment protection obligations under Sub-Clauses 4.8 and 4.18.
The wording of the Sub-Clause is rather odd in that it imposes an indirect rather than
a direct obligation on the Employer. The Employer itself is not responsible for
complying with the obligations under the two Sub-Clauses but it is responsible for
ensuring that its Personnel and the other contractors comply. The result however
should be the same because the Employer’s Personnel will often only be able to
comply if they make use of the Employer’s powers to enforce its contracts.
Moreover, on normal principles of law, an Employer will be responsible for the
actions of its employees and contractors.
The way in which the Sub-Clause is worded means that if the Contractor finds that the
Engineer is not as active as he ought to be in enforcing the co-operation, safety and
environment obligations of other contractors, he will be able to insist that the
Employer require the Engineer to act appropriately.
The Sub-Clause makes it imperative that all contractors on Site be employed under
FIDIC conditions or at least under conditions which contain provisions similar to Sub-
Clauses 4.6, 4.8 (a)(b) and (c) and 4.18 and that the Engineer’s and other consultants’
7

terms of employment also contain equivalent terms. In the absence of such
obligations in other contracts, the Employer may be unable to meet its obligations
under this Sub-Clause.
One of the implications of this provision is that the Employer will be responsible if
the behaviour of other contractors delays or disrupts the Contractor or prevents the
Contractor having access to or possession of the Site (see commentary under Sub-
Clause 2.1).
The obligations under Sub-Clause 4.8 (a) (b) and (c) include those related to
complying with safety regulations and generally caring for the safety of those on Site,
but also keeping the Site and Works clear of obstructions which might endanger
people. Thus if the Site is in a bad state as a result of neglect by the Employer, the
Engineer or other contractors, the Contractor may have a claim – either for the cost of
doing what others were responsible for, or for delay or disruption caused as a result.
Similarly, under Sub-Clause 4.18, if the pollution or noise caused by other contractors
is interfering with its ability to carry on its own part of the Works, the Contractor may
have the right to claim.
There is a direct link between this Sub-Clause and the right to an extension of time
under Sub-Clause 8.4(e) – “any delay, impediment or prevention caused by or
attributable to the Employer, the Employer’s personnel, or the Employer’s other
contractors on the Site”. There is no express right for the Contractor to receive Costs
or profit but, to the extent it can prove a loss as a result of the Employer’s failure to
meet its obligations under the Sub-Clause it should be entitled to damages for breach
of contract.
Sub-Clause 2.4 – Employer’s Financial Arrangements
This innovative provision is intended to give some protection to the Contractor

against Employer insolvency and the Employer’s inability to obtain funds to pay for a
project. It is not a full substitute for other protective measures such as bank
guarantees or substantial advance payments. However it is often difficult to persuade
Employers to agree to such measures and Sub-Clause 2.4 is a valuable second best
arrangement.
The Sub-Clause contains two requirements. The first is an obligation to demonstrate

to the Contractor, when it requests it that the Employer has adequate funding to
continue paying for the Works. The second obliges the Employer to notify the
Contractor if it intends to make any material change to its financial arrangements.
Employer’s Ability to Pay the Contract Price

The Contractor is entitled, as often as it likes, to make a request for reasonable
evidence that the Employer has made financial arrangements which will enable it to
pay the Contract Price and other payments when they fall due.
What will constitute “reasonable evidence” and what financial arrangements will
“enable the Employer to pay the Contract Price” will depend on the circumstances. In
the recent case of NH International (Caribbean) Ltd v National Insurance Property
Development Company Ltd (Trinidad and Tobago) 3 the Privy Council had to consider
this provision of the Contract. In this case the Contractor requested evidence and the
Employer sent a letter from the Project Administration Unit of the Ministry of Health
(“the Ministry”), which advised that the Cabinet of the Government of Trinidad and
Tobago had approved additional funding for the project in the sum of $59.1m. The
project costs were estimated by the Contractor at $286,992,070.
Despite getting further assurances from the Government that (a) the Government
would stand behind the project; (b) that $224,129,801.99 would be made available; (c)
that interim certificates would be paid, the arbitrator found that the Employer was
unable to show that funds had been approved which would cover the whole of the
project. The arbitrator held: (a) that the letters and evidence regarding funding did not
amount to such “reasonable evidence” that “financial arrangements” had been “made
and maintained”; and (b), if they did, then the sum was too low. The arbitrator
therefore concluded that the Contractor was entitled to terminate the contract under
Sub-Clause 16.2. The decision was upheld at first instance but was then set aside by
the Trinidad and Tobago Court of Appeal. The Privy Council reinstated he
arbitrator’s decision holding that this was an issue of fact, rather than law, and that the
Court of Appeal was wrong to impose its own decision, when the parties had agreed
on arbitration.
However, on one point the Privy Council agreed with the Court of Appeal and this
related to the question that if there was reasonable evidence then could the Contractor
have terminated if the amount available to the Employer was below the Contractor’s
estimate of the Contract Price (item (b) above). 4 The Court of Appeal held (as
approved by the Privy Council) that it was for the Contractor to prove the Contract
Price.
This Sub-Clause will therefore be particularly significant in the context of project

financed or aid funded projects. In the case of project finance, the project company is
unlikely to have any significant resources of its own and will be dependent on the
drawing down of the loans it has arranged. Such draw-downs may be jeopardised if
the project company is in breach of its banking covenants. This can happen, for
example where the project is one involving development of residential units and the
3
[2015] UKPC 37
4
Ibid at para 34
9

advance sales are inadequate to meet the project’s cash-flow requirements. Aid
funded projects are less subject to risk of funding failure but the Contractor will want
to be reassured of continuing adequate funding when, for example, there is a
substantial variation or where a substantial claim threatens to put the project over
budget.
In some circumstances it may be reasonable for the Contractor to insist on seeing

copies of contractual documents confirming the Employer’s right to continuing
funding. In the case of government funded projects it would be reasonable to ask for
evidence that the promoting department or government agency has been allocated
sufficient funding to pay for the project. It may also be impossible to judge whether
the arrangements are satisfactory without knowing what other commitments the
Employer has and how it intends to meet them.
Material Change to Financial Arrangements
This paragraph imposes an obligation for the Employer to give notice where it intends
to make any material change to its financial arrangements. While this is theoretically
a useful protection to the Contractor it does not go far enough because it only refers to
a change which the Employer intends to make. If the Employer is in financial
difficulties or where its funders appear to be about to cut off funds, it is under no
obligation to tell the Contractor. The Employer has no intention of changing anything
– it is simply being put in a position where it may not be able to pay its bills as a result
of its actions or the actions of others. The Sub-Clause would be far more use to the
Contractor if, instead of saying “…if the Employer intends to make any material
change to his financial arrangements …” it said “…if the Employer is aware of any
likelihood of material change to his financial situation …”.
The Employer is entitled to wait to the last moment before making any change to its
financial arrangement. If the Employer gives the Contractor notice of its intention,
the Contractor has little he can do with it. If he considers that the new intended
financial arrangements are inadequate to enable the Employer to meet its financing
obligations, the only course open to it will to be request evidence of the financial
arrangements the Employer intends to make – a rather silly situation since the
Contractor will just have received this situation. Then, 21 days after receiving the
(unsatisfactory) information it will have the right to suspend. The Sub-Clause would
make more sense if the Contractor was entitled to suspend 21 days after receipt of the
details of the new financial arrangements, should they be unsatisfactory.
Enforcement
The Sub-Clause links with Sub-Clauses 16.1 [Contractor’s Entitlement to Suspend

Work] and 16.2 [Termination by Contractor]. The right to suspend (which includes a
right to slow the rate of work) only takes effect 21 days after the Employer has failed
10

to respond in a satisfactory way. This means a delay of 49 days before the Contractor
has any remedy. Although this seems a long time it is in fact a shorter time than the
56 days the Contractor is required to wait for payment after submitting its application
for payment (Sub-Clause 14.7), and much shorter than the 77 days (the same 56 days
plus 21 days notice under Sub-Clause 16.1) before the Contractor is entitled to
suspend for non payment. It means that when the Contractor knows that the
Employer may be in financial difficulties it does not need to wait for a missed
payment before having a right to suspend.
However the proof of the Contractor’s entitlement to the remedy may be difficult
because there is a great deal of room for argument as to what is “reasonable evidence”
and this makes it risky for the Contractor to suspend. As stated in NH International
(Caribbean) Ltd v National Insurance Property Development Company Ltd (Trinidad
and Tobago)5 this is a question of fact for the arbitrator and therefore what can
amount to reasonable evidence for one arbitrator may be considered unreasonable for
another. Any such suspension will expose the Contractor to the risk of termination
(for failing to progress the Works) if his suspicions prove not to be well-founded.
The equally risky process to termination takes a maximum of 84 days because the
Contractor must wait for 28 days for the response (Sub-Clause 2.4), then give not less
than 21 days notice of suspension (Sub-Clause 16.1) and finally wait 42 days after
serving the suspension notice (Sub-Clause 16.2(a)) before giving 14 days notice of
termination (second to last paragraph of Sub-Clause 16.2). Once again this seems a
long time, but it is much shorter than the 112 days (the 56 day payment period under
Sub-Clause 14.7, the additional 42 days under Sub-Clause 16.2(c) and the 14 day
notice period under Sub-clause 16.2) that the Contractor has to wait before
terminating for non-payment if the Employer is in difficulties.
Sub-Clause 2.5 – Employer’s Claims
Sub-Clause 2.5 is a new clause and did not appear in the FIDIC 4th edition. This
clause is particularly important because it prevents the Employer, except in limited
circumstances (see below), from making any deductions from interim payment
certificates or otherwise without first notifying its claim under this Sub-Clause,
thereby giving the Contractor the opportunity to respond to the Employer’s claim
prior to any deductions being made. The notification process is then followed by the
mechanism provided in Sub-Clause 3.5 whereby the Engineer is required to agree or
determine the matter following a consultation period. It is the amount determined by
the Engineer that is then deducted from the interim payment certificate or claimed
against the Contractor.
5
[2015] UKPC 37
11

In the event that there is a dispute between the Employer and the Contractor in
relation to the Sub-Clause 3.5 determination, that dispute can then be referred to the
DAB under Sub-Clause 20.4. So, for example, if the Engineer reduces the amount of
the Employer’s claim and the Employer is dissatisfied with the Engineer’s assessment
it can refer this dispute to the DAB. However, in most cases it will be the Contractor
who will contest the decision of the Engineer.
The key elements in Sub-Clause 2.5 regarding the submission of an Employer’s claim
are: “If the Employer considers himself to be entitled to any payment under any Clause
of these Conditions or otherwise in connection with the Contract, and/or to any
extension of the Defects Notification Period, the Employer or the Engineer shall give
notice and particulars to the Contractor.” The clause continues that: “The notice shall
be given as soon as practicable after the Employer became aware of the event or
circumstances giving rise to the claim” and that “The particulars shall specify the
Clause or other basis of the claim, and shall include substantiation of the amount
and/or extension to which the Employer considers himself to be entitled in connection
with the Contract.”
The above provisions were considered in the case of NH International (Caribbean)

Ltd v National Insurance Property Development Company Ltd (Trinidad and
Tobago) 6. In this case the arbitrator, first instance judge and Court of Appeal all took
the view that Sub-Clause 2.5 could not prevent an employer raising a set-off to any
claim by the Contractor. The arbitrator stated:
“I agree ….that clear words are required to exclude common law rights of set-
off and/or abatement of legitimate cross-claims, and in my view such set
off/abatement should be taken into account in the final reckoning following
the termination. The terms of clause 2.5 do not prevent this. Also see Clause
11.10 as regards each party remaining liable for the fulfilment of any
obligation remaining unperformed”
This approach followed an established line of authorities including ICC Case 11813
(2002),7 in which a claim was made against an Employer for unpaid certified sums.
The Employer raised as a defence a claim for liquidated damages and asserted that as
a matter of English law it was entitled to raise a defence or set-off as it chose, except
where such rights were expressly excluded. The Contractors argued that the
Employer’s rights to claim liquidated damages had been effectively excluded by the
6
[2015] UKPC 37;
http://webopac.ttlawcourts.org/LibraryJud/Judgments/HC/j_jones/2008/cv_08_04998DD21oct2009.pdf
7
Reported in ICC International Court of Arbitration Bulletin Vol. 24 No. 2, Seppälä C. (2013) at page
49
12

provisions of Sub-Clause 2.5. 8 The arbitral tribunal found that although the
Employer may be in breach of Sub-Clause 2.5, there was nothing within the contract
that excluded the Employer’s right to set-off. 9 In the circumstances, the arbitrator
permitted the Employer to advance its set-off claim.
The Privy Council’s opinion in NH International (Caribbean) Ltd v National

Insurance Property Development Company Ltd (Trinidad and Tobago)10,took a
different approach. Lord Neuberger stated:11
“…it is hard to see how the words of clause 2.5 could be clearer. Its purpose
is to ensure that claims which an employer wishes to raise, whether or not they
are intended to be relied on as set-offs or cross-claims, should not be allowed
unless they have been the subject of a notice, which must have been given ‘as
soon as practicable’. If the Employer could rely on claims which were first
notified well after that, it is hard to see what the point of the first two parts of
clause 2.5 was meant to be. Further, if an Employer’s claim is allowed to be
made late, there would not appear to be any method by which it could be
determined, as the Engineer’s function is linked to the particulars, which in
turn must be contained in a notice, which in turn has to be served ‘as soon as
practicable’.”
The Privy Council then set out its reasoning why set-offs and counterclaims should be
excluded and stated: “the purpose of the final part of the clause is to emphasise that,
where the Employer has failed to raise a claim as required by the earlier part of the
clause, the back door of set-off or cross-claims is as firmly shut to it as the front door
of an originating claim.” The Privy Council then proceeded to state that this did not,
however, prevent an Employer raising a defence of abatement if the work had been
done badly. 12
The 2015 ICC Case, ICC Case 16765 13 followed the same approach of the Privy
Council. The arbitral tribunal considered whether an Employer’s counterclaim was
admissible under a Yellow Book contract. The tribunal found that the Employer was
8
In this case the contract was FIDIC’s Yellow Book (Test Edition, 1998). The clause, however, was
similar to that used in the FIDIC 1999 Red Book.
9
See Gilbert Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689, which provides
that under English law clear and express language is required to exclude a right of set-off. However,
“any presumption that parties to a contract do not intend to give up their right to claim damages for
breach of contract must likewise give way to the language of the contract” Transocean Drilling UK Ltd
v Providence Resources Plc [2016] EWCA Civ 372 at para 21.
10
[2015] UKPC 37;
11
[2015] UKPC 37at para 38
12
Ibid at para 41; relying on the case of Mellowes Archital Ltd v Bell Products Ltd (1997) 58 Con LR
22, 25-30.
13
ICC Dispute Resolution Bulletin 2015 No. 1, page 101
13

legally entitled to bring a claim to arbitration only if it first complied with Sub-
Clauses 2.5, 3.5 and 20.4, paragraph 6. As the Employer had failed to comply with
these “mandatory and exclusive provisions of the Contract regarding its claim for
delay damages”, the Employer was contractually barred from bringing its
counterclaim, which was declared inadmissible.
The English High Court recently considered Sub-Clause 2.5 in the case of J Murphy
& Sons Ltd v Beckton Energy Ltd.14 This was a claim under FIDIC’s Yellow Book.
In this case the question arose whether the Employer could claim liquidated damages
despite not having gone through the Sub-Clause 2.5 and 3.5 procedures. The main
difference in this case was that reference to Sub-Clause 2.5 in Sub-Clause 8.7 [delay
damages] had been deleted and the court therefore had to construe the effect of the
deletion on Sub-Clause 2.5.
The court held:

“In Sub-Clause 8.7 the words "subject to Clause 2.5" qualifying Murphy's
payment obligations do not appear, whereas in the equivalent standard clause
in the FIDIC Yellow Book they do. Objectively assessed on the facts here, this
selected deviation from the standard form is consistent with the parties'
intention being not to make Beckton's right to claim delay damages subject in
any way to Clauses 2.5 and 3.5. I accept that this is only context and certainly
by no means determinative of the issue in Beckton's favour. I also bear in
mind the comments of Christopher Clarke J (as he then was) in Mopani
Copper Mines plc v Millennium Underwriting Limited [2008] EWHC 1331
(Comm). To the extent that recourse to deleted words is permissible, care must
be taken as to what inferences, if any, may properly be drawn. Here of course,
the position is that the parties chose to agree a clause wholly different from the
standard wording and one which excluded any reference to Sub-Clause 2.5. It
is relevant background at least.”
On the facts Carr J held that the deletion of the reference to Sub-Clause 2.5 indicated
that claims for delay damages did not need to go through the Sub-Clause 2.5 and 3.5
procedures. Her ladyship stated that:15 “Sub-Clause 2.5 speaks of the amount agreed
or determined by the Engineer as being included as a deduction in the Contract Price
and Payment Certificates. Sub-Clause 8.7.4 on the other hand provides that delay
damages due pursuant to Sub-Clause 8.7 shall be deducted from the next applicable
Notified Sum.”
Employers may now want to amend the provisions of Sub-Clause 2.5 so that nothing
within Sub-Clause 2.5 shall be construed as preventing any right of set-off or cross
claim.
14
[2016] EWHC 607
15
Ibid at para 50.
14

Wrongful Deductions under Sub-Clause 2.5 and Termination
If the Employer does make deductions from the interim payments without having
followed the process set out in Sub-Clause 2.5, the Contractor will be treated as not
having been paid part of the amount due. This will be treated as non-payment of a
sum due under an Interim Payment Certificate and will (if the non-payment is not
remedied in time) give the Contractor the right to suspend, reduce the rate of working
or terminate under Sub-Clauses 16.1 and 16.2. (see commentary on Sub-Clauses 16,1
and 16.2 and particularly Sub-Clause 16.2(c) where this consequence is expressly
referred to). This, however, may not be the case under FIDIC’s Silver Book which
has a different payment regime: Sedgman South Africa (Pty) Limited & Ors v
Discovery Copper Botswana (Pty) Limited. 16
Claims under Sub-Clause 2.5 Following Termination
An issue that has been considered in a number of text books is whether an Employer
is bound by the provisions of Sub-Clause 2.5 following termination by the Employer
under Clause 15. The problem has arisen because of the use of the word “may” at
Sub-Clause 15.4.
Ellis Baker et al., FIDIC Contracts: Law and Practice, Section 8.222, p. 453, states
the following:
“The word ‘may’ here is potentially confusing, because it could suggest that
compliance with the requirement set out in Sub-Clause 2.5 (...) is optional (...).
Furthermore, the Employer's rights to withhold further payment and to recover losses
and damages from the Contractor under Sub-Clause 15.4 (b) and (c) respectively are
not expressly stated to be subject to Sub-Clause 2.5 (...). In this way, there is a
potential conflict between these provisions and those of Sub-Clause 2.5 (...), in
particular in relation to the Employer's right of set-off ( ...). It is, however, suggested
that, reading the Conditions as a whole, the most pragmatic interpretation of these
provisions is that, on termination under Sub-Clause 15.2, the Employer's obligation to
pay is generally suspended, but that his entitlement to claim any losses and damages is
nevertheless still intended to be subject to Sub-Clause 2.5 (...). However, it would
seem that the Employer does not have to submit particulars or substantiate the claim
until the losses and damages incurred have been established.”
The issue was considered by the ICC in Partial Award Case 15956. 17 The Arbitral
Tribunal noted the apparent conflict between Sub-Clause 15.4 and Sub-Clause 2.5.
However, in contradistinction to the view of Ellis Baker the tribunal held that “the
16
[2013] QSC 105
17
ICC Dispute Resolution Bulletin 2015 No. 1 at page 44
15

apparent conflict between Sub-Clauses 2.5 and 15.4 cannot be resolved in favour of a
precedence of Sub-Clause 2.5 by a mere exegetic construction.”
The approach adopted by the Arbitral Tribunal to the problem was one that was
eminently sensible; looking not at the strict wording of the contract provisions but the
intention behind those provisions. The Arbitral Tribunal referred to views expressed
by Christopher Seppala and the "Seppala test”:
“A purpose of the pre-arbitral DAB procedure is for both Parties and,

subsequently, any Arbitral Tribunal that may be constituted, to have the benefit of
a decision of the DAB on any dispute. A decision of the DAB may increase the
chance of a settlement and avoid the need to arbitrate the dispute. That purpose is
subverted if a party is relieved from complying with Clause 20 in respect of a
dispute merely because the other party has done so with respect to another
dispute.
The test of whether, for example, a counterclaim raised by the employer must be
submitted to the DAB for decision should be whether the contractor had
previously requested the DAB to decide a dispute which necessarily would have
resulted in a decision on that counterclaim.”
Mr Seppala then proceeds to give an example of an application of this test:
“An example of a dispute that the contractor might refer to a DAB which includes
another dispute might be where the contractor claims that it has been wrongfully
denied an extension of time by the engineer. Such a dispute might be considered
to include the employer's claim (or potential claim) for liquidated damages (called
"delay damages" in the FIDIC contracts) for the same time period. Therefore, the
employer should not have to (although it may) submit such claim, as a dispute, to
the DAB in order to be able to assert it as a counterclaim in the arbitration.”
Mr Seppalla’s test accords with the common law approach to set-off in adjudication
cases as stated by Jackson J in Balfour Beatty Construction v Serco Ltd. 18
In Partial Award Case 15956 19 the Arbitral Tribunal held that the DAB's First
Decision did include the DAB's opinion as to the issues of extension of time for
completion of the Works and as to the termination of the Contract by Claimant.
Applying the Seppalla test the Arbitral Tribunal concluded that he was entitled to deal
with the Employer’s claim for delay damages despite the fact that it had not gone
through the Sub-Clause 2.5 procedure.
18
[2004] EWHC 3336
19
ICC Dispute Resolution Bulletin 2015 No. 1 at page 44
16

Exceptions
Sub-Clause 2.5 states: “However, notice is not required for payments due under Sub-
Clause 4.19 [Electricity, Water and Gas], under Sub-Clause 4.20 [Employer’s
Equipment and Free-Issue Material], or for other services requested by the Contractor.”
Accordingly there is no time limit in which the Employer must notify the Contractor
of its intention to claim in relation to these two sub-clauses. Both Sub-Clauses 4.19
and 4.20 refer to the Engineer’s involvement of agreeing or determining in accordance
with Sub-Clause 2.5 and Sub-Clause 3.5.
It is submitted that the only way of making sense of these rather awkwardly worded
clauses is that in relation to Sub-Clauses 4.19 and 4.20, the first two paragraphs of
Sub-Clause 2.5 do not apply but that the last two paragraphs of Sub-Clause 2.5 do
apply. The Employer will thus still need to give particulars setting out the basis of the
claim and substantiation of amount and following receipt of the particulars the
Engineer will be obliged to go on to agree or determine the sums due under Sub-
Clause 3.5.
A claim for an abatement is a further exception to the rule that Employer’s claims
need to go through the Sub-Clause 2.5 and 3.5 procedure. 20 An abatement can occur
where “the work for which the contractor is seeking a payment was so poorly carried
out that it does not justify any payment, or that it was defectively carried out so that it
is worth significantly less than the contractor is claiming.”
In 2006 in Cleveland Bridge v Multiplex21 Mr Justice Jackson set out a summary of

the legal principles relating to abatement. The principles were as follows:
• in a contract for labour and materials where performance has been defective
the employer is entitled to maintain a defence of abatement;
• the measure of the abatement is the amount by which the product of the
contractor's endeavours has been diminished in value as a result of the
defective performance;
• depending on the facts, this difference may be determined by comparing the
market value of what has been constructed with what ought to have been built,
or by reference to the cost of remedial works (but not the cost of the remedial
works themselves);
• the measure of abatement can never exceed the sum which would otherwise be
due to the contractor as payment;
• abatement is not available as a defence to a claim in respect of professional
services; 22
20
NH International (Caribbean) Ltd v National Insurance Property Development Company Ltd
(Trinidad and Tobago) [2015] UKPC 37at para 41
21
[2006] EWHC 1341
17

• claims for delay, disruption or damage caused to anything other than that
which the contractor has constructed cannot feature in a defence of abatement.
Drafted by: Andrew Tweeddale and George Rosenberg
22
See William Clark Partnership Ltd v Dock St PCT Ltd [2015] EWHC 2923 where the court held “I
am satisfied that it is open to Dock Street as a matter of law to defend itself in relation to a claim for
payment for services rendered by a professional by contending that all, or some specific part, of those
services were either not performed at all or were performed so poorly that they were worthless. Insofar
as the complaint only applies to a specific part of the contracted-for services, Dock Street may defend
itself by reference to the value of that specific part. What Dock Street may not do, however, is to
defend itself by contending that all, or some specific part, of the services were performed, but not fully
or properly in every material respect, so as to seek a reduction of the price payable in relation to the
whole or the specific part..”
18

Clause 3
Summary
Clause 3 deals with the duties and obligations of the Engineer and his assistants.
Sub-Clause 3.1 deals with the role and duties of the Engineer. The Engineer is
deemed to act for the Employer. The Engineer has no authority to relieve the
Contractor of his duties, obligations or responsibilities under the Contract; nor
can the Engineer amend the Contract.
Under Sub-Clause 3.2 the Engineer can delegate authority to any assistants;
however, the Engineer cannot delegate the responsibility to make Determinations.
Under Sub-Clause 3.3 the Engineer may issue instructions or modified Drawings
at any time, which are necessary for the execution of the Works. If the instruction
constitutes a Variation, then it is dealt with under Clause 13 [Variations and
Adjustments]. The Contractor is required to comply with any instruction given by
the Engineer or delegated assistant.
Sub-Clause 3.4 deals with the replacement of the Engineer. The Employer must
not replace the Engineer with someone against whom the Contractor raises
reasonable objection.
Sub-Clause 3.5 deals with Determinations. When making a Determination the

Engineer should consult with each of the Parties and, if agreement cannot be
reached, make a fair determination in accordance with the Contract, taking due
regard of all relevant circumstances. Both Parties are required to give effect to
any Determination unless, or until, it is revised under Sub-Clause 20.1 [Claims,
Disputes and Arbitration].
Origin of clause
Clause 3 of FIDIC Red Book 1999 had its origins in clause 2 of the FIDIC Red Book
4th edition. Under the FIDIC Red Book 4th edition the Engineer had an obligation to
act impartially when exercising any discretion. This obligation has been omitted from
the 1999 edition where the Engineer has a more limited obligation to make a fair
determination when the Contract requires the Engineer to agree or determine a matter.
Cross-references
Reference to Clause 3 or to a determination is found in the following clauses:
Sub-Clause 1.1.2 Parties and Persons

Sub-Clause 1.1.2.4 Definitions – Engineer
1
The content of this commentary is not legal advice. You should always consult a suitably qualified lawyer regarding
a particular legal issue or problem that you have. Please contact us if you require legal assistance.

Sub-Clause 1.1.2.6 Definitions – Employer’s Personnel
Sub-Clause 1.9 Delayed Drawings and Instructions
Sub-Clause 2.1 Right of Access to the Site
Sub-Clause 2.5 Employer’s Claims
Sub-Clause 4.3 Contractor’s Representative
Sub-Clause 4.7 Setting Out
Sub-Clause 4.12 Unforeseeable Physical Obstructions
Sub-Clause 4.24 Fossils
Sub-Clause 7.4 Testing
Sub-Clause 8.9 Consequences of Suspension
Sub-Clause 10.2 Taking Over of Parts of the Works
Sub-Clause 10.3 Interference with Tests on Completion
Sub-Clause 11.4 Failure to Remedy Defects
Sub-Clause 11.8 Contractor to Search
Sub-Clause 12.3 Evaluation
Sub-Clause 12.4 Omissions
Sub-Clause 13.2 Value Engineering
Sub-Clause 13.7 Adjustment for Changes in Legislation
Sub-Clause 14.4 Schedule of Payments
Sub-Clause 15.3 Valuation at Date of Termination
Sub-Clause 16.1 Contractor’s Entitlement to Suspend Works
Sub-Clause 17.4 Consequences of Employer’s Risks
Sub-Clause 19.4 Consequences of Force Majeure
Sub-Clause 20.1 Contractor’s Claims
In most cases this is a reference to Sub-Clause 3.5 [Determinations].
Sub-Clause 3.1 - Engineer’s Duties and Authority

Sub-Clause 3.1 sets out the Engineer’s duties and authority.
Appointment
“The Employer shall appoint the Engineer.” This is a mandatory obligation on the
Employer and should be read with the definition of Engineer at Sub-Clause 1.1.2.4
which provides for the Engineer to have been both “appointed” and “named in the
Appendix to Tender”. The provision in Sub-Clause 1.1.2.4 for the Engineer to have
been “appointed” and “named in the Appendix to Tender” gives certainty and enables
the Contractor to have carefully considered (and priced for) the named Engineer’s
technical competence, reputation, impartiality, independence etc.
The Engineer comprises part of the Employer’s Personnel as defined in Sub-Clause

1.1.2.6. He is a person, which includes corporations and other legal entities (except
2

where the context requires otherwise) under Sub-Clause 1.1. Usually the Engineer is
an independent consultant engaged under a separate consultancy agreement, but the
Employer is not prevented from appointing one of his own salaried employees.
Although not expressly stated, it is accepted practice that the Engineer be appointed
until issue of the Final Payment Certificate in order to administer properly the Contract.
FIDIC Contracts: Law and Practice1 states, “The duration of the Engineer’s
appointment is also not specified in the FIDIC forms but they expressly contemplate
that it will continue until the issue of the Final Payment Certificate. Sub-Clause 14.11
of these Books requires the Engineer’s involvement in receiving the Contractor’s
application and Sub-Clause 14.13 obliges the Engineer to issue the Final Payment
Certificate. This may require the Employer to extend the appointment of the Engineer
if the completion of the Works has been delayed or the Defects Notification period has
been extended”.
Duties assigned to the Engineer
The Engineer is someone appointed by the Employer to carry out the duties assigned to
him in the Contract.
This Sub-Clause should not be read with any prior assumptions about the duties of the
Engineer. Earlier editions of FIDIC and some other forms of contract give the Engineer
a role which is not only a certifier and supervisor but also a quasi-arbitrator role. The
Engineer under the FIDIC Red Book 1999 form does not have this role.
There is nothing in Sub-Clause 3.1 to say how the Engineer is to perform his duties.
There is no obligation of fairness or equal treatment. The Engineer has no authority to
amend the Contract and therefore has neither the right nor the duty to depart from the
terms of the Contract even if he thinks the Contract is unfair. The Contract is defined
in Sub-Clause 1.1.1.1 as “... the Contract Agreement, the Letter of Acceptance, the Letter
of Tender, these Conditions, the Specification, the Drawings, the Schedules, and the
further documents (if any) which are listed in the Contract Agreement or in the Letter of
Acceptance”. The Contract, as defined, is not the consultancy agreement between the
Engineer and the Employer (such as the FIDIC White Book, Client/Consultant Model
Services Agreement, 4th edition, 2006).
Whilst there is no overarching obligation for the Engineer to act independently or

impartially, as in the FIDIC Red Book 4th edition, where the Engineer is required to
make a determination under Sub-Clause 3.5 he is obliged to make it “a fair
determination” following consultation with the Parties, and when issuing a Payment
Certificate under Sub-Clauses 14.6 and 14.13 he must “fairly determine” the amount
due. See the commentary on Sub-Clause 3.5 below for further discussion.
1
FIDIC Contracts: Law and Practice by Ellis Baker, Ben Mellors, paragraph 6.17.
3

Engineer’s failure to carry out his duties
As the Engineer is not a Party to the Contract the obligation is on the Employer to have
appointed (and by implication, keep appointed) an Engineer who shall carry out the
duties assigned to him in the Contract. The Contract imposes an obligation on the
Employer not to instruct the Engineer to depart from his duties under the Contract or to
interfere with his carrying on his duties.
If the Employer fails to so appoint or the Engineer fails to carry out his duties, the
Employer will be in breach of his obligation under the Contract to have appointed (or
kept appointed) an appropriate person. If a dispute arises out of the Engineer’s lack of
appointment or the Engineer’s failure to carry out his duties, such dispute may be
referred to the Dispute Adjudication Board.
There are difficulties in bringing an Engineer into a contractual dispute between the
Employer and the Contractor2. Many claims where a Contractor has sought to bring an
action directly against an Engineer have failed. In Pacific Associates Inc. v Baxter
(COFA)3 the English Court of Appeal considered whether an Engineer owed a duty of
care to a Contractor. Some of the factors the court considered in concluding that the
Engineer owed no duty of care were: (a) insufficient proximity to establish the
necessary duty of care; (b) that there was a contractual relationship between the
Employer and Engineer; (c) that there was no direct contractual relationship between
the Engineer and the Contractor; and (d) the Contractor could challenge the Engineer’s
role by claiming against the Employer. A similar decision was reached by the Hong
Kong court in Leon Engineering & Construction Co Ltd v KA DUK Investment Co
Ltd4, where the court dismissed an application for the Architect to be made second
defendant on the grounds that they owed the Contractor a duty of care to give proper,
timely and impartial consideration to the claimant’s claims.5
Therefore, a failure by the Engineer to carry out his duties may result in a claim by the
Contractor against the Employer directly: for example, where the Contractor is delayed
or disrupted under Sub-Clause 8.4(e) [Extension of Time for Completion]. However, if
the contract machinery for extending time for Employer risk and shared risk events is
rendered inoperable by an act of prevention, time may be set at large, entitling the
Contractor to a reasonable time within which to complete the Works and defeat any
claim for delay damages. This may happen if, for example, there is no recourse to a
Dispute Adjudication Board because one has not been appointed by the date stated in
the Appendix to Tender.
2
Regard should, however, be had to the proper law of the contract. For example, under English law
the Contracts (Rights of Third Parties) Act 1999 could potentially give a contractor a right of action
against an Engineer if the Engineer’s contract with the Employer identifies the Contractor as a person
who is entitled to enforce a term that purports to confer a benefit on him.
3
(1988) 44 BLR 33.
4
(1989) 47 BLR 139.
5
See also John Holland Construction v Majorca Projects [2000] 16 Const. LJ 114.
4

Alternatively, the Contractor may bring a claim in damages for breach of an implied
term. In the case of Merton LBC v Leach6 the responsibility of the Employer to ensure
a contract administrator’s compliance with his duties under a JCT form of contract was
the subject of an implied term. Vinelott J stated:
“In my judgment under the contract Merton undertook to ensure there would at
all times be a person who would carry out the duties to be performed by the
architect and that he would perform those duties with diligence, skill and care
and that where the contract required the architect to exercise his discretion he
would act fairly … I accordingly agree with the arbitrator’s conclusion that
Leach are entitled to recover sums otherwise than in accordance with Clause
24(1) and 30 of the Contract in respect of such breaches as they can prove …”.
In the case of Al-Waddan Hotel Ltd v Man Enterprise Sal (Offshore)7, an Engineer’s
decision could not be given because Al-Waddan had ended the Engineer’s retainer and
took no steps to re-engage or replace the Engineer. In the circumstances, the court
allowed the dispute to be referred directly to arbitration. In reaching this conclusion
the court considered the Employer’s breach of an implied term not to hinder or prevent
performance of the FIDIC Red Book 4th edition.
In many countries a claim in negligence will be permissible against the Engineer by the
Contractor where the Engineer’s negligence has caused personal injury or damage to
property. However, where the negligence has only resulted in economic loss then, only
in a limited amount of jurisdictions, will a claim in negligence succeed – see, for
example, Pennsylvania Supreme Court’s decision in Bilt-Rite Contractors, Inc. v.
The Architectural Studio, 866 A.2d 270 (Pa. 2005) and The Lathan Company, Inc.
v. State of Louisiana, Dept of Education et al 2016-913 La. App. 1 Cir. 12/6/17,
2017 WL 6032333.
The Engineer and the Engineer’s Staff
Unlike the FIDIC Red Book 4th edition, there is no provision for an Engineer’s
Representative. However, the second sentence of the sub-clause foresees that the
Engineer will have “staff” who will carry out similar functions. The Engineer’s staff
must be “suitably qualified” and “competent to carry out these duties”. In this way,
the Contract appears to assume that the Engineer will be an organisation and that the
organisation will be staffed by suitably qualified people.
Under Sub-Clause 3.2 the Engineer’s assistants must also be fluent in the language for
communications provided in the Appendix to Tender. Whether the staff are suitably
qualified and competent, and whether assistants are suitably qualified, competent and
fluent in the relevant language of communications is an objective standard. It does not
state that the Engineer himself must be so. The Contractor should therefore insist
6
(1985) 32 BLR 51.
7
[2014] EWHC 4796 (TCC).
5

during the tendering phase that the Employer undertake that he is suitably qualified and
competent. This is particularly important because there is no express provision for a
Contractor to object to a pre-appointed Engineer; a Contractor can merely object to a
replacement Engineer by raising “reasonable objection”. See the commentary under
Sub-Clause 3.4 below.
The Engineer’s Authority and Employer’s Approval
As in the FIDIC Red Book 4th edition, the Engineer may exercise “the authority
attributable to the Engineer as specified in or necessarily to be implied from the
Contract”. However, the Engineer has no authority to amend the terms of the Contract.
The Employer does have the right to impose a requirement that the Engineer obtains
specific approval before exercising a power. The extent of the approval might depend
on the relationship between the Engineer and the Employer. Whereas a consultant
working for a private Employer may have wide authority, a consultant working for a
Government Employer often has more limited authority, perhaps having to obtain
approval from more senior persons or different departments.
If the Engineer is required to obtain the approval of the Employer before exercising a
specified authority, the requirements shall be as stated in the Particular Conditions. The
Parties will then be aware of the constraints that have been placed on the Engineer in
having to obtain such approval. The Employer must disclose from the outset any terms
in the Engineer’s consultancy agreement, which might impact on the Contractor. It is
necessary because the Contractor may not see the consultancy agreement between the
Engineer and the Employer. Such approval does not, however, relieve the Contractor
of its responsibilities under the Contract in accordance with Sub-Clause 3.1(c). If the
Engineer fails to obtain the necessary approval from the Employer, he will be in breach
of his terms of engagement.
For example, it is not unusual for Employers to impose in the Particular Conditions
requirements for Engineers to obtain the Employer’s approval prior to:
• instructing a Variation;
• issuing any other approval, consent, notice or instruction (other than a
determination under Sub-Clause 3.5 [Determinations]) which will entitle the
Contractor to claim any additional payment;
• issuing any instruction that relieves the Contractor from any of its obligations
under the Contract;
• consenting to any Subcontractor under Sub-Clause 4.4 [Subcontractors];
• issuing an instruction under Sub-Clause 4.1(d) [Contractor’s General
Obligations] permitting the submission of “as-built” documents and/or operation
and maintenance manuals following taking-over; or
• instructing a full or partial suspension of the Works under Sub-Clause 8.8
[Suspension of the Works].
6

Sometimes such approvals are expressly stated to be required except in emergencies,
such as those involving risk or injury to a person or affecting the safety of the Works
or any adjoining property. However, imposing an obligation on the Engineer to obtain
the Employer’s approval before giving a determination under Sub-Clause 3.5 is not
encouraged by FIDIC. Occasionally, the Contract is amended to enable the Employer
to give instructions directly to the Contractor, but generally, this should be avoided in
order to maintain a single line of communication with the Contractor and to avoid
potentially conflicting instructions.
“The Employer undertakes not to impose further constraints of the Engineer’s authority,
except as agreed with the Contractor”. This wording suggests that the Employer may
widen the Engineer’s power without the Contractor’s agreement. However, such powers
could never exceed those of the Employer under the Contract and, in accordance with
the normal law of agency, the Employer would need to notify the Contractor of the
change.
Approval must be given in writing and must not be unreasonably withheld or delayed
(Sub-Clause 1.3). The Employer should be aware of, and take into account, the likelihood
of any additional costs being incurred by the Contractor while the Engineer is awaiting
the Employer’s approval.
Where there is some doubt as to whether the Engineer is acting within his authority,
Sub-Clause 3.1 sets out certain assumptions:
“Whenever the Engineer exercises a specified approval for which the Employer’s
approval is required then (…) the Employer shall be deemed to have given
approval.”
Therefore, in theory, the Contractor need not query whether there was Employer’s
approval (although, as stated above) the approval will not relieve the Contractor from any
of his responsibilities under the Contract in accordance with Sub-Clause 3.1(c)). This
gives the Engineer a free hand but might have consequences for the Engineer under, or
for breach of, the consultancy agreement. However, it is arguable that where the Parties
are well aware that no consent has been given, the deeming effect of the paragraph in the
clause should not be considered effective. A Party should not be able to rely upon the
fiction that approval had been given.
A common example occurs where the Engineer gives an instruction (which he is

entitled to do under Sub-Clause 3.3). The Contractor proceeds on the basis of the
instruction but incurs additional cost and delay as a result and later claims that the
instruction was in fact a Variation. The Contractor was probably aware at the time of
the instruction that the Engineer had not obtained any approval and the Employer
probably thought no approval was necessary as (on the advice of the Engineer) it would
have assumed that the instruction was not a Variation. When the Contractor makes his
claim, can the Employer argue that since (as the Contractor very well knew) no approval
had been given for a Variation there was in fact no Variation? The answer is probably
7

yes – because otherwise it would create an injustice or absurdity8 - the Contractor, being
aware that there was no approval, ought to have thought at the time that the instruction
was not a Variation. It may therefore be argued that it is not reasonable for the
Contractor to rely on a fiction created by a deeming provision when he knew very well
that the approval had not been given. The situation would be different if the Contractor
did not know there had been no approval or did not know whether, or not, there had
been an approval.
The situation is more difficult where the Engineer, having been forbidden from granting
an extension of time with the Employer’s approval, makes what he considers a “fair
determination” under Sub-Clause 3.5 granting an extension of time. This grant will
have followed a long argument between the Contractor and the Employer and the
Employer will no doubt have made it clear that he did not agree to the extension. Thus,
all Parties will be well aware of the lack of approval. In this context it is arguable that
a provision “deeming” approval to have been given will not override the clear facts of
the case. The mere fact that the word “deemed” has been used in a context where it
may be obvious from the facts that no approval has been given is an indication that,
where it is otherwise obvious that no approval was given, the deeming should not come
into effect.
A number of cases in the English Courts have dealt with the effect of the use of a
deeming provision on the effect of title to goods brought on site. Many building
contracts contain provisions deeming materials or plant brought on site to be the
property of the Employer9. In one case10 the judge took as a premise that actual title
remained in the Contractor, because otherwise it would not have been necessary to
“deem” the materials the property of the employer for the purposes of the contract. In
another case11 the relevant clause provided that “all plant and materials brought to and
left upon the ground by the contractor … for the purpose of carrying out the contract
or forming part of the works, shall be considered to be the property of the employer
and the same shall not on any account whatever be removed … by the contractor.” In
this case, in the absence of proof of actual ownership, one of the judges considered that
the clause only gave the employer the right to have the materials remain on the land for
use by the contractor. Another judge thought that the expression “considered to be the
property” was ambiguous and, in the context, not intended to pass property to the
employer.
8
Inland Revenue Comrs v Metrolands (Property Finance) Ltd [1981] 1 WLR 637, 646; and
Commissioners for Her Majesty's Revenue and Customs (Respondent) v DCC Holdings (UK) Limited
(Appellant) [2010] UKSC 58.
9
Sub-Clause 54.1 of the previous edition of FIDIC had a clause to this effect but the word “deemed”
has been removed in the present edition (Sub-Clause 7.7) possibly to avoid the ambiguity.
10
Re Winter, ex parte Bolland (1878) 8 Ch.D. 225.
11
Keen v Keen, ex parte Collins [1902] 1 K.B. 555.
8

Deemed Approval
(a) Except as otherwise stated, “…the Engineer shall be deemed to act for the
Employer”
Sub-paragraph (a) provides that “Except as otherwise stated in these Conditions …

wherever carrying out duties or exercising authority specified in or implied by the
Contract, the Engineer shall be deemed to act for the Employer.”
The Engineer is deemed to act for the Employer except as otherwise stated in the
Contract. This is supported in the FIDIC Contracts Guide (1st edition, 2000), which
states:
“Under [the Red Book 1999] or [the Yellow Book 1999], the Employer is
required to appoint the ‘Engineer’, who is to be named in the Appendix to Tender.
The Engineer does not represent the Employer for all purposes. The Engineer is
not authorised to amend the Contract, but he is deemed to act for the Employer
as stated in subparagraph (a). The role of the Engineer is thus not stated to be
that of a wholly impartial intermediary, unless such a role is specified in the
Particular Conditions. If [the Red/Yellow Book’s] Engineer is an independent
consulting Engineer who is to act impartially, the following may be included in
the Particular Conditions: At the end of the first paragraph of Sub-Clause 3.5,
insert: ''The Engineer shall act impartially when making these determinations''”.
Therefore, in the absence of a Particular Condition to the contrary and under the usual
rules of agency, the Engineer will remain the Employer’s agent when he makes a “fair
determination” under Sub-Clause 3.5 or “fairly determines” the amount due in an
Interim Payment Certificate under Sub-Clause 14.6, or Final Payment Certificate under
Sub-Clause 14.13. However, in making the fair determination, it is probable that he
must act without bias and impartially notwithstanding his role as the Employer’s agent.
For further details on the Engineer’s determination see the commentary under Sub-
Clause 3.5 below.
The position is complicated where the Engineer is obliged to obtain the Employer’s
approval before, for example, agreeing or determining an extension of time and/or
additional costs, or issuing a Variation. Under Sub-Clause 3.5 the Engineer is obliged to
make a fair determination, but if the Employer does not approve that fair determination,
the Engineer cannot make it. This leaves the Engineer in a difficult position. He should
not make a determination he thinks unfair but as the Employer’s agent he ought to do as
he is told by his principal. In practice, what appears to happen is that the Engineer does
nothing and the matter is referred to the Dispute Adjudication Board to resolve where
a Dispute Adjudication Board is provided for. Although not expressly provided for in
the FIDIC Red Book 1999, Sub-Clause 20.1 of the FIDIC Pink Book 2010 states that
“If the Engineer does not respond within the timeframe defined in this Clause12, either
12
42 days.
9

Party may consider that the claim is rejected by the Engineer and any of the Parties
may refer to the Dispute Board in accordance with Sub-Clause 20.4”. It is arguable
that, by failing to approve the fair determination, the Employer has interfered with, or
prevented, the Engineer from carrying out the duties assigned to him in the Contract13.
See the commentary on the Engineer’s failure to carry out his duties above for further
details.
As with deemed approval (discussed above), it is submitted that if the Parties, or the
Party who would benefit by the application of the deeming provision, is well aware that
the Engineer is acting contrary to the instructions of the Employer, the deeming
provision should not have effect.
Sub-paragraph (b) makes it clear that the Engineer’s authority as agent is limited.
Limits to the Engineer’s acts as Employer’s agent
(b) Except as otherwise stated, “the Engineer has no authority to relieve either
Party of any duties, obligations or responsibilities under the Contract.”
In the FIDIC Red Book 4th edition the Engineer had no authority to relieve the Contractor
from any of his “obligations” under the Contract; this has now been extended to “duties,
obligations and responsibilities” and to both Parties. This is intended to limit the extent
to which the Engineer may act as agent of the Employer (and thus reducing the potential
effect of sub-paragraph (a) above). However, the Engineer does have some explicit
authority to relieve the Contractor from some obligations. For example:
• the Engineer’s authority to issue instructions and additional or modified Drawings

as described in Sub-Clause 3.3;
• the Engineer’s authority to instruct Variations as described in Clause 13, including

the omission of work as described in Sub-Clause 13.1(d); and
• specific provisions in the Particular Conditions and other contract documents.
Of course, on a practical level, an Engineer will almost certainly make minor

modifications to the Parties’ duties, obligations and responsibilities when administering
the Contract. As Robert Knutson14explains:
“The fact is that engineers normally have an extremely important impact on the
progress of a project and its eventual success or failure. In administering it they
13
Roberts v Bury Improvement Commissioners [1870] L.R. 5 C.P. 310 – Blackburn J. “…it is a
principle very well established at common law, that no person can take advantage of non-fulfilment of
a condition the performance of which has been hindered by himself …; and also that he cannot sue for
a breach of contract occasioned by his own breach of contract…”.
14
FIDIC An Analysis of International Construction Contracts, page 49.
10

can, and often do, cause de facto changes to the obligations of the parties and
thus amend the contract. It is quite normal in international construction
contracts to see numerous actual minor breaches of the contract on the part of
the engineers acting as agents for the Employers which at the end of the day may
be difficult or impossible to actually attribute to the Employer, perhaps because
of the very real human tendency to distinguish between the acts of the agent and
his principal, despite the frequent legally indistinguishable nature of their
actions”.
Courts, arbitrators and adjudicators will undoubtedly seek out ways to hold the
Engineer accountable to the Contractor for his deeds or misdeeds insofar as they have
affected the Contractor’s performance under the Contract. It would be wrong for a
Party to hold a position of power but have no responsibility for such. In overseas
contracts where English law is the governing law, Robert Knutson sees no reason why
engineers could not, under the wording of this contract and in particular circumstances,
be held liable for the tort of actionable interference with contract, see for example John
Mowlem v Eagle Star Insurance & Others15, and states that engineers can be held to
have acted negligently for their employers – see also Imperial College v Norman &
Dowbarn16. In such circumstances, protection might also be afforded to a Contractor
under the Contracts (Rights of Third Parties) Act 1999, (unless expressly excluded)
where the Contractor is a third party to the consultancy contract between the Employer
and Engineer.
The Contractor’s responsibility under the Contract
(c) Except as otherwise stated, any approval etc “…shall not relieve the
Contractor from any responsibility he has under the Contract…”
Any “approval, check, certificate, consent, examination, inspection, instruction, notice,

proposal, request, test, or similar act by the Engineer (including absence of
disapproval) shall not relieve the Contractor from any responsibility he has under the
Contract, including responsibility for errors, omissions, discrepancies and non-
compliances”. This is an important provision. The Employer always has it within his
power to waive compliance with any provision of the Contract, but the sub-paragraph
makes it clear that this power of waiver is not delegated to the Engineer.
It is a draconian provision if taken literally. It is common for the Engineer to turn a

blind eye to minor compliance issues or to agree to a method of achieving some
particular objective which is not quite in compliance with the strict terms of the
contract. There is potential for dispute if the Employer tries to interpret the wording
literally as the Contractor will not take kindly to being told by the Employer to redo
that which the Engineer has agreed is acceptable.
15
(1992) 62 BLR 126 (QBD).
16
(1986) 8 Con LR 107 (QBD).
11

To be sure that the Engineer’s agreement to any non-compliance is binding, the
Contractor ought to obtain direct confirmation from the Employer. If the Employer
refuses to commit itself, the Contractor may then be able to protect himself by
informing the Employer directly of the Engineer’s approval and the element of non-
compliance. If, knowing of this, the Employer fails to take any immediate action, the
Contractor should be able to argue that the Employer has waived his right to object.
Sub-Clause 3.2 – Delegation by the Engineer

As stated above, unlike the FIDIC Red Book 4th edition, there is no express provision
for an Engineer’s Representative. However, the Engineer may assign in writing duties
and delegate authority to assistants, save in relation to Sub-Clause 3.5
[Determinations]. This recognises the different skills required of the Engineer. The
Engineer may also revoke such assignment or delegation. The assignment, delegation
or revocation must be in writing and, as it does not take effect until copies have been
received by both Parties, it cannot be made retrospectively. Unlike the FIDIC Red
Book 4th edition, there is no requirement to notify the Contractor of “the names, duties
and scope of authority” of such persons.
Any approval, check, certificate, consent, examination, inspection, instruction, notice,

proposal, request, test, or similar act by an assistant, in accordance with the delegation,
shall have the same effect as though the act had been an act of the Engineer save, that
any failure to disapprove any work shall not constitute an approval, and that the
Contractor may refer any questions on the determination or instruction of an assistant
to the Engineer for confirmation.
The powers of each assistant appointed under Sub-Clause 3.2 is defined by the
document delegating the power. If the assistant is acting within his powers then the act
shall be considered as having the “same effect” as if it had been done by the Engineer.
However:
• in contrast to the obligations of the Engineer, the absence of any disapproval of

any work, Plant or Materials by an assistant does not constitute approval, and
does not prejudice the right of the Engineer to reject such; and
• if the Contractor questions any determination or instruction of an assistant, the

Contractor may refer the matter up the line to the Engineer, who shall promptly
confirm, reverse or vary the determination or instruction. The consequences of
any reversal or variation are not stated because this will depend on the actual
events.
The assistants must be suitably qualified, competent, and fluent in the language for
communications provided in the Appendix to Tender. This is an objective standard.
There is no express provision requiring the Engineer himself to be qualified, competent,
or fluent in the language for communications provided in the Appendix to Tender.
12

Many assistants may need to be appointed, and the Employer should ensure that there
are sufficient assistants. Both the Engineer and the assistants referred to in this Sub-
Clause fall within the definition of “Employer’s Personnel” in Sub-Clause 1.1.2.6. It
is anticipated that such assistants will have a major role in the achievement of a
successful project and be given whatever formal title is considered by the Engineer to
be appropriate. It should be noted that one of the grounds for claiming additional time
under Sub-Clause 8.4 [Extension of Time for Completion] is any delay, impediment or
prevention caused by, or attributable to, the Employer’s Personnel. Therefore, a delay
by an assistant to the Engineer or any independent inspector appointed to inspect the
Plant and Materials would give an entitlement to time. It may also, depending on the
circumstances, give an entitlement to additional Cost.
Obviously if there is a change in the Engineer under Sub-Clause 3.4, it is likely that
some of the Engineer’s assistants will find their assignments and delegations revoked,
to make way for the new Engineer’s assistants.
Sub-Clause 3.3 - Instructions of the Engineer

Sub-Clauses 3.3 and Clause 13 [Variations and Adjustments] should be read with Sub-
Clause 4.1 [Contractor’s General Obligations] which states, “The Contractor shall
design (to the extent specified in the Contract), execute and complete the Works in
accordance with the Contract and with the Engineer’s instructions, and shall remedy
any defects in the Works”.
Sub-Clause 3.3 provides that at any time, the Engineer may issue to the Contractor
instructions and additional or modified Drawings (for example, during the construction)
which may be necessary for the execution of the Works and the remedying of any
defects, all in accordance with the Contract. In general, the Contractor must comply,
although it does not expressly say to the Engineer’s satisfaction as it did in Sub-Clause
13.1 of the FIDIC Red Book 4th edition.
Sub-Clause 3.3 applies to work needed to bring it in line with contractual or statutory
obligations. However, if an instruction constitutes a Variation, Clause 13 [Variations
and Adjustments] will apply. If the Engineer denies that the instruction amounts to a
Variation (as the Engineer did, for example, in the English Privy Council case of Mitsui
v AG for Hong Kong17) the matter may be referred to the Dispute Adjudication Board
under Sub-Clause 20.1. If the Contractor cannot comply with a Variation instruction,
he may give notice as detailed in Sub-Clause 13.1. A right to increased payment will
arise in the case of a Variation but not for modifications to the Contractor’s work under
Sub-Clause 3.3.
An issue that has arisen on occasion is where the Engineer instructs the Contractor to
carry out some part of the design. The second sub-paragraph of this Sub-Clause states
that “The Contractor shall comply with the instruction given by the Engineer or
17
(1986) 33 BLR 1.
13

delegated assistant, on any matter related to the Contract.” However, it is submitted
that because the Contractor is only responsible for the design to the extent specified in
the Contract, and also the design undertaken under the value engineering process, such
an instruction would effectively amend the Contract and under Sub-Clause 3.1 the
Engineer has no authority to do this.
The Contractor must only take instructions from the Engineer, or from an assistant to
whom the appropriate authority has been delegated under Clause 3. If the Contractor
questions any determination or instruction of an assistant, the Contractor may refer the
matter up the line to the Engineer, who shall promptly confirm, reverse or vary the
determination or instruction under Sub-Clause 3.2.
Whenever practicable, the Engineer’s or his assistant’s instructions must be given in

writing. This supplements Sub-Clause 1.3 which provides for notices to be in writing
and delivered in a prescribed way. However, it does not exclude oral instructions. If
the Engineer or a delegated assistant gives an oral instruction, it must be confirmed by
the Contractor promptly – i.e. within two working days rather than the seven working
days as provided in the FIDIC Red Book 4th edition.
If, within two working days after giving the instruction, the Engineer or delegate
assistant receives a written confirmation of the instruction from, (or on behalf of), the
Contractor, and the Engineer or delegate assistant does not reply by issuing a written
rejection and/or instruction within a further two working days after receiving the
confirmation, then the Contractor’s confirmation constitutes the written instruction of
the Engineer or delegated assistant.
It is not clear what would happen if the Engineer or his delegated assistant failed to
receive a written confirmation of the instruction within two working days after giving
the instruction, in accordance with Sub-Clause 1.3. Nor is it stated what happens if the
Engineer or assistant rejects the instruction.
For further provisions relating to instructions, see Clauses 1.5 [Priority of Documents],
1.9 [Delayed Drawings or Instructions], 3.2 [Delegation by the Engineer], 4.1
[Contractor’s General Obligations], 4.3 [Contractor’s Representative], 4.6 [Co-
operation], 4.12 [Unforeseeable Physical Conditions], 4.24 [Fossils], 6.7 [Health and
Safety], 7.4 [Testing], 7.6 [Remedial Work], 8.9 [Consequences of Suspension], 8.10
[Payment for Plant and Materials in Event of Suspension], 8.12 [Resumption of Work],
13.1 [Right to Vary], 13.3 [Variation Procedure], 13.5 [Provisional Sums], 15.2
[Termination by Employer], 20.4 [Obtaining Dispute Adjudication Board’s Decision],
20.6 [Arbitration].
14

Sub-Clause 3.4 - Replacement of the Engineer
The Employer may replace the Engineer (not to be confused with a named individual
where the Engineer is a company) by giving the Contractor notice at least 42 days
before the intended date of replacement. The notice should comprise of the name,
address and relevant experience of the intended replacement Engineer and should
comply with the formalities set out in Sub-Clause 1.3 (i.e. be in writing, sent to the
correct address by an approved means, and be copied to the Engineer). The notice does
not need to give reasons for the replacement. The Employer cannot replace the
Engineer with a person against whom the Contractor raises reasonable objection. The
Contractor must give notice of its reasonable objection with supporting particulars.
There is no mechanism specified as to how such objection should be determined.
Ultimately, such a dispute may be referred to the Dispute Adjudication Board.
There is no reciprocal arrangement under Sub-Clause 3.4 for the Contractor to replace
the Engineer, but he may allege a breach of the obligation in Sub-Clause 3.1 that “The
Engineer’s staff shall include suitable qualified engineers and other professional who
are competent to carry out [the duties assigned to the Engineer in the Contract]”.
Question whether this would apply to the Engineer himself.
The ability for the Employer to replace the Engineer is new to the FIDIC Red Book
1999. There was no such provision in the FIDIC Red Book 4th edition because it was
thought tenderers would not want the Employer to be able to replace the Engineer, after
having carefully considered (and priced for) the original Engineer’s technical
competence, reputation, impartiality, independence etc. The wording in the 1999
edition favours Employers who consider that there should be no restriction imposed on
replacing the Engineer, whom the Employer has appointed to administer the Contract.
Reasons for Replacement
Under the FIDIC Red Book 1999 the Employer may replace the Engineer for any
reason. There is no requirement of default on the Engineer’s part. The Engineer might
be replaced, for example, due to failing to act, refusing to act, retirement, illness or
death. The Employer should take into account that the change in Engineer will impact
on the Contract administration, particularly as a change in the Engineer will probably
result in a change in the Engineer’s assistants.
Employer’s Notice
The Employer is required to give at least 42 days’ notice. Notice is required, but if at
least 42 days of notice is not given there is no sanction. There are no words to the effect
that failure to give over 42 days’ notice will render the replacement invalid. Therefore,
the notice period does not appear to constitute a condition precedent. If an Engineer
should suddenly become unavailable, e.g. by death, the notice period should be waived
by the Parties by agreement.
15

The Employer’s notice needs comprise only of the name, address and relevant
experience of the intended replacement Engineer. It would be good practice for the
notice to indicate also the date of replacement, and the replacement Engineer’s
qualifications and contact telephone number and email address.
Contractor’s “Reasonable Objection”
The Employer cannot replace the Engineer with a person against whom the Contractor
raises “reasonable objection”, by notice to the Employer, with “supporting
particulars”. This tempers the Employer’s power. However, if no reasonable objection
is raised, the Engineer may be replaced and the Contractor has no further right to object.
Reasonable objection is not defined and therefore open to dispute. What would suffice
as a reasonable objection depends upon the circumstances, including the
representations originally made to the tenderers, the details of the replacement
Engineer's experience, and the duties and authority necessary to administer the Contract
and supervise the full scope of the Contractor's execution of the Works. Reasonable
objections might include:
• evidence that the proposed replacement is potentially not impartial or

independent due, for example, to existing relationships or interests (although
there is no express provision that the Engineer must act impartiality in contrast to
the FIDIC Red Book 4th edition);
• inadequate qualifications and/or experience; or
• specific requirements set out in the contract documents.
In the case of Scheldebouw BV v St James Homes (Grosvenor Dock) Ltd18 (which

concerned a non FIDIC form of contract) the Employer sought to replace an
independent construction manager with his own employee. The Contractor objected
and the objection was upheld by the court. The court held that this was not permissible
and stated that if the Employer was to become the certifier, then there would need to be
an express clause to deal with this unusual state of affairs. Mr Justice Jackson stated:
“The construction manager is under a legal duty to perform his decision-making

function in a manner which is independent, impartial, fair and honest. In other
words, he must use his professional skills and his best endeavours to reach the
right decision, as opposed to a decision which favours the interests of the
employer … Whilst I reject Mr Hughes’ submission that the employer is incapable
of performing this task, I do consider that this task is more difficult for the
employer than it is for a professional agent who is retained by the employer. A
senior and professional person within an organisation can conscientiously put
his employer’s interest on one side and make an independent decision. See
18
[2006] EWHC 89 (TCC).
16

Perini. It is more difficult for the organisation itself to make a decision which is
contrary to its ow interests. The employer could of course ask a named
professional employee to make the relevant decision, but the employer would still
have to go on and adopt that decision on its own”.
Where, however, the contract does include an express provision for the employer to act
as certifier then, in principle, it would be permitted to replace one employee with
another: Balfour Beatty Civil Engineering Ltd v Docklands Light Railway Co.19
Unlike the Employer’s notice, the Contractor’s notice is a condition precedent, i.e.
notice must be given in order to prevent the Employer from replacing the Engineer.
Unlike the Employer, the Contractor does not have an express time limit in which to
give notice, although after 42 days the replacement will have been made. It is most
unlikely that the Contractor could raise reasonable objection retrospectively.
Supporting particulars are not defined and therefore open to dispute. There is scope for
the Employer to replace the Engineer despite objection by the Contractor on the basis
that in the Employer’s opinion adequate supporting particulars have not been provided.
Unscrupulous Employers might seek to take advantage of this by failing to inform the
Contractor that adequate supporting particulars have not been provided, or by informing
the Contractor of this fact immediately prior to the end of the 42 days period, giving
insufficient time for more detailed particulars to be provided before the replacement
takes place. In some jurisdictions such behaviour might fall foul of a duty to act in
good faith.
If the Contractor does not raise any reasonable objection, he cannot later raise objection
to the appointed Engineer or undo the appointment under this Sub-Clause. However,
he may have recourse under Sub-Clause 3.1, as above, if the Contractor considers the
Engineer’s staff to be incompetent.
Sub-Clause 3.5 - Determinations

The Engineer is required to agree or determine both Contractor’s claims (Sub-Clause
20.1) and Employer’s claims (Sub-Clause 2.5).
Where the Contract provides for the Engineer to agree or determine any matter the
Engineer must:
• consult with each Party in an endeavour to reach agreement;

• if agreement cannot be reached, make a “fair” determination;
• take into account all relevant circumstances;
• act in accordance with the Contract; and
• notify the Parties of the agreement or determination with supporting particulars.
19
[1996] 78 BLR 42.
17

This only applies where the Contract explicitly provides. In ICC Case 19581 (2014) –
Final Award, in an Eastern European Capital City, a sole arbitrator found that the
wording “Whenever these Conditions provide…” in the FIDIC Red Book 1999 did not
support an argument that all disputes out of or in connection with the Contract must be
referred to the Engineer. Instead, disputes only needed to be referred to the Engineer
where this was explicitly provided for in the Contract.
A failure to so act could place the Employer in breach of contract and possibly expose
the Engineer to a claim in negligence by the Contractor.
The Parties must give effect to the agreement or determination by the Engineer unless,
and until, revised under Clause 20.
The Contract provides for agreement or determination in, for example, Clauses 1.9
[Delayed Drawings or Instructions], 2.1 [Right of Access to the Site], 2.5 [Employer’s
Claims], 4.7 [Setting Out], 4.12 [Unforeseeable Physical Conditions], 4.19 [Electricity,
Water and Gas], 4.20 [Employer’s Equipment and Free Issue Material], 4.24 [Fossils],
7.4 [Testing], 8.9 [Consequences of Suspension], 9.4 [Failure to Pass Tests on
Completion], 10.2 [Taking Over of Parts of the Works], 10.3 [Interference with Tests on
Completion], 11.4 [Failure to Remedy Defects], 11.8 [Contractor to Search], 12.3
[Evaluation], 12.4 [Omissions], 13.2 [Value Engineering], 13.7 [Adjustments for
Changes in Legislation], 14.4 [Schedule of Payments], 15.3 [Valuation at Date of
Termination], 16.1 [Contractor’s Entitlement to Suspend Work], 17.4 [Consequences of
Employer’s Risks], 19.4 [Consequences of Force Majeure], and 20.1 [Contractor’s
Claims].
Consult with each Party in an endeavour to reach agreement
The Engineer must first act in a mediatory capacity to try to facilitate an agreement. There
is no express time limit, so a reasonable time will be implied. There is no specified
forum for the consultation or any requirement for both Parties to be present during the
consultation. Therefore, individual telephone calls to each Party may be sufficient.
If the Engineer does not consult with one of the Parties then the decision may be “invalid
and unenforceable”: Amec Capital Projects Ltd v Whitefriars City Estates Ltd.20.
However, in such a case the decision is not “a complete nothing: it remained a decision,
in the light of which the Highways Agency was entitled to refer the dispute to
arbitration”.21 If agreement cannot be reached, the Engineer must determine the matter
“fairly” in accordance with the Contract taking into account all the relevant facts.
20
[2004] EWCA Civ 1418, unreported 28 October 2004.
21
AMEC Civil Engineering Ltd v The Secretary of State for Transport [2005] Adj.L.R. 03/17.
18

Make a “fair” determination taking into account all relevant circumstances
If agreement fails, the Engineer must make a fair determination in accordance with the
Contract, taking due regard of all relevant circumstances. This is despite the fact the
Engineer is deemed to act for the Employer under Sub-Clause 3.2(a). Again, there is
no express time limit, so a reasonable time will be implied. This task cannot be
delegated under Sub-Clause 3.2.
A fair determination is not the same as an independent or (arguably) an impartial

determination, and the role of the Engineer is not the same as an adjudicator's or
arbitrator’s so there should be no temptation to draw a comparison between an
adjudicator’s or arbitrator’s duty to be independent and impartial. Sub-Clause 20.2
allows for the appointment of a Dispute Adjudication Board to resolve such matters
judicially but note that in Costain Ltd (Corber) v Bechtel Ltd22 (considering the
N.E.C.2 form of contract) the court did not accept an argument that the inclusion of a
dispute resolution procedure mitigated against the existence of a duty upon a project
manager [Engineer] to act impartially in matters of certification. See below for further
details.
Independence is usually tested objectively: for example, whether there is, as a matter
of fact, a relationship between the Engineer and one of the Parties. The Engineer is
clearly not intended to be independent under this contract. He is an agent or employee
of the Employer and is paid by the Employer. This is supported by the Statutes and By-
laws of FIDIC, which refer to a Code of Ethics applicable to member associations of
FIDIC. The Code of Ethics states that, “All member associations of FIDIC subscribe
to and believe that the following principles are fundamental to the behaviour of their
members if society is to have that necessary confidence in its advisors”. The Code
includes the principle that the consulting engineer shall:
• “Act at all times in the legitimate interest of the client and provide all services
with integrity and faithfulness”.
Partiality is usually tested subjectively: it is a state of mind, for example, whether there
is any actual or apparent bias. The FIDIC Red Book 1999 has removed the obligation
upon the Engineer to act impartially, found in the FIDIC Red Book 4th edition, and it is
therefore clear the Engineer is not intended to be impartial unless such a requirement is
stated in the Particular Conditions: he is required to operate the Contract on the
Employer's behalf. However, this change has not been reflected in the Code of Ethics
referred to above which includes the principles that the consulting engineer shall:
• “Be impartial in the provision of professional advice, judgement or decision.

• Inform the client of any potential conflict of interest that might arise in the
performance of services to the client.
22
[2005] EWHC 1018 (TCC).
19

• Not accept remuneration which prejudices independent judgement”.
The suggestion that the Engineer’s duty to be impartial should be implied into common
law contracts to reflect the fair and unbiased role of the Engineer as explained in the
House of Lords decision of Sutcliffe v Thackrah23 (considering the R.I.B.A form of
contract), and followed in subsequent English decisions such as those of Mr Justice
Jackson in Costain Ltd (Corber) v Bechtel Ltd24 (considering the N.E.C.2 form of
contract) and Scheldebouw v St James Homes (Grosvenor Docks) Ltd25 is said to be
an Anglo-Saxon concept that is not well understood or accepted internationally.
In Sutcliffe v Thackrah a judge acting in a private capacity proposed to build a house

and employed architects to produce drawings and engage a contractor to build it. The
judge became dissatisfied with the work and terminated the contract, but then
discovered that, on the basis of the architect’s over-certification, he had overpaid the
contractor by £2,000 and could not recover the sum from the contractor. Could he sue
his architect for that sum? There was an argument that the certifier was acting in a
quasi-judicial capacity and therefore was immune from suit in the same way as a judge
or arbitrator. In giving judgment, Lord Reid said that an architect had two different
functions. In one capacity, as a designer, he had to follow his employer’s instructions;
but in his other, as a certifier, he had to decide for himself. He said that it was therefore
implicit that the architect was obliged to act with due care and skill and in an unbiased
manner. This opened the way for employers to sue their certifiers.
The case of Costain Ltd (Corber) v Bechtel Ltd concerned a dispute under an amended
NEC Form of Contract which provided in the recitals that, “The Employer, the
Contractor and the Project Manager act in the spirit of mutual trust and co-operation
and so as not to prevent compliance by any of them with the obligations each is to
perform under the Contract”. The Employer was Union Rails (North) Limited.
Costain and various other companies formed a consortium (generally referred to as
“Corber”) that was the Contractor. The Project Manager (a contract administrator with
a similar role to that of the Engineer in the FIDIC forms of contract) was a consortium
called Rail Link Engineering (“RLE”) whose dominant member was Bechtel Rail Link
Engineering. Most of the RLE personnel were therefore Bechtel employees. RLE
issued payment certificates which disallowed several million pounds worth of Corber’s
costs. Mr Bassily (the rail operations manager of Bechtel and the executive chairman
of RLE) had instructed all Bechtel employees to take a stricter approach to disallow
legitimate costs when assessing payment certificates. Corber became concerned that
Bechtel had deliberately adopted a policy of administering the contract unfairly and
adversely to Corber. Corber therefore commenced court proceedings claiming that
Bechtel and Mr Bassily had unlawfully procured breaches of contract by the Employer
and sought injunctions to restrain RLE from acting in such a way. Bechtel’s position
was that Mr Bassily was justified in what he said and that the contract did not require
the Project Manager to act impartially. The court considered the arguments and
23
[1974] AC 727, 737.
24
[2005] EWHC 1018 (TCC).
25
[2006] EWHC 89 (TCC).
20

reviewed the case law. It was the court’s view that the statements in the case of Sutcliffe
v Thackrah had generally been accepted by the construction industry and the legal
profession as correctly stating the duties of architects, engineers and other certifiers
under the conventional forms of construction contract.
However, Bechtel sought to distinguish this contract. In particular, it was argued that
there should be no implied term of impartiality because:
• The terms of the present contract, which regulated Corber’s entitlement, were
very detailed and very specific and did not confer upon the Project Manager a
broad discretion, similar to that given to certifiers by conventional construction
contracts.
• The decisions made by the Project Manager were not determinative, as if Costain
was dissatisfied with those decisions, it could refer to the dispute resolution
procedures set out in the contract.
• The Project Manager under the contract provisions was not analogous to an
architect or other certifier under conventional contracts. The Project Manager was
specifically employed to act in the interests of the Employer.
The court did not accept Bechtel’s arguments. The judge said, “It would be a most
unusual basis for any building contract to postulate that every doubt shall be resolved
in favour of the employer and every discretion shall be exercised against the
contractor”. He said, “If (a) the project manager assesses sums partially and in a
manner which favours the employer, but (b) the adjudicator assess sums impartially
without favouring either party, then this is likely to lead to successive, expensive and
time consuming adjudications. I do not see how that arrangement could make
commercial sense”. The judge also said that although he accepted that in discharging
many of its functions under the contract, the Project Manager acts solely in the interest
of the Employer, “I do not see how this circumstance detracts from the normal duty
which any certifier has on those occasions when the project manager is holding a
balance between employer and contractor”. The court agreed that Corber had raised
serious questions to be tried in relation to whether RLE had acted in breach of its duty
to act impartially as between employer and contractor, whether as a consequence the
employer was thereby in breach of contract, and whether the RLE consortium had
committed the tort of procuring a breach of contract. However, the court was not
prepared to exercise its discretion at this interim stage and grant an injunction to correct
any failings in the contractual payment procedures, because in accordance with English
law it could be adequately compensated for in damages.
In some jurisdictions, arguments of good faith may be applicable. In Aoki Corp v

Lippland (Singapore) Pte Ltd26 the Singaporean Courts expressed the view that a
contract administrator “must exercise his function as a certifier in good faith and to the
26
[1995] 2 SLR 609.
21

best of his uninfluenced professional judgment, even though he is appointed by the
Employer”. However, at page 68 of the Costain case referred to above, Mr Justice
Jackson clearly distinguished “impartiality” from “good faith”. He rejected the phrase
“good faith” as ambiguous on the grounds that it is sometimes used as a synonym for
“impartiality” and sometimes as a synonym for “honesty”. He preferred the test of
“impartiality”.
The earlier cases of Hounslow LBC v Twickenham Garden Developments27, and

Amey v Secretary of State for Transport28 found that the rules of natural justice do not
apply to contract administrators. In the latter case, May LJ stated at paragraph 46-47:
“The rules of natural justice are formalised requirements of those who act
judicially. Compliance with them is required of judges and arbitrators and those
in equivalent positions, but not of an Engineer giving a decision under Clause 66
of the ICE Conditions … Under Clause 66, the Engineer is required to act
independently and honestly. The use by the New Zealand Court of Appeal [in
Hatrick] of the word impartially does not, in my view, overlay independence and
honesty so as to encompass natural justice … I would not be coy about saying
that the Engineer has to act ‘fairly’, so long as what is required is regarded as
fair is flexible and tempered to the particular facts and occasion.”
Recent authorities have also made clear that “fairness” by an expert does not denote
“natural justice”. In Ackerman v Ackerman29 it was held that "It is well established
that an expert is not bound to observe all the rules of natural justice, though he does
have an implied obligation of fairness".
What constitutes a fair determination is open to interpretation. The Engineer is not

entitled to do anything that breaches the term of the Contract but how much further
need he go? Nael Bunni30 states that the dictionary defines fair as “just, unbiased,
equitable in accordance with the rules”. This suggests an element of impartiality and
honesty. In the case of Semco Salvage Marine Pte Ltd v Lancer Navigation Ltd31 it
was said that fair would mean fair to both Parties.
In making the fair determination, it is probable that the Engineer must act without bias
and impartially notwithstanding his role as the Employer’s agent. If the Engineer is
acting for the Employer when issuing a fair determination, why would the Engineer
need to “consult with each Party” and why is the Employer entitled to dispute the
Engineer’s determination and refer it to the Dispute Adjudication Board under Sub-
Clause 20.4? How could the determination be disputed under the FIDIC form if the
Contractor and the Engineer (as Employer’s agent) agree? If a principal does not like
27
[1971] 1 Ch 233.
28
[2005] EWCA Civ 291.
29
[2011] EWHC 3428 (Ch), at [264].
30
The FIDIC Forms of Contract, page 524
31
[1997] UKHL 2.
22

something his agent has done which was properly within the agent's authority, the
principal would ordinarily take it up with the agent under the agency agreement.
Notify the Parties of the agreement or determination with supporting particulars
The Engineer must give notice to both Parties of each agreement or determination.
There is no express time limit, so a reasonable time will be implied. Notice must be
given in writing and must not be unreasonably withheld or delayed in accordance with
Sub-Clause 1.3. Under the FIDIC Red Book 1999 a notice need not be identified as
such and need not include a clause reference. However, under Sub-Clause 1.3 of the
FIDIC Gold Book 2008 it must do so. Occasionally the Red Book Particular Conditions
are amended to include this Gold Book provision.
Notice must be given with “supporting particulars”. Supporting particulars are not
defined and therefore their form and extent are open to dispute. Although it is not
expressly stated that the Engineer must give reasons in his determination, it is arguable
that reasons for the determination would fall within “supporting particulars”. It is
certainly good practice to give reasons.
In practice, the Engineer may make an interim determination(s), indicating an intention

to review it when further particulars are presented to him, and meanwhile including the
appropriate adjustment in Interim Payment Certificates. Although an interim
determination may nevertheless be referable to the Dispute Adjudication Board directly
without further delay, it is usually preferable, if further particulars become available,
for the Engineer to review his previous determination.
Each Party must give effect to the agreement or determination
Each Party must give effect unless and until revised under Clause 20. There is no
express time limit for compliance provided for in the Contract, although the Engineer
is likely to set one in the agreement or determination.
In the FIDIC Red Book 1999 the requirement to have a determination made by the
Engineer is a condition precedent to any claim by the Employer (see Sub-Clause 2.5)
or the Contractor (see Sub-Clause 20.1). However, unlike the FIDIC Silver Book 1999,
Sub-Clause 3.5 does not first require the Contractor to give notice of his dissatisfaction
with a determination within 14 days of receiving it in order to refer the dispute to the
DAB.
It should be noted that until the Engineer has made a determination of the Employer’s
claim, the Employer cannot make a deduction to the Contract Price or Payment
Certificate: NH International (Caribbean) Ltd v National Insurance Property
23

Development Company Ltd (Trinidad and Tobago)32. Further, in order for either Party
to commence Dispute Adjudication Board proceedings they must first have had the
claim dealt with under Sub-Clause 3.5: see, for example, Final Award in Case 16765
(Extract)33.
If either Party is dissatisfied with the Engineer’s determination it must proceed in

accordance with Sub-Clause 20.4 [Obtaining Dispute Adjudication Board’s Decision].
GUIDANCE NOTES – Sub-Clause 3.6: Additional Sub-Clause -

Management Meetings
This additional clause proposes that the Engineer or the Contractor’s Representative
may require the other to attend a management meeting in order to review the
arrangements for future work and/or matters in connection with the Works. A record of
the management meeting is made by the Engineer and copies supplied to those
attending the meeting and to the Employer.
“The Engineer or the Contractor’s Representative may require the other to attend
a management meeting in order to review the arrangements for future work. The
Engineer shall record the business of management meetings and supply copies of
the record to those attending the meeting and to the Employer. In the record,
responsibilities for any actions to be taken shall be in accordance with the
Contract.”
It makes attendance at recorded management meetings compulsory to the extent such

attendance is required by the Engineer or the Contractor’s Representative.
Management meetings are not defined and therefore open to dispute unless a definition
is expressly provided. There is no form in which the Engineer or Contractor’s
Representative need to require attendance; this can therefore be given orally or in
writing. If not pre-arranged such meeting should take place promptly in order to resolve
problems immediately.
The Engineer is obliged to take a record of the meeting. There is no requirement that
the Contractor or other attendees agree this record. The Contractor or other attendees
should point out any differences in the record from their understanding of the meeting
promptly and in writing.
Responsibility for any actions must be taken in accordance with the Contract. As Sub-
Clause 3.1 states that the Engineer has no authority to amend the Contract, the record
32
[2015] UKPC 37 (6 August 2015); see also J Murphy & Sons Ltd v Beckton Energy Ltd [2016]
EWHC 607 (TCC) (18 March 2016) where the court allowed a claim for delay damages without the
Employer going through the Sub-Clause 2.5 and 3.5 process. However, the terms of the contract had
been heavily amended.
33
ICC Dispute Resolution Bulletin 2015 No. 1 at p.101 .
24

of the meeting will not be able to impose responsibilities which are not in accordance
with the Contract.
By Victoria Tyson
25

Clause 4
Summary
Clause 4 sets out various obligations which fall on the Contractor under the
Contract and which cannot easily be classified elsewhere. The obligations under
Clause 4 are of a wide range covering 24 different topics. Sub-Clause 4.1 sets out
the Contractor’s general obligation to carry out his duties in accordance with the
contract.
Clause 4 of the FIDIC Red Book 1999 amalgamates various Contractor

obligations under one provision. However this Clause 4 is not exclusive as there
are also other Contractor obligations scattered throughout the Contract. Other
significant general obligations which could equally have been included in Clause
4 (and which should be read in conjunction with this Clause 4) are as follows:
• Sub-Clause 1.3 [Communications]
• Sub-Clause 1.7 [Assignment]
• Sub-Clause 1.8 [Care and Supply of Documents]
• Sub-Clause 1.9 [Delayed Drawings or Instructions]
• Sub-Clause 1.10 [Employer’s Use of Contractor’s Documents]
• Sub-Clause 1.12 [Confidential Details]
• Sub-Clause 1.13 [Compliance with Laws]
• Clause 6 [Staff and Labour]
• Clause 7 [Plant, Materials and Workmanship]
• Sub-Clause 8.2 [Time for Completion]
• Sub-Clause 8.3 [Programme]
Origin of clause
The Contractor obligations were previously split across many clauses under the Red
Book 4th Edition. 1 Part of Sub-Clause 4.1 is found at Sub-Clauses 8.1 and 8.2 of the
Red Book 4th Edition. The Contractor obligations found at Sub-Clauses 4.2 to 4.18
and 4.23 to 4.24 of the Red Book 1999 were previously found within the old clauses
4, 10, 11, 12, 15, 17, 19, 27, 29, 30, 31, 32, 33, 36, 42, 54 of the 4th Edition.
Sub-clauses 4.19 [Electricity, Water and Gas], 4.20 [Employer’s Equipment and Free
Issue Material] and 4.21 [Progress Reports] are new concepts first introduced in the
FIDIC 1999 Edition.
Cross-references
Reference to Clause 4 is found in the following clauses:
1
Part of the obligation was dealt with in sub-clauses 7.2, 8.1, 13.1 and 14.1.
1

• Sub-Clause 1.1.2.5 [Definitions] “Contractor’s Representative”
• Sub-Clause 1.1.6.6 [Definitions] “Performance Security”
• Sub-Clause 2.3 [Employer’s Personnel]
• Sub-Clause 2.5 [Employer’s Claims]
• Sub-Clause 9.1 [Contractor’s Obligations]
• Sub-Clause 13.2 [Value Engineering]
• Sub-Clause 14.2 [Advance Payment]
• Sub-Clause 14.3 [Application for Interim Payment Certificates]
• Sub-Clause 14.7 [Payment]
• Sub-Clause 15.2 [Termination by Employer]
• Sub-Clause 17.6 [Limitation of Liability]
The Contractor obligations which are dealt with exclusively within Clause 4 itself are
the obligations for Setting Out (Sub-Clause 4.7), Quality Assurance (Sub-Clause 4.9),
Site Data (Sub-Clause 4.10), Rights of Way (Sub-Clause 4.13), Avoidance of
Interference (Sub-Clause 4.14), Transport of Goods (Sub-Clause 4.16), Security of the
Site (Sub-Clause 4.22) and Fossils (Sub-Clause 4.24).
References to the other Clause 4 Contractor obligations are found in the Sub-Clauses
mentioned below. These Contractor obligations are identified as General Obligations,
Performance Security, Contractor’s Representative, Subcontractors, Assignment of
Benefit of Subcontract, Cooperation, Safety Procedures, Sufficiency of the Accepted
Contract Amount, Unforeseeable Physical Conditions, Facilities, Access Route,
Contractor’s Equipment, Protection of the Environment, Electricity Water and Gas,
Employer’s Equipment, Free-Issue Material or Progress Reports.
• Sub-Clause 1.1 [Definitions] – various

• Sub-Clause 1.7 [Assignment]
• Sub-Clause 2.1 [Right of Access to the Site]
• Sub-Clause 2.2 [Permits, Licences or Approvals]
• Sub-Clause 2.3 [Employer’s Personnel]
• Sub-Clause 2.5 [Employer’s Claims]
• Clause 5 [Nominated Subcontractors]
• Sub-Clause 6.6 [Facilities for Staff]
• Sub-Clause 6.9 [Contractor’s Personnel]
• Sub-Clause 6.10 [Records of Contractor’s Personnel and Equipment]
• Sub-Clause 7.1 [Manner of Execution]
• Sub-Clause 7.3 [Inspection]
• Sub-Clause 7.4 [Testing]
• Sub-Clause 8.3 [Programme]
• Sub-Clause 9.1 [Contractor’s Obligations]
• Sub-Clause 11.5 [Removal of Defective Work]
• Sub-Clause 11.7 [Rights of Access]
• Sub-Clause 11.11 [Clearance of Site]
2

• Sub-Clause 12.1 [Works to be Measured]
• Sub-Clause 13.1 [Right to Vary]
• Sub-Clause 13.5 [Provisional Sums]
• Sub-Clause 13.6 [Daywork]
• Sub-Clause 14.2 [Advance Payment]
• Sub-Clause 14.3 [Application for Interim Payment Certificates]
• Sub-Clause 14.6 [Issue of Interim Payment Certificates]
• Sub-Clause 14.7 [Payment]
• Sub-Clause 14.12 [Discharge]
• Sub-Clause 14.15 [Currencies of Payment]
• Sub-Clause 15.2 [Termination by Employer]
• Sub-Clause 15.5 [Employer’s Entitlement to Termination]
• Sub-Clause 16.3 [Cessation of Work and Removal of Contractor’s
Equipment]
• Sub-Clause 16.4 [Payment on Termination]
• Sub-Clause 17.3(c) [Employer’s Risks]
• Sub-Clause 17.6 [Limitation of Liability]
• Sub-Clause 18.1 [General Requirements for Insurances]
• Sub-Clause 18.2 [Insurance for Works and Contractor’s Equipment]
• Sub-Clause 18.3 [Insurance against Injury to Persons and Damage to
Property]
• Sub-Clause 19.1 [Definition of Force Majeure]
• Sub-Clause 19.6 [Optional Termination, Payment and Release]
Sub-Clause 4.1 Contractor’s General Obligations
The Fundamental Obligation
Sub-Clause 4.1 contains five paragraphs which are considered in turn. The first two
paragraphs of Sub-Clause 4.1 has been developed from Sub-Clause 8.1 of the Red
Book 4th Edition. The third and fifth paragraphs of Sub-Clause 4.1 have significantly
changed from Sub-Clause 8.2 of the Red Book 4th Edition. The fourth paragraph of
Sub-Clause 4.2 deals with submission of work methods and is found at Sub-Clause
14.1 of the Red Book 4th Edition.
The first paragraph sets out the fundamental obligation of the Contractor – to design
(to the extent specified in the Contract), execute and complete the Works in
accordance with the Contract and with the Engineer’s instructions and to remedy any
defects in the Works.
The words “with due care and diligence” found in the 3rd Edition and 4th Edition are
omitted in the 1999 Edition. The 1999 Edition is similar to the ICE 5th, 6th and 7th
Edition which does not adopt these words. The effect of the words “with due care and
diligence” is to impose a duty of diligence on the Contractor in carrying out the
3

Works even where the end result is achieved. Under FIDIC 4th it is not limited to
design as it extends to the execution and completion of the Works.
The Contract will of course include the specification, drawings, bill of quantities and
special conditions and, given the number of documents, there is a strong possibility
that these are not entirely consistent with each other. In case of inconsistency, the
order of precedence set out in Sub-Clause 1.5 will have to be applied or the Engineer
may have to act under Sub-Clause 1.5 to issue a clarification or instruction. The
Contractor is under an obligation under Sub-Clause 1.8 to give notice to the Employer
if it becomes aware of an error or defect of a technical nature in any document
prepared by the Employer.
The obligation is very general (“in accordance with the Contract”) and as a result the
degree of obligation may be considerably affected by the underlying law. Under
English law the underlying level of obligation would be “reasonable skill and care”,
however this will be different in other jurisdictions.
The obligation to execute and complete in accordance with the Contract and with the
Engineer’s instructions sets a general standard and this may in some cases mean that
other provisions of the Contract are to be read in a stricter sense than might otherwise
be the case. There are specific obligations set out throughout the Contract but these
are not always stated in absolute terms. For example, there are many provisions under
which an Engineer can give instructions and failure to follow those would clearly be a
breach. Sub-Clause 3.3 gives the Engineer authority to issue instructions “which may
be necessary for the execution of the Works … in accordance with the Contract.”
When this is read in conjunction with Sub-Clause 4.1 it is absolutely clear that the
Contractor is under an obligation to obey all instructions the Engineer gives
“necessary for the execution of the Works” even though these may fall outside the
scope of the Contractor’s contractual obligations. Under Sub-Clause 8.3, the
Contractor is obliged to proceed in accordance with the programme. The combination
of Sub-Clause 4.1 and Sub-Clause 8.3 makes it clear that a Contractor who carries out
the Works to a sequence different from that in the programme will be in breach of the
Contract, unless such change can be justified. So, for example, if the Contractor has to
revise the sequence of working because the Employer has failed to provide certain
land then this will not be a breach of contract. Despite the apparent simplicity of the
obligation the provision gives rise to a considerable number of disputes.
In most cases, Red Book contracts do not specify any design obligations. However it
is a natural part of contracting to carry out some activities which, in common
language, could be described as design and it is quite common for contractors to ask
for additional payment or time extensions as a result. Such claims are often based on a
misunderstanding of what is encompassed within the Contractor’s obligation to
execute and complete the Works. This is because the responsibility of executing and
completing the Works requires the Contractor to make decisions on methodology
which have some similarity to the process of design. This is often referred to as the
“buildability” of the project. Sub-Clause 4.1 tries to make this clear, but some of its
provisions are sometimes overlooked. The onus is on the Contractor to check all the
4

contractual documents carefully to ascertain the full extent of its design obligations.
The scope of the Contractor’s design obligation may also be hidden within the
contract given that it is comprised of many documents.
The Contractor’s design obligations are referred to in other Sub-Clauses as listed

below:
• Sub-Clause 5.2 [Objection to Nomination]
• Sub-Clause 8.9 [Consequences of Suspension]
• Sub-Clause 11.2 [Cost of Remedying Defects]
• Sub-Clause 17.1 [Indemnities]
• Sub-Clause 17.3 [Employer’s Risks]
• Sub-Clause 17.5 [Intellectual and Industrial Property Rights]
Items and Services provided for the Works.
The second paragraph obliges the Contractor to provide (amongst other things) “all
Contractor’s Personnel, Goods, consumables and other things and services whether
of a temporary or permanent nature, required in and for this design, execution,
completion and remedying of defects.” In other words, even in the absence of a
specific design obligation, the Contractor is obliged to provide everything necessary
in order to carry out the Works. It is likely for this reason that FIDIC 1999 dropped
the terms “so far as the necessity for providing the same is specified in...the Contract”
recognising that it is impracticable and/or impossible to include every item or tool
which may be required. This is often referred to as the “inclusive price principle”: A.
E. Farr v Ministry of Transport, 2 which requires that all indispensable or contingently
necessary expenditure required to complete the Works will be included in the
Contractor’s price and his completion obligations, in the absence of express provision
to the contrary.
The term “Goods” is defined in Sub-Clause 1.1.5.2 to mean “Contractor’s Equipment,

Materials, Plant and Temporary Works”. This therefore includes everything necessary
on a temporary basis to enable the Contractor to carry out the Permanent Works. In
other words, while the Employer designs the Works, the Contractor is entirely
responsible for devising the method for carrying out the Works.
A typical example is the following: The Employer’s design shows the power house in
a hydro-electric dam cantilevered from the upstream face of the dam. The design is
entirely feasible but in order to carry it out it will be necessary for the Contractor to
devise a method of supporting the cantilever during the process of construction. This
may be complex and expensive – it may require a very extensive and technically
difficult support structure on a temporary basis which may involve quite difficult
2
(1965) 5 BLR 94
5

design issues – but it is entirely the Contractor’s responsibility even though he has no
design responsibility for the Permanent Works themselves.
In the case of Thorn v The Mayor and Commonalty of London3 the court held that
there was no implied warranty from an employer about the buildability of the works.
In Thorn, Lord Cairn’s held that the contractor “ought to have informed himself of all
particulars connected with the work and especially as to the practicability of
executing every part of the work contained in the specification”. It should be noted
that the contractor may have no cause of action against the architect or engineer who
prepared the defective design: Galliford Try Infrastructure Ltd v Mott MacDonald
Ltd.4 However, where the design is impossible to construct then the Contractor will
not be in breach and a change in the design will be required, which can only be done
by a variation. 5
Another example is the working or construction drawings which will be necessary for
the Contractor to put the Employer’s designs into effect. In a road construction, the
Employer’s design will show the nature of the structure of the road – the depth of the
underlay, the subsurface and the nature and thickness of the surface layers, the typical
design of the culverts and bridges and so on. It will also show the location of the road
– both its vertical and horizontal location. It is then for the Contractor to construct to
this design and for this purpose it will have to provide working drawings showing
what is required in practice at each location along the road. This is part of the
carrying out of the Works, not an element of the design and is therefore part of the
obligation under Sub-Clause 4.1. Sub-Clause 4.1 clarifies this in its subsequent
paragraphs.
Site Operations and Methods of Construction
By way of the third paragraph the Contractor is responsible for the adequacy, stability
and safety of all Site operations and methods of construction. The Contractor is also
responsible for such design as is necessary for Plant and Materials to be in accordance
with the Contract (unless the contract states otherwise), but not for other design.
Design
The definition of “Plant” is quite clear under Sub-Clause 1.1.5.5 – it is not the same as
equipment, but is apparatus machinery and vehicles intended to form part of the
Permanent Works. Materials do not include Plant. It is all other things intended to
form part of the Permanent Works and therefore may include finished articles if they
are required to form part of the Permanent Works.
The Contractor’s responsibility is stated to be that the design of each item of Plant and
Materials is required to be in accordance with the Contract. This, however, is limited
by Sub-Clause 17.3 [Employer’s Risks] at paragraph (g). Here the Contractor is not
3
(1876) 1 App Cas 120
4
[2008] EWHC 1570
5
Miller v City of Broken Arrow (1981) 660 F.2d 450
6

responsible for the design of any part of the Works to include Plant or Materials if
such design is carried out by the Employer’s personnel or “others for whom the
Employer is responsible.” This is an Employer risk under the contract.
Construction Method
Paragraph 4 expressly provides that upon an Engineer’s request the Contractor is
required to submit details of the arrangements and methods which it proposes to adopt
for the execution of the Works. This is consistent with the requirements of Sub-Clause
8.3 [Programme] and Sub-Clause 8.6 [Rate of Progress] where the Contractor is
required to provide detail of its intended methods or revised methods.
Paragraph 4 also provides that the Contractor cannot make any significant alterations
to the arrangements and methods submitted to the Engineer unless the Contractor has
first notified the Engineer of the change. What is significant is a question of fact. The
provision does not provide that the Engineer must consent to the change but only that
the Contractor must provide notice of the intended change.
The Contractor’s responsibility differs in regards to Unforeseeable Physical

Conditions at Sub-Clause 4.12. Here the Contractor is required to continue executing
the Works using measures which the Contractor may consider appropriate (unless
there is an Engineer instruction to the contrary). The Contractor may consider that
significant alterations to the construction method are necessary. If such alterations are
proper and reasonable in the circumstances under Sub-Clause 4.12 they may
nevertheless fall foul of Sub-Clause 4.1 (paragraph 4) if notice of the significant
change has not been given to the Engineer.
Contractor Design Responsibilities
Paragraph 5 finishes by stating particularly what the Contractor must do where the
Contract specifies that the Contractor shall design any part of the Permanent Works.
Sub-paragraphs (a) and (b) deal with the obligation for the Contractor to supply
Contractor’s Drawings. Sub-paragraph (b) requires that the Contractor’s Drawings
“shall be in accordance with the Specification and Drawings”.
Sub-paragraph (c) provides that the Contractor shall be responsible for this part of the
Works and that it shall, when completed, “be fit for such purposes for which the part
is intended as are specified in the Contract”.
The “fitness for purpose” obligations set out briefly here in Sub-Clause 4.1 are in
several ways quite different from those set out in the Yellow and Silver Books. Sub-
Clause 4.1 in both the Yellow and Silver Books requires the completed Works to be
fit for the purposes for which the Works are intended. Under the Red Book, the design
obligation for any part of the Permanent Works which the Contract specifies is
7

designed by the Contractor shall, when completed “be fit for such purposes for which
the part is intended as are specified in the Contract”.
This may be a difficult standard to attain because it is expressed in absolute terms. So

long as a purpose is expressed, the part of the Works which the contractor has agreed
to design must fully meet that purpose.
Under English law the fitness for purpose obligation is recognised as being a
particularly stringent one. In one case 6 one of England’s most respected judges said
of a fitness for purpose obligation:
“It was therefore the duty of the Contractors to see that the finished work was
reasonably fit for the purpose for which they knew it was required. It was not
merely an obligation to use reasonable care, the Contractors were obliged to
ensure that the finished work was reasonably fit for the purpose.”
Thus the standard applies even if a reasonably competent contractor could not have
achieved it. The final product must achieve its intended purpose. This is not limited
to design and includes material selection and workmanship quality.
The fitness for purpose obligation will not apply unless the purpose is set out in the
contract – the most appropriate place will be in the Specification but it may also be
incorporated into the Drawings or in special conditions or the Contract Agreement.
Care is required to ensure that the intended purpose is adequately set out. Ambiguity
exists as to the meaning of ‘specified in the contract’. Does this mean that the purpose
must be expressly specified or will the deemed purpose for a particular item suffice?
In the absence of an express statement of what the purpose of a part of the Works
required to be designed by the Employer is, the Contractor is not obliged to meet the
standard of fitness for purpose. However in the case of a road project it is probable
that the purpose will be clearly spelled out.
A difficulty may arise where there is an inconsistency between the Specifications and
Drawings and the ‘fitness for purpose’ obligation. This issue was considered in the
case of MT Højgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd &
Anor. 7 The facts of the case revolved around an industry standard, J101, which was
referred to in the contract. The standard was defective and therefore the works did not
have a 20 year service lifetime, as required by the contract. At first instance the court
held that the reference to a 20 year service lifetime was sufficiently clear and the risk
regarding the error with J101 lay with the contractor. The Court of Appeal overturned
the decision and held that the reference to a 20 year lifetime was not a warranty and
that as the works had been constructed in accordance with J101 the risk lay with
E.ON. 8 On 27 November 2015 the Supreme Court gave permission to appeal this
6
Greaves v. Baynham Meikle [1975] 1 W.L.R. 1095
7
[2015] EWCA Civ 407
8
See also Greater Vancouver Water District v North American Pipe & Steel Ltd and Moody
International Ltd [2012] BCCA 337 where the court held that: “The general rule is that defects caused
8

decision and the outcome of the case is awaited. The decision may well have
implications on Clause 4.1 (c) of FIDIC 1999.
Sub-paragraph (d) deals with the provision of “as built” documents and operation and
maintenance manuals prior to the commencement of Tests on Completion. It should
be noted that this Sub-paragraph applies where there are Tests on Completion
irrespective of whether the Contractor carries out any design or not. The first
paragraph of Sub-Clause 9.1 states: “The Contractor shall carry out the Tests on
Completion in accordance with this Clause and Sub-Clause 7.4 [Testing], after providing the
documents in accordance with sub-paragraph (d) of Sub-Clause 4.1 [Contractor’s General
Obligations].
The Contractor must supply the Performance Security within 28 days of receipt of the
Letter of Acceptance and at his own cost. The amount must be as stated in the
Appendix to Tender and a copy of the Performance Security must also be provided to
the Engineer. The form of the security and both the country and entity issuing the
performance security must be approved by the Employer.
The Performance Security must remain valid until the end of the latest of the expiry
dates of the Defects Notification Period. The Employer shall not make a claim under
the Performance Security unless it is entitled to claim by reason of one of the events
specified at (a) to (d) of the Sub-Clause.
Introduction
This Sub-Clause consists of 6 paragraphs. The first two paragraphs is a re-worded

version of the earlier Sub-Clause 10.1 of the Red Book 4th Edition. The origin of the
third, fourth and sixth paragraphs, which have undergone much development in the
1999 Edition, are found at Sub-Clause 10.2 and Sub-Clause 10.3 of the 4th Edition.
The fifth paragraph is new.
The obligation under Sub-Clause 4.2 relates to any Performance Security which is
specified in the Contract. It is clear from the context that Sub-Clause 4.2 only applies
to what would normally be described as performance securities i.e. on-demand or
conditional bonds/guarantees. The FIDIC Red Book 1999 refers to these as ‘Demand
Guarantee’ and ‘Surety Bond’ respectively. The standard forms are found at Annex C
and D of the guidance section 9.
by an owner's specification are not the responsibility of the contractor, unless the contractor expressly
guarantees that the construction would be fit for a specific purpose.”
9
Although the Appendices to the Contract contain several other forms of draft documents (parent
company guarantee, tender guarantee, advance payment guarantee, and retention money guarantee),
none of these are what one would normally call a performance security (guarantee). There is no
equivalent provision in the Contract body backing up the requirement for the provision of such
guarantees. This is also clear from the list of circumstances under which the Employer is entitled to
9

FIDIC Red Book 1999 introduces new terms which require the Contractor to extend
the validity period of the Performance Security. Furthermore various events and
circumstances of Contractor based defaults are specified at paragraphs 4.2 (a) to (d)
and it is only if one or more of these Contractor based defaults occur that the
Employer’s right arises under the contract to claim under a Performance Security. The
earlier Clause 10 FIDIC 4th did not set out any contractor based default triggering
events.
FIDIC 4th Sub-Clause 10.3 limits the Employer’s right to make a call on the Security
as it requires a notice to the Contractor setting out why the Contractor is in default.
This only has real significance in relation to on-demand bonds as early notice may
allow the Contractor to take steps (i.e. to obtain an injunction) before the monies are
paid out to the Employer. However this has no practical effect where the Employer is
not required by the terms of the demand guarantee to prove to the guarantor that a
notice has been provided to the Contractor. This notice requirement is removed from
the general conditions of the FIDIC Red Book 1999.
Procurement of Performance Security
Sub-Clause 4.2 requires any Performance Security to be provided within 28 days of

the Letter of Acceptance. The sanction for failure is set out in (a) Sub-Clause 2.1
which entitles the Employer to deny the Contractor access to or possession of the Site
and in (b) Sub-Clause 14.2(i) [Advance Payment] which prohibits interim certificates
until the Performance Security is provided. These Sub-Clauses refer to a single
Performance Security and is an indication that the definition is not intended to apply
to parent company, advance payment or retention money guarantees.
The parties should attempt to agree on the form and both the entity and country prior
to the Letter of Acceptance so that the Contractor has a period of more than 28 days to
negotiate with the entity on the Performance Security 10. Example forms are at Annex
C and Annex D of the guidance section. The parties are not under an obligation to use
the example forms and may use any of the forms of security for Sub-Clause 4.2. Sub-
Clause 1.3 [Communications] provides that the Employer’s approval shall be in
writing and shall not be unreasonably withheld or delayed. In circumstances where the
Employer has not given approval and the refusal is considered unreasonable then this
could lead to a dispute. This delays procurement of the performance security and the
sanctions against the Contractor (to deny access or possession of the Site and to
prevent issue of Interim Payment Certificates) are ineffective for the reason that the
delays are caused by the Employer. The contract is then not considered concluded and
make a claim as set out in the fourth paragraph at the sub-paragraphs sub-clause 4.2 (a) to (d). None of
these circumstances could logically apply to any of the other forms of guarantee contemplated by the
Contract.
10
FIDIC 4th A Practical Legal Guide by E.C. Corbett – see at page 107.
10

under English law the Contractor has no obligation to perform. The Contractor is
entitled to be paid a reasonable sum for work done in absence of the contract 11.
It is good practice to include in the tender documents; the Employer’s requirements

for the Performance Security and any Contractor preferences in the Contractor’s
proposals. Any disagreement between the Contractor and Employer can then be
resolved early allowing the Contractor more time to negotiate with the entity for the
Performance Security. The FIDIC Guide 1999 suggests that the Particular Conditions
include the details of the Employer Requirements for the entity and the specified
form. The reasonableness of withholding an approval then depends on the extent to
which the Performance Security, and the entity which issued it, comply with the
requirements specified in or annexed to the Particular Conditions. It is suggested that
it is reasonable for the Employer to withhold approval of a form which is less
favourable to the Employer than the annexed form to the Particular Conditions. The
FIDIC Guide 1999 also points out that if a form was annexed, the Employer cannot
then attempt to elect the alternative under the Contract of "another form approved by
the Employer".
The obligation is on the Contractor to obtain the Performance Security in amounts

referred to in the Appendix to Tender which is usually specified as a percentage of the
Accepted Contract Amount. The amount may be increased under Sub-Clause 11.5 if a
defective or damaged item of Plant is repaired off-site. The increased sum for the
amount of the Security is an amount to reflect the full replacement cost of the item
removed from the Site. Where there is no amount stated in the Appendix to Tender
then Sub-Clause 4.2 does not apply.
Validity Period of the Performance Security
The Performance Security is only valid and enforceable until the Contractor has
executed and completed the Works and remedied any defects. The Sub-Clause
introduces a clear Contractor obligation to extend the Performance Security if the
completion of the Works is delayed. The extended validity period of the Performance
Security should take into account all delays irrespective of whether they are Employer
or Contractor risk and it should include the period for remedy of defects. The issuing
entity may require a certain expiry date.
The Annex C form for demand guarantee includes a provision to extend the validity
of the Performance Security whereas the Annex D form for the surety bond does not.
However the Annex D form is expressed to be subject to the URCB no.524 (Uniform
Rules for Contract Bonds, 1993) which provides that it will expire six months after
the latest date for performance. The FIDIC Guide states that expiry is usually during
11
FIDIC 4th A Practical Legal Guide by E.C. Corbett – see at page 107.
11

the Defects Notification Period. If the Annex D form is adopted then the parties
should ensure that it includes a provision to allow extension of the security period.
It is not until issue of the Performance Certificate by the Engineer under Sub-Clause
11.9 that the Contractor will have notice that the Performance Security is no longer
required. A Performance Certificate will not be issued if a defect becomes apparent on
the last day of the Defects Notification Period and the Defects Notification Period is
extended under Sub-Clause 11.3. Extending the Performance Security validity period
should take account of defects which may arise towards the end of the Defects Notifi-
cation Period. 12 If the Contractor fails to comply with its obligation to extend the
validity period the Employer is then entitled to bring a claim under sub-paragraph 4.2
(a). In such circumstances the Employer can claim for the full amount of the Security.
There are no restrictions on the amount which the Employer can claim for contractor
breach of the validity period.
There is no provision to extend the Performance Security if there is a dispute

following the completion and the dispute goes to arbitration. If the Employer wishes
to retain the benefit of the Performance Security as a means of ensuring that it will be
paid any claim it makes against the Contractor it will therefore have to call the
Security while it still remains valid or use the threat of such a calling to force the
Contractor to extend the period of the Performance Security.
Two Forms of Performance Security
As mentioned above, there are two draft forms of Performance Security. The type of
performance security required should be specified in the Particular Conditions. Both
of the example forms at Annex C and D contain an optional clause to allow for a
percentage reduction of the sum guaranteed on issue of a taking over certificate for
the ‘whole’ of the Works.
Annex C
Annex C is a demand guarantee and the Employer is entitled to call upon it without
having to prove a default to the party who has given the security (the guarantor). A
simple declaration without any evidence that the pre-conditions have been fulfilled
suffices. There are no pre-conditions to the calling that could be challenged in
arbitration or litigation.
The Annex C form is subject to ICC's URDG no.458 (Uniform Rules for Demand
Guarantees, 1992). The obligations of the guarantor (bank entity) to pay the Employer
are independent from the Contractor obligations to the Employer under the
construction contract. The guarantor entity in considering payment will consider the
URDG terms and not the terms of the Contract. The guarantor irrevocably undertakes
to pay the Employer the sums specified on receipt of the Employer’s written demand
12
See Ellis Baker et al at para 7.203 page 390.
12

and statement. The guarantor only needs to ensure that there is a clear statement by
the Employer that the Contractor (a) is in breach of his obligations under the Contract;
and (b) the obligation breached using expressions similar to those in the Contract 13.
Annex D
The Annex D form is a surety bond subject to ICC's URCB no.524. It is described as
a conditional ‘accessory’ bond in the FIDIC Guide as it is a conditional form of
security co-extensive to the Contractor’s contract obligations. This means that the
guarantor’s obligations depend on and are determined by the contract obligations. The
guarantor is not obliged to pay the Employer until default by the Contractor is proved.
The default or occurrence therefore has to be demonstrated to the guarantor before the
obligation to pay comes into effect. The proof of Contractor default could be by way
of an Engineer’s Determination or the decision of a DAB.
Under Sub-Clause 3.5 the Parties are obliged to give effect to every Determination
unless and until it is revised under Clause 20. Where a determination or decision of
the Engineer or DAB is binding pending a further decision under Clause 20, this will
still provide the basis for a calling of a demand guarantee. This is so, even though the
Contractor may have immediately referred an Engineer’s Determination to a DAB and
the DAB overturns the Engineer’s Determination. The Employer will have gained the
right to call on the Performance Security before the DAB will be obliged to give a
decision. Similarly under Sub-Clause 20.4, the decision of the DAB is binding until
reversed in arbitration. This means that even in circumstances where the Contractor
has submitted a notice of dissatisfaction of a DAB decision – the Employer will
almost certainly have the right to call on the Performance Security.
By reason of the Guarantor’s inseparable linked obligations and liabilities, the

guarantor entity should consider both the terms of the URCB and the Contract
together with the alleged default of the Contractor to assess whether the Employer is
entitled to compensation under the contract and also entitled to make a call on the
surety. The surety bond therefore provides security against the Contractor’s inability
or refusal to pay a proven claim.
Applicable Laws
The Performance Securities may be governed by a law different to the law of the
FIDIC contract (due to the jurisdiction of the entity for example) and care is therefore
required in drafting the securities.
The Annex C form requires the applicable law to be specified because the demand
guarantee is independent to the contract. The URDG (Article 27) to which Annex C is
subject defines the applicable law as that applied in the place of business of the
guarantor. The Employer may specify a different applicable law.
13
See FIDIC Guide 1999
13

The Annex D form differs to Annex C as it is dependent on the contractual
obligations. It is logical for the surety bond to be governed by the same law which
governs the contract. This is what the form at Annex D provides. The FIDIC Guide
1999 states in selecting the applicable law the Employer should give consideration to
enforcement issues of a valid demand such as the law of the country which has well-
established case law for enforcement of independent conditional performance
securities.
The Conditions at Paragraphs (a) to (d)
The justifications for a call by the Employer are set out at paragraphs (a) to (d) of
Sub-Clause 4.2. They apply irrespective of the form of the Performance Security
selected and/or approved by the Employer. This means that the independent demand
guarantee at Annex C is a conditional demand form because one of the circumstances
at paragraphs (a) to (d) must arise prior to making a call.
Paragraphs (a) 14 to (d) are very wide. In particular paragraph (d) is especially wide as
it allows a call wherever the grounds exist for an Employer to terminate under Sub-
Clause 15.2, whether or not the Employer has given notice. The circumstances in
which Sub-Clause 15.2 gives a right to terminate are set out in detail in the
commentary for Sub-Clause 15.2. For the present purposes, the most far-reaching
reason justifying calling of the demand guarantee is that set out in 15.2 (c)(i) for the
Contractor’s failure to proceed with the Works in accordance with Clause 8. This is
because Sub-Clause 8.1 requires the Contractor not only to proceed “with due
expedition and without delay” which arguably means without any delay at all but also
to proceed in accordance with the Sub-Clause 8.3 programme; although this will be
subject to the de minimis rule. This means that the Contractor is under an obligation
to proceed in the precise order and at the times set out in the programme. These are
two obligations which even the most efficient and successful Contractor will probably
breach from time to time even if, overall, the Works are proceeding very well.
The terms at Sub-Clause 4.2 paragraphs (a) to (d) further limits the ability to call
under the Performance Security. For example, while a failure to pay an amount
determined as payable by the Engineer under Sub-Clause 2.5 is a default immediately,
the Employer is not entitled to make a call under Sub-Clause 4.2 until 42 days after
the Engineer determination has been made (see paragraph b). Similarly, although the
Contractor is obliged under Sub-Clause 20.4 to give prompt effect to every decision
of the DAB, the Employer is not entitled to call the demand guarantee for 42 days (see
paragraph c).
Except for the Contractor’s failure to extend the validity period (Sub-Clause 4.2(a) ),
there is a restriction on the amount which the Employer can claim in regards to the
other Contractor failures at Sub-Clause 4.2 (b), (c) and (d). The Employer’s claim is
limited to sums which the Employer is ‘entitled under the Contract’. This results in
the need to crystallise the Contractor’s contractual liability.
14
Paragraph (a) has already been considered above in relation to extending the validity period.
14

Employer Breach
A call which does not fall within one of the justifications set out in (a) to (d) of the
Sub-Clause 4.2 will be a breach of contract by the Employer. This might justify the
Contractor itself in terminating under Sub-Clause 16.2(d) because a call by the
Employer for the Performance Security in the absence of having a justification to do
so is substantial failure of the Employer to perform his obligations under the Contract.
Where the right to call the Performance Security is based on default there is less likely
to be controversy about the actual calling (see Surety Bond below).
Indemnity
The penultimate paragraph of Sub-Clause 4.2 deals with rights and liabilities in the
situation where the Employer successfully calls for the Performance Security however
the call was either unjustified or the sum recovered exceeded the Employer’s loss.
The Employer is obliged to indemnify and hold the Contractor harmless of all
damages. There is therefore an implied duty on the Employer to return the overpaid
monies. The indemnity is for “all damages” to include legal fees and expenses. These
heads of loss may not be recoverable in arbitration or Court action.
The indemnity provision does not extend to place an obligation on the Employer to
reimburse the Contractor for any finance charges incurred or loss of reputation as a
result of the incorrect call made on the Performance Security.
It should also be pointed out that the contract does provide that the Performance
Security should be returned where there is termination for Employer based default
(under Sub-Clause 16.2) or for convenience (under Sub-Clause 15.5).
Calling a Demand Guarantee (Annex C Form)
Most controversy about the calling of Performance Securities arises from calls of a
demand guarantee because there is always a risk that an Employer will call a
guarantee even though there is doubt about the justification for a call. In
circumstances where the Employer's declaration is subsequently proved to be
incorrect, the Contractor may have recourse under the Laws and/or under the
indemnity in the penultimate paragraph of Sub-Clause 4.2.
Even where the Employer’s call for monies under the demand guarantee may
arguably be justified, the Contractor will often wish to contest it. To reduce the
possibility of subsequent disputes, the calling of the demand guarantee should take
place after liability has been established by agreement or by the Engineer, DAB or
arbitral decision.
Court Intervention: Incorrect Calling of a Demand Guarantee
15

The guarantor is not entitled to refuse a call even if the Contractor alleges that the call
is made without legal justification. The intention of the demand guarantee form is that
there should be no room for argument. Historically, the courts in most common law
jurisdictions would not intervene to prevent such a call, except where fraud was
alleged. However, recently the English courts have re-considered when a party may
be prevented from making a call on a bond. In Simon Carves v Ensus UK 15,
Akenhead J summarised 5 principles that the courts should have in mind when
considering whether to prevent a call on a bond. At paragraph 33 of his judgment he
stated:
"(a) Unless material fraud 16 is established at a final trial or there is clear

evidence of fraud at the without notice or interim injunction stage, the Court
will not act to prevent a bank from paying out on an on demand bond provided
that the conditions of the bond itself have been complied with (such as formal
notice in writing). However, fraud is not the only ground upon which a call on
the bond can be restrained by injunction.
(b) The same applies in relation to a beneficiary seeking payment under the
bond.
(c) There is no legal authority which permits the beneficiary to make a call on
the bond when it is expressly disentitled from doing so.
(d) In principle, if the underlying contract, in relation to which the bond has
been provided by way of security, clearly and expressly 17 prevents the
beneficiary party to the contract from making a demand under the bond, it can
be restrained by the court from making a demand under the bond.
(e) The court when considering the case at a final trial will be able to
determine finally what the underlying contract provides by way of restriction
on the beneficiary party in calling on the bond. The position is necessarily
different at the without notice or interim injunction stage because the Court
can only very rarely form a final view as to what the contract means.
However, given the importance of bonds and letters of credit in the
commercial world, it would be necessary at this early stage for the Court to be
satisfied on the arguments and evidence put before it that the party seeking an
injunction against the beneficiary had a strong case. It can not be expected
that the court at that stage will make in effect what is a final ruling."
In Doosan Babcock Ltd v Comercializadora De Equipos Y Materiales Mabe

Limitada 18 Edwards-Stuart J approved these principles. When applying to the court
15
[2011] BLR 340
16
See also Edward Owen Engineering Limited v Barclays Bank International [1978] 1 All ER 976
(CA)
17
In MW High Tech Projects UK Ltd & Anor v Biffa Waste Services Ltd [2015] EWHC 949 Edwards-
Stuart J held that either an express or implied term may suffice.
18
[2013] EWHC 3010
16

for an injunction it is not sufficient that there is a seriously arguable case that the
beneficiary was not entitled to draw down; it must be positively established that he
was not entitled to draw down under the underlying contract: Permasteelisa Japan KK
v Bouyguesstroi and Bank Intesa SpA.19 In this regard the test is more onerous than
the one usually applied when seeking an injunction. 20
The way in which the Courts will react to any attempt by the Contractor to obtain an
order preventing an Employer calling a demand guarantee will depend on the
jurisprudence of the country in which the bank or insurance company issuing the
security is based, the law of the contract, whether or not the jurisdiction of the courts
is displaced by an arbitration provision and what the arbitration law of the country
provides where a party seeks an order from a court relating to an issue which is
subject to the arbitration clause. The Federal Court of Australia in Cough
Engineering v ONGC 21 sets out guidance as to the issues which it needed to consider.
In further discussion about the commercial intention of demand guarantees, the
Federal Court quoted another Australian case 22 in which the Court held that the
commercial purpose of demand guarantees was to be as good as cash. This reference
is reflected in the FIDIC form. The form of demand guarantee applies the URDG
published as number 458 by the International Chamber of Commerce. A common
international standard for securities is achieved by incorporation of these Rules. The
FIDIC Guide provides that the URDG no.458 sets out the requirements for the
Employer making a call for the demand guarantee. The introduction to these Rules
states:
“The Beneficiary wishes to be secured against the risk of the principal's not
fulfilling his obligations towards the beneficiary in respect of the underlying
transaction for which the demand guarantee is given. The guarantee
accomplishes this by providing the beneficiary with quick access to a sum of
money if these obligations are not fulfilled.”
“Whilst recognising the needs of the beneficiary, the principal can expect on
the grounds of equity and good faith to be informed in writing that, and in
what respect, it is claimed he is in breach of his obligations. This should help
to eliminate a certain level of abuse of guarantees through unfair demands by
beneficiaries.”
These are explicitly modest controls. It is not expected that the process will limit all
abuses. The intention that the Employer (beneficiary) receives cash is not to be
limited by anything other than a requirement to notify the Contractor (principal)
before a claim is made. This is similar to Sub-Clause 10.3 of FIDIC 4th provision
19
[2007] EWHC 3508 (QB); and MW High Tech Projects UK Ltd & Anor v Biffa Waste Services Ltd
[2015] EWHC 949 [34]
20
American Cyanamid Co v Ethicon Ltd [1975] AC 396.
21
Clough Engineering Limited v Oil and Natural Gas Corporation Limited [2008] FCAFC 136 (22
July 2008 https://www.i-law.com/ilaw/doc/view.htm?id=208147
22
Wood Hall Ltd v The Pipeline Authority (1979) 141 CLR 443
17

which expresses the requirement for the Employer to give notice to the Contractor to
state the nature of the default.
In the text of the ICC Rules the following is stated:
“Article 2 (b)
Guarantees by their nature are separate transactions from the contract(s) or
tender conditions on which they may be based, and Guarantors are in no way
concerned with or bound by such contract(s), or tender conditions, despite the
inclusion of a reference to them in the Guarantee. The duty of a Guarantor
under a Guarantee is to pay the sum or sums therein stated on the
presentation of a written demand for payment and other documents specified
in the Guarantee which appear on their face to be in accordance with the
terms of the Guarantee.”
Again the underlying commercial intention is that the beneficiary holds the demand
guarantee as security and that if there is a call it should be paid immediately and any
issues between the parties resolved later.
Thus the conclusion reached by the Federal Court would also be relevant to a FIDIC
demand guarantee. Having reached its conclusion, the Federal Court went on to
discuss the only possible exceptions to the general commercial rule. These are:
1. Fraud. If the party calling the demand guarantee is acting fraudulently the
court may intervene to prevent the calling.
2. Unconscionable actions.
3. Breach of a contract not to call on the demand guarantee.
The first of these exceptions is fairly clear, though what is treated as fraudulent can
vary considerably from jurisdiction to jurisdiction.
The second is based on a section of the Trade Practices Act in Australia 23, which
forbids unconscionable behaviour in commercial transactions 24. Such provisions are
certainly not universal. However if the law applied to the contract and the contract
includes such a provision it may be a tool to prevent calling of the demand guarantee.
Many civil law systems include a provision which may be to a similar effect and this
argument may be open under those systems. Whether it means anything much
different from fraudulent behaviour is open to question. In the Australian cases the
expression has been described as meaning the following:
23
The Australian provision reads as follows:
TRADE PRACTICES ACT 1974 - SECT 51AA
Unconscionable conduct within the meaning of the unwritten law of the States and Territories
(1) A corporation must not, in trade or commerce, engage in conduct that is unconscionable
within the meaning of the unwritten law, from time to time, of the States and Territories
24
Olex Focas PTY Ltd. v Skodexport Co Ltd [1998]VR 380
18

“…that a person should not be permitted to use or insist upon his legal rights
to take advantage of another’s special vulnerability or misadventure for the
unjust enrichment of himself …” 25
Whether the law is similar in other jurisdictions will depend on the underlying law
and statute but it is quite possible that such an argument could be applied.
The third exception applies if it would be a breach of contract to call on the demand
guarantee. This depends on the wording of the contract. When considering this ground
regard should be had to the dicta of Akenhead J in Obrascon Huarte Lain SA v Her
Majesty's Attorney General for Gibraltar 26 at paras 319-322 where the judge stated
that in relation to termination for fault clauses the courts have construed them in a
commercial way. 27 The judge then referred with approval to a statement in Hudson's
Building and Engineering Contracts (12th Edition) at Para 8.056:
“Termination clauses occasionally allow termination on the ground of "any

breach" or "any default". Although in principle, parties may agree whatever
they wish, the courts will generally be reluctant to read such wording literally.
"Default" will be read as meaning a default relevant to the contract, and the
courts will treat matters which are not a breach of contract as excluded from
the meaning of default. "Any breach" will be held to refer only to important
breaches, to exclude minor breaches, and to include only such breaches as are
of substantial importance."
At paragraph 321 Akenhead J stated:
“It follows that, in construing both Clauses 15.1 and 15.2 of the Contract, a
commercially sensible construction is required. The parties can not sensibly
have thought (objectively) that a trivial contractual failure in itself could lead
to contractual termination. Thus, there being one day's culpable delay on a
730 day contract or 1m² of defective paintwork out of 10,000m² good
paintwork would not, if reasonable and sensible commercial persons had
anything to do with it, justify termination even if the Contractor does not
comply with a Clause 15.1 notice. What is trivial and what is significant or
serious will depend on the facts.”
It follows that a call should not be made on the Performance Bond if the breach,
which the Employer relies upon, is so minor or trivial breach that the Employer would
not be entitled to terminate under Sub-Clause 15.2.
Calling a Surety Bond (Annex D - A Conditional Bond)
25
Stern v McArthur (1988) 165 CLR 489, 525-527
26
[2014] EWHC 1028
27
Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191
19

Given the draft wording in Annex D the pre-conditions at Sub-Clause 4.2 paragraphs
(a) to (d) are likely to have considerable effect if the Employer decides it needs to call
the Performance Security. Annex D spells out an obligation to pay the amount
secured:
“Upon Default by the Principal to perform any Contractual Obligation, or

upon the occurrence of any of the events and circumstances listed in sub-
clause 15.2 of the conditions of the Contract, the Guarantor shall satisfy and
discharge the damages sustained by the Beneficiary due to such default, event
or circumstances.”
Proof of the contractor default of its obligations is required to call the surety bond.
However, the Annex D form for a surety bond is not entirely consistent with Sub-
Clause 4.2. The Annex D form envisages an obligation to pay for any failure to
perform a Contractual Obligation as well as for an action which would entitle the
Employer to terminate under Sub-Clause 15.2 28, whereas not every failure to perform
a Contractual Obligation justifies a call under Sub-Clause 4.2. In contrast Annex C for
demand guarantees clearly states that the right to call on the demand guarantee is for
the Contractor’s breach of obligation(s) ‘under the Contract’. This limits the right to
call to the events and circumstances set out in Sub-Clause 4.2.
Sub-Clause 4.2 limits the ability to call the Performance Security even though there
may have been a default of a nature which would require the guarantor to pay under
the terms of the surety bond itself. For example, while a failure to pay an amount
determined as payable by the Engineer under Sub-Clause 2.5 is a default immediately,
the Employer is not entitled to make a call under Sub-Clause 4.2 until 42 days after
the determination has been made. Similarly, although the Contractor is obliged under
Sub-Clause 20.4 to give prompt effect to every decision of the DAB, the Employer is
not entitled to call the surety bond for 42 days. Employers wishing to make calls on
the default or conditional performance securities (the Surety Bond at Annex D)
therefore need to take care to ensure that they have fulfilled their obligations under
both Sub-Clause 4.2 and under the conditions of the Surety Bond.
Sub-Clause 4.3 Contractor’s Representative
Prior to the Commencement Date the Contractor appoints its Representative for
directing the Contractor’s performance of the Contract and to receive Sub-Clause 3.3
instructions from the Engineer.
Where the Contractor’s Representative is not identified in the Contract then the
Engineer’s approval is required. The Engineer’s approval is also required if the
Contractor seeks to revoke the appointment of and/or replace the Contractor’s
28
Annex D states the following “Upon Default by the Principal to perform any Contractual
Obligation, or upon the occurrence of any of the events and circumstances listed in sub-clause
15.2...the Guarantor shall satisfy and discharge the damages sustained by the Beneficiary due to such
Default, event or circumstances”.
20

Representative. The Contractor’s Representative is entitled to delegate or to revoke
the delegation of its powers or functions to an identified competent person. This is
provided that signed notice by the Contractor is given to the Engineer identifying the
powers, function or authority delegated or revoked.
The Contractor’s Representative, including its replacements or substitutions, shall be

fluent in the language specified in the Contract.
The Contractor’s Representative shall have all authority necessary to act on the
Contractor’s behalf and is the individual responsible for directing the performance of
the Contractor’s obligations under the Contract. The Contractor’s Representative is
also responsible for directing the Contractor’s Personnel and Subcontractor(s) and is
required to be on Site whenever works are in progress (except where a replacement
individual is approved). The FIDIC Guide highlights that the Contractor
Representative plays an important role and more than inferred from the terms of Sub-
Clause 4.3. It is therefore important that both the Contractor and the Employer are
satisfied with the proposed Contractor Representative. Indeed the FIDIC Guide 1999
suggests that both parties should be satisfied with the competence of the individual
proposed. The Engineer’s approval is subject to Sub-Clause 1.3 and consent should be
given in writing and shall not be unreasonably withheld or delayed.
The Contractor’s Representative is referred to as the ‘Contractor’s Superintendence’

in the earlier FIDIC 4th Edition at Sub-Clause 15.1. The earlier provision confers a
right on the Engineer to withdraw its approval of a competent or authorised
representative at any time. This is disruptive to a Contractor and this express right has
been removed under FIDIC 1999.
The Contractor’s Representative is equivalent to a Contractor’s Engineer and is

required to stay on Site to manage the Contractor’s performance throughout the
project to include the defects notification period. The Contractor has obligations
which follow the defects notification period (after issue of the Performance
Certificate) under Sub-Clause 11.10 [Unfulfilled Obligations] for obligations which
remain unperformed. The Contractor’s Representative may be required on Site to
direct performance of any unfulfilled obligations.
The Sub-Clause largely speaks for itself; however it contains two almost hidden
anomalies.
If the Contractors' Representative is named in the Contract, the Engineer has no power
to ask for his removal. This power exists only if the Contractor’s Representative was
initially appointed with the Engineer’s consent – the Engineer can then withdraw his
consent. In circumstances where the Contractor’s Representative is named in the
tender and therefore in the Contract the parties should also consider to agree on a list
of alternative Contractor’s Representative at the tender stage should the situation arise
where it is necessary to replace the Contractor’s Representative for one of the reasons
described in Sub-Clause 4.3.
21

In addition, whereas the appointment of the Contractor’s Representative or his
replacement is subject to the prior consent of the Engineer, the Contractor’s
Representative’s power to delegate his powers, functions and authority is not subject
to consent but only to the giving of prior notice. From the Employer/Engineer’s point
of view this tends to undermine the usefulness of the power to prevent the
appointment of a suitable person to the role of Contractor’s Representative. Any
notice given on Site by hand should also be issued in accordance with Sub-Clause 1.3
[Communications] so that it is also sent to the recipient address specified in the
Appendix to Tender.
Sub-Clause 4.4 Subcontractors
The Contractor is only permitted to sub-contract parts of the Works and not the whole
Works.
Note that the Contractor’s unlimited responsibility for the acts or defaults of the
Subcontractors applies even if the Subcontractor is imposed on the Contractor by the
Employer. The Contractor is therefore fixed with strict liability under the Contract for
all Subcontractors. Since a Contractor must take full responsibility for the acts or
defaults of any nominated Subcontractor it may be reasonable to insist that a
nominated Subcontractor provides an indemnity or that a counter-indemnity is
provided by the Employer. The Contractor is prohibited from submitting claims where
it is caused by or arises out of Subcontractor responsibility.
Both parties are considered to have accepted a Subcontractor named in the Contract
with the result that the Contractor is entitled to use such a Subcontractor without
consent. In all other cases the prior consent of the Engineer is required for the
engagement of Subcontractors, unless it is a supplier of Materials.
Naming of the actual or potential Subcontractors in the Particular Conditions removes

the burden of obtaining Engineer consent to the appointment and the Engineer will
have no right to raise any objection to those identified Subcontractors pre-approved.
Sub-Clause 4.5 Assignment of Benefit of Subcontract
The requirement to assign the benefit of the subcontract to the Employer applies to
subcontractor obligations after the expiry of the relevant Defects Notification Period.
The assignment is for all benefits under the subcontract (which can only apply for
parts of the Works) as Sub-Clause 4.4 prevents subcontracting the whole of the
Works. The rights assigned to the Employer are only those rights which the
Contractor had against the subcontractor. The Employer cannot recover from the
22

Subcontractor its losses if the Contractor suffered no loss as a result of the
subcontractor breach.
The Engineer may instruct the Contractor to assign the benefit prior to the expiry of
the relevant Defects Notification Period. There is no obligation placed on the
Contractor to inform the Employer of any Subcontractor obligations which extend
beyond the relevant Defects Notification Period. For this Sub-Clause to be applied the
Employer must have knowledge of the particular subcontractors continuing and
assignable obligation extending post the relevant Defects Notification Period. It
should be noted that Sub-Clause 4.4 (d) requires each subcontract to contain
provisions to entitle the Employer to require the subcontract to be assigned to the
Employer.
The Contractor in assigning all benefits under the subcontract, to include the right to
make future claims against the subcontractor, may deprive itself of its right to seek
any legal redress for future claims against the subcontractor. There is some protection
in that following the assignment the Contractor is relieved of liability to the Employer
for work carried out by the subcontractor post-assignment 29. However for latent
defects which become apparent after the assignment, the Contractor may have lost its
pre-assignment rights. The assignment terms should be carefully considered by both
parties and the FIDIC Guide recommends that the following terms are appropriate:
“Entitle the Contractor to require the Employer to make the claim on the
Contractor's behalf, and/or
Relieve the Contractor from any further liability in respect of any work carried
out by this Subcontractor”.
Rights and obligations under the applicable law should be considered as in some
jurisdictions subcontractor rights may be wide allowing a subcontractor to recover
payment directly from the Employer for sums withheld by the Contractor 30.
Sub-Clause 4.6 Co-operation
This Sub-Clause deals with two separate matters, one of which goes some way to
being in the nature of “Co-operation” but the other of which relates to Contractor
possession of foundations, structures, plant or access and has nothing to do with Co-
operation at all.
The detail and scope of Co-operation required by this Sub-Clause is to be specified in

the Contract.
“Co-operation”
29
The earlier Sub-Clause 4.2 of FIDIC 4th did not contain terms to limit or exclude the Employer from
pursuing the Contractor for any defects caused by the subcontractor following assignment.
30
Brian W. Totterdill, FIDIC Users’ guide, A practical guide to the 1999 Red and Yellow Books
Second Edition at page 127.
23

A common sense reading of the word “co-operation” would include not only the acts
of allowing others on or near the Site to carry out work, but also the provision of
information to them about things which might affect them, the exchange of
information with them so that all on Site are aware of activities which might affect
their programmes.
However this Sub-Clause requires only that the Contractor provide “appropriate
opportunities for carrying out work” to those listed in the Sub-Clause (Employer
Personnel, other Contractors employed by the Employer and public authority
personnel) as specified in the Contract or instructed by the Engineer. This, it is
submitted, has a narrower application than the previous Contractor obligation under
the Sub-Clause 31.1 FIDIC 4th to provide ‘all reasonable’ opportunities. Such
appropriate opportunities for carrying out work include allowing use of the
Contractor’s Equipment, Temporary Works or access arrangements (this is not clear
from the first paragraph but is clear from the second sentence of the fourth paragraph
which describes what may be included in a Variation).
The extent of obligations will be clear if the Contract specifies them, but if it does not,
the Contractor is not obliged to do anything without an instruction from the Engineer.
The cost of the co-operation rests on the Employer to the extent it is not specified in
the contract and is an Engineer instruction. If an Engineer instruction is given under
Sub-Clause 4.6, the Contractor is expected to have allowed in his Tender for the Cost
which an experienced contractor could reasonably have foreseen. Again this falls
short of what might normally be considered “co-operation”. This places a heavy
burden on the Engineer. Even routine co-operation and co-ordination requires his
instruction.
The Contractor is obliged to obey the instruction but will only be paid for carrying it
out if and to the extent that it incurs Unforeseeable Cost; i.e. to the extent that the Cost
was not reasonably foreseeable by an experienced contractor. The information
available at tender stage together with whether the instruction amounts to a Variation
is considered to determine whether the cost is unforeseeable. In those circumstances
the instruction will be treated as a Variation and Clause 13 will apply. Although the
trigger for the Variation will be the incurring of Cost, the remuneration will be
calculated in accordance with Clause 12 [Measurement and Evaluation] and may
therefore include profit as well as Cost. The FIDIC Guide 1999 recommends that the
tender document describes the extent of the appropriate opportunities. This will assist
in determining whether any particular action taken by the Contractor is unforeseeable.
The co-operation obligation under Sub-Clause 4.5 is one sided. However there is a
corresponding obligation on the Employer under Sub-Clause 2.3(a) [Employer’s
Personnel] which requires the Employer to ensure that its personnel and other
contractors co-operate with the Contractor’s efforts in carrying out its obligations
under this Sub-Clause 4.6. The Employer is also required to take on similar
responsibilities for Safety Procedures and Protection of the Environment. Delay to
the Contractor’s works caused by the Employer’s personnel (to include lack of
possession of Site under Sub-Clause 2.1) entitles the Contractor to an extension of
24

time under Sub-Clause 8.4(e) (or under Sub-Clause 8.5 if delay is caused by the
public authority) for failure to co-operate.
Possession
The Employer is required to give the Contractor possession of any foundation,

structure, plant or means of access in accordance with the Contractor’s Documents
which are to be submitted in the time and manner stated in the Specification. It is
implied that the Contractor’s entitlement to possession relates to work designed by the
Contractor given that possession is to be set out in the Contractor’s Documents. 31
Sub-Clause 4.7 Setting Out
The Contractor is responsible for the correct positioning of all parts of the Works
where the original points, lines and levels of reference are specified in the Contract or
when notified by the Engineer to the Contractor. The Contractor is responsible to
rectify any error to the Works positioned incorrectly. This is not at the Contractor’s
risk if the specification or notice for setting out is erroneous and the Contractor used
reasonable efforts to verify their accuracy before use.
Sub-Clause 4.7 has developed from Sub-Clause 17.1 of FIDIC 4th. Sub-Clause 4.7
adds terms to allow the Contractor an extension of time (in addition to Cost) resulting
from delays caused by an unforeseen error in the specification or Engineer’s notice.
This prevents time being set at large in situations where the delay is not a Contractor
risk. The Contractor’s claim is subject to the Sub-Clause 20.1 notice procedure and
subsequent Engineer determination under Sub-Clause 3.5, (see commentary on Sub-
Clause 20.1).
Sub-Clause 4.7 removes the terms which provided that the Contractor will not be
relieved of his responsibility if the Engineer checks any setting out. It is submitted
that removal of these terms does not change the position that the Contractor will
remain responsible even in circumstances where the Engineer checks and approves
the setting out. The provision should be read in accordance with Sub-Clause 3.1(c)
which states that the Contractor shall not be relieved of any of its obligations despite
an Engineer approval.
It is the Contractor’s duty to set out the Works but the Employer is responsible for the
accuracy of the information given to the Contractor. However, before the Contractor
uses the information, it is obliged to use reasonable efforts to verify it. The Contractor
should give notice under Sub-Clause 1.8 [Care and Supply of Documents] if an error
is discovered. If those reasonable efforts would not have enabled the Contractor to
discover the error and an experienced contractor would also not have discovered the
error, the Contractor may be entitled to an extension of time, Cost and reasonable
profit. This is for executing work resulting from an error in the Employer’s contract
31
Brian W Totterdill, FIDIC users’ guide. A practical guide to the 1999 red and yellow books, at page
128
25

specification or the Engineer’s notification. There are four steps before the
Contractor’s right to compensation comes into effect:
1. There must be an error; and

2. The Contractor must have used reasonable efforts to verify the accuracy of
the information provided;
3. Any error must be one that an experienced contractor would not reasonably
have discovered. An objective standard is the standard which applies; and
4. The error must have caused the Contractor delay and/or Cost
The Contractor is therefore not entitled to assume the information is correct and then
make a claim when he eventually suffers delay or Cost. The Contractor is very much
part of the process of setting out and carries some of the risk of error. This is clear
enough in principle but in practice the provision is difficult to operate.
The provision requires the Contractor to rectify ‘any’ error. This will include minor
defects. In circumstances where an error is considered insignificant, expensive and
disproportionate to remedy the parties should seek to agree a reduction in the value of
the work. Sub-Clause 4.7, similar to its predecessor, does not place an obligation on
the Employer to mitigate its loss 32.
If the Engineer admits the error due to incorrect information supplied and elects to
disregard the error then due to the terms of Sub-Clause 3.1(d), which does not place
authority on the Engineer to relieve the Contractor of its obligations, the Contractor
should ensure that the Employer is agreeable with the Engineer’s decision for the
remedial works not to be carried out.
Sub-Clause 17.1 of FIDIC 4th provides that the Contractor is obliged at its own cost to
correct any error it made in the setting out of the Works, unless the error was caused
by incorrect data supplied to it. The FIDIC 4th edition required the contractor to
carefully ‘protect and preserve all bench-marks, sight-rails, pegs and other things
used in setting-out the Works’. This is particularly useful in scenarios where the
Engineer confirms the point for setting out on Site and not by written notice. Given
that there is no obligation to protect and preserve any marker under FIDIC 1999 the
Contractor is advised to seek written confirmation of the location of any setting-out
points or to take steps to preserve any marker. The omission of the Contractor
obligation to protect and preserve the items used in setting-out the Works is a pity
because it must have made it easier for the Engineer to judge whether the Contractor’s
setting out was accurate. Furthermore it often leads to disputes under this Sub-Clause
4.7 as it is common particularly in road works for the bench-marks, sight-rails, pegs
and other things used for the original setting out of the Works by the surveyor or
designer to have disappeared.
If the Contractor arrives on Site to find that some or all of the pegs have entirely
disappeared then the Contractor may have to spend considerable time and cost
32
E.C. Corbett, FIDIC 4th A Practical Legal Guide at page 141
26

replacing them before he can even begin with the laying out and positioning of the
Works. It is unlikely that the omission of the requirement to protect and preserve has
made any difference to the Contractor’s legal obligations. The Contractor remains
responsible for setting out the Works accurately and will have to correct any error it
should not have made. If the Engineer discovers an error during the course of work,
the Engineer will still have the power under Sub-Clause 4.1 [Contractor’s General
Obligations] to order the Contractor to correct it.
If the Contract specifies a particular alignment by reference to setting out points

which no longer exist, the Contractor is entitled to insist that before he begins setting
out he is given sufficient information to locate the original points etc. This
information can (in addition to being provided in the Contract) be notified by the
Engineer. If what is notified by the Engineer differs from what is in the Contract this
may require a Variation. However with modern GPS technology it is becoming
increasingly unlikely that setting out will be entirely dependent on pegs in the ground
and this issue may be about to disappear as a real basis for dispute.
Sub-Clause 4.8 Safety Procedures
The Contractor has safety obligations to the persons entitled to be on Site. The
Contractor must also protect the public and the adjacent private land owners from
execution of the Works by providing Temporary Works such as fences and guards.
The Contractor’s obligation to secure the Site and to guard the Works ceases on
Taking Over.
The basic safety obligations imposed on the Contractor are set out in Sub-Clause 4.8.
This Sub-Clause had its origin at Clause 19 of FIDIC 3rd Edition and underwent
amendments in the FIDIC 4th Edition 33. The provisions relating to Security and
Protection of the Environment were dealt with in one Sub-Clause under FIDIC 4th.
They are not contained in one Sub-Clause in FIDIC 1999 and they have been
separated out into Sub-Clauses 4.18 and 4.22 with health and safety elements at Sub-
Clause 6.7 of FIDIC 1999. A further safety obligation is imposed on the Contractor at
Sub-Clause 6.4 [Labour Laws] for Contractor Personnel.
Safety Regulations
Under Sub-Clause 4.8(a) the Contractor is required to comply with the ‘applicable’
safety regulations which may be less onerous than the other safety obligations
specified under this Sub-Clause that apply to the Works and/or the Site.
Safety of Persons on Site

Sub-Clause 4.8 (b) and (c) deal with safety of persons on Site and has developed from
Sub-Clause 19.1(a) FIDIC 4th. Although Sub-Clause 4.8 is drafted more concisely in
comparison to the corresponding provisions in FIDIC 4th, ambiguity remains. If the
33
E.C. Corbett, FIDIC 4th A Practical Legal Guide at page 147.
27

Employer has any particular requirements then these should be set out in the particular
conditions.
Paragraph (b) provides that the Contractor must ‘take care for the safety of all persons
entitled to be on Site’. The Contractor’s obligation to take care of the safety of persons
on Site is not so straightforward. Sub-Clause 1.1.6.7 defines Site to include the places
where the Plant and Materials are to be delivered and any other places specified in the
Contract as forming part of the Site. The right and possession of the Site may not be
exclusive to the Contractor and different parts of the Site may come into the
Contractor’s possession at different times (see Sub-Clause 2.1 [Right of Access to the
Site]).
There is no contractual obligation placed on the Contractor to take care of non-entitled

persons on Site such as trespassers. Under some jurisdictions the Contractor will be
considered responsible for the safety of persons not entitled to be on site. The extent
of this duty should be considered under the Applicable Law.
The obligation to keep the Site free from obstructions to avoid danger to persons
under paragraph (c) no longer uses the terms to ‘keep’ the Site and Works “in an
orderly state appropriate” 34. Instead the obligation is to keep the Site and Works
“clear of unnecessary obstruction” and in doing so the Contractor is only required to
use reasonable efforts. It is a matter of opinion as to what constitutes an unnecessary
obstruction and reasonable effort. Introduction of these new terms removes a strict
obligation on the Contractor. The Contractor is required under Sub-Clause 17.1(b)
[Indemnities] to indemnify the Employer against claims, loss and damage for damage
to persons or property.
Presumably FIDIC’s intention to limit the obligation to avoid danger to ‘these

persons’ is to ensure that the duty to keep the work areas clear of unnecessary
obstruction only applies to persons entitled to be on Site under paragraph (b).
Reciprocal responsibility is placed on the Employer under Sub-Clause 2.3(b)

[Employer Personnel] to ensure that its personnel and other contractors on Site take
similar actions to which the Contractor is required to take under Sub-Clause 4.8 (a),
(b) and (c).
Safety Measures
Sub-Clause 4.8(d) imposes a narrower obligation than its predecessor at Sub-Clause
19.1(b) of FIDIC 4th in respect of safety procedures. Paragraph (d) requires the
Contractor to provide safety measures at the Site by way of fencing, guarding, lighting
and watching of the Works. The safety measures listed are generic and the Employer
should set out any other specific requirements within the contract such as to provide
warning signs. The Contractor’s obligation to provide these measures extends for the
duration of the Works until taking over (of the relevant part). This is a change from
the FIDIC 4th position where the obligation to provide such measures depended on
34
See Sub-Clause 19.1(a) FIDIC 4th .
28

whether it is ‘necessary’ or instructed by the Engineer (or constituted authority) at the
Contractor’s cost. FIDIC 1999 have made the obligation compulsory for the duration
of the Works.
Temporary Works
Paragraph (e) requires the Contractor to provide the necessary Temporary Works for
the use and protection of the public or adjacent land owners/occupiers. Temporary
measures may include the safety measures identified in paragraph (d). If the
Contractor does not have exclusive possession of the Site then the Sub-Clause may
require amendment to reduce the scope of Contractor responsibility accordingly. 35
If, in the event of Force Majeure, the Contractor is not prevented from carrying out
these activities but is prevented from progressing the Works properly, he will in many
circumstances not be entitled to any payment for the expense incurred, (refer to
commentary on Clause 19).
Sub-Clause 4.9 Quality Assurance
The Contractor is under an obligation to put in place a quality assurance system to

show its compliance with the Contract requirements which may be audited as the
Engineer may require. Implementation of a quality assurance system does not relieve
the Contractor of his obligations under the Contract.
Many of the Clause 4 provisions make up the contractual framework for quality
assurance. The Contractor is specifically required to institute a quality assurance
system for the purpose of demonstrating contractor compliance with the contract
obligations.
The quality assurance system is a new concept in FIDIC 1999 which must be in
accordance with the details stated in the contract. Details of a quality assurance
system provided in the contract may be proposed by tenderers. There is no similar
requirement to implement a quality assurance system under the earlier provision of
Sub-Clause 36.1 of FIDIC 4th. The change in FIDIC 1999 is due to the introduction of
the concept for a quality management system by the International Standard ISO 9001
for demonstrating compliance with contract requirements.
Audit
The Engineer is given a right to audit any aspect of the quality assurance system
although no right is granted to the Engineer under this Sub-Clause to issue an
instruction as a result of an audit. The Contractor is not relieved from any non-
compliance of its obligations under the contract even in circumstances where the
Engineer approves or fails to raise any issue to the relevant quality assurance
procedures and documents submitted. The Contractor must comply with all
contractual obligations and responsibilities.
35
130.
29

Document Submission
Prior to each design and execution stage the Contractor is also required to submit to
the Engineer details of all procedures and compliance documents. This is a wide
requirement. Such documents will include any document of a technical nature such as
test results for tested Plant, Materials and other parts of the Works or workmanship
and even for tests carried out at the place of manufacture, fabrication and preparation.
The details to be submitted will also include Temporary Works. Particular
requirements (if any) should be set out in the Specification.
A formality requirement is also introduced. The Contractor is required to mark up

technical documents which it submits to the Engineer. This is a costly system and the
additional cost to the Employer will not be justified where the Contractor is not
experienced in operating his own quality control36. The FIDIC Guide recognises that
the International Standard could be inappropriate for some Works or for work in some
countries. This Sub-Clause should be deleted if there is no requirement for a quality
assurance system.
Sub-Clause 4.10 Site Data
The Employer is to hand over to the Contractor prior to the tender submission
information and data in its possession relevant to the Site to include Environmental
aspects. This obligation continues after tender submission for any new information
which comes into the Employer’s possession. The Contractor is responsible for
interpreting the information.
Prior to submitting the Tender, the Contractor is deemed to have inspected the Site
and its surroundings, obtained all necessary information to include information which
may influence or affect the Tender or Works. The Contractor is also deemed to be
satisfied as to all relevant matters such as ground conditions, weather, necessary
works and Goods, the applicable Law and procedures as well as access to Site and
other services required.
Employer’s Obligation
The initial obligation is for the Employer to provide the relevant sub-surface and
hydrological data in the Employer’s possession. Relevant data is explained in the
FIDIC Guide as the data obtained from investigations for the Works or by others such
as data which is publically available but is in the Employer’s possession. This means
that the Employer is not required to provide opinions or conclusions shown in the
reports. The Employer is therefore not required to provide data which is not relevant
to the Contractor's performance of contract obligations. The critical date is the Base
Date defined at Sub-Clause 1.1.3.1 as 28 days prior to the latest date for submission of
the Tender. The provision differs from the 4th Edition which provides:
36
131.
30

“The Employer shall have made available to the Contractor, before the
submission by the Contractor of the Tender, such data on hydrological and
subsurface conditions as have been obtained by or on behalf of the Employer
from investigations undertaken relevant to the Works but the Contractor shall
be responsible for his own interpretation thereof.”
The old provision thus limited the Employer’s obligation to data obtained from
investigations relevant to the Works and required the information to be up to date of
Tender.
The new provision includes data which may not have been obtained specifically for
these Works, so long as it is in the Employer’s possession and it is also relevant data.
Information known to be incorrect is not ‘data’. However dubious data must be made
available and the FIDIC Guide 1999 suggests that in such circumstances suitable
explanations are given for this data.
Such information will often exist because many projects have been the subject of
investigations carried out over many years or some information may have been
obtained for other projects which have been executed at the site. The FIDIC 1999
guide mentions that it is in the interest for both the Contractor and Employer to have
as much factual information relevant to the Site and Works, as is available.
Data is the factual material and not the conclusions which experts or consultants may
derive from it. 37 Thus the Employer is not obliged to release expert or consultants’
reports. If the Employer decides to release such reports it would be wise to obtain an
agreement from the Contractor that the Employer should not take responsibility for
any interpretation of the data. Sub-Clause 4.10 only makes the Contractor responsible
for interpretation of the data, not for the interpretation of any reports based on the
data.
In this context the meaning of the word “Employer” may be of considerable

importance. If the Employer is, for example, a government ministry without separate
legal personality, it may be the case that the Employer is the government as a whole
and that relevant materials anywhere in government possession may be covered by the
Sub-Clause. Employers in this position should take care to define carefully in what
parts of their organisation the material they plan to make available to the Contractor
for his information is held.
Following the Base Date the Employer is required to make available any further data
which comes into its possession. The Contractor is therefore expected to be in
possession of all the relevant material in the Employer’s possession from time to time.
Employer Liability
There is no particular requirement for the timing of the release of the further data. The
question is what are the consequences if the Employer fails to meet this obligation to
37
This is also the position taken by FIDIC in the FIDIC guide.
31

make data available which is in its possession? The timing of the delivery of the
material may affect the Employer’s liability. Information on sub-surface and
hydrological conditions at the Site and environmental aspects will have an effect on
the way in which the Contractor prices and performs the Works. In circumstances
where the Employer fails to submit the data timeously or deliberately withholds the
data and it affects the way in which the Contractor carries out the Works the
Contractor may have a claim against the Employer (such as in breach of contract).
This is supported by the FIDIC Guide 1999 in that the Contractor may claim against
the employer for negligent or intentional withholding of data. The damages are likely
to be assessed as the difference in contract price had the data been made available 38.
Contractor’s Deemed Knowledge

It is clear in practical terms that if the Contractor is deprived of some available
information and plans or works on a different basis until the correct position is
ascertained it will incur Cost and may be delayed. A normal consequence of such a
breach of contract would be a claim by the Contractor for time or money. The same
consequences can also follow if the information given is wrong – perhaps because of
errors in the studies or surveys carried out in preparation for the Works. However,
whilst this is the normal consequence of such a breach, the Contract is not as clear as
it might be that this is the consequence. Sub-Clause 4.10 continues after imposing the
above obligation on the Employer:
“To the extent which was practicable (taking account of cost and time), the
Contractor shall be deemed to have obtained all necessary information as to
risks, contingencies and other circumstances which may influence or affect the
Tender or Works.”
Taking into account practicability the Contractor cannot be required to have obtained
information which was in the Employer’s possession but was not disclosed. Further
the realities of the business of contracting and the need to make many Tenders in
order to obtain enough work to keep the business viable means that it is not normally
practicable to make extensive investigations prior to tender.
However the Sub-Clause continues further by deeming the Contractor (but again only
to the extent practicable), to have inspected and examined the Site, its surroundings,
the Employer’s data and other available information and to have satisfied itself not
only as to the other matters listed but also as to all other relevant matters.
Clearly again the Contractor cannot be deemed to have examined data he has not been
given. However he is also expected to have examined “other available information” –
this would include publicly available geotechnical information for example. The
Contractor’s obligation to obtain information is not therefore limited to the
information provided by the Employer.
38
E.C Corbett, FIDIC 4th A Practical Legal Guide, Clause 11 at page 112.
32

Site and Surroundings
It should be noted that the obligation for the Employer to provide information relates
to the Site alone and the Contractor’s obligation to inspect and examine relate to the
Site and its surroundings. There is a gap here – the Employer does not have to provide
the information he has about surroundings, but the Contractor is deemed to have
inspected the data relating to the surroundings.
Site in accordance with Sub-Clause 1.1.6.7 normally means only the area where the
Permanent Works will be carried out. The Employer’s obligations in respect of
provision of information do not apply to off-Site locations which may be very relevant
to the Works – for example the routes for access or the location of borrow areas and
quarries. 39 The Contractor’s obligations for inspection and examination of the Site
and data however extend to both the Site and its surroundings. Further not every area
relevant to the Works is on the Site or its surroundings. In that case, while the
Employer will not be required to provide information, the Contractor will not be
deemed to have inspected and examined them.
In summary, this Sub-Clause leaves both parties with a considerable degree of

uncertainty. The Contractor has a right to expect the information which the Employer
has in its possession for the Site, but not beyond it. However he is deemed to have
satisfied himself as to all risks etc – and this assumption applies even if the Employer
has no information to provide him. The Contractor’s obligations in any event extend
well beyond the Site – even if the Employer might have been in a position to provide
useful information. The test of what is “practicable” is very vague so neither party
can really be sure as to whether the Contractor has met his obligations.
Overall the Sub-Clause therefore seems to place far heavier burdens on the Contractor
than on the Employer. Given that the Employer is usually in a far better position to
know about its Site and about working conditions in its environment, this is not
necessarily the most sensible way to share risk. The Contractor, aware that he does
not have a great deal of local knowledge, must price the risk of an error into his bid.
Under Sub-Clause 4.11 [Sufficiency of the Accepted Contract Amount] the Contractor
is deemed to have based the Accepted Contract Amount on all the relevant matters
referred to in this Sub-Clause 4.10. The Employer may well be able to save money by
taking more of the risk and carrying out more extensive pre-award investigations.
The only modification of what otherwise appears to be an imperfect risk sharing
model is the limitation on the Contractor’s obligations to that which is “practicable
(taking account of cost and time)”. This language appears to have been introduced so
as to recognise the fact that in terms of cost and time for obtaining the information the
Contractor is in a much worse position than the Employer and, in trying to interpret
what it means in any particular set of circumstances, this needs to be taken into
account.
39
ICC Partial and Final Awards in Case 11499, ICC Bulletin Vol 19/2 2008 at page 48
33

The parties should address the further available data by way of an addendum to the
contract (or particular conditions if prior to signing the contract) if the further data
affects a party’s obligations and risks under contract.
In the common situation where a project has been undergoing planning and designing
for 5 years or longer before it is put out to tender and where the Employer will have
made his estimates (for budgeting purposes) of the likely cost of the works it must
normally be arguable that if the Employer took this long to reach tender, the tenderers
cannot be expected to make themselves as well aware of all the risks in the tender
period – which will usually be weeks rather than years. Thus the “practicable (taking
account of cost and time)” test can often be argued to push the risk back in the
direction of the Employer. Employers may well be best advised to make this explicit
and to openly agree to take more physical condition risk by providing as much
information as possible.
The effect of Sub-Clause 4.10 will be relevant in considering the effect of the two
following Sub-Clauses affecting the allocation of risk of pricing and physical
conditions. However, in the event that the Employer fails to meet its obligations under
Sub-Clause 4.10 the Contractor will also have a breach of contract claim for any
mispricing, costs or acceleration or prolongation costs which may follow. This will
include both Costs and loss of profit. The information available at tender stage is
relevant to determine risk allocation for encountering unforeseeable physical
conditions under Sub-Clause 4.12 [Unforeseeable Physical Conditions]. Although
under Sub-Clause 4.12 [Unforeseeable Physical Conditions] the Contractor is only
entitled to an extension of time and to recover his Costs, if there is a failure on the part
of the Employer to provide all relevant data in his possession which then leads to the
problematical adverse physical conditions being Unforeseeable, the Employer will
also be liable for loss of profit.
The Five Deemed Examples

The Sub-Clause lists five specific examples of matters the Contractor is deemed to be
satisfied at paragraphs (a) to (e). These are considered below.
"(a) the form and nature of the Site, including the sub-surface conditions".
See Sub-Clause 4.12 [Unforeseeable Physical Conditions] for sub-surface conditions
which places the risk on the Employer for unforeseeable ground conditions (such as
the sub-surface conditions). Under Sub-Clause 4.12, the data provided and available
to the Contractor influences whether the ground conditions are actually considered to
be unforeseeable. 40
"(b) the hydrological and climatic conditions".

See Sub-Clause 8.4 [Extension of Time for Completion] at paragraph (c) where
"exceptionally adverse climatic conditions" are grounds for an extension of time.
Whilst there is an apparent mismatch in that weather may be exceptionally adverse
despite the fact that the information indicating the probability of such weather was
40
ICC Partial and Final Awards in Case 11499, ICC Bulletin Vol 19/2 2008 at page 48
34

available to the Contractor at tender stage, this Sub-Clause may have the effect of
imposing an additional requirement before an extension of time is granted. For the
Contractor to show that the specific adverse climatic conditions delayed him, he must
presumably demonstrate that such conditions were not allowed for nor deemed to
have been allowed for in his tender and therefore in his programme and that, bearing
in mind the information given to the Contractor, they are in fact exceptional. See also
Sub-Clause 4.12 where hydrological conditions are treated as physical conditions and
where foreseeability will be able to be judged to some extent in relation to the amount
of information provided by the Employer.
"(c) the extent and nature of work and Goods...".

The purpose of this paragraph is to forestall claims for variations, under Sub-Clause
13.1 [Variations], on the ground that the Contractor did not know such work was
necessary. This is to be read in conjunction with Sub-Clause 4.1 [Contractor's
General Obligations] which requires that "the Contractor shall provide...all other
things...required in and for this design execution…”.
“(d) the Laws, procedures and labour practices of the Country.”

The purpose of this paragraph is to forestall claims for extensions of time or variations
based on alleged law, procedure or labour practices which, though adverse to the
Contractor should have been anticipated. Arguably this rules out claims for delays in
customs clearance and the issue of government permits if such delays are endemic in
the Country. This is a wide requirement. The Contractor would need to consider many
areas of law to include local laws covering insurance, tax, health and safety, labour
and equipment importation restrictions.
"(e) the Contractor’s requirements for access, accommodation, facilities, personnel,

power, transport, water and other services".
The issue of access is also dealt with in Sub-Clause 4.15 [Access Route]. This item is
to be read in conjunction with Sub-Clause 2.1 [Right of Access to the Site]. This is
intended to forestall claims based on difficulties related to access or accommodation
etc. The Contractor is deemed by this provision to be satisfied prior to submitting its
Tender for all access requirements.
SUB-CLAUSE 4.11 SUFFICIENCY OF THE ACCEPTED CONTRACT

AMOUNT
The basic structure of Sub-Clause 4.11 has not changed from the earlier Sub-Clause
12.1 of FIDIC 4th in that the Contractor is deemed to have satisfied himself as to the
correctness of the Accepted Contract Amount (as required under Sub-Clause 4.11)
covering all the Contractor’s obligations to complete the contract. However terms
introduced in FIDIC 1999 require the Accepted Contract Amount to be based on data
and information referred to in Sub-Clause 4.10. The effect of this new provision is
that, having based the Accepted Contract Amount on his knowledge of the matters set
out in Sub-Clause 4.10, the Contractor is then deemed to be happy with the Accepted
Contract Amount. If the matters set out in Sub-Clause 4.10 are wrong, the
Contractor’s satisfaction with the Amount will prove to be a mistake. Further a
35

satisfaction which is deemed as at the date of agreement with the Employer does not
necessarily imply such satisfaction will continue – in practice it very often does not.
Thus there is a question as to what is the intention and meaning of this Sub-Clause.
If the Contractor is not satisfied with the price, what effect would this have on the
rights of the parties? The last paragraph of Sub-Clause 4.11 makes it clear (as does
the Contract Agreement) that, subject to the exceptions set out in the Contract, the
Accepted Contract Amount is all that the Contractor is entitled to receive for carrying
out the Works. His satisfaction or otherwise with this Amount is irrelevant – this is
the price he agreed to carry out the Works.
If the Contractor’s initial satisfaction is based on interpretations of the data and his
own investigations which subsequently prove to be erroneous, the Contractor would
not normally expect to be relieved from his bad bargain. Sub-Clause 4.10 makes it
clear that in some cases where it is not practicable to obtain certain information (such
as for the reason of time or cost) the Contractor will not be deemed to have obtained
all the necessary information to make his Tender. It would seem therefore that if, as a
result of his inability for reasons of cost or time to verify all the information he needs
to make the Tender at a price which will be correct and sufficient, he can no longer be
said to be responsible for the Accepted Contract Amount and it will have to be
adjusted to take account of the actual facts once it has been possible to verify them.
This has many interesting implications throughout the Contract. For example under
Sub-Clause 4.7 the Contractor is responsible for setting out the Works and their
correct positioning. It is common for Contractors to find, once they have time to
investigate, that certain points have disappeared or moved over time. Sub-Clause 4.7
places the risk on the Contractor who must include the costs of replacing missing
points in his price. However, if, under Sub-Clause 4.11, the Contractor can show that
because of the short period available for making his Tender he did not have time to
check the survey, he will be able to argue that his price was therefore not sufficient
and he may be able to make a claim for the additional amount.
The same arguments would apply if the data provided by the Employer turns out to be
inaccurate and means that the Accepted Contract Amount is therefore inadequate. If
the Employer is in breach of its Sub-Clause 4.10 obligations, the Contractor may have
grounds to make a claim against the Employer for additional payment. It is submitted
that this would not apply where the Contractor could have discovered errors or
omissions in the information provided by the Employer.
SUB-CLAUSE 4.12 UNFORESEEABLE PHYSICAL CONDITIONS
Van Oord UK Ltd & Anor v Allseas UK Ltd [2015] EWHC 3074 (TCC) (12 November 2015)
Shepherd Homes Ltd v Encia Remediation Ltd [2007] EWHC 70
This is one of the most important provisions of the Contract in that it allocates the risk
of physical conditions (other than bad weather) between the Contractor and the
Employer. Where these conditions are unforeseeable then the risk is borne by the
36

Employer and the Contractor may be entitled to recover time and Cost (but not profit).
Cost recoverable may be subject to a deduction for advantageous physical conditions.
Physical Conditions
The definition of physical conditions has a broad meaning as it extends to categories
such as natural, man-made and sub-surface conditions (although climatic conditions
are excluded). See Sub-Clauses 4.10, 8.4 and 17.3 for other references to weather. The
meaning of physical conditions is however restricted to conditions on the Site. Given
the definition of “Site” in Sub-Clause 1.1.6.7 this may be a considerable limitation on
the Contractor’s ability to claim. The Site normally only includes those areas where
Permanent Works are to be carried out and other places which may be specified in the
Contract. Areas where access roads or temporary storage areas have to be constructed
may not be included in the Site and the Contractor may have to take all risk of adverse
conditions. Similarly areas such as quarries which the Contractor may be relying on in
order to carry out the Works are often not part of the Site, even though the Employer
may have allocated them or indicated their availability in tender documents. A
Contractor who wishes to ensure he has a remedy in case such areas might not have
the physical characteristics he expects will need to ensure that relevant special
conditions are included in the Contract.
Contractor’s Claims
The final paragraph of this Sub-Clause, points towards a precaution that the
Contractor can take during the tendering process. In deciding whether the physical
conditions were foreseeable, the Engineer can take into account any evidence of what
the Contractor actually foresaw when submitting the Tender. The Engineer is not
bound to accept such evidence. However in light of his obligation under Sub-Clause
3.5 to act fairly, he cannot simply ignore it. Thus the more substantial the evidence
and the reasoning behind the assumptions the Contractor has made, the more difficult
it will be for the Engineer to ignore it. Contractors should take care to record what
physical conditions they assume in preparing their pricing and why they assume this.
This does not form part of the tender – simply part of the background to the pricing
decisions.
However the final paragraph of the Sub-Clause is not entirely clear. It is arguable that
it is likely to be intended to apply only to the penultimate paragraph (i.e. the
immediately preceding paragraph) in the Sub-Clause. This penultimate paragraph
does not deal with adverse physical conditions. Instead it considers beneficial physical
conditions and applies a test based on what the actual Contractor should have foreseen
at the time of submitting his tender and not on what the hypothetical “experienced
contractor” might have foreseen. Similarly the final paragraph refers to conditions
which were foreseen by the Contractor and not information which might have been
foreseen by the hypothetical “experienced contractor”. If this interpretation is correct,
evidence of what the Contractor actually foresaw does not need to be taken into
account by the Engineer when considering the effect of adverse physical conditions.
Where physical conditions are more favourable than reasonably foreseen at the time
of the tender then the penultimate paragraph allows the Engineer to determine or
agree a reduction in Cost as a result without reducing the Contract Price.
37

Unforeseeable
The Contractor may only claim for Unforeseeable physical conditions.
“Unforeseeable” as defined in Sub-Clause 1.1.6.8 means “not reasonably foreseeable
by an experienced contractor by the date for submission of the Tender.” The test is
thus an objective one for the measure of foresight which could work both ways. A
contractor who has not foreseen a particular physical condition may not be able to
claim for it because an experienced contractor would have foreseen it. A Contractor
who has foreseen it might still be able to claim because, in foreseeing it, he showed
more foresight than the normally experienced contractor. The test is 3 pronged:
1. The first thing to consider is whether the event or circumstance is foreseeable

2. The test introduces the standard to be applied to assess point 1 above. The
standard is that of an experienced contractor and is therefore an industry
standard. This may be a higher standard than that of an ordinary contractor.
3. The factual circumstances of the physical conditions which were reasonably
foreseeable at the time of tender.
However, in light of the fact that the Contractor is deemed under Sub-Clause 4.10 to
have obtained all necessary information as to risks, contingencies and other
circumstances which may influence or affect the Works, it is difficult to see how an
experienced contractor could fail to predict most physical difficulties. The Contractor
is also deemed under Sub-Clause 4.11 to be satisfied of the Accepted Contract
Amount based on the deemed information under Sub-Clause 4.10.
What may or may not be foreseeable by an experienced contractor will depend on the
particular condition encountered, the information which was available to the
Contractor and the other information which an experienced contractor might have
reasonably had access to. The issue is never an easy one, it involves exercise of
judgment regarding whether the physical condition is unforeseeable and often results
in different views. Is a contractor, otherwise experienced but new to a particular
country, expected to meet the standards of a local contractor when an authority has
deliberately decided not to award the contract to local firms because they lack
capacity and perhaps other elements of the actual contractor’s experience?
This provision has recently been considered by the English courts. In Obrascon
Huarte Laine SA v Her Majesty’s Attorney General for Gibraltar 41 Akenhead J
rejected a contractor’s claim based on unforeseen ground conditions. The contractor
argued that the ground conditions were not expressly identified in the geotechnical
information provided pre-contract. Akenhead J stated:
“I am wholly satisfied that an experienced contractor at tender stage would not

simply limit itself to an analysis of the geotechnical information contained in
the pre-contract site investigation report and sampling exercise. In so doing
41
[2015] EWCA Civ. 712
38

not only do I accept the approach adumbrated by Mr Hall [the defendant’s
geotechnical expert] in evidence but also I adopt what seems to me to be
simple common sense by any contractor in this field.”
In the recent case of Van Oord UK Ltd & Anr v Allseas UK Ltd42 Coulson J followed
a similar approach to Akenhead J in the OHL Case. The contractor based its case on a
probe survey which it claimed did not accurately reflect the conditions on Site.
Coulson J commented that the contractors were provided with all available
information as to the ground conditions, however, it was ultimately a matter for their
judgment as to the extent to which they should rely upon the information provided:
“Every experienced contractor knows that ground investigations can only be
100% accurate in the precise locations in which they are carried out. It is for
an experienced contractor to fill in the gaps and take an informed decision as
to what the likely conditions would be overall.”
Notice Procedure
When the Contractor encounters adverse physical conditions which he considers to
have been Unforeseeable the Contractor is required to give notice to the Engineer as
soon as practicable: Van Oord UK Ltd & Anr v Allseas UK Ltd 43. It should be noted
that this obligation only applies to adverse conditions. The Sub-Clause later in the
penultimate paragraph deals with the consequence of advantageous physical
conditions but the Contractor is under no obligation to notify these to the Engineer.
The burden of proof is on the Contractor to show that the physical conditions are
unforeseeable. Therefore it is required that the notice has to contain an explanation of
why the Contractor considers the conditions Unforeseeable and also contain enough
information to enable the Engineer to inspect them i.e. it is a subjective based notice.
This provision departs from previous FIDIC Contracts as the 1999 Edition now
requires the Engineer to inspect the conditions in order to make his decision. The
obligation is spelled out again later in the Sub-Clause where it is stated:
“After receiving such notice and inspecting and/or investigating these physical
conditions, the Engineer shall proceed in accordance with Sub-Clause 3.5 …”
Under Sub-Clause 12.2 of the old Red Book it was generally considered that it was up
to the Contractor to prove that the conditions were adverse and unforeseeable. Sub-
Clause 4.12 takes a different path. The Engineer is obliged to make his own
investigations and (in view of his obligations under Sub-Clause 3.5 to act fairly) these
will have to be comprehensive. Thus while the Contractor sets the process in motion
with his notice, the determination of the effect and nature of the conditions is expected
to be a collaborative process between the Contractor and the Engineer.
42
[2015] EWHC 3074 (TCC)
43
[2015] EWHC 3074 (TCC)
39

The Contractor is not relieved from its obligations as a result of an adverse physical
condition which the Contractor considers to be unforeseeable. On giving notice the
Contractor is required to continue executing the Works. The Contractor is obliged to
use proper and reasonable measures as are appropriate for the physical conditions and
must also follow any resulting instructions given by the Engineer. The Engineer may
instruct a suspension of the Works or part under Sub-Clause 8.8 [Suspension of Work]
for the purpose of carrying out investigations and to consider any required Clause 13
variations.
Subject to the Contractor compliance with notice requirements under Sub-Clause 20.1
[Contractor’s Claims] the Engineer then determines the extension of time and the
Cost resulting from the adverse physical conditions. There is therefore a two-step
notice procedure. The Sub-Clause provides firstly that the Contractor gives a
subjective based notice as soon as practicable on encountering an Unforeseeable
adverse physical condition. This differs to FIDIC 4th which requires notice to be given
immediately (“forthwith”). It is followed by an objective notice under Sub-Clause
20.1 which is given within 28 days of becoming aware of delay and/or cost suffered
resulting from the Unforeseeable physical condition. 44 This second notice is expressed
to be condition precedent to the Contractor’s recovery of time and/or Cost if there is
failure to comply with this notice (see Sub-Clause 20.1 commentary). The Contractor
is not in this case entitled to any mark-up by way of profit on his Costs (see definition
of Costs at Sub-Clause 1.1.4.3). Usually one notice may suffice for both notices
depending on the specific facts of each case and content of the notice.
This exclusion of the right to claim profit only applies where the Unforseeability was
a result of the nature of the conditions themselves, not where it is a result of failure on
the part of the Employer to provide data as required under Sub-Clause 4.10. If the
physical condition was Unforeseeable as a result of the Employer not providing data
which was in his possession, the Unforseeability will be the consequence of a breach
of the Contract by the Employer and in the normal course of events, the losses which
the Contractor should be able to recover as a result should include loss of profit, (see
commentary on Sub-Clause 4.10).
The Sub-Clause applies to “...when executing the Works”. In situations where the
Engineer has not issued a Sub-Clause 8.1 notice to commence the Contractor is
advised to avoid carrying out works such as digging trial pits. The Employer may be
entitled to argue that Sub-Clause 4.12 did not apply prior to issue of the
commencement notice where Unforeseeable Physical Conditions are discovered 45.
Reductions to Cost for advantageous physical conditions

The penultimate paragraph in this Sub-Clause 4.12 places a limitation on the amount
of Cost (note that this is only Cost not time or loss of profit) which can be awarded.
Before Cost is finally agreed or determined under Sub-Clause 3.5, the Engineer is
given the right to review whether other similar physical conditions in similar parts of
the Works were more favourable than could reasonably have been foreseen when the
44
Obrascon Huarte Lain SA v Her Majesty's Attorney General for Gibraltar [2014] EWHC 1028
45
See FIDIC 4th A Practical Legal Guide by E.C. Corbett – see at page 120
40

Contractor submitted the Tender i.e. an advantageous physical condition. The
Engineer may then adjust the relevant Cost element in the Contract Price.
This provision contains several elements which are not immediately obvious:
• The review can only be carried out before the additional Cost is determined
under Sub-Clause 3.5. The timing is not relative to the finding of the adverse
physical condition but relative to the timing of the Determination. The longer
the Determination is delayed the more opportunities the Engineer gains to take
other (advantageous) conditions into account.
• The right to exercise this power only applies to the period before the
Determination. Thus if the Engineer has made a Determination which is
disputed before a DAB or Arbitration, the DAB or arbitral tribunal cannot take
anything into account except conditions which already had a beneficial effect on
the Contractor prior to the Determination.
• The test in this case is not reasonable foreseeability (objective) but whether the
better conditions “could reasonably have been foreseen when the Contractor
submitted the tender.” This is not a purely subjective test but it is only objective
in relation to the particular Contractor – could this Contractor with his level of
experience and knowledge reasonably have foreseen the better conditions.
• The date for applying this different test of foreseeability is not “by the date for
submission of the Tender” as in the definition of Unforseeability but “when the
Contractor submitted the Tender.” The difference may seem slight but there
may be a difference if the Contractor has submitted the Tender before the final
date for submission.
• The reference is to “other physical conditions in similar parts of the Works.”

The question is what does “similar” mean? It is clear that not all beneficial
physical conditions can be set off. The issue of what is similar is discussed
below.
• The reference to “physical conditions in similar parts of the Works” is, unlike
the reference to adverse physical conditions which is not limited to the Site.
Thus although the Contractor cannot get Costs or time for adverse physical
conditions affecting the Works off the Site, it is possible that Costs awarded in
respect of Works on Site will be offset by Costs deducted for favourable
conditions encountered off Site.
• The only adjustment the Engineer is entitled to make is to Cost. In other words
if the positive physical conditions have enabled the Contractor to gain time this
will not be offset against an extension which might have been granted as a result
of encountering adverse physical conditions.
• The netting off provision provides:
41

“However the net effect of all adjustments under sub-paragraph (b) and all
these reductions, for all the physical conditions encountered in similar
parts of the Works shall not result in a net reduction in the Contract
Price”
This only limits the netting off where the additions and the reductions are
encountered in similar parts of the Works. This may mean that where the
Contractor has received Cost for adverse physical conditions in one part of the
Site which themselves have not been offset by a reduction in the costs in a
similar part of the Works, they may later be offset when another claim in a
different part of the Site has an offset due to positive physical conditions in a
similar part of the Works. This could result in a net reduction in the Contract
Price.
Similar parts of the Works

The issue of what are considered to be “similar parts of the Works” for the purpose of
an off-set of costs is a difficult one. The answer may seem obvious in some cases.
Assume, for example, that the Contract involves the digging of deep foundations and
the Contractor has assumed a certain amount of rock in each foundation excavation.
The first few foundations have been very easy with no rock at all encountered. The
Contractor then encounters a series of excavations where there is far more and far
harder rock than he expected. In these circumstances the two parts of the Site are
similar and the set off provision can be easily applied. (The situation might be
different if the first foundations show the problem and the easy excavations happen
after the Engineer has issued his Determination).
However few situations are as simple as this. Another example will demonstrate the
point. In constructing a hydro dam, the Contractor is required to excavate foundations.
These excavations take place in the former river bed which affects the nature of the
excavation process. It plans to use the material recovered elsewhere in the job.
However there will not be enough so it plans to use a quarry elsewhere on Site to
obtain similar materials. The quarry is not in the river bed so the process of
excavation differs. It turns out that the foundations are much easier than expected, but
the materials won are therefore less used than expected. Meanwhile the quarry is
much more difficult and that, though the materials to be won are as useful as
expected, the cost of recovery is much higher. It makes a claim under Sub-Clause 4.12
in respect of the quarry and the Engineer seeks to offset the reduced cost of
excavation in the foundations. Both parts of the works are similar in that they involve
excavation, but they are not similar in that the purpose of the excavation is different.
This is particularly so since the element of material recovery in the foundations has
been lost due to the easier physical conditions. Is the test of similarity, similarity of
physical activity, similarity of purpose or similarity of location? The answer to
whether an offset is permissible will depend on the answer and the degree of
similarity the Engineer wishes to apply.
Unfortunately there are no clear answers to these questions, so Engineers can expect
to find their determinations challenged either by the Contractor or by the Employer
and the outcome of DAB or arbitration proceedings are not easily predictable.
42

SUB-CLAUSE 4.13 RIGHTS OF WAY AND FACILITIES
Sub-Clauses 4.13 and 4.15 (see separate commentary) provide for responsibility for
paying for and maintaining access.
This Sub-Clause remains essentially the same as its predecessor FIDIC 4th Sub-Clause
42.3 although there is a slight change to the vocabulary. The title of the Sub-Clause
has also changed from ‘Wayleaves and Facilities’.
This clause must be read in conjunction with Sub-Clause 2.1 which places on the
Employer the obligation to give to the Contractor a “right of access to” the Site. It is
therefore the Employer’s obligation to give a right of access but the Contractor’s
obligation to pay for any special or temporary rights of way. Under Sub-Clause 4.15
[Access Route] the Contractor is required to have considered the suitability and
availability of the access routes and be responsible for such costs where the access
routes are not suitable or available.
The Contractor is also permitted to obtain additional facilities outside of the Site. For
example the Contractor may require additional offices which may need to be located
outside of the Site. Perhaps an alternative quarry with wagon transport may be
required where there are problems with obtaining materials from the particular quarry
stated in the contract. The additional areas for facilities or for use of rights of way
outside of the Site require the Engineer’s agreement under Sub-Clause 4.23
[Contractor’s Operations on Site] for use of the additional areas.
The distinction between permanent access and temporary rights of way for access to
the Site will not always be clear 46. As a result FIDIC creates liability for one party for
these matters, the Contractor. The Contractor requiring temporary rights of way such
as for site access is liable for those costs and charges. Whether the access is private or
public, the Contractor is obliged to bear the costs of obtaining and using it (Sub-
Clause 4.13) and of maintaining it (Sub-Clause 4.15(a)). If permits are necessary (this
probably only applies to public access), these must be obtained by the Contractor,
Sub-Clause 4.15(b). For additional facilities the risk (and the cost) is placed on the
Contractor. This means that the Contractor will be responsible for loss or damage to
the additional facilities. The Contractor is also required under Sub-Clause 7.3 to give
Employer’s Personnel access to the temporary or special areas and to allow inspection
of facilities 47.
If the Engineer issues a variation which results in the requirement for special or
temporary rights of way (or facilities) to be executed by the Contractor then the
Contractor should be entitled to recover those costs and charges in complying with the
variation to obtain such rights of way and facilities. It is a cost which the Contractor
46
Mentioned by E C Corbett at page 242 the author of FIDIC 4th, A Practical Legal Guide
47
Brian W Totterdill “FIDIC users’ guide. A practical guide to the 1999 red and yellow books”. See at
page 137.
43

could not have allowed for in its tender. This situation was not considered in FIDIC
4th and it remains unconsidered in FIDIC 1999. The result is that the Contractor will
have to rely on the terms “which he may require” in arguing that the particular special
or temporary rights of way and additional facilities outside the Site result from
variations required by the Employer.
Sub-Clause 4.14 Avoidance of Interference
This Sub-Clause has undergone slight amendments48 predominantly to the terms of

indemnity in comparison to its predecessor at Sub-Clause 29.1 of FIDIC 4th.
The Contractor is required to indemnify the Employer for third party claims for
interference which is ‘unnecessary’ or ‘improper’ to the convenience of the public or
to access, use and occupation of roads and footpaths. This applies to access which is
in possession of the public, Employer or private parties.
The terms unnecessary interference and improper interference are not defined. Claims
which may fall outside of the Contractor’s liability are those where interference is
either necessary or proper. However it should not be assumed that necessary or proper
interference will not be the Contractor’s responsibility 49. Some guidance is given
under Sub-Clause 4.15 which refers to Contractor efforts considered proper in respect
of roads and bridges and Sub-Clause 4.8 which deals with the Contractor’s duty to
provide Temporary Works necessary for protection of the public. In summary the
Contractor is liable for the avoidable claims.
The terms of the Contractor’s indemnity obligation are specific to claims of

interference:
“shall indemnify...resulting from any such unnecessary or improper

interference”).
This is a welcomed amendment given that the corresponding indemnity terms under
the earlier FIDIC 4th required the Contractor to provide an indemnity for damages,
loss and expenses whatsoever arising out of, or in relation to, any such matters insofar
as the Contractor is responsible for.
It is now clear that the indemnity obligation term applies specifically to the claims of
interference and avoidance, however this obligation is far reaching. For example, if
the Contractor is in breach of Sub-Clause 4.23 for failing to confine operations,
Contractor’s Equipment or Personnel to the Site (or to the additional agreed areas) and
interference to the public (or to access, use of roads and footpaths) results then the
48
This provision is virtually unchanged from the 3rd Edition of FIDIC. See FIDIC 4th, A Practical Legal
Guide by E C Corbett at page 183.
49
page 137.
44

Contractor will be required to indemnify the Employer for resulting damages and loss
in accordance with this sub-clause. 50
The Employer does have an indemnity obligation to the Contractor for third party
injury or property damage under Sub-Clause 17.1 for matters excluded from insurance
cover at Sub-Clause 18.3(d); however the Contractor should take care to adopt
appropriate measures for performance of his contractual obligations to ‘minimise’
claims from third parties. One reason for this is that the Employer is not required to
indemnify the Contractor if damage results from particular arrangements and methods
which the Contractor elected to adopt to perform his obligations. The Employer’s
liability to indemnify the Contractor under Sub-Clause 18.3(d)(ii) is limited to the
damage arising from unavoidable claims 51.
Sub-Clause 4.15 Access Route
This Sub-Clause concisely deals with access routes to the Site which were previously
dealt with across various sub-clauses under FIDIC 4th at Sub-Clauses 11.1, 30.1, 30.2,
30.3 and 42.1. FIDIC 4th Sub-Clauses 11.1 and 30.1 are incorporated into Sub-Clause
4.15 FIDIC 1999 although in less descriptive terms, however significant changes have
been made to FIDIC 4th Sub-Clauses 30.2, 30.3 and 42.1.
Obligations and responsibilities imposed on the Contractor are set out at paragraphs
(a) to (e) of this sub-clause. These paragraphs also set out limitations of obligation and
responsibility of the Employer.
The Contractor is responsible for damage claims to any road or bridge which is
caused by Contractor ‘traffic’ or by the Contractor’s Personnel. The Contractor will
not be responsible for damage caused by others such as Employer Personnel and other
contractors. The Contractor has a defence to damage claims where the Contractor can
show that it has used ‘reasonable efforts’ to prevent damage such as by ‘proper and
appropriate use’ of vehicles and routes. The terms proper and appropriate use
replaces the examples described at sub-clause 30.1 and 30.2 FIDIC 4th such as careful
selection of routes, load distribution and necessary alterations to roads and bridges.
The Contractor must comply with any legislative or other governing law requirement
which applies to the use of access routes and to damage which may arise. The
Contractor’s duty to exercise reasonable efforts to prevent damage to any road or
bridge applies to all scenarios of use or otherwise.
The Contractor remains ‘deemed’ to be satisfied of the suitability and availability of

the access routes to the Site and is responsible to contemplate and resolve all possible
logistics for the duration of the Works. If access is not suitable or possible for the
Contractor’s use, say due to large or heavy equipment or plant, responsibility for costs
rests on the Contractor (sub-clause 4.15(e)). Paragraph (e) therefore imposes liability
50
page 137 and 138.
51
45

on the Contractor for any claim which may arise from use or otherwise of the access
routes. This liability is not limited to cause or use by Contractor’s traffic or
Contractor’s Personnel and no defence based on reasonable efforts is expressed to
apply. The result is that the Contractor will be liable for all other types of claims such
as injury claims or for failure to comply with any regulation irrespective of whether
the Contractor access route used is proper and the reasonableness requirement referred
to elsewhere in this Sub-Clause is satisfied. 52 The Contractor should take care to
clarify access suitability and availability issues prior to submission of its tender. 53
The Employer does not take the risk for suitability or availability of access routes.
Pursuant to Sub-Clause 4.15(a) the Contractor is responsible to provide any

maintenance required for the Contractor’s use of access routes. The Contractor’s
responsibility for costs will include maintenance costs for any non-suitable access
routes (see paragraph (e)). The Contractor remains responsible to the Employer (“As
between the Parties”) for maintenance even in situations where a third party has
exclusive rights to an access route which cannot be granted to the Contractor54.
Access routes which have undergone maintenance but turn out to be unsuitable or
unavailable are not considered as a variation even if the Contractor has to find
alternative means as a result (attracting further maintenance obligations). Before
tender submission the Contractor is deemed to have satisfied itself regarding the
practicalities of the access routes to Site.
Paragraph (b) creates a new obligation for the Contractor to provide all necessary
signage. It is also the Contractor’s obligation to obtain the necessary permissions for
use of the access routes. This is a significant change from FIDIC 4th where at Sub-
Clause 42.1 the Employer was required to give the Contractor possession of access to
the Site.
The Employer has no responsibility for any claims arising from non-suitability or
non-availability of use (or otherwise) of the access routes. The Employer also does
not guarantee suitability or availability of particular access routes, (see paragraphs (c)
and (d)). The result is that the Contractor is to bear all costs arising from such claims.
The Contractor should ensure that any difficulties for transporting Materials, Plant
and Contractor Equipment to and from the Site are resolved early .
Sub-Clause 4.16 Transport of Goods
52
page 138.
53
page 138.
54
Ellis Baker, Ben Mellors, Scott Chalmers and Anthony Lavers ‘FIDIC Contracts: Law and Practice’,
White & Case, Informa London 2009 – see at page 81, paragraph 3.118.
46

This Sub-Clause deals with the Contractor’s responsibility as regards the bringing of
Goods onto the Site. It also contains an indemnity by the Contractor for damages and
losses resulting from the transport of Goods generally.
This Sub-Clause refers throughout to the transport of Goods, so it is necessary to refer

to the definition in Sub-Clause 1.1.5.2. This is very broad and includes Contractor’s
Equipment, Materials, Plant and Temporary Works. It should be noted that Plant is
distinct from Equipment in that its definition (Sub-Clause 1.1.5.5) refers to various
mechanical items for incorporation into the Works.
Sub-Clause 4.16(a) is limited to Goods which are to be delivered to the Site, whereas
the other two paragraphs (b) and (c) are not so limited.
Sub-Clause 4.16(a) requires that the Contractor give 21 days notice to the Engineer of
the date on which any Plant or major item of other Goods will be delivered to the Site.
Thus the obligation applies to any Plant at all, however minor but only to major items
of other Goods. There is no definition of “major item” so the extent of the
Contractor’s obligation is not clear. Certain items will be obviously “major” but at
the margins there is no certainty. Further the Sub-Clause does not seem to be capable
of being applied to materials which are normally measured in quantities – for example
it is not possible to describe a large shipment of cement as a major item, although it
may well be a major quantity.
The Contractor is responsible for access, delivery and storage arrangements of Plant
and Goods. Paragraph (a) does not make any provision for the situation where the
Contractor fails to give the prior notice or fails to give sufficient prior notice for the
date of delivery of items to the Site, nor what happens when Goods, which a notice
has said will be delivered on a certain day are delivered earlier or later. There is no
sanction that can be applied to the Contractor if this happens. The purpose of the
notice is not expressed and, given that the Employer/Engineer is only really interested
in progress, payment and supervision, the notice should refer to dates given in the
programme and monthly programme 55.
Thus the Sub-Clause can be regarded as a useful indication of good practice, but if the
Engineer needs notice, it will be necessary, before execution of the Contract to draft a
Particular Condition which fills the gaps in paragraph (a) and makes it more balanced
as between Plant and other Goods.
Sub-Clause 4.16(b) can perhaps be said to state the obvious. A Contractor who did
not pack and protect his Goods would be foolish. However paragraph (b) may be
important in a situation where, for example, the Employer provides storage space off-
Site or makes transport available. It is clear that despite the provision of such
assistance by the Employer the Contractor will (in the absence of an express
agreement to the contrary) remain responsible for care and transport of his Goods.
55
page 139.
47

The indemnity under Sub-Clause 4.16(c) is effectively a promise on the part of the
Contractor to insure the Employer against all claims which may arise from the
transport of Goods. It is not limited to the Contractor’s own transport of Goods and
would thus arguably also apply to any transport undertaken by the Employer or the
Engineer. There are no limits – so even if the Employer or the Engineer has been
negligent the indemnity still applies. Clearly the Contractor will be required to
provide the indemnity where the Goods are being transported by its suppliers or sub-
contractors. The Contractor is also required to negotiate third party claims.
Paragraph (c) is probably mainly directed (a) at the situation where a claim is made
against the Employer by a third party who is injured or whose property is damaged
during the transport of Goods by the Contractor; and (b) at the situation where the
Employer’s property is damaged (for example an access road damaged by
overloading). The indemnity clearly covers these situations but is also broader in
scope. The Contractor is likely to be insured against accidental damage caused by its
own transport of Goods. Care is required to ensure that the insurance cover is widely
enough worded to cover the other risks to which the Contractor is exposed. It should
be noted that the Employer is responsible under Sub-Clauses 17.1(2) to indemnify the
Contractor for items listed at Sub-Clause 18.3(d) which are excluded from insurance
cover. This includes damage which is an unavoidable result of the Contractor’s
obligation in carrying out the Works.
Sub-Clause 4.17 Contractor’s Equipment
This Sub-Clause had its origins in FIDIC Red Book 3rd edition and at clause 54.1 of
the 4th edition. Sub-Clause 54.1 of the FIDIC 4th edition, however, dealt with
Contractor’s Equipment, Temporary Works and materials.
It should be read in conjunction with Sub-Clause 1.1.5.1 – “Contractor’s Equipment”

definition and Sub-Clause 1.1.5.2 – “Goods” definition. “Goods” are defined as
including, inter alia, Contractor’s Equipment. Reference to Contractor’s Equipment is
also found in:-
• Sub-Clause 2.2 Permits, Licences and Approvals

• Sub-Clause 4.6 Co-operation
• Sub-Clause 4.13 Contractor’s Operations on Site
• Sub-Clause 6.10 Records of Contractor’s Personnel and Equipment
• Sub-Clause 8.3 Programme
• Sub-Clause 11.11 Clearance of Site
• Sub-Clause 13.6 Daywork
• Sub-Clause 15.2 Termination by the Employer
• Sub-Clause 15.5 Employer’s Entitlement to Termination
• Sub-Clause 16.3 Cessation of Work and Removal of Contractor’s
Equipment
• Sub-Clause 18.1 General Requirement for Insurances
48

• Sub-Clause 18.2 Insurance for Works and Contractor’s Equipment
• Sub-Clause 19.6 Optional Termination, Payment and Release
The object of this Sub-Clause is to ensure that apparatus, machinery etc., intended for
completion of the Works, are not diverted to other projects on which the Contractor
may be working. Removal of the Contractor’s Equipment is subject to the Engineer’s
consent; however, pursuant to Sub-Clause 1.3 that consent should not be unreasonably
withheld or delayed.
There is no date specified in Sub-Clause 4.17 as to when the Contractor may remove
Equipment. Sub-Clause 11.11, however, states that the Contractor must remove the
Contractor’s Equipment on the issue of the Performance Certificate. In FIDIC 4th A
Practical Legal Guide56 it was suggested that the Engineer may not withhold consent
once the execution of the works, subject to any necessary remedial works in the defects
liability period, has been substantially completed. Where the contract is terminated then
removal of the Contractor’s Equipment is dealt with at Sub-Clause 16.3 or Sub-Clause
15.2 – depending on what type of termination occurred.
The Engineer will be faced with competing interests when a Contractor requests
permission to remove its Equipment prior to completion of the Works. First, the
Engineer may wish the Equipment to remain if it considers that it may be used again or
that there may be defects, which the Contractor will need to resolve. However, if the
Engineer refuses to consent to the removal of the Equipment and there is subsequently a
delay event then the Contractor will claim the costs of that Equipment remaining on
Site during the period of the delay. The Contractor is entitled to challenge a refusal by
the Engineer to give consent and such a dispute would be referred to the DAB.
There are many construction contracts which contain a similar clause to Sub-Clause
4.17 and each one must be considered individually. Similar clauses appear in the ICE
conditions of contract, as well as in earlier FIDIC conditions. The Construction Law
Handbook57 sets out broad principles in relation to these types of clauses.
“(a) If the contract says that title passes on delivery of the plant to site, it will
be treated as an absolute transfer to the employer (Bennett & White v Municipal
District of Sugar City [1951] AC 786).
(b) If, instead of a clear transfer, the contract ‘deems’ the plant to be the
employer’s property for the purposes of the contract, the contract will be treated
as ambiguous and subject to rules of construction (Re Cosslett Contractors
[1997] 4 All ER 117).
(c) If the court concludes that, notwithstanding the ambiguity, the parties
did intend to create a proprietary right, it will so hold (Brown v Bateman (1867)
LR 2 CP 272).
56
EC Corbett (1991), Sweet and Maxwell at p.330
57
Construction Law Handbook, Ramsey J at page 563
49

(d) Otherwise, the provisions will be treated as having no legal effect,
leaving the employer to rely on any protection in the termination clause (Re
Keen & Keen, ex parte Collins [1902] 1 KB 555).”
Removal of the Contractor’s Equipment following Termination by the Employer
Sub-Clause 16.3 deals with termination by the Contractor, termination at will and
termination because of a Force Majeure event. The Sub-Clause states:
“After a notice of termination under Sub-Clause 15.5 [Employer’s Entitlement to

Termination], Sub-Clause 16.2 [Termination by Contractor] or Sub-Clause 19.6
[Optional Termination, Payment and Release] has taken effect, the Contractor shall
promptly:
(a) ...
(b) hand over Contractor’s Documents, Plant, Materials and other work, for which
the Contractor has received payment, and
(c) remove all other Goods from the Site, except as necessary for safety, and leave
the Site.”
As the definition of “Goods” includes the Contractor’s Equipment there is no right for
the Employer to hold-on to the Contractor’s Equipment in these circumstances. The
situation is different when termination occurs under Sub-Clause 15.2 [Termination by
Employer]. This Sub-Clause states that, “The Contractor shall then leave the Site and
deliver any required Goods ... to the Engineer.” The Sub-Clause then proceeds to
state:
“After termination, the Employer may complete the Works and/or arrange for any
other entities to do so. The Employer and these entities may then use any Goods,
Contractor’s Documents and other design documents made by or on behalf of the
Contractor.
The Employer shall then give notice that the Contractor’s Equipment and
Temporary Works will be released to the Contractor at or near the Site. The
Contractor shall promptly arrange their removal, at the risk and cost of the
Contractor. However, if by this time the Contractor has failed to make a payment
due to the Employer, these items may be sold by the Employer in order to recover
this payment. Any balance of the proceeds shall then be paid to the Contractor.”
This provision, which allows the Employer to retain and use the Contractor’s
Equipment, has been the subject of much litigation. Problems have occurred
especially where the Contractor has hired equipment or the Contractor has become
insolvent. The definition of “Contractor’s Equipment” does not make any distinction
between equipment owned or equipment which has been hired. In each case when
construing this clause regard must be had to the substantive law of the contract and
the law of the place of performance.
The Law of the Contract

50

Regard must be had to whether the substantive law of the contract permits a party to
seize the contractor’s property. Romanian law, for example, would not permit a party
to seize plant and equipment without a court order. An exception to this situation is
where there has been a pledge of the plant or equipment by the owner in accordance
with Title VI – The Regime of Security Interests on Movable Assets, of Law no. 99/
1999. Sub-Clause 14.7 is therefore unlikely to be enforceable in Romania. Equally,
if the contractor is not prepared to hand over the plant and equipment then the
Employer cannot simply take it forcibly. A court order would be required. Similarly,
a clause in a contract to sell or to apply the plant and equipment to the discharge of its
claim will only be enforceable if there is a pledge set up which is registered. If an
Employer, under Romanian law, wishes to use the contractor’s plant then it would
need to go to the court or an arbitrator and have the obligation to use the plant and
materials recognised.
Insolvency of the Contractor
If under the substantive law of the contract the Employer has a right to use the
Contractor’s Equipment then this right may exist solely against the Contractor. If an
Employer terminates the Contract under Sub-Clause 15.2 and the Contractor
thereafter becomes insolvent, there will be a conflict between the position of the
Employer, who may wish to use the Contractor’s Equipment to complete the Works,
and the administrator of the insolvent contractor, who will be required to collect in the
assets of the Contractor. This situation arose in the case of Smith (Administrator of
Cosslett (Contractors) Ltd.) v Bridgend County BC. 58 The case concerned a contract
which had a clause similar to Sub-Clause 15.2 of FIDIC’s Red Book 1999. Cosslett
went into administration and the administrator demanded the return of items of
contractor’s equipment (coal washing plant). The Employer argued it was entitled to
use the equipment and thereafter sell it. The House of Lords concluded that the
employer’s right to use and then sell the property created a floating charge and that so
long as it was unregistered it was void against a liquidator or administrator.59
Therefore the sale of the equipment by the employer was an act of conversion and the
administrator of the insolvent company was entitled to recover its losses. Any claim
that the employer had against Cosslett would then have to be included as a claim in
the administration.
The Editors of the Building Law Reports, in their commentary on the Smith case,
remarked: “An employer contracting under the 5th, 6th or 7th Edition ICE Conditions
should take care to ensure that his security is registered. A failure to register will
expose him to a claim for conversion if he seeks to exercise the power of sale against
a company in administration or liquidation.” The Employer should also note that it
needs to register the charge within 21 days of the signing of the contract in order to
comply with the Companies Act, so as to be able to rely upon the power of sale.
58
[2001] UKHL 58
59
ibid per Lord Foscote at para 67
51

The Contractor not being the legal owner of the Contractor’s Equipment
Problems may also arise where the Contractor is not the legal owner of the
Contractor’s Equipment. The following cases from India are to be read having regard
to the substantive law.
In the Indian case of National Highways Authority of India (“NHAI”) v M/S You One
Maharia JV & Ors 60 a dispute arose regarding whether Contractor’s Equipment,
owned by a sub-contractor, could be removed from Site. The contract was an
amended FIDIC 4th Red Book and therefore contained clauses similar to Sub-Clause
4.17 and 15.2. The contract was terminated by the Employer who used the
Contractor’s Equipment to complete the Works. The Respondent, who owned the
Contractor’s Equipment, claimed that it was not bound by a clause between the
Employer and Contractor. The Respondent relied upon an earlier 2005 decision
between it and the NHAI in which the court interpreted similar contractual terms to
mean that only equipment and machinery which had been purchased by the contractor
from out of the mobilisation advance provided by NHAI could be taken possession of
and used by NHAI in the eventuality that the contract was terminated. The High
Court of Delhi however distinguished the previous decision and held: (a) that an
arbitral tribunal had no locus standi to make an award relating to the assets of a third
party; and (b) that the Employer was in any event entitled to retain and use the
equipment brought to site by the Contractor to complete the works and therefore the
Respondent was not entitled to seek release of the equipment. 61
The reasoning of The High Court of Delhi was as follows:
“The aforesaid two clauses [i.e. the ones similar to Sub-Clause 4.17 and 15.2]
did not use the expression ‘equipment owned by the contractor or belonging to
the contractor’. From the standpoint of the employer, i.e. NHAI, all the
equipment which the contractor provided at the site of works was ‘the
contractor’s equipment’, in contradistinction with any equipment that may
have been brought to site by NHAI. All such equipment brought to the work
site by the contractor is deemed to be exclusively intended for execution of the
works.”
The High Court of Delhi then went on to consider the case of KPM Builders Pvt. Ltd v
NHAI & Anr. 62 The case was again similar. A contractor hired equipment, its contract
with the employer was then terminated and the hirer sought the return of its
equipment from the employer. The court held that it was material that the hirer did
not notify the employer that its equipment and machinery were being hired to the
contractor and that it was the owner of particular pieces of machinery. In this case the
hirer was aware of the contract between NHAI and the contractor and also its terms
60
(2010) Arb.A.6/2010
61
ibid at para 21
62
Civil Appeal Nos.3300-3301 of 2008
52

and that its failure to seek to exclude its machinery from the operation of Clause 61
[Sub-Clause 15.2] was relevant.
The High Court of Delhi felt itself bound by the decision of KPM Builders Pvt. Ltd v
NHAI & Anr 63and concluded that the hirer “ought to have carried out due diligence to
make itself aware of the contractual terms between the [employer] and the
[contractor] before hiring out its equipment and machinery to the [contractor]. It
failed to do so, it must take the consequences.” 64
These cases must be read having regard to the substantive law. In Romania, as
illustrated above, the position would be different. In England and Wales the position
is that a clause which purports to transfer title of a third party’s equipment from the
contractor to the employer would only be effective in so far as ownership is passed
from the third party to the contractor. Liquidators and administrators should also
exercise care when considering ownership because equipment which does not belong
to the insolvent contractor is beyond the liquidator’s or administrator’s reach.
Sub-Clause 4.18 Protection of the Environment
This Sub-Clause places an obligation on the Contractor to protect the environment.
The majority of construction contracts now include very comprehensive provisions

dealing with the Contractor’s responsibility for the environment and it is unlikely (and
indeed undesirable) that this vague provision should not be amended. It should be
noted that under Sub-Clause 2.3 the Employer is responsible for ensuring that its
personnel and other contractors on Site take similar actions to those which the
Contractor is required to take under this Sub-Clause 4.18.
The obligation is to take reasonable steps to protect the environment. What is

“reasonable” is particularly difficult to define in this context as it presupposes a
balance between the risk of damage to the environment and the cost or difficulty of
eliminating this risk. If some element of the environment is particularly precious, for
reasons of scarcity, sustainability, or aesthetics the reasonable steps would be far
more rigorous than what might be required if the environment, while still needing to
be protected is less important. These issues are far too important to be left to such
vague terminology. Further there is no clarity at all of what the position should be if
the Works themselves endanger the environment even if carried out precisely as
specified. A Contractor could argue that the Engineer will need to issue a Variation in
order to make it possible for the Contractor to meet this obligation.
If this lack of clarity is not enough, the term the environment is entirely undefined.
What does this term mean? In current usage ‘the environment’ is often taken to
include the existing landscape, the air above and the sub-surface, including aquifers
and other natural resources and the living organisms on it – both plant and animal. If
63
Civil Appeal Nos.3300-3301 of 2008
64
(2010) Arb.A.6/2010 at para 40
53

this is what the Sub-Clause means it exposes the Contractor to risks which, if the
Engineer wishes to take the concept to anywhere near the extreme position, the
Contractor is unlikely to be able to manage.
The Contractor is also obliged to limit damage and nuisance to people and property
resulting from pollution noise and other results of his operations. The term limit is
also unclear. What exactly is the Contractor to do if the Engineer instructs the
Contractor to so reduce what is obviously assumed to be a degree of damage and
nuisance, that it effectively makes it impossible for him to achieve the necessary
progress. Once again it is essential that the specifications deal with this important
issue with more clarity. If there is no specific requirement, the Contractor is exposed
to possibly unmanageable risk, because the Contract can quite legitimately be read in
a way that will make the Contractor’s task far harder than he envisaged.
The second paragraph of the Sub-Clause merely cross refers to requirements set out in
the Specification and by law. In this sense it is unnecessary as this is in any event the
Contractor’s obligation. The Contractor is required to comply with the applicable
Laws and is deemed to be satisfied and have considered the Laws and procedures
under Sub-Clauses 1.13 and 4.10(d). The paragraph is limited to obligations in
relation to emissions, surface discharges and effluent. This is not a comprehensive list
of the environmentally dangerous activities the Contractor may carry out. Care is
required where the maximum values in the Specification for emissions, surface
discharge and effluent are not in compliance with local law. The previous paragraph
refers to pollution, noise and other results of his operations and these will also be
covered by law and ought to be covered by the Specification.
The Sub-Clause thus draws an unjustifiable distinction between “pollution noise and
other results” and “emissions, surface discharges and effluent.” If the Sub-Clause
were read too literally this would mean that the contractor is not to be taken as bound
by the Specifications and law for the former and is by the latter. This surely cannot be
the intention but it makes it all the more important that proper environment protection
is built into the Specification.
Sub-Clause 4.18 does not deal with indemnities from the Contractor. However the
Contractor indemnities at 17.1 for damage to third party property may cover
environmental damage. 65
This Sub-Clause gives the Contractor the right to use for the purposes of the Works
supplies of electricity, water, gas and other services which are both available on the
Site and the prices of which are included in the Specification. The Contractor is
required to pay the Employer for these services.
65
Ellis Baker, Ben Mellors, Scott Chalmers and Anthony Lavers ‘FIDIC Contracts: Law and Practice’,
White & Case, Informa London 2009 – see at page 112, paragraph 3.263.
54

The Sub-Clause is straightforward as far as what the Contractor is entitled to use, but
it should be noted that even if one of the services is available, the Contractor is not
entitled to use it unless details and prices have been included in the Specification. In
other words, if there are no details and prices included in the Specification, access and
pricing will have to be separately negotiated and the Employer is neither obligated to
allow the Contractor to use the services, nor to be reasonable in the pricing. Sub-
Clause 4.19 does not therefore impose any obligation on the Employer to make such
service available irrespective of whether the services are available on Site.
The Contractor is deemed under Sub-Clause 4.10(e) to have been satisfied with its
requirements for power, water and other services before submitting its Tender.
The Contractor is responsible at his risk and cost both for the method of using the
services and for their measurement, but this is subject to the checking of the Engineer.
The Engineer will have no independent means of verifying quantities. If he suspects
the Contractor’s measurements he is entitled to make his own determination under
Sub-Clause 3.5 [Determinations]. The Sub-Clause, however, gives no specific power
to the Engineer to test or verify the Contractor’s equipment. The testing provisions of
Clause 7 [Plant, Materials And Workmanship] are not relevant as they only apply to
the Works and Materials. Thus any argument over the quantities actually used or the
verification of measurements will have to be resolved without resort to specific
powers under the Contract. It would be useful to include a provision in the
Specification dealing not only with the supplies and prices but also specifically
providing how they are to be measured.
The Contractor is under an obligation to pay the Employer for supplies used – the
amount being as agreed or determined under Sub-Clause 3.5. There is no express
time before which these payments have to be made. Further these payments are not
specifically referred to in Sub-Clause 14.3 [Application for Interim Payment
Certificates] unless it is covered by 14.3(f)
“any other additions or deductions which may have become due under the
Contract or otherwise, including those under Clause 20 [Claims, Disputes and
Arbitration];”
It is arguable that it does on the basis that the amounts due from the Contractor to the
Employer are deductions, but Sub-Clause 14.3 is not sufficiently clear.
The issue may be significant in the situation where the Contractor has not paid amounts
due for these services and the Employer wishes to deduct them from amounts otherwise
due to the Contractor. There is no clear provision empowering the Engineer to make
the deduction in the Interim Payment Certificate. If he does so despite this, the
Contractor may argue that the Engineer has failed to certify and that this then opens an
entitlement to suspend and ultimately to terminate under Sub-Clauses 16.1
[Contractor’s Entitlement to Suspend Work] and 16.2 [Termination by Contractor].
The same situation arguably applies if the Engineer issues an Interim Payment
Certificate which does not include a set-off and the Employer decides to deduct the
amounts he believes the Contractor owes.
55

Sub-Clause 2.5 [Employer’s Claims] appears to resolve the situation, but because of its
awkward drafting it can be misleading. The Sub-Clause provides that the Employer is
not required to make any claim for payment under Sub-Clauses 4.19 and 4.20, under
Sub-Clause 2.5, but in fact only permits a set-off or deduction after such a claim has
been made:
“The Employer shall only be entitled to set off against or make any deduction
from an amount certified in a Payment Certificate, or to otherwise claim against
the Contractor, in accordance with this Sub-Clause.”
Thus, notwithstanding the fact that the Employer is not required to make a claim under
Sub-Clause 2.5[Employer’s Claims], the safest way for the Employer to act where the
Contractor is not paying for services under Sub-Clause 4.19 and 4.20 is to make a claim
under Sub-Clause 2.5 before making a deduction.
In practice this situation is most likely to arise where there has been a disagreement
between the Engineer and the Contractor over the need for or amount of payment for
the services. This will have been referred to the Engineer under Sub-Clause 3.5
[Determinations] and the Employer then has an opportunity at the same time to give a
notice of claim under Sub-Clause 2.5 [Employer’s Claims] so both issues will be dealt
with by the Engineer at the same time. However, even if the Employer overlooks this
step it can still make a claim under Sub-Clause 2.5[Employer’s Claims].

The Employer shall supply the Contractor with Employer’s Equipment in accordance
with the Specification. The Contractor is to pay for use of the Employer’s Equipment
and any disagreement will be determined under Sub-Clauses 3.5 and 2.5. A deduction
of payment to the Contractor can be made under Sub-Clause 14.3(f).
The Contractor takes over responsibility of the Employer’s Equipment during the time
when the equipment is operated by the Contractor’s Personnel. The risk placed on the
Contractor is wide and onerous as it also includes the time when the Employer’s
Equipment is in the Contractor’s possession or control. Any wear and tear or
breakdowns which occur whilst it is in the Contractor’s possession or control will be at
the Contractor’s risk even if the cause is due to some earlier use.
The Employer shall supply, free of charge, the “free-issue materials” (if any) in
accordance with the details stated in the Specification. Free-issue materials are not
captured within the definitions of Materials or Goods at Sub-Clause 1.1.5. The
Employer shall, at his risk and cost, provide these materials at the time and place
specified in the Contract. The Contractor shall then visually inspect them, and shall
promptly give notice to the Engineer of any shortage, defect or default in these
materials. Unless otherwise agreed by both Parties, the Employer shall immediately
rectify the notified shortage, defect or default. The Contractor will be responsible for
shortage, defect or default in material which it should have discovered on a visual
inspection.
56

After this visual inspection, the free-issue materials shall come under the care, custody
and control of the Contractor. The Contractor’s obligations of inspection, care, custody
and control shall not relieve the Employer of liability for any shortage, defect or default
not apparent from a visual inspection.
The Employer is obliged to provide specified free-issue materials as covered by the

Specification. The Employer is responsible for any shortages or other defaults although
the Contractor is responsible for their care.
This provision will only come into effect if there is specific provision in the
Specification. If the Specification is clear, the operation of this Sub-Clause should be
straightforward.
Despite the fact that the Sub-Clause deals with free-issue materials, the Contract else-
where contemplates that the Contractor may have to pay for these materials. Sub-
Clause 2.5 [Employer’s Claims] makes specific reference to the possibility that the
Employer will wish to recover the cost. Should this be the case, the Engineer should
not (without the Contractor’s agreement) deal with any payments due under the Interim
Payment Certificate Procedure, and nor should the Employer deduct any amount
payable. Please refer to the discussion above in reference to Sub-Clause 4.19
[Electricity Water and Gas].
The Employer may be required to find alternative Employer Equipment of free-issue

material for items which do not comply with the Specification otherwise the Employer
may face cost implications if the Contractor is required to obtain the items for which the
Employer is in default. To the extent of unavailability of Employer Equipment or Free-
Issue Material which the Employer agreed to provide the Contractor will be entitled to
claim an extension of time under sub-clause 8.4(e).
A new requirement is introduced under Sub-Clause 4.21 for a Contractor’s duty to

report on its progress. Unless otherwise stated in the Particular Conditions the
Contractor is required to provide the Engineer with monthly progress reports. The
FIDIC Guide provides that the detailed monthly progress report “is considered to be an
essential part of competent project management”. Sub-Clause 4.21 sets out detailed
requirements at paragraphs (a) to (h) of information which must be included in the
reports. This task is onerous as the information to be disclosed is wide. Amongst other
things the Contractor is asked to provide detailed descriptions of progress, equipment
and personnel as well as photographs, charts, test results and other statistics.
Information connected with environmental and public relation activities is also
necessary.
57

If the reporting requirements are not all relevant to a particular project then the report
content should be agreed early between the parties to remove any unnecessary
obligations 66. However the Contractor must also ensure that it complies with any
relevant record keeping requirements under the applicable law.
The first report to be submitted after the Commencement Date should cover the period
up to the end of that calendar month. Each report is to be submitted within 7 days of the
end of the period it covers. The reports must continue until the completion of all work
outstanding at the completion date stated in the Taking-Over Certificate in accordance
with Sub-Clause 11.1. Although the progress report is submitted to the Engineer, there
is no requirement for the Engineer to approve or agree the report. The parties should
arrange for monthly progress meetings to allow the Engineer or the Employer to raise
any items in the report which are queried. This may at early stages limit disputes from
arising. Any issue of claim notices are likely to rely on the content of the reports and by
that stage it would be better for the Contractor to have some idea regarding possible
counterarguments and merits.
The Contractor must provide in its report comparisons of actual and planned progress
with details of any events or circumstances which may jeopardise the completion in
accordance with the Contract. The measures to be adopted to overcome the delays must
also be provided, see paragraph (h).The important role of the programme under FIDIC
is to allow monitoring of work progress in this comparative manner, actual against
planned progress. In line with this, the Contractor also has the obligation under Sub-
Clause 8.3 to submit revised programmes where inconsistent with the Contractor’s
actual progress. The Contractor should report on the methods and major stages in
execution of the Works and give detailed estimates of resources required on site for
each major stage.
The Contractor also has the onerous obligation to provide details of the progress of
work carried out by nominated Sub-contractors. Collating and recording the full
information required for Sub-contractor progress may be problematical (see paragraph
(a)).
The Contractor in its application for an Interim Payment Certificate under Sub-Clause
14.3 is required to include the Sub-Clause 4.21 [Progress Report] as part of the
supporting document to the Statement. The issue of an Interim Payment Certificate
under Sub-Clause 14.6 by the Engineer to the Employer should not be withheld in the
event that the Sub-Clause 4.21 [Progress Report] has not been submitted (or only
submitted in part) as part of the supporting document to the Statement.
Sub-Clause 4.22 Security of the Site
66
See FIDIC Guide
58

The Contractor is responsible for security on Site unless stated otherwise in the
Particular Conditions. The Contractor is responsible for keeping unauthorised persons
off the Site. The Sub-Clause limits authorised persons to Contractor and Employer
Personnel and others authorised by the Employer or the Engineer. The means by
which this is achieved is left to the Contractor and any particular requirements for
controlling access to the Site should be set out in the Particular Conditions such as
dividing the Site. In addition the Particular Conditions should include any additional
requirements to control access to the Site. This is important where the Site is part of a
larger site or where the project work is confidential. The Contractor’s security
obligation should be considered in conjunction with its obligations under the
following Sub-Clauses which will be affected if the Contractor does not have full
control of the Site 67.
• Sub-Clause 4.6 [Co-operation].
• Sub-Clause 4.8 [Safety Procedures]
• Sub-Clause 17.2 [Contractor’s Care of the Works]
Usually the Contractor is the only organization on Site full-time. Where the Employer
has more than one Contractor on Site problems may arise as it may be difficult for the
Contractor to identify and check employees and sub-contractor’s other than the
Contractor’s own and the Employer’s Personnel. In such circumstances the Employer
should consider amending this provision to accept responsibility for security or
alternatively ensure that detailed site security procedures are set out in the Particular
Conditions or Specification.
Sub-Clause 4.23 Contractor’s Operations on Site
This Sub-Clause places an obligation on the Contractor to confine operations to the

Site and to the additional working areas (obtained with agreement from the Engineer).
The Contractor must keep its equipment and personnel off the adjacent land. The
requirement to confine the Works to the above mentioned locations will also apply to
other sub-contractors and personnel. This is similar to the requirement to provide
Temporary Works to protect owners and occupiers of adjacent land and the no
interference obligation towards the public under Sub-Clauses 4.8(e) and 4.14
respectively.
Many obligations imposed by this Sub-Clause apply only to works on Site. The
Contractor is only required to keep the ‘Site’ free of unnecessary obstruction during
Work execution. The obligation to remove rubbish and Temporary works is also only
referred to in terms of the Site. This requirement is similar to the safety provision
obligation at Sub-Clause 4.8(c). Sub-Clause 4.23 does not expressly impose these
removal type burdens on the Contractor for the additional agreed working areas. The
FIDIC Guide in fact makes clear that these obligations apply to the area of the Site
which the Employer has made available for execution of the Permanent Works and to
67
page 144.
59

which the Plant and Materials are delivered. Permanent Works are not executed on the
additional areas as they are not part of the Site. This does not mean to say that the
additional areas do not contain Temporary Works (such as administrative offices) or
do not suffer from deposition or wreckage resulting from carrying out the Works.
The Contractor is required to remove from the Site to which the Taking Over
Certificate refers its equipment as well as rubbish and Temporary Works. This
clearance obligation applies post issue of the Taking Over Certificate. The Taking
Over Certificate cannot be withheld for the sole reason that the Contractor has failed
to comply with its obligations during the execution of the Works under this Sub-
Clause to clear and remove the same items (unless this prejudices safe use 68). The
obligation to remove various items may apply indirectly to the additional working
areas upon issue of the Taking Over Certificate if the additional agreed areas are
connected to the part of the Site taken over.
Once the Taking-Over Certificate is issued, the Contractor must evacuate the part
taken over (leaving it in a clean and safe condition), except that any necessary Goods
may be retained on the Site for the Contractor to fulfill its obligations during the
Defects Notification Period (see Sub-Clause 11.7). The right to retain necessary
Goods does not apply to the additional working areas. Given that the Contractor has
the right to retain such Goods on the part of the ‘Site’ taken over by the Employer, the
parties should agree on an area of the taken over part of the Site where the Contractor
can store the Goods.
Sub-Clause 4.24 Fossils
Geological or archaeological items of value or interest found on the Site must be

surrendered to the Employer or otherwise placed under his authority. The Contractor
shall take steps to preserve them and will promptly give notice of the find to the
Engineer and follow his instructions. If these cause delay or Cost and he gives a
further notice to the Engineer, the Contractor will be entitled to an extension of time
and reimbursement of his Cost.
The 1999 edition has replaced the concept of the Employer owning any items of
archaeological value with one of his being custodian for their care. It also now
requires the Contractor to provide the Engineer with an initial written notice of such
finds and a further written notice of any possible delay and Cost if the Contractor
wishes to claim these.
The purpose of this clause is to ensure that items of interest are “placed under the
care and authority of the Employer” so that ownership or entitlement or the best
means to deal with them may be established in accordance with local law. The law
may protect ancient monuments, archaeological artefacts or geological deposits and
provide penalties for their damage or removal. A Contractor would have incentive to
68
See FIDIC Guide
60

hide such discoveries if he would suffer financially as a consequence of their
discovery. For this reason, many standard forms of contract have a fossils or
antiquities clause placing the financial risk of such discoveries on the Employer.
Notably however, the Contractor is not entitled to receive profit under this Sub-
Clause.
The Contractor's entitlement to an extension of time and costs however depends upon
the relevant delay and the costs arising as a result of "complying with the instructions"
of the Engineer and also upon his giving a Sub-Clause 20.1 notice to the Engineer.
One would expect the Engineer to give instructions to the Contractor equally as
promptly as the Contractor is required to give notice of the initial find to the Engineer.
If this does not occur, the Contractor might suffer. For example, if critical work stops
whilst the Engineer is informed of the discovery and decisions are made, possibly
after bringing in experts to examine the archaeological context, and the result is only
an instruction by the Engineer to proceed because the “find” proves to be a false alarm
or of no significance, the Contractor will apparently be entitled to no extension of
time or Cost. However, under Sub-Clause 8.4 (e), the Contractor is entitled to an
extension of time if delayed by “any delay, impediment or prevention caused by or
attributable to the Employer, the Employer’s Personnel (which includes the Engineer)
or the Employer’s other contractors on the Site.
The FIDIC P&DB and EPCT contracts contain an equivalent clause in identical terms.
By: George Rosenberg (Consultant) and Andrew Tweeddale
61

Clause 5
Summary
Clause 5 defines a ‘nominated Subcontractor’ as either a Subcontractor who is

stated in the Contract as being ‘nominated’; or who the Engineer instructs the
Contractor to employ as a Subcontractor under clause 13. The Contractor may
object to employing a nominated Subcontractor. A number of grounds are
deemed to be reasonable for objecting and these include: where there are reasons
to believe that the Subcontractor does not have sufficient resources, competence
or financial strength to complete the subcontracted works; where the
Subcontractor refuses to agree to indemnify the Contractor for any negligence;
or where the Subcontractor does not agree to carry out the works so as not to put
the Contractor in breach of its own obligations. If the Employer requires that
the Contractor employ a nominated Subcontractor where a reasonable objection
has been made then it must agree to indemnify the Contractor.
The Contractor is required to pay to the nominated Subcontractor the amounts

which the Engineer certifies to be due in accordance with the Subcontract. This
sum is then added to the Contract Price as well as any amount for overheads and
profit as stated in the appropriate schedule or Appendix to Tender. However,
before issuing a Payment Certificate to the Contractor the Engineer may ask for
evidence that previous payments have been made to the nominated
Subcontractor. If evidence is not provided by the Contractor or the Contractor
does not satisfy the Engineer that there are grounds for withholding payment
then the Employer may at his discretion pay the nominated Subcontractor
directly.
Origin of clause
The clause had its origins in the 3rd edition of FIDIC’s Red Book at clause 59 and was
repeated in the 4th edition, except that assignment was moved from sub-clause 59(6)
in the 3rd edition to sub-clause 4.2 in the 4th edition.
There is a significant difference between the definition of nominated Subcontractor in

the FIDIC 99 contract and that found within the Red Book 4th edition. In the FIDIC
99 contract the definition is restricted to persons named in the contract as being
nominated Subcontractors and those whom the Contractor is instructed to employ by
the Engineer. Under the old Red Book 4th edition the definition was much broader and
included: “all persons to whom by virtue of the provisions of the Contract the
Contractor is required to subcontract;” so that where there was a specified product
referred to in the Contract, which could only be supplied from one supplier, that
supplier would be a nominated subcontractor.
1

Cross-references
Reference to clause 5 or to a Subcontractor is found in the following clauses:-
• clause 1.1.2.7 (Definitions – Contractor’s Personnel);

• clause 1.1.2.8 (Definitions – Subcontractor);
• clause 4.4 (Subcontractors);
• clause 4.5 (Assignment of Benefit of Subcontract);
• clause 4.21 (Progress Reports);
• clause 8.3 (Programme);
• Clause 13 (Variations and Adjustments)
• clause 13.5 (Provisional Sums);
• clause 15.2 (Termination by the Employer);
• clause 17.3 (Employer’s Risks);
• clause 18.4 (Insurance for Contractor’s Personnel);
• clause 19.1 (Definition of Force Majeure); and
• clause 19.5 (Force Majeure Affecting Subcontractor).
Clause 1.1.2.8 provides that a Subcontractor “means any person named in the Contract
as a subcontractor, or any person appointed as a subcontractor, for a part of the Works;
and the legal successors in title to each of these persons.” Where a reference is made to
a Subcontractor then, in the absence of any specific reference, this will mean both a
“domestic” Subcontractor and a “nominated” Subcontractor.
Sub-Clause 5.1 Definition of “nominated Subcontractor”
On occasion the Employer will wish to nominate a Subcontractor in order to

undertake specific works. In particular this may occur where the Subcontractor will
be required to design part of the works or where a specialist will be needed for the
works. Clause 5.1 defines a nominated Subcontractor as being a Subcontractor: “(a)
who is stated in the Contract as being a nominated Subcontractor, or (b) whom the
Engineer, under Clause 13 [Variations and Adjustments], instructs the Contractor to
employ as a Subcontractor.”
In the United States the situation often arises where an employer will stipulate a list of
names of subcontractors, one of whom the contractor is then required to employ. In
this case the subcontractor appointed is not a nominated subcontractor as he would
not fall within the definition of a nominated Subcontractor under Sub-Clause 5.1of
FIDIC 99. Similarly, a clause which requires the approval of the Employer for any
appointment of a subcontractor does not mean that the subcontractor will be a
nominated Subcontractor.

Sub-Clause 4.4 states that “the Contractor shall be responsible for the acts or defaults
of any Subcontractor … as if they were the acts or defaults of the Contractor.” Given
that the term “Subcontractor” is defined to include: “any person named in the Contract
as a subcontractor” it appears that the intent of the draftsman was to make the
Contractor responsible for a nominated Subcontractor’s failure to perform the works.
This differs from other English forms of construction contract. In some English
contracts, such as the JCT 80, 81 and 97; IFC84 and MW80 forms of contract, the
Contractor will be entitled to claim for an extension of time, for “... delay on the part
of nominated subcontractors, nominated suppliers which the contractor has taken all
practicable steps to avoid or reduce ..." (clause 25.4 of the JCT 80 main contract
conditions). However, although the provision within this JCT form gives the
Contractor an entitlement to claim time; it does not, as stated in Norwest Holst
Construction Ltd v. Co-Operative Wholesale Society Ltd,1 give an entitlement to
claim cost. In this case the court held that: “there is no equivalent provision covering
nominated subcontractors in clause 26 [the clause dealing with loss and expense] to
that found in clause 25. This opens up the possibility of a subcontractor in the position
of CWS recovering an extension of time for delay caused by a nominated
subcontractor but not recovering additional loss and expense.”
In the absence of any clause which expressly permits the Contractor to claim time or
money the English common law places the risk of delay and additional cost caused by
a nominated Subcontractor on the Contractor: Percy Bilton v Greater London
Council. 2 Where there is a contract that permits for the nomination of a subcontractor
then the extent to which the main contractor is liable even for defects in the
workmanship of the nominated sub-contractor will depend on the precise terms of the
various contracts: Sinclair v Woods of Winchester Ltd. 3
Delays and defective work caused by a nominated Subcontractor appear to be the risk
of the Contractor under FIDIC 99 as there is no basis for extending time under Clause
8.4 or for claiming additional cost, unless the substantive law of the contract provides
a remedy.
Re-nomination
Clause 5 does not deal with re-nomination. Where, for example, a nominated
Subcontractor goes into liquidation then the question arises as to who bears
responsibility for the delay and additional costs of the subsequent re-nomination.
The starting point is to consider Sub-Clause 4.4, which states that: “the Contractor
shall be responsible for the acts or defaults of any Subcontractor … as if they were the
acts or defaults of the Contractor.” It would appear that where the nominated
Subcontractor cannot proceed with the works because it is insolvent then the Contractor
1 [1997] EWHC Technology 356

2 [1982] 1 WLR 794
3 [2006] EWHC 3003 at para 30
3

bears the risk of any delay or additional cost. An Employer would be entitled to argue
that if the Contractor were concerned about the financial standing of the nominated
subcontractor then it ought to have raised an objection pursuant to clause 5.2 of the
conditions.
In The Corporation of the City of Adelaide v. Jennings Industries Limited 4 the

Australian High Court had to consider the re-nomination of a nominated
Subcontractor. In this case there was a clause within the contract which stated:
"The Builder shall not be relieved of responsibility under this Contract for
such parts of the Works as are sub-let to sub-contractors or suppliers
pursuant to this clause or to nominated sub-contractors or nominated
suppliers pursuant to clauses 15 and 16 of these Conditions."
The court held that the Contractor had the responsibility to re-nominate. The High
Court considered the above clause and English case law and stated that:
“As I have explained it cannot be said that in the present case the builder
lacked either the authority or the responsibility to arrange for the defects in
the sub-contract work to be made good either by itself or by …. There was
therefore no gap such as was discerned in the contract in Bickerton requiring
the implication of a term. The conditions necessary to give rise to such a step
are not present here”.
Clause 4.4 [Subcontractors] of FIDIC 99 is drafted in terms similar to the above

clause. It makes the Contractor responsible for the defaults of any “Subcontractor”,
which by definition would include a nominated Subcontractor, as if they were the acts
or defaults of the Contractor himself.
The alternative view, as expressed in the English case of North West Metropolitan
Regional Hospital Board v. T.A. Bickerton & Son Ltd5 and in “A Practical Legal
Guide” to the FIDIC Red Book 4th edition, was that despite the wording it remained the
responsibility of the Engineer to specify a replacement nominated Subcontractor. The
provisions in the FIDIC Red Book 4th edition are similar to those in FIDIC 99 but not
identical. The reasoning for this conclusion within “A Practical Legal Guide” was as
follows:
1. That if the matter was entirely the Contractor’s risk, then it should follow
that the Contractor would be entitled to execute the works himself.
2. That as the Subcontractor has been specified in the Contract or named by the
Engineer then the obligation to employ them is a contractual requirement
and this can only be changed by a Variation.
4 [1985] HCA 7
5 [1970] 1 WLR 607
4

3. Where the nominated Subcontractor is the subject of a Provisional Sum then
the expenditure of a Provisional Sum can only be done on the instruction of
the Engineer.
The conclusion is that although the Contractor takes the risk of a nominated
Subcontractor’s default any delays caused by the re-nomination of the Subcontractor
would entitle the Contractor to claim an extension of time. Furthermore, while consent
is not required for the appointment of the nominated Subcontractor it appears that it
might be for a replacement. Clause 4.4 (b) states: “the prior consent of the Engineer
shall be obtained to other proposed Subcontractors.”
In North West Metropolitan Regional Hospital Board v. T.A. Bickerton & Son Ltd.6
the contract contained the following wording: “Such [PC] sums shall be expended in
favour of such persons as the architect shall instruct.” The respondent argued for the
implication of a term in the contract to the effect that if the nominated Subcontractor
fails to perform its obligations under the subcontract then the architect is under an
obligation to nominate another subcontractor to complete the work. Such a term was
implied by the House of Lords. The point of the case was stated by Lord Reid at p.
613:
"Once it is accepted that the principal contractor has no right or duty to do

the work himself when the nominated sub-contractor drops out any more than
he had before the sub-contractor was nominated then equally it must be the
duty of the employer to make a new nomination when a nominated sub-
contractor does drop out. For otherwise the contract work cannot be
completed."
At Sub-Clause 13.5 [Provisional Sums] of FIDIC 99, in relation to the expenditure of

Provisional Sums, it is stated that: “Each Provisional Sum shall only be used, in whole
or in part, in accordance with the Engineer’s instructions”. There appears to be no
material difference in the wording between the JCT and FIDIC and one would assume
that an English court would therefore conclude that it was for the Engineer to re-
nominate a new nominated Subcontractor where the original nominated Subcontractor
dropped out. Whether the insolvency of a nominated Subcontractor would also fall
within the broad definition of “Force Majeure” should be considered, though whether
insolvency can be considered as “an exceptional event or circumstance” is doubtful.
It is also the case that where a nominated Subcontractor has to be replaced then the
costs of completing the subcontracted works by a second nominated Subcontractor
will have to be borne by the Employer in accordance with Sub-Clauses 5.3 and 13.5
[Provisional Sums]. The Contractor will also be able to object to the replacement
nominated Subcontractor if it cannot complete the subcontracted works so as to allow
the Contractor to complete by the Time for Completion. 7
6 [1970] 1 WLR 607
7 Rhuddlan Borough Council v Fairclough Building Ltd (1985) 30 BLR 26
5

The FIDIC 99 contract therefore leaves it unclear as to who has the obligation to re-
nominate where the nominated Subcontractor becomes insolvent or drops out. It is
something which should be clarified when FIDIC 99 is amended.
In addition there is nothing within the Clause 5 which deals with the termination of a
nominated Subcontractor. In one case, which considered the FIDIC 4th Red Book, it
was argued that it is only the Engineer and not the Contractor who can terminate the
subcontract.8 However, the right to terminate will be dependent on the wording of the
nominated subcontract. If the Contractor was not able to terminate (with or without
the consent of the Employer) it would place the Contractor in an unduly onerous
position if the nominated Subcontractor was not performing, despite the indemnity
that the nominated Subcontractor is required to give.
Sub-Clause 5.2 Objection to Nomination
Sub-Clause 5.2 deals with the objection by the Contractor to the nomination of a
Subcontractor. The Red Book Guide suggests that: “If the Contractor wishes to object
to the nomination, he must do so promptly, describing all the grounds on which his
objections are based.”
The wording in Sub-Clause 5.2 states that the “Contractor shall not be under any
obligation to employ a nominated Subcontractor against whom the Contractor raises
reasonable objection by notice to the Engineer as soon as practicable”. Under clause
1.3 a notice to be given under the Contract shall be in writing. However, the clause
gives no indication as to what is meant by (1) “as soon as practicable;” and (2) what
sanction arises if there is a failure to serve a notice “as soon as practicable”.
“As Soon As Practicable”?
In HLB Kidsons (A Firm) v Lloyd's Underwriters Subscribing To Lloyd's Policy No

621/PK1D00101 & Ors 9 Rix LJ in the Court of Appeal stated that if a clause “says
nothing about how a notification is to be made, other than that it must be in writing
and given as soon as practicable after awareness of circumstances which may give
rise to a claim. That is, on the face of it, a fairly loose and undemanding test.”
The use of the phrase “as soon as practicable” has been criticised for its lack of clarity.
The Canadian government has recently published an article on time periods. In relation
to the phrase “as soon as practicable” it recommended that this should be interpreted to
mean that:
8 Knowman Enterprises (Pty) Ltd v. China Jiangsu International Botswana (Pty) Ltd and Others
[2007] BWHC 214
9 [2008] EWCA Civ 1206,

“Something must be done soon - taking the circumstances into account: In
this category, the thing that is to be done must be done soon, but it is
permissible to do other things first if the delay is justifiable in the
circumstances. The nature and importance of the thing to be done, and other
objective and subjective factors, are considerations in determining how soon
the thing must be done.”
Such a definition with reference to both objective and subjective factors may be
unhelpful as an objective consideration may lead to a different time period than a
subjective one. It is an area where potentially there could be disputes.
What Sanction Arises for a Failure to Serve a Notice “as soon as practicable”?
Rix LJ also considered the question of what sanction applies where there is a failure
to give a notice as soon as practicable (para 111 et seq). Rix LJ thought that it was
important to consider whether the requirement that the notice was given as soon as
practicable was a condition precedent. His Lordship stated: “The expression ‘as soon
as practicable’ taken by itself is not redolent of a condition precedent. It does not set
a firm deadline and suggests an element of laxity”. In clause 5.2 of FIDIC 99 there is
nothing to suggest that the giving of notice “as soon as practicable” is a condition
precedent, save that there is reference to the employment of the nominated
Subcontractor.
However, in NH International (Caribbean) Ltd v National Insurance Property

Development Company Ltd (Trinidad and Tobago) 10, the Privy Council took a
differing view to the meaning of “As soon as practicable” as it applied to Sub-Clause
2.5 of the FIDIC 99 Red Book. Lord Neuberger stated:11
“…it is hard to see how the words of clause 2.5 could be clearer. Its purpose
is to ensure that claims which an employer wishes to raise, whether or not
they are intended to be relied on as set-offs or cross-claims, should not be
allowed unless they have been the subject of a notice, which must have been
given ‘as soon as practicable’. If the Employer could rely on claims which
were first notified well after that, it is hard to see what the point of the first
two parts of clause 2.5 was meant to be. Further, if an Employer’s claim is
allowed to be made late, there would not appear to be any method by which it
could be determined, as the Engineer’s function is linked to the particulars,
which in turn must be contained in a notice, which in turn has to be served ‘as
soon as practicable’.”
It would therefore appear that up until the appointment of the nominated

Subcontractor the Contractor can always raise objections; however, once the
10
[2015] UKPC 37;
11
[2015] UKPC 37at para 38
7

nominated Subcontractor is appointed that right to raise objections is lost. The effect
of not raising an objection “as soon as practicable” may subsequently bar an
objection.
Grounds for Objection to Nomination
A Contractor is not under any obligation to employ a nominated Subcontractor against

whom he raises reasonable objection, subject to receiving an indemnity from the
Employer. A reasonable objection must be considered having regard to the
circumstances of the appointment. Where a contractor raises one of the grounds listed
in sub-clauses 5.2(a) to (c) then the objection is “deemed reasonable.” The grounds
listed at sub-clause 5.2(a) to (c) are:
(a) there are reasons to believe that the Subcontractor does not have sufficient
competence, resources or financial strength;
(b) the subcontract does not specify that the nominated Subcontractor shall
indemnify the Contractor against and from any negligence or misuse of Goods
by the nominated Subcontractor, his agents and employees; or
(c) the subcontract does not specify that, for the subcontracted work (including
design, if any), the nominated Subcontractor shall:
(i) undertake to the Contractor such obligations and liabilities as
will enable the Contractor to discharge his obligations and liabilities
under the Contract, and
(ii) indemnify the Contractor against and from all obligations and
liabilities arising under or in connection with the Contract and from the
consequences of any failure by the Subcontractor to perform these
obligations or to fulfil these liabilities.
Deemed reasonable
A deeming provision gives a clause within a contract an effect which it would not
otherwise have without it. As stated by Lord Bingham in the Privy Council in
Containers Ltd v Tasman Orient Line CV (New Zealand): 12 “Thus the purpose of the
deeming provision is to give the Rules a meaning different from that which they
would have in the absence of a deeming provision.” It therefore follows that it does
not matter if in fact the objection raised by the Contractor when referring to sub-
clause (a) to (c) is in fact unreasonable – it will be deemed to be reasonable and the
Employer must then decide whether he wants to agree to indemnify the Contractor
against the risk.
An indemnity
12 [2004] UKPC 22
8

If a reasonable objection is raised by the Contractor or an objection is ‘deemed’
reasonable then the Contractor will not be under an obligation to employ the
Subcontractor unless the Employer agrees to indemnify the Contractor from the
consequences of the matter.
An indemnity, in its widest sense, comprises an obligation imposed by contract on

one person to make good a loss suffered by another. 13 A contract of indemnity
creates a primary obligation. Therefore in the event of the nominated Subcontractor’s
default that Contractor can proceed directly against the Employer for its losses rather
than having to commence proceedings against the defaulting Sub-contractor. 14
The wording of the indemnity that is provided by the Employer is important to

determine the extent of the Employer’s potential liability. As stated in Bovis Lend
Lease Ltd v RD Fire Protection Ltd: 15
“Where the claim is for an indemnity resulting from the default of a sub-
contractor, the relevant date for assessing the size of the sum to be recovered
is the date on which the loss in question has been incurred. An indemnity is, in
general terms, an undertaking to reimburse or pay for loss. The circumstances
in which, and the loss for which, the indemnity is to be met are those defined
by the wording of the indemnity itself.”
However, there is no Form of indemnity within the FIDIC contract and disagreement
may arise between the Contractor and Employer as to whether the indemnity provided
by the Employer does in fact give the Contractor protection “against and from the
consequences” of the Subcontractor’s default.
An indemnity will allow the indemnified party to recover the losses that it has
suffered, including costs and legal fees. The rules relating to remoteness of loss do
not apply to indemnities unless the agreement restricts the type of loss that may be
recovered. In the "Eurus" 16 a majority of the arbitrators held that whereas damages
for breach of contract were subject to the doctrine of remoteness and thus had to be
reasonably foreseeable, the only issue under an indemnity clause was simply one of
causation. It follows that a Contractor could not claim under an indemnity against the
Employer in the event where a Subcontractor was in default if the default arose
because the Contractor prevented the Subcontractor from performing. In these
circumstances the act of the Contractor would break the chain of causation: see The
13
Law of Guarantees, Andrews G and Millett R, 2nd edn., FT Law and Tax, at page 8.
14 The difference between a primary and secondary obligation highlights the distinction between an
indemnity and guarantee. Under a guarantee the guarantor only has a secondary obligation and
therefore the beneficiary of the guarantee must first establish a liability against the defaulting party
before recovering under the guarantee: see Alfred McAlpine Construction Ltd v Unex Corporation
Ltd [1994] 70 BLR 26.
15 [2003] EWHC 939 (TCC)
16 [1996] 2 Lloyd's Rep 408

Nogar Marin; 17 and Ullises Shipping Corp v FAL Shipping Co Ltd Rev 1. 18
Sub-Clause 5.3 Payments to nominated Subcontractors
Sub-Clause 5.3 deals with the Contractor’s obligation to pay the Subcontractor. The
Contractor is required to pay to the nominated Subcontractor the amounts certified by
the Engineer. In addition to the payment of the nominated Subcontractor, the
Contractor is also entitled to receive a sum for overhead charges and profit as
provided for under Sub-Clause 13.5 [Provisional Sums].
Sub-Clause 5.4 Evidence of Payments
The Engineer may request evidence of payments from the Contractor to the
Subcontractor; however, the Guide to the Red Book suggests that this should not
normally be done unless there is a reason to believe that the Contractor is in default
under the subcontract. If the Contractor fails to supply this evidence or fails to satisfy
the Engineer that it was reasonably entitled to withhold or refuse to pay these amounts
and has notified the nominated Subcontractor of this, the Employer may at his sole
discretion pay the nominated Subcontractor directly. If the Employer pays the
nominated Subcontractor directly then the Contractor must repay to the Employer that
amount.
Nominated Subcontractors and Tortious Duties
A domestic subcontractor generally has no rights or remedies against an Employer for

a breach of contract by the Employer and, in the absence of a collateral warranty from
the Subcontractor to the Employer, the Employer will usually have no remedies
against the subcontractor.
In certain circumstances, however, a course of dealing between a nominated

Subcontractor and an Employer can be such that a duty of care in negligence will be
held to exist. In Junior Books Ltd v Veitchi Co Ltd 19 it was held that a nominated
Subcontractor might be liable to the Employer for the cost of repairing a defective
floor together with consequential loss. Lord Roskill, who gave the principal speech,
stated at p. 273:
"I look for the reasons why, it being conceded that the appellants owed a duty
of care to others not to construct the flooring so that those others were in peril
of suffering loss or damage to their persons or their property, that duty of care
should not be equally owed to the respondents who, though not in direct
contractual relationship with the appellants, were as nominated subcontractor
17 [1988] 1 Lloyd's Rep 412 at pages 421 – 422

18 [2006] EWHC 1729
19 [1983] 1 AC 520
10

in almost as close a commercial relationship with the appellants as it is
possible to envisage short of privity of contract, so as not to expose the
respondents to a possible liability to financial loss for repairing the flooring
should it prove that that flooring had been negligently constructed."
In Simaan General Contracting Co v Pilkington Glass Ltd (No 2) 20 the Court of

Appeal was concerned with a case in which it was asserted that a subcontractor's
supplier owed a duty of care to a main contractor in respect of economic loss suffered
by it as result of the glass supplied being of the (allegedly) wrong colour. Bingham LJ
stated:
“(4) Where a specialist subcontractor is vetted, selected and nominated by a

building owner it may be possible to conclude (as in Junior Books) that the
nominated subcontractor has assumed a direct responsibility to the building
owner. On that reasoning it might be said that Pilkington owed a duty to the
sheikh in tort as well as to Feal in contract.”
The Scottish courts have similarly found that there may be circumstances where a
nominated subcontractor owed a duty of care to an employer. In Scott Lithgow Ltd v
GEC Electrical Projects Ltd 21 the court stated that:
“nomination is not a necessary factor before a duty of care can arise but it is
in my view an important element where it exists. Where it does exist it
obviously serves to point towards the degree of proximity which is required.
But without it the proximity of relationship may not be established.”
The approach adopted in Junior Books Ltd v Veitchi Co Ltd has, however, often been
distinguished by the courts. In Kellogg Brown & Root Inc v Concordia Maritime
Ag 22 the court stated that a Junior Books type liability would be exceptional;
although: “It might be justifiable on the ground that the Subcontractor was nominated
for its special skill on which the Employer was reasonably entitled to rely.” However,
imposing such a duty would cut across and be inconsistent with the structure of
relationships created by the contracts, into which the parties had entered.
Similarly, in Muirhead v. Industrial Tank Ltd Robert Goff L.J., stated that the Junior
Books analysis “appears to me to be difficult to reconcile with the factual situation in
that case, in which the parties had deliberately structured their contractual relationship
in order to achieve the result that (apart from any special arrangements) there should
be no direct liability inter se." The court again refused to hold that a tortious liability
existed between Subcontractor and Employer in Greater Nottingham Co-operative
Society Ltd v Cementation Piling & Foundations Ltd.23 Here the court held that no
20 [1988] QB 758
21 [1989] ScotCS CSOH 3
22 [2006] EWHC 3358 (Comm)
23 [1989] Q.B. 71
11

tortious liability would exist where there were direct contractual warranties in place
between the Employer and the Subcontractor.
Contracts (Rights of Third Parties) Act 1999
Under English law a third party to a contract may in certain circumstances obtain
rights under that contract because of the Contracts (Rights of Third Parties) Act 1999.
Clause 1 of that Act states:
“…a person who is not a party to a contract (a “third party”) may in his own
right enforce a term of the contract if—
(a) the contract expressly provides that he may, or
(b) subject to subsection (2), the term purports to confer a benefit on him.
(2) Subsection (1)(b) does not apply if on a proper construction of the contract
it appears that the parties did not intend the term to be enforceable by the
third party.”
Clause 17.1 of Red Book provides that:
“The Employer shall indemnify and hold harmless the Contractor, the
Contractor’s Personnel, and their respective agents, against and from all
claims, damages, losses and expenses (including legal fees and expenses) in
respect of (1) bodily injury, sickness, disease or death, which is attributable to
any negligence, wilful act or breach of the Contract by the Employer, the
Employer’s Personnel, or any of their respective agents, and (2) the matters
for which liability may be excluded from insurance cover, as described in sub-
paragraphs (d)(i), (ii) and (iii) of Sub-Clause 18.3 [Insurance Against Injury to
Persons and Damage to Property].”
As the definition of “Contractor’s Personnel” encompasses Subcontractors it appears

that under a FIDIC contract, which is subject to English law, a nominated
Subcontractor will be entitled to bring proceedings against an Employer in certain
circumstances envisaged by Sub-Clause 17.1.
Unjust Enrichment and nominated Subcontractors
The general rule is that a Subcontractor will have no action against an Employer in
the event that the Contractor does not pay him. 24 This is because there is a chain of
contracts determining the rights and liabilities of the parties and a claim for unjust
enrichment will not be permitted to circumvent these contracts. 25 Further, although
an Employer may have received a benefit from the Subcontractor’s work it will be
24 Knowman Enterprises (Pty) Ltd v. China Jiangsu International Botswana (Pty) Ltd and Others
[2007] BWHC 214

25
Benedetti v Sawaris [2013] UKSC 50
12

difficult to say he has been enriched “unjustly”. In Seaco Inc v Islamic Republic of
Iran. Case No. 260 Award No. 531-260-2 - FINAL AWARD, 25 June 1992 an
arbitral tribunal concluded that a subcontractor generally has no right to recover for
unjust enrichment against the party that has contracted with the main contractor. The
tribunal held that in the ordinary case the link between the subcontractor's provision
of goods and services and the ultimate purchaser's receipt of them is not direct; rather,
the main contractor stands as an intermediary between the two. The tribunal therefore
held that the subcontractor's detriment and the ultimate purchaser's benefit generally
do not "arise as a consequence of the same act or event."
In the case of Schlegel Corp v. National Iranian Copper Indus. Co., 14 IRAN-U.S.
C.T.R. 176, 183 (1987 I), the tribunal recognized an exception to this general rule. In
this case the respondent, NICIC contracted with Fassan to have Fassan serve as the
general contractor on a water development project. Fassan engaged the claimant
Schlegel to provide and install lining material in a reservoir. Although Schlegel fully
performed, Fassan failed to pay. Schlegel then sought to recover against the NICIC
based upon unjust enrichment. The tribunal noted the general rule but concluded that
there was an exception and found in favour of Schlegel. It held that there was a link
between Schlegel's performance and the NICIC’s enrichment which was "sufficiently
direct". In reaching this determination, the tribunal stressed three considerations: (1)
that NICIC had dictated the reservoir liner specifications into the original contract; (2)
that NICIC’s consulting engineers had ordered Fassan to make Schlegel a “nominated
subcontractor” as defined in the contract; and (3) that NICIC’s consulting engineers
supervised Schlegel's work. When Schlegel had performed its work, the tribunal
concluded, the result was that NICIC had acquired a reservoir lining to its
specifications provided by a company it had effectively nominated to do work,
supervised and approved by its own engineers. However, the enrichment must still be
unjust. In Schlegel Corp it was found that NICIC had never paid Fassan the balance
due for Schlegel's work and therefore it was unjust for them to retain the benefit of the
work.
By Andrew Tweeddale
13

Clause 6
Summary
Clause 6 deals with Staff and Labour. These provisions need to be read with the
applicable laws where the works are being carried out or the relevant employment
law if different.
Sub-Clause 6.1 commits the Contractor (unless otherwise specified) to pay for his
staff and their housing feeding and transport.
Sub-Clause 6.2 requires the Contractor not to pay lower wages or give lower
conditions than those generally applicable locally.
Sub-Clause 6.3 forbids the Contractor from attempting to recruit from the
Employer’s Personnel.
Sub-Clause 6.4 requires the Contractor to abide by labour laws and to require his
staff to obey the law generally.
Sub-Clause 6.5 forbids work on locally recognised rest days or outside the working
hours set out in the Appendix to Tender, unless stated in the Contract or agreed to
by the Engineer or essential for the protection of life or property or for safety
reasons.
Sub-Clause 6.6 requires the Contractor to provide and maintain all necessary
accommodation for its personnel and for the Employer’s personnel to the extent
stated in the Specification. It is forbidden from permitting its own Personnel from
living within the structures forming part of the Permanent Works.
Sub-Clause 6.7 requires the Contractor to maintain the health and safety of its
personnel and maintain proper medical facilities for its own personnel and for any
Employer Personnel accommodated. It is required to appoint an accident
prevention officer. It is required to notify the Employer of any accidents and
maintain records.
The content of this commentary is not legal advice. You should always consult a suitably qualified lawyer regarding a
particular legal issue or problem that you have. Please contact us if you require legal assistance.

Sub-Clause 6.8 requires the Contractor to provide all necessary superintendence by
a sufficient number of properly qualified people with adequate knowledge of the
defined language of communications.
Sub-Clause 6.9 requires the Contractor to ensure that its personnel are properly
qualified, skilled and experienced. The Employer may require the Contractor to
remove any person employed on the Site or the Works who commits misconduct, is
incompetent or negligent, fails to perform in accordance with any provision of the
Contract or persists in any conduct prejudicial to health, safety or the environment.
If a person is removed the Contractor will have to replace him.
Sub-Clause 6.10 requires the Contractor to submit to the Engineer details showing
personnel and equipment on Site. This is required each month and must be in a
form approved by the Engineer.
Sub-Clause 6.11 requires the Contractor to take reasonable precautions to prevent

disorderly conduct by Contractor’s Personnel and to preserve the peace and
protection or nearby persons and property.
Origin of clause
Clause 6 of FIDIC 1999 had its origins in clauses 15.1, 16.1, 34.1 and 35.1 of the FIDIC
4th general conditions. Other clauses could be found in the Guidelines for the Particular
Conditions.
Cross-references
Sub-Clause 6.1 Engagement of Staff or Labour

The Sub-Clause provides that: “Except as stated in the Specification” the Contractor has
the responsibility for making “arrangements” for engaging all staff and labour and their
“payment, housing, feeding and transport”. The FIDIC Guide states:
“This Sub-Clause removes any implication of obligation on the part of the

Employer to provide personnel, except to the extent (if any) that the Employer has

undertaken to do so. If the Employer is to make any personnel available, his
obligations must be specified precisely. The consequences of shortcomings may
need to be considered carefully before specifying these obligations.”
The Sub-Clause imposes obligations on the Contractor; however, it lacks detail. For
example, would a Contractor be in breach of contract if the ‘housing’ he had arranged
failed to meet basic standards? Possibly not under this Sub-Clause as the requirement is
one to “make arrangements” for housing. The requirement to maintain accommodation
and welfare facilities is then found at Sub-Clause 6.6 [Facilities for Staff and Labour].
The obligations under this Sub-Clause also have to be considered with the local law
which will supplement and expand upon these obligations. Where a breach of an
obligation under this Sub-Clause occurs then the Engineer has the right to issue a Notice
to Correct under Sub-Clause 15.1 [Notice to Correct] and, if the breach is material,
eventually to terminate the Contract.
Sub-Clause 6.2 Rates of Wages and Conditions of Labour

This Sub-Clause seeks to impose on Contractors a minimum standard for rates and
conditions of labour and the FIDIC Guide states that it is not unreasonable to require the
Contractor to be a good employer of his labour force. The construction sector is one of
the largest employees of temporary workers. On a number of continents these workers
are not registered employees and have no formal employment protection. Their wages
can be low, even below the minimum to meet basic needs and their employment
conditions can be unsafe. 1 The purpose of this Sub-Clause is to raise these standards so
that workers employed are paid rates which are not less than those established for the
trade and industry where the work is carried out. Where there are no established rates or
conditions then the Contractor should pay rates of wages and observe conditions which
are observed locally by employers whose trade or industry is similar. This, of course,
will be extremely difficult to define.
As with sub-Clause 6.1, the Employer has the right to give notice under Sub-Clause 15.1
[Notice to Correct] if the Contractor does not observe this provision. However, it will not
always be easy to assess whether a breach of this provision has occurred because the rates
of pay and the conditions which may be observed locally may differ vastly from one
employer to another.
1
Implementing Labour Standards in Construction, A Sourcebook: Ladbury, Cotton & Jennings (2003)
published by Hickling and Squires, page 1

Sub-Clause 6.3 Persons in Service of the Employer
The provision against attempting to recruit or recruiting the Employer’s staff and labour
is clear. The term “Employer’s Personnel” is defined in Sub-Clause 1.1.2.6 and includes
all the Engineer and the assistants referred to in Sub-Clause 3.2 [Delegation by the
Engineer] and “all other staff, labour and other employees of the Engineer and of the
Employer”. It also includes other personnel notified by the Employer or Engineer as
being Employer’s Personnel.
The FIDIC Guide suggests that the clause is a reasonable one because otherwise the
Contractor could undermine the Employer’s activities. It also states that each party
should seek the other Party’s agreement to the recruitment of its personnel. The Sub-
Clause does not, however, appear to prevent a Contractor hiring someone who has left the
employment of the Employer because he will no longer fall within the definition of
“Employer’s Personnel”
Of course, this Sub-Clause does not prevent the Contractor from hiring the Employer’s
staff which have either been identified in the Contract or otherwise with the agreement of
the Employer. It should be noted that the Engineer cannot agree to the Contractor hiring
the Employer’s Personnel because this would be an amendment to the Contract – see
Sub-Clause 3.1 [Engineer’s Duties and Authority].
Sub-Clause 6.4 Labour Laws

The Contractor is obliged to abide by labour Laws applicable to the Contractor’s
Personnel. The clause then specifically lists laws relating to employment, health, safety,
welfare, immigration and emigration laws. In this regard there is some repetition with the
requirements set out in Sub-Clause 4.8 [Safety Procedures].
“Laws” are a defined term meaning all national (or state) legislation, statutes, ordinances
and other laws, and regulations and by-laws of any legally constituted public authority.
The definition is not limited to the law of the “Country”. Similarly, in Sub-Clause 6.4 the
reference to “Laws” is not limited to just the laws of the “Country”. The Contractor may
therefore be obliged to apply different laws depending on where its personnel were
employed. For example, an Italian Contractor working in Africa may bring with him
some Italian staff and will have to apply a different law to those staff which are employed
locally.

If the Contractor breaches Sub-Clause 6.4 then the Employer would struggle to identify a
loss. However, this is an obligation which could be enforceable by notice under Sub-
Clause 15.1 [Notice to Correct].
It is questionable whether this Sub-Clause is strictly necessary given the wide wording of
Sub-Clause 1.13 [Compliance with Laws].
Comments on health and safety are deal with below when considering Sub-Clause 6.7
[Health and Safety].
Sub-Clause 6.5 Working Hours

This provision only applies to work on Site. Thus works at off-Site locations (for
example quarries are often off-Site) are not subject to this restriction.
This Sub-Clause provides that unless otherwise stated or agreed, no work will be carried
out on “locally recognised days of rest.” Many laws provide for “days of rest” but do not
specify the day of rest which has to be taken. In some countries there are specific laws
dealing with “days of rest”; for example, under Israeli law the Hours of Work and Rest
Law (Amendment No 16) Law 5778-2017 provides that an employee’s weekly rest must
not be less than thirty-six consecutive hours in a week. For Jews the weekly rest period
must include Saturday; for non-Jews, “the Sabbath day or Sunday or Friday, whichever is
ordinarily observed by him as his weekly day of rest.” In other countries the law may not
specify a day but either a Friday, Saturday or a Sunday is recognised locally as being the
day(s) of rest.
“or outside the normal working hours stated in the Appendix to Tender”. This provision
is likely to be used where the Works are being carried out in an inhabited area. It may,
for example, prevent night work from being undertaken. The Contractor also needs to
have regard to the planning or building consent conditions. These may impose limits on
the hours when work can be undertaken or on the days that can be worked. These
conditions will be enforceable at law and therefore despite what is written in the
Appendix to Tender the Contractor may only have limited times when it is permitted to
undertake the Works.
There are three situations where the Contractor may work on locally recognised days of
rest or outside the normal working hours. 2 These are:
2
Except where prohibited by the law of the Country

• Where otherwise stated in the Contract;
• Where the Engineer gives his consent; and
• The work is unavoidable or necessary to protect life and property or for the safety
of the Works.
The FIDIC Guide states: “When the tender documents are being prepared, consideration
may be given as to whether this Sub- Clause is required (if not, it may be deleted) and, if
so, for what reason.” In many cases this clause will not be required because the
Employer will simply not need to know when the Contractor intends to carry out its
work. However, where the Works involve construction on an operational Site or liaising
with the Employer’s other contractors then the requirement to know when and what hours
the Contractor intends to work may be highly important.
In many countries it is now usual to find regulations dealing with working times.
Throughout Europe there is a Working Time Directive (2003/88/EC) which was drafted
in order to protect workers’ health and safety. The Working Time Directive requires EU
countries to guarantee the following rights for all workers (although the workers can opt
out):
• a limit of a 48 hours working week on average, including any overtime;

• a minimum daily rest period of 11 consecutive hours in every 24 hour period;
• a rest break if more than 6 continuous hours are worked;
• a minimum weekly rest period of 24 uninterrupted hours for each 7-day period;
worked which is in addition to the 11 hours' daily rest;
• paid annual leave of at least 4 weeks per year; and
• extra protection for night work.
When establishing its programme a Contractor should have regard to any statutory limits
that he can require his employees to work.
Sub-Clause 6.6 Facilities for Staff and Labour

This Sub-Clause provides that except as stated in the Specification, the Contractor is to
provide and maintain all necessary accommodation and welfare facilities for the
Contractor’s Personnel. In some respects this provision mirrors Sub-Clause 6.1, which
requires the Contractor to arrange for the provision of accommodation and feeding.
Equally important the Contractor is required to provide the facilities for the Employer’s
Personnel as stated in the Specification. This may include offices, accommodation and

laboratories. This needs to be carefully considered by the Contractor as this can involve a
substantial additional cost to the Works.
The Sub-Clause concludes that the Contractor is not permitted to allow any of its
personnel to maintain temporary or permanent living quarters within the structures
forming part of the Works.
Sub-Clause 6.7 Health and Safety

This important Sub-Clause should be read in conjunction with any local law requirements
and Sub-Clause 4.8 [Safety Procedures]. The Contractor is required at all times to take
all reasonable precautions to maintain the health and safety of the Contractor’s Personnel.
He is also required to make arrangements for all necessary welfare and hygiene
requirements and for the prevention of epidemics. The Contractor has to liaise with local
health authorities and ensure that medical staff, first aid facilities, sick bay and ambulance
services are available at all times at the Site and at Site camps. The FIDIC Guide states:
“If the local facilities seem likely to be insufficient for the numbers of personnel on Site,
the Contractor must overcome the shortfall. In certain circumstances, it may even be
necessary for him to provide a fully-equipped hospital.”
There is a requirement for the appointment of an accident prevention officer. His role is
to maintain safety and protection against accidents. The Contractor is required to provide
to the Accident Prevention Officer whatever is needed for that person to carry out their
duties.
“This person shall be qualified for this responsibility.” There are a raft of qualifications
relevant to health and safety from a Certificate or Diploma in Occupational Health and
Safety Practice to Degrees and Masters Qualifications. This Sub-Clause does not specify
a level of qualification, simply that the Accident Prevention Officer shall be qualified for
this responsibility. The Royal Society for Prevention of Accidents suggests that a
Diploma is the required minimum level of qualification for most health and safety
manager roles.
“and shall have the authority to issue instructions and take protective measures to prevent
accidents.” The protective measures that might be taken by the Accident Prevention
Officer could include:
• Develop safety policies and plans;

• Safety Training; and
• Review accidents and suggest ways to prevent further occurrences.
The Contractor is required to send to the Engineer details of any accident as soon as
possible after the occurrence. The Contractor must also maintain records and make
reports to the Engineer, as may be required, on (a) health; (b) safety and welfare of
persons; and (c) damage to property.
Health and safety has been a major issue arising from the construction of the Qatari
World Cup Stadiums, hotels and transport links. The Secretary General of the Supreme
Committee for Delivery and Legacy, the Qatari body in charge of the building of the
tournament’s venues, is using a suite of contracts for the works packages that are based
on FIDIC forms of contract (Yellow, Silver and Red Books). However, there have been
reports that the health and safety provisions of the contracts are not being implemented
and statistics have been published which allege that over 1200 workers have died. 3 This
may be compared to the seven fatalities caused from construction of the infrastructure
works for the Brazil World Cup.
Health and safety legislation will differ from one country to another. However,
throughout Europe it is dealt with by EU directives which has established a system of
basic principles of safety and health management. These are then transposed into
national law by the Member States.
Under EU law the European Framework Directive (1989/391/EEC) establishes a number

of general principles for managing safety and health. These include: responsibility of the
employer, rights/duties of workers, using risk assessments to continuously improve
company processes, and workplace health and safety representation. Directives set out the
detail of specific health and safety requirements and follow these common principles.
Member States may exceed those standards when transposing the Directives into national
law but they must not lower standards.
In addition to general regulations dealing with health and safety in the workplace and its
management, the following are matters which are likely to be covered by health and
safety regulations and which can affect a construction project:
• Working at height;
3
https://www.bbc.co.uk/news/magazine-33019838 and https://www.ituc-
csi.org/IMG/pdf/the_case_against_qatar_en_web170314.pdf

• Head protection;
• Lifting operations, lifting equipment and manual handling;
• Work machinery, including the guarding of dangerous parts of work machinery,
providing visibility and ensuring regular inspection;
• Protection from exposure to harmful or hazardous substances;
• Control of noise;
• Control of vibrations; and
• The reporting of injuries, disease and dangerous occurrences.
Sub-Clause 6.8 Contractor’s Superintendence
This Sub-Clause places on the Contractor the fundamental principle that it is responsible
for planning, arranging, directing, managing, inspecting and testing the work to ensure
satisfactory and safe execution. If the Contractor does not it will not only be in breach of
contract, but will also likely delay the Works and possibly lose any right of an extension
of time. Superintendence needs to be given by a sufficient number of people having
adequate knowledge of the language for communications, of the operations to be carried
out, knowledge of the methods of construction, the hazards to be encountered and
methods of preventing accidents.
There is an interesting link here between Sub-Clause 8.6 [Rate of Progress] and Sub-
Clause 15.1 [Notice to Correct]. Where the lack of progress is a result of breach of the
fundamental obligations expressed in Sub-Clause 6.8, the Employer/Engineer has a
choice. It can give an instruction to expedite under Sub-Clause 8.6, or a Sub-Clause 15.1
notice, or both. The latter places a great deal more pressure on the Contractor and may
thus be a useful accompaniment to the Sub-Clause 8.6 notice.
Short of making use of either Sub-Clause 8.6 or Sub-Clause 15.1, the Engineer/Employer
should note any breach of Sub-Clause 6.8 as a basis for disputing applications for
extension of time.
Sub-Clause 6.9 Contractor’s Personnel

In reading this provision it is important to bear in mind the very broad definition of
Contractor’s Personnel – this includes Subcontractor staff and any persons assisting the

Contractor. Thus, in order to be sure that it can meet its obligations under this provision,
the Contractor needs to ensure that there are back-to-back provisions in its subcontracts
and probably also in any consultancy or supply contracts.
The right of the Engineer to require the Contractor to remove staff under this provision is
not completely congruent with the Contractor’s obligation. The Contractor is required to
appoint appropriately qualified skilled and experienced staff but the Engineer can only
ask for the removal for misconduct, incompetence, negligence, non conformity with the
Contract or conduct prejudicial to safety, health or the protection of the environment.
There is a gap between those two standards which the provision does not recognise.
On the other hand, from the Contractor’s point of view, the provision is open to abuse.
Staff members may be required to be removed for simple failure “to conform with any
provisions of the Contract”. This could apply to the most trivial non-conformity.
Sub-Clause 6.10 Records of Contractor’s Personnel and Equipment

This Sub-Clause is not only a recording requirement it is also a reporting requirement –
the Contractor is under an obligation to keep the Engineer informed about its utilisation
of personnel and equipment. It is cross referenced for this reason in Sub-Clause 4.21
[Progress Reports]. Regard should also be had to Sub-Clause 14.3 [Application for
Interim Payment Certificates] which requires the Contractor, as part of his application for
payment, to include all the information within Sub-Clause 4.21 [Progress Reports]. The
documents referred to in this Sub-Clause are therefore part of the “supporting
documents” for an application for payment. This is therefore pertinent to the Employer’s
obligations to pay. The FIDIC Guide suggests that: “The period for payment under
paragraph (b) of Sub-Clause 14.7 does not commence until the relevant report has been
submitted under Sub-Clause 4.21, including the data described in Sub-Clause 6.10.”
Since the requirements in Sub-Clause 4.21 are often replaced with more detailed
particular conditions, it may be worth checking whether Sub-Clause 4.21 has been
amended at the same time or whether there are in fact two (possible cumulative or
inconsistent) reporting obligations.
The need to record Personnel and Equipment will also be important for both claims and
Variations. Without this information the Contractor may not be able to substantiate any
standing time for plant or personnel.
10

Sub-Clause 6.11 Disorderly Conduct
Again it should be noted that Contractor’s Personnel include Subcontractor staff and any
persons assisting the Contractor. The obligation extends to the preservation of “peace
and protection” of neighbours of the Works. The wording is not entirely clear but it may
be argued to include an obligation not to carry out the Works in such a way as to disturb
the peace of neighbours to the Works. This puts considerable power in the hands of the
Engineer if there are complaints from neighbouring people and it augments the
obligations of the Contractor under Sub-Clause 4.14 [Avoidance of Interference].
By Andrew Tweeddale and George Rosenberg (Consultant)
11

Clause 7
Summary
Clause 7 deals with Plant, Materials and Workmanship.
Sub-Clause 7.1 provides that the Contractor is obliged to carry out manufacture of
Plant, production and manufacture of Materials and all the Works as specified in
the Contract in a proper and workmanlike manner in accordance with recognised
good practice and with properly equipped facilities and non-hazardous materials.
Sub-Clause 7.2 deals with the submission of samples by the Contractor.
Sub-Clause 7.3 sets out the right for the Employer’s Personnel to have access to the
Site and places where Materials are obtained and allow them to examine, inspect,
measure and test the materials and workmanship as well as check progress.
Sub-Clause 7.4 deals with Testing. The Contractor is required to provide all
amenities to permit the specified testing to be carried out.
Sub-Clause 7.5 provides for the rejection of Plant, Materials and workmanship and
provides that if a rejection occurs and the Employer then incurs additional costs
then it may claim these under Sub-Clause 2.5 [Employer’s Claims].
Sub-Clause 7.6 deals with remedial works and allows the Employer to employ
others to undertaken the remedial works if the Contractor fails to do so.
Sub-Clause 7.7 applies to the extent that it is consistent with the Laws of the
Country and states that Plant and Materials become the property of the Employer
free from any rights of ownership or security interests of other persons from the
earlier of when they are delivered to the Site or when the Contractor is entitled to
payment in the event of suspension.
Sub-Clause 7.8 deals with royalties. The Contractor is liable for payment for
royalties and other costs for Materials obtained off Site and for the disposal of
materials, except within the Site.

Origin of clause
Clause 7 of FIDIC 1999 had its origins in clauses 36.1 to 38.1 of the FIDIC 4th general
conditions.
Cross-references
Sub-Clause 9.1 Contractor’s Obligations

Sub-Clause 9.2 Delayed Tests
Sub-Clause 9.3 Retesting
Sub-Clause 15.2 Termination by the Employer
Sub-Clause 7.1 Manner of Execution

This Sub-Clause must be read carefully bearing in mind the meaning of the various
defined terms. Plant is defined in Sub-Clause 1.1.5.5 and refers only to the machinery
and equipment which is to be incorporated into the Permanent Works. Materials, as
defined in Sub-Clause 1.1.5.3, includes everything other than Plant which is to be
incorporated into the Permanent Works. However, the Works themselves, as defined in
Sub-Clause 1.1.5.8, include not only Permanent Works but Temporary Works.
Thus the specific obligations of the Contractor under this Sub-Clause in respect of Plant
and Materials only apply to the Permanent Works, not to the Temporary Works, but the
overall obligations apply to both the Permanent and Temporary Works. Since the general
includes the specific, it is clear that the obligations under this Sub-Clause apply to all the
activities of the Contractor whether in relation to the Temporary Works, the Permanent
Works, the Plant or the Materials or anything else. The Sub-Clause could be much more
simply worded. There seems no reason to refer specifically to Plant and Materials.
The three obligations set out in the Sub-Clause are, moreover, not always easy to resolve.
Under (a) the Contractor is obliged to execute the Works “in the manner (if any) specified
in the Contract.” However under (b) it is required to execute them “in a proper and
workmanlike manner, in accordance with recognised good practice.” What happens if
the manner in which the contract requires him to execute the works is inconsistent with
the execution being carried out in a proper and workmanlike manner, in accordance with
recognised good practice? In such a case the Contractor must give notice of the error
under Sub-Clause 1.8 [Care and Supply of Documents] or under Sub-Clause 1.5 [Priority
of Documents] if it is an ambiguity.

The issue may come up in the context of testing under Sub-Clause 7.4 [Testing]. The
Engineer is entitled to insist that the items tested meet the contractual standard and that if
they do not then (a) they be remedied; and (b) the Contractor pay the cost of any
additional testing necessary. Again the question will arise as to who pays for changes
and testing if the items meet the Specification but not the “workmanlike manner, in
accordance with recognised good practice” test. It is suggested that under English law it
may well be the Contractor who has to bear the cost. In Thorn v The Mayor and
Commonalty of London 1 the court held that a contractor who bids on the basis of a
specification only has himself to blame if he does not check the practicability of building
to the specification and the specification turns out to be defective.
Sub-Clause 4.1 sets out the Contractor’s fundamental obligation to execute the Works in
accordance with the Contract. This obliges him to do what is set out in the Specification,
and, in the case of Sub-Clause 7.1, perhaps to achieve a higher standard. However it does
not say anything about who pays if the conditions of Contract oblige the Contractor to do
something more. Where the obligations under the Contract have to be adjusted, the
variations provisions of the Contract may apply.
Sub-Clause 7.2 Samples
This provision applies to samples of Materials only. The Contractor is required at its own
cost to provide manufacturer’s standard samples of Materials and samples specified in the
Contract. If the Engineer requires additional samples these have to be instructed as a
Variation. Samples have to be labelled as to origin and intended use in the Works.
Materials, as defined in Sub-Clause 1.1.5.3, include everything other than Plant which is
to be incorporated into the Permanent Works. Thus, unless the Specification is explicit,
this Sub-Clause does not apply to samples of material which are intended for use in the
Temporary Works.
Sub-Clause 7.3 Inspection

The Employer’s Personnel have the right at all reasonable times to have full access to all
parts of the Site and to all places from which natural Materials are being obtained. When
Plant and Materials are being produced, manufactured or constructed, they have the right
1
(1876) 1 App Cas 120; however see Turriff Ltd v Welsh National Water Development Authority [1994]
Const LY 122 where the court held that the Contractor was relieved of performance where the works were
impossible to construct.
3

to examine, inspect, measure and test the materials and workmanship and progress. The
Contractor is obliged to co-operate fully. As soon as any work is ready for inspection and
before it is covered up the Contractor is required to give notice and the Engineer is
obliged to inspect or test without unreasonable delay or to promptly give notice that he
does not wish to inspect. If the Contractor does not give the required notice he may be
required to uncover the work so that it can be inspected. No inspection will relieve the
Contractor from any obligation or responsibility.
The fact that no inspection will relieve the Contractor from any obligation or
responsibility under the Contract is very significant when it comes to consider the effect
of Sub-Clause 7.6 [Remedial Work] (see below). The Contractor remains at all times
responsible for the proper completion of the Works in accordance with the Contract and
if the Engineer fails to notice a defect at the time when he inspected or could have
inspected, this does not relieve the Contractor of any responsibility under the Contract.
The right of access to all parts of the Site and to all places from which natural Materials
are being obtained exists regardless of whether the Employer’s Personnel are intending to
carry out any testing.
This Sub-Clause deals with inspection measurement and tests other than those specified
in the Contract, whereas Sub-Clause 7.4 deals with those specified.
Thus Sub-Clause 7.3 gives the Employer’s Personnel the right to examine, inspect,
measure and test and so on at all reasonable times regardless of whether there is anything
specifically stated in the Contract and the Contractor has to do everything necessary to
facilitate and enable this. As a necessary part of this duty the Contractor has to tell the
Engineer whenever the work is ready and before it is covered up.
However, in contrast to the situation where tests are specified in the Contract, these
examinations, inspections and tests are carried out by the Employer’s Personnel using
their own equipment and materials. Further, unlike specified Testing under Sub-Clause
7.4, there is no express reference to the right to extension of time or payment of Cost if
the Employer’s Personnel delay the Contractor by exercising their rights other than at “all
reasonable times”.
Thus, if the Employer’s Personnel make extensive and even arguably unreasonable use of
their rights under this Sub-Clause, the Contractor has no remedy, so long as the rights are
exercised at reasonable times. It is quite possible to envisage a situation where the
Employer’s Personnel exercise these rights to a disruptive extent but only do so at
reasonable times. In contrast to the situation under Sub-Clause 7.4, the Contractor has no
control over this. Unlike the situation where tests are specified, there is no possibility of
4

quantifying or programming Sub-Clause 7.3 examinations inspections and tests.
Although the Contractor will not be entitled to any financial compensation for such
disruption, the right to an extension of time under Sub-Clause 8.4(e) will apply.
The Contractor has an obligation to give notice whenever any work is ready and before it
is covered up. The Engineer is then required to exercise his rights “without reasonable
delay” or “promptly” give notice of his intention not to do so. The use of the different
terms “without unreasonable delay” and “promptly” is unfortunate if they are (as one
would expect) intended to mean the same thing. If the Contractor gives his notice and the
Engineer neither inspects or responds within a time that the Contractor judges is neither
reasonable nor prompt, he is entitled to proceed to cover up the work.
Strangely, the Sub-Clause deals with the situation where the Contractor does not give
notice that work is ready to inspect, but does not say what will happen if, having given
notice, the Contractor proceeds too quickly to cover the works up. In the former case the
Contractor is required at his own cost to uncover them and to make them available for
inspection. In the latter case nothing is said about the consequences.
Although nothing is said about the situation where the Contractor covers up too soon, this
would be a breach of contract by the Contractor and, if the Engineer had to incur
additional expense as a result to carry out an inspection, normal principles of the law of
damages would require the Contractor to meet such additional expenses. The Contractor
would of course still be under his obligation to provide full co-operation to the Engineer.
The notice required under the last paragraph of Sub-Clause 7.4 has to be given whenever
the work is ready “and before it is covered up, put out of sight, or packaged for storage or
transport”, however the obligation in the last sentence of this paragraph where the
Contractor has not given notice, is merely to “uncover” the work. Presumably this is
intended to mean also to bring the work back within sight (when it has been hidden) and
to unpack it (when it has been packed), but the Sub-Clause could be clearer in this
respect.
Sub-Clause 7.4 Testing

This provision only applies to tests specified in the Contract and does not apply to the
Tests after Completion. The Contractor has to provide everything necessary for the
testing and then agree the time and place with the Engineer. The Engineer has the right
to issue a Variation to vary the location or details of any tests or to instruct the Contractor
to carry out additional tests. If the additional tests show that the Contactor has not met

the standards set out in the Contract, the costs will be borne by the Contractor. The
Engineer is required to give the Contractor at least 24 hours’ notice of his intention to
attend the tests. If the Engineer then does not attend, the Contractor may proceed with
the tests in his absence. However the Engineer may instruct to the contrary. To the
extent that the Contractor suffers any delay or Cost as a result of the Engineer delaying
the tests it is entitled to apply for an extension of time and Cost plus reasonable profit.
Once the tests are complete, the Contractor is required to send the results to the Engineer.
If the Engineer has not attended he is deemed to have accepted the test results as accurate.
While Sub-Clause 7.3 makes it clear that (in respect of tests not specified under the
Contract) no testing by the Engineer shall relieve the Contractor of its obligations under
the Contract, Sub-Clause 7.4 is not so explicit. However it does not go so far as to say
that the Contractor will be relieved of his over-riding duty under Sub-Clause 4.11
[Sufficiency of the Accepted Contract Amount] to complete the Works within the Accepted
Contract Amount. This has significant implications when Sub-Clause 7.6 [Remedial
Work] comes to be considered (see below).
In contrast to Sub-Clause 7.3, this Sub-Clause deals with tests specified in the Contract.
There is no limitation on the meaning of the term “tests” used here and it will be
necessary to refer to the Specifications. There is no reason why the “tests” under a
particular contract should not be something more than is normally understood by the term
– for example they may include inspections, or verification of quantity as well as
assessment of quality. In respect of these specified tests, Sub-Clause 7.4, again in
contrast to Sub-Clause 7.3, requires that the tests be carried out by the Contractor on
behalf of the Engineer.
In contrast to Sub-Clause 7.3 there is express provision for an extension of time and Cost
plus reasonable profit where the Engineer changes the time or place proposed for any
tests or otherwise delays or disrupts them. In view of the fact that the Sub-Clause deals
with specified tests, the Sub-Clause also has to provide that any departure from the
Specification is to be treated as a Variation.
One of the matters which can lead to a Variation is a decision by the Engineer to instruct
additional tests. This is a logical result of the fact that the original tests were specified.
However it must not be forgotten that Sub-Clause 7.4 only deals with tests carried out by
the Contractor on behalf of the Engineer. Where the Engineer decides additional tests are
necessary, he may be able to avoid having to issue a Variation Order by using his power
under Sub-Clause 7.3 to carry out additional tests himself.

Deeming
In two places, the Sub-Clause uses the term “deemed”. If the Engineer does not attend
tests after being given notice, they are “deemed” to have been made in his presence.
Then, further, once the test results are provided he shall be deemed to have accepted their
readings as accurate. Of course this does not mean that the tests are deemed to have been
passed – the results though deemed accepted may show that the work fails to meet
specifications. It is only if the results appear to show that the work has passed that this
“deeming” provision will be important.
On the face of it this is a very harsh provision. There is no exception, for example, for
the situation where the Engineer has been prevented by some accident or other problem
from attending the tests. Nor is anything said about what happens if the Engineer has
some good reason for suspecting the accuracy of the test results.
These can be very important questions as the Engineer cannot possibly overlook defects
in the works simply because he is “deemed” to have accepted them. Indeed Sub-Clause
3.1 (c) [Engineer’s Duties and Authority] provides that:
“Except as otherwise stated in these Conditions, any approval … by the Engineer

(including absence of disapproval) shall not relieve the Contractor from any
responsibility he has under the Contract, including responsibility for errors,
omissions, discrepancies and non-compliances.”
This begs the question as to whether the deeming provisions in Sub-Clause 7.4 are
intended to negative this presumption.
Where a deeming provision in a contract is effectively a definition clause (for example

“the time shall be deemed to have expired 14 days after notice has been given”), or is a
way in which a party is treated as having made a choice under the Contract (for example
“if one party gives the other party notice setting out the amount it is entitled to be paid
and the other party does not respond within 14 days, that other party shall be deemed to
have accepted the entitlement”), there can be little doubt that a deeming provision will be
binding on the parties, but if the Engineer’s deemed approval had the same effect here, it
could have a profoundly deleterious effect on the quality of the final product. It is in
recognition of this realty that Sub-Clause 3.1(c) has been drafted.
So what is to happen if, through accident, deception by the Contractor or neglect the
Engineer has failed to attend a test and it turns out that the results are wrong?

Firstly, it can be said that if the results have been falsified by the Contractor or the
Contractor has tricked the Engineer into not attending, there can be no question of them
being treated as binding. No dishonest or fraudulent behaviour by one party to the other
could be treated as undermining the defrauded party’s rights. Although there is a
deeming provision this will not be permitted to be used by the courts to justify an
entitlement where none exists. In Marshall v Kerr 2 Peter Gibson LJ stated:
"I take the correct approach in construing a deeming provision to be to give the
words used their ordinary and natural meaning, consistent so far as possible with
the policy of the Act and the purposes of the provisions so far as such policy and
purposes can be ascertained; but if such construction would lead to injustice or
absurdity, the application of the statutory fiction should be limited to the extent
needed to avoid such injustice or absurdity, unless such application would clearly
be within the purposes of the fiction. I further bear in mind that, because one must
treat as real that which is only deemed to be so, one must treat as real the
consequences and incidents inevitably flowing from or accompanying that
deemed state of affairs, unless prohibited from doing so."
Similarly, Lord Phillips MR in Transco Plc v Leicestershire County Council 3 stated:

“Nonetheless such notices [deeming notices] are, in practice, likely to be treated as
determining when works are completed unless there is evidence to rebut this
presumption.” His Lordship further stated that where there is evidence that shows that
presumed dates, because of deeming provisions, are wrong then the deeming provision
can be rebutted as this “will reflect the reality and not a fiction.”
However if the Engineer is at fault in not attending and the test results are simply
mistaken or optimistic a balance must be created between the interests of the two parties
and it is therefore suggested that the correct solution would be for the Engineer to
exercise his power under the third paragraph of Sub-Clause 7.4 to issue a variation order
instructing additional tests. If the tests show that there has been a failure to meet the
specification, the Contractor will have to meet the cost of the tests and, if not, the costs
will fall on the Employer.
No Deeming
Strangely, in a clause which deems tests to be satisfactory when the Engineer does not
attend there is nothing said to deal with the situation where the Contractor sends results of
the tests to the Engineer for endorsement but the Engineer wrongly fails to endorse them
2
(1993) 67 TC 56, 79
3
[2003] EWCA Civ 1524 at para 34
8

or delays. Indeed, while the Contractor is required to send the test results to the Engineer
“promptly”, there is no express obligation within this Sub-Clause for the Engineer to
consider them promptly. However, Sub-Clause 1.3 does require the Engineer not to
unreasonably withhold or delay certificates and consents. Although, there is no reference
to endorsements in Sub-Clause 1.3, an endorsement under Sub-Clause 7.4 is likely to be
considered as a consent. Further, the Engineer is not then deemed to accept the results of
the test. So what is their status?
The answer is probably that the failure to endorse or to endorse promptly does not matter.
Either the tests have been passed or they have not. The consequences of failure (set out
in the following Sub-Clause 7.5 [Rejection]) only apply if the tests have actually been
failed. Lack of endorsement is not itself evidence of failure. Nor is endorsement proof of
compliance. In fact there is nothing in Sub-Clause 7.5 to say that the Engineer is not
entitled to change his mind and, having once endorsed a test result (or having not
commented on it) he cannot later reject the relevant element of the work. The
endorsement provision appears not to have any special effect – except to the extent that if
the Engineer has endorsed some part of the works, this is likely to be treated as evidence
that they have been successfully carried out. It would then be up to the Engineer to
produce a good argument as to why his previous endorsement was wrong.
Further, as will be elaborated in the discussion under Sub-Clause 7.5, the Engineer is not
deemed to accept a conclusion by the Contractor that the results mean the work has
passed the test. It is quite possible that the Contractor and the Engineer disagree on the
conclusions to be drawn from the same set of data.
Sub-Clause 7.5 Rejection

If following any examination, inspection, measurement or testing under either Sub-
Clause 7.3 or Sub-Clause 7.4 any part of the work is found to be defective or not in
accordance with the Contract, the Engineer may reject it and the Contractor is required to
make good. The Engineer may require the remedied work to be retested. Any additional
costs incurred by the Employer as a result of rejection and retesting are recoverable from
the Contractor.
Although Sub-Clause 7.4 provides that in certain circumstances positive test results are
“deemed” to be accepted by the Engineer, Sub-Clause 7.5, gives the Engineer the power
to reject the work if the result shows that the work is defective or not in accordance with
the Contract. This could result in the situation where, although the Engineer is deemed to

accept the test results as accurate, he still disagrees with the Contractor who may have
concluded that the results meant that the works had passed the tests.
However the right to reject only comes into play where there is an examination,
inspection, measurement or test which demonstrates that the works are defective or not in
accordance with the Contract. Thus the Engineer must have a test result to justify his
rejection. If he has been “deemed” under Sub-Clause 7.4 to have accepted some data
which would not justify rejection, or has actually accepted some such data but he still
suspects non-compliance he will have to exercise his powers under Sub-Clause 7.3 to
carry out tests himself or under Sub-Clause 7.4 to order a Variation for the Contractor to
carry out tests in his presence before he may become entitled to reject.
The Engineer has a right to order any work allegedly made good following a rejection to
be retested “under the same terms and conditions”. If the original testing was carried out
under Sub-Clause 7.4 – i.e. if the tests were specified in the Contract or required under a
Variation Order, the operation of this provision will be straightforward. However if the
original test had been carried out by the Engineer under Sub-Clause 7.3, it will, in the
absence of a Variation Order have to be carried out by the Engineer.
Sub-Clause 7.6 Remedial Work

This Sub-Clause applies regardless of the result of any previous test or certification. The
Engineer is entitled to require the Contractor to remove from the Site or replace Plant or
Materials which is not in accordance with the Contract, to remove or re-execute work and
to execute work urgently needed for safety reasons. The work must be done within a
time specified or immediately in the case of emergency work. If the Contractor does not
comply with the instruction the Employer may arrange for others to do the work. Unless
the Contractor would have been entitled to be paid he shall pay the Employer all the costs
of carrying out the work.
This Sub-Clause is a recognition of the fact that even if work has been certified or if tests
carried out under Sub-Clause 7.4 are “deemed” accurate, the Engineer may require
remedial work.
The Sub-Clause says nothing about who will pay for such work. This may be an
extremely controversial issue, especially if the Engineer has endorsed the result of the
Contractor’s testing or is deemed to have accepted it,and has not exercised his right to
reject a part of the Works. A decision on the part of the Engineer to require part of the
works to be removed and replaced long after it has been finished and covered up may
involve the Contractor in substantial cost and loss of time.
10

However, unless the action that the Engineer requires the Contractor to take under Sub-
Clause 7.6 is a direct result of an error or instruction of the Employer or Engineer or, in
the case of damage, is not the fault of the Contractor, it is clear that the Cost of carrying
out the instruction falls on the Contractor. There will be exceptions if the remedial work
is necessary to overcome a design error or Unforeseeable Physical Conditions (Under
Sub-Clause 4.12), or is the result of a change of Law (see Sub-Clause 13.7). If the
Contractor has carried out faulty work there is nothing in the Contract to say that the
Engineer is obliged to deal with it immediately.
In the situation where the Engineer has not inspected thoroughly, has not attended testing,
or has received results which he has not examined closely or, in the extreme case has
carried out an inspection or accepted results it would seem anomalous that the Contractor
should still have to bear the risk of a later discovery of the defect or a change of mind on
the part of the Engineer. However this conclusion would seem to follow from the
provisions of Sub-Clause 4.11 [Sufficiency of the Accepted Contract Amount] which
expressly requires the Contractor to carry out all his obligations under the Contract within
the price. The only exception to this can be where an act of the Employer or Engineer
forces him to expend more Cost or time than he would have had to do as a result of his
own performance. Sub-Clause 7.3 [Testing] states explicitly that no testing shall relieve
the Contractor of his obligations under the Contract. Both Sub-Clauses 7.3 and 7.4 very
carefully avoid stating that the results of any tests, accepted or not, are binding on the
Engineer.
If the Contractor is required under Sub-paragraph (c) to execute any work urgently
required for the safety of the Works whether because of an accident, unforeseeable event
or otherwise, he is likely to be compensated unless the necessity for the urgent work is
the result of the Contractors own fault. The event may be an Employer’s Risk under Sub-
Clauses 17.3 [Employer’s Risks] or 17.4 [Consequences of Employer’s Risks]. However
in that case, the Contractor will need to give notice under Sub-Clause 20.1 within the
time limits probably starting at the latest from the date it has been given notice under
Sub-Clause 7.6.
The final paragraph of the Sub-Clause gives the Employer the right to have the work
carried out by another contractor if the Contractor fails to do so itself. The Contractor
will not be obliged to pay for this work if it would have been entitled to be reimbursed.
In this latter situation, there may be circumstances in which the Contractor would be
better off refusing to do the work and leaving the Employer to pay someone else.
However this final paragraph also makes it clear that unless the need for the remedial
works is a result of the fault of another, the Contractor is required to bear their cost. This
provision needs to be considered with Sub-Clause 18.2 [Insurance for Works and
11

Contractor’s Equipment] which provides that the Contractor must provide a joint names
insurance policy which “shall cover all loss and damage from any cause not listed in Sub-
Clause 17.3 [Employer’s Risks].” While usually the inclusion of a joint names’ policy to
cover a specific loss would prevent one party suing the other, this implied term can be
modified by express agreement: SSE General LTD v Hochtief Solutions AG & Anor 4 and
Tyco Fire & Integrated Solutions (UK) Ltd v Rolls Royce Cars Ltd 5.
Timing of Carrying Out of Instruction
The Sub-Clause provides that the Contractor shall carry out the instruction within a
reasonable time. It then goes on to define “reasonable time” in this case as being “the
time (if any) specified in the instruction.” This has the somewhat bizarre result of
making it possible that the Contractor will be required to perform in a time which is not
in fact reasonable, but is simply deemed reasonable by reason of having been included by
the Engineer in his instruction.
Sub Clause 7.7 Ownership of Plant and Materials

Most countries have laws which override specific agreements between the parties as to
ownership of goods and materials which have not been paid for. For example, in the
situation where the Contractor has ordered but not paid for Plant or Materials it is
possible that the original supplier may retain an interest in them and be entitled to recover
them or to be paid directly by the Employer. The situation is likely to be most difficult
where the Contractor has become insolvent, leaving debts unpaid and the original
suppliers or producers of the goods seek to recover their property. It will therefore be
important in these circumstances to find out the precise legal position applying under the
law of the country.
However, even in countries which do not give an automatic overriding legal right for an
unpaid seller to recover his goods, the terms of the agreement between the Contractor and
his suppliers may produce the same result. While this would be a contractual
arrangement, it would be something enforceable under the laws of the country and the
right of the Employer would thus be affected.
The contractual parties are of course only the Contractor and the Employer so they cannot
agree between themselves what rights other third parties may have. Thus all the
provision effectively does is make the Contractor liable if Plant or Materials, ownership
4
[2015] ScotCS CSOH_92 (14 July 2015) at paras 68 - 78
5
[2008] EWCA Civ 286
12

of which has passed to the Contractor, remains under a lien or encumbrance to a third
party. This provision will be useful if the Contractor is solvent but will be of no use if the
Contractor is insolvent (the circumstance in which it is most likely to be under
consideration).
Sub-Clause 7.8 Royalties

Employers need to be careful when considering whether or not quarries, disposal and
other borrow areas are defined as being within or outside the Site as this will have an
effect on any liability for royalties or disposal charges. If these areas are within the Site
and charges or taxes are payable, it may be necessary to make specific provision as to
payment of these charges.
By George Rosenberg Consultant
13

Clause 8 Commencement Delays and Suspension
Summary
Clause 8 contains all the fundamental provisions relating to the start of the Works, the
Time for Completion, delays and the entitlement of the Contractor to an extension of time
and of the Employer to delay damages, and finally the circumstances in which a
suspension of the Works can occur and the implications for the Parties.
Origin of Clause
Sub-Clause 8.1 deals with the Commencement of the Works and is based on Clause 41 of 4th
edition Red Book. The wording has now been changed; it is the ‘execution of the Works ‘which
must be commenced as soon as ‘reasonably practicable’. The previous requirement was for
the Contractor to start as soon as ‘reasonably possible’.
Sub-Clause 8.2 deals with the Time for Completion and is derived from Clause 43 of 4th edition
Red Book. The wording differs but in essence the requirement is for the Contractor to complete
in the time finally arrived at as the extended date for completion, i.e. including any extension
of time granted.
Sub-Clause 8.3 sets out the requirements for a Programme and has a different emphasis from
Clauses 14.1 and 14.2 in 4th edition Red Book.
Sub-Clause 8.4 deals with the Extension of Time for Completion and is derived from Clause
44 of the 4th edition Red Book. Significant changes are that the clause now omits the reference
to ‘other special circumstances’ which previously appeared and a new provision is added at d)
for ‘unforeseeable shortages...’
Sub-Clause 8.5 relates to delays caused by authorities and is derived from Clause 31.2 of the
4th edition Red Book.
Sub-Clause 8.6 with deals with Rate of Progress is derived from Clauses 14.2 and 46 of the 4th
edition Red Book.
Sub-Clause 8.7 sets out the Employer’s right to delay damages and is derived from Clause 47
of the 4th edition Red Book. It was previously called ’Liquidated Damages for Delay’.
Sub-Clauses 8.8 to 8.12 are derived from Clauses 40.1, 40.2 and 40.3 of the 4th edition Red
Book. These deal with the suspension of work by the Engineer and the consequences of the
suspension; including payment for Plant and Materials. These clauses also deal with prolonged
suspension and the resumption of work following suspension.
Cross-references

• Sub-Clause 1.1.3.2 Definitions – Commencement Date

• Sub-Clause 1.1.3.3 Definitions – Time for Completion
• Sub-Clause 1.9 Delayed Drawings or Instructions
• Sub-Clause 2.1 Right of Access to the Site
• Sub-Clause 4.7 Setting Out
• Sub-Clause 4.12 Unforeseeable Physical Conditions
• Sub-Clause 4.24 Fossils
• Sub-Clause 7.4 Testing
• Sub-Clause 7.10 Ownership of Plant and Materials
• Sub-Clause 10.1 Taking Over of the Works and Sections
• Sub-Clause 10.2 Taking Over of Parts of the Works
• Sub-Clause 10.3 Interference with Tests on Completion
• Sub-Clause 11.3 Extension of Defects Notification Period
• Sub-Clause 13.3 Variation Procedure
• Sub-Clause 13.7 Adjustment for Changes in Legislation
• Sub-Clause 15.2 Termination by Employer
• Sub-Clause 16.1 Contractor’s Entitlement to Suspend Works
• Sub-Clause 16.2 Termination by Contractor
• Sub-Clause 17.4 Consequence of Employer’s Risks
• Sub-Clause 19.4 Consequences of Force Majeure
• Sub-Clause 20.1 Contractor’s Claims
Sub-Clause 8.1 Commencement of Work
This Sub-Clause defines when the construction works will commence. The Engineer (Red
Book) and Employer (Silver Book) are required to give the Contractor not less than 7 days
notice of the Commencement Date (which is defined as the date notified under this Sub-
Clause). Unless otherwise provided for, the Commencement Date must be within 42 days of
the Letter of Acceptance. Thereafter the Contractor must commence as soon as reasonably
practicable.
‘Works’ are defined narrowly and mean the Permanent and Temporary works and it is this
which must be started as soon as reasonably practicable. The definition of ‘Contractor’s
Equipment’ and ‘Temporary Works’ supports the view that the ‘Works’ may not cover all
aspects of mobilisation although the definition of ‘ Temporary Works’ would cover the setting
up of the site camp, laboratories etc.
If the Engineer or Employer failed to give notice of the Commencement Date such an act would
be a breach of contract and the Contractor might be entitled to claim an extension of time and
Costs under Sub-Clause 8.4. The Sub-Clause should be read together with Sub-Clause 2.1 –
Right of Access to the Site. Access for the Contractor must be given from commencement, in

accordance with the prescribed time in the Appendix to Tender (Red and Yellow Books) or
Particular Conditions (Silver Book). If no time is prescribed then the Employer must make
sure that such parts of the Site are made available so that the Contractor can pursue the intended
sequence and methods he set out in the Programme submitted under Sub-Clause 8.3. It should
be noted that in many instances there will be no need for the Contractor to have access to all
parts of the Site at once. Under English Law there would be implied into the contract a term
that the Employer will provide the Site to the Contractor in order that he may carry out his
obligations. This may not be the case in other jurisdictions. The FIDIC Guide advises that the
Employer should not enter into a binding contract unless he is in a position to comply with
Sub-Clause 2.1.
Failure to give access to the Site would no doubt trigger a claim for extension of time and costs
under Sub-Clause 8.4 as being a ‘... delay impediment or prevention..’ to completion of the
Works. It is to be noted that there is in English law a doctrine of prevention which might apply
if the Engineer has refused to award an extension of time when he should have done so and the
Employer commits an act of prevention; a common example would be failing to give access to
the Contractor. In such a situation the extension of time mechanism and the damages for delay
provisions fall away and the Contractor must complete in a reasonable time: Peak Construction
( Liverpool) Limited v McKinney Foundations Limited. 1
Once on Site, the Contractor must ‘proceed with the Works with due expedition and without
delay’. This wording is exactly the same as in the 4th edition. The FIDIC Guide states that the
importance of this last sentence should not be overlooked. In the case of Obrascon Huarte Lain
SA v HM Attorney General for Gibraltar 2 Jackson LJ held that this clause was not directed at
every task on the contractor's to-do list. It was principally directed at activities which are or
may become critical. Jackson LJ then referred to the case of Sabic UK Petrochemicals Ltd
(formerly Huntsman Petrochemicals (UK) Ltd) v Punj Lloyd Ltd (a company incorporated in
India) 3 to support this statement. However, the Sabic case appears to be concerned with the
obligation of “due diligence” rather than “due expedition”
The phrase “due diligence and without delay” may be interpreted in the light of the other
obligations outlined elsewhere within the Contract; for example, Clause 15 – Termination by
Employer. A breach by a Contractor of the last sentence of Sub-Clause 8.1; i.e. due expedition
and without delay, is not a specific ground for termination by the Employer. However, Sub-
Clause 15.2 does allow an Employer to terminate if the Contractor without reasonable excuse
fails to ‘proceed with the Works in accordance with Clause 8’. Clause 8 goes on to set out
stringent requirements as to Programme (see Sub-Clause 8.3, not least for example, as to the
order in which the Works will be carried out, procurement, manufacture and delivery of plant,
1
(1976) 1 BLR 114
2
[2015] EWCA Civ 712 (09 July 2015) at [132]
3
[2013] EWHC 2916 (TCC)

details of estimated personnel and equipment.) Furthermore see the requirements on a
Contractor as to Rate of Progress (Sub-Clause 8.6). Reading Clause 8 as a whole, therefore, to
interpret the meaning of ‘proceed with the Works with due expedition...’’, it is suggested that
it must mean more than merely to start and keep going, but rather to proceed in accordance
with the programming and resourcing details already submitted by the Contractor insofar as
this is critical to the completion of the Works. In the case of Wunda Projects Australia P/L 4
the District Court of South Australia commented that a construction programme is dynamic
and if there is lack of progress the programme has to be changed. Whether a Contractor is
proceeding with ‘due expedition’ is to be measured against the updated and not the superseded
programme. On this point also see below as to the particular obligations of the Contractor to
provide updated programmes under Sub-Clause 8.3.
It is suggested that the addition of the words ‘without delay’ must mean without a delay for
which an extension of time is provided for elsewhere in the contract.
Sub-Clause 8.2 Time for Completion
This is the Contractor’s paramount time-related obligation; he must complete the whole of the
Works and if applicable, each Section of the Works, within the time required by the Contract,
subject to any extensions of time to which he may be entitled. The time within which the Works
must be completed is to be found in the Appendix to Tender and is calculated from the
Commencement Date. The Time for Completion is defined at Sub-Clause 2.1 as the time for
completing stated in the Appendix, with any extension to it. Owing to the nature of the claims
process generally, and indeed the specific time scales set out in Sub-Clause 20.1 for making
claims, there may be a period of uncertainty as to the actual date for completion and this could
well be a lengthy period.
The reference to the ‘whole of the Works’ means the passing of Tests on Completion and all
work required to be completed for the purposes of issuing a Taking-Over Certificate, save for
minor outstanding works and defects which will not substantially affect the use of the Works
or their intended purpose.
Sub-Clause 8.3 Programme
The Contractor is required to provide a detailed Programme within 28 days of the receipt of
the Notice of Commencement. It is to be revised whenever it is inconsistent with actual
progress or the Contractor’s obligations. There are stipulations in Sub-Clause 8.3 as to what
the Programme shall include. The Contractor is obliged to proceed in accordance with it unless
the Engineer informs him of its non-compliance within 21 days in which case the Contractor
is obliged to revise it.
4
[2010] SADC 96 ( 29 July 2010)

Generally, Sub-Clause 8.3 has a different emphasis from the previous Clauses 14.1 and 14.2 in
the FIDIC 4th Red Book, where the Engineer’s consent to the Programme submitted was
required and the onus was on the Engineer to request such information. Further, the obligation
on the Contractor to revise a non-conforming programme was also at the Engineer’s request.
The FIDIC guide explains that Sub-Clause 8.3 does not empower the Engineer either to give
or withhold approval, only to notify if the Programme does not comply with the Contract. Thus,
it is suggested, neither party can misuse the Programme to obtain an unfair advantage. The
guide envisages a situation where an over–optimistic Programme has been submitted – perhaps
in terms of productivity for example, and advises that since there can be no approval, such a
Programme could not be used as the basis for the unquestionable validation of a claim for an
extension of the Time for Completion. This matter was considered in England in the case of
Glenlion v Guinness Trust 5 where it was decided that just because a Contractor has proposed
a programme achieving early completion he could not thereby impose obligations on the
designer that the design should be ready earlier than was necessary to complete in accordance
with the completion date, only that the Contractor should not be hindered in achieving the
completion date.
However the situation might be different if the Programme were a contract document. There is
in English law some authority that an inability to work in accordance with a programme or
method could give rise to a claim for a variation and costs – see Yorkshire Water Authority v
Sir Alfred McAlpine 6. Although the ‘Letter of Tender’ is now defined separately from ‘Tender’
which comprises the Letter of Tender and all other documents which the Contractor submitted
with the letter of Tender, care should still be taken to exclude the tender programme.
The requirement to provide detail as to timing and methods which must be included in the
Programme, may make it easier to identify when there has been a breach of this Sub-Clause.
Note also that the Silver Book for EPC/Turnkey projects also contains broadly the same
requirements as to the content of the programme. One might consider that an Employer should
not be concerned about methods and timing provided the end result is supplied on time, unlike
the traditional situation which requires careful monitoring by the Engineer of both quality and
progress. If the Contractor is to bear the risk inherent in the Silver Book then it is suggested
that he should be left to carry out the project unfettered by interference from the Employer.
The Contractor must proceed with the Programme he has submitted in the absence of notice
from the Engineer that it is non-compliant. The Employer’s Personnel (defined by Sub-Clause
1.1.2.6 as including the Engineer and his staff) are entitled to rely on the Programme for the
planning of their activities. In practical terms therefore the Engineer can rely on the Programme
in preparation of his detailed design. In particular he will want to rely on the details included
5
(1988) 39 BLR 89
6
( 1985) 32 BLR 114

regarding procurement, manufacture of plant, delivery and erection and testing. The Employer
will want to be able to rely on it for the purposes of giving possession of the Site. Failure to
give possession of the Site may give the Contractor entitlement to extension of time and Cost
under the provisions of Sub-Clause 8.4(e).
The Contractor is required to give notice of probable future events which may adversely affect
or delay the actual execution of the Works. This means any event, not just events which may
affect the contractual Time for Completion.
Whilst it is no doubt good practice for the Contractor in any event to revise or update his
Programme, he is now expressly obliged to revise it;
• whenever the current Programme is inconsistent with actual progress or with his
obligations or,
• by the last sentence of Sub-Clause 8.3, in the event that he gives notice of specific
probable future events or circumstances which may adversely affect or delay the
execution of the Works, or
• if the Employer gives him notice that the Programme fails to comply either with the
Contract or is inconsistent with actual progress and the Contractor’s stated intentions.
Sub-Clause 8.4 Extension of Time for Completion
This Sub-Clause sets out the mechanism by which an extension of the Time for Completion
may be determined. The starting point is that any delay must affect completion of the Works
for the purposes of Sub-Clause 10.1. A distinction is therefore made between non-critical
delays and critical delays. Critical delays give an entitlement to an extension of time and this
follows common law principles. In Kane Constructions Pty Ltd v Sopov 7, Warren CJ stated
that "any delay that does not affect practical completion is irrelevant."
The Engineer must grant an extension if the Contractor is entitled to one by reason of the causes
listed in sub-paragraphs a) to e) and note that at b) an extension of the Time for Completion is
to be granted for a cause of delay giving entitlement under another Sub-Clause of the Contract.
For these - see the table below. The Contractor must comply with the procedure set out at Sub-
Clause 20.1 8 and the Engineer must make a fair determination in accordance with the Contract.
Although the Engineer may review previous extensions given, he is not empowered to decrease
the total extension of time.
Generally the clause seems to be intended to balance the rights of both parties - the Contractor’s
right to have further time for an event for which he is not responsible and the Employer’s right
7
[2005] VSC 237 at 661
8
Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No. 2) [2007] EWHC 447 [103]

to delay damages for a delay for which he is not culpable. The FIDIC Guide states that the
clause is for the benefit of both parties.
The Contractor must comply with the claims notification procedure under Sub-Clause 20.1.
The words’ if and to the extent that completion for the purposes of Sub-Clause 10.1... is or will
be delayed by...’ make it clear that it is a delay to completion as provided for by Sub-Clause
10.1 which is to be compensated for by the extension of time and not merely disruption to
progress attributable to a qualifying cause.
Each of the qualifying causes listed are detailed below:-
a) A ‘Variation’ or ‘other substantial change in the quantity of an item of work’ Clause

13 makes it clear that Variations may include a) changes to quantities, d) omission of
any work, e) any additional work, Plant, Materials or services, and f) changes to the
sequence and timing of the Works. The latter has become more significant in light of
the rigorous requirements for the Programme set out under Sub-Clause 8.3. In the Red
Book 4th edition an issue arose from the wording which referred to ‘the amount or nature
of extra or additional work’ which could be seen as inconsistent with the description of
Variations in Clause 51, not all of which were extra or additional. The change in
wording has removed this anomaly. In the event that a change was ordered which
caused a delay to the Works but which did not fall within the description of what a
Variation may include by Sub-Clause 13.1, the likely position under English law would
be that Peak Construction (Liverpool) Limited v McKinney Foundations Limited (1976)
1 BLR 114 would apply; time would be at large and the Employer’s right to delay
damages would fall away also.
b) ‘a cause of delay giving an entitlement to extension of time under a Sub-Clause of these

Conditions’. In the 4th edition it was unclear whether the sub-clause that was being
referred to was intended to mean one dealing with events which might be a cause of
delay (but which did not necessarily qualify for an extension of time). The wording in
FIDIC 1999 has now removed any ambiguity in that it now expressly refers to a Sub-
Clause which gives entitlement to an extension of time. Express references to
entitlement to extension of time elsewhere in the Conditions can be found in the
following table; most, but not all also deal with the Contractor’s entitlement to money.
Sub-Clause Contractor’s Entitlement

1.9 Delayed Drawings or Instructions Extension of time, Cost and reasonable profit
2.1 Right of Access to the Site Extension of time, Cost and reasonable profit
4.7 Setting Out Extension of time, Cost and reasonable profit
4.12 Unforeseeable physical conditions Extension of time and Cost
4.24 Fossils Extension of time and Cost

7.4 Testing Extension of time, Cost and reasonable profit
8.4 Extension of time Extension of time for a listed cause
8.5 Delays caused by authorities Extension of time
8.9 Consequences of Suspension Extension of time and Cost
10.3 Interference with Tests in Completion Extension of time, Cost and reasonable profit
13.7 Adjustments for changes in legislation Extension of time and Cost
16.1 Contractor’s entitlement to suspend work Extension of time, Cost and reasonable profit
17.4 Consequences of Employer’s risks Extension of time, Cost and reasonable profit
in some instances
19.4 Force Majeure Extension of time and Cost in some instances
c) ‘exceptionally adverse climatic conditions’. The wording is retained from the 4th
edition Red Book. The FIDIC Guide suggests that a way of establishing whether such
climatic conditions have in fact occurred would be to consider the frequency with which
similar adverse conditions have occurred at the Site in light of the length of the Contract
period, for example, for a two year contract, conditions which occurred 4 or 5 times the
length of the contract period; i.e. once every 8 to 10 years, might be exceptionally
adverse.
In order to qualify for an extension of time the climatic conditions (note that these need
not necessarily be restricted to weather but could arguably include site conditions) must
be ‘exceptionally adverse’. This does not mean both exceptional and adverse and
therefore for example if a Contractor experienced a flood as a result of heavy rain- he
would not have to show that the rain was both unusual and heavy but that it was
particularly heavy.
d) ‘unforeseeable shortages ...of personnel or Goods caused by epidemic or

Governmental actions.’ . ‘Unforeseeable’ is defined at Sub-Clause 1.1.6.8 in the Red
and Yellow Books as ‘not reasonably foreseeable by an experienced contractor by the
date for submission of the Tender’. This definition is now applied to the availability of
labour or goods.
e) ‘any delay, impediment or prevention...’ caused by the Employer his Personnel or

other contractors. The quoted words are retained from the 4th edition. English Law
requires clear words in a contract in order for an extension of time to be granted for a
breach by an Employer; it is suggested that these words are indeed clear enough to
cover an act of delay or prevention by the Employer and would not fall foul of the rule
in Peak Construction (Liverpool) Limited v McKinney Foundations Limited 9 with the
consequence that the extension of time mechanism would fail and time be considered
at large.
9
(1976) 1 BLR 114

Under English law an Employer cannot, in the absence of an express clause to the contrary,
delay the progress of the works, by Variation or otherwise, and then claim delay damages. This
is often referred to as the prevention principle. This principle was set out in Trollope & Colls
Ltd v North West Metropolitan Regional Hospital Board: 10
"It is well settled that in building contracts – and in other contracts too – when there is
a stipulation for work to be done in a limited time, if the other party by his conduct – it
may be quite legitimate conduct, such as ordering extra work – renders it impossible or
impracticable for the other party to do his work within the stipulated time, then the one
whose conduct caused the trouble can no longer insist upon strict adherence to the time
stated. He cannot claim any penalties or liquidated damages for non-completion in that
time."
The prevention principle operates by reason of implied term and therefore an express term to
the contrary will override it. In North Midland Building Limited v Cyden Homes Limited 11 the
English Court of Appeal held that parties to a construction contract were free to allocate the
risk of concurrent delay. Therefore if there are both contractor delays and employer delays the
contractor will not be entitled to an extension of time. The court found that if the drafting of
such a clause is sufficiently clear, the “prevention principle” will not invalidate a clause in
which it allocated risk in this way.
The procedure for the Contractor to notify any claims for extension of time is set out at Sub-
Clause 20.1.
Causation and Concurrent delay
A concurrent delay has been defined as “a period of project overrun which is caused by two or
more effective causes of delay which are of approximately equal causative potency” – see
Concurrent Delay by John Marrin QC 12. This definition has subsequently been approved in
Adyard Abu Dhabi v Sds Marine Services 13 and in North Midland Building Ltd v Cyden Homes
Ltd. 14
Sub-Clause 8.4 does not address the situation where concurrency occurs. Consider the situation
where the Contractor has been delayed by the Employer’s failure to give possession of certain
parts of the Site; however some or all of that delay would have occurred anyway due to either
neutral factors or an event for which the Contractor is responsible. Does the Contractor get an
10
[1973] 1 WLR 601 at 607
11
[2018] EWCA Civ 1744
12
(2002) 18 Const LJ No. 6 436
13
[2011] EWHC 848 (Comm)
14
[2018] EWCA Civ 1744

extension of time for all the period of delay? Should any extension of time be apportioned
according to responsibility for the delay? Should any money payable also be apportioned?
The analysis used by parties in determining the true cause of delay has come under much
consideration by the English and other Commonwealth courts. The dominant cause approach
has been approved in certain cases; namely that if an event which is the Employer’s
responsibility is the dominant cause of loss that is sufficient for liability notwithstanding other
concurrent causes. Another approach has been the ‘but for’ test – in other words but for the
delay complained of, would the delay have occurred? Neither of these tests have been entirely
satisfactory when applied in the context of a construction project. In the recent case of De Beers
UK Ltd v Atos Origin It Services UK Ltd, 15 Edwards-Stuart J stated what he considered was
the test when concurrent events occurred:
“The general rule in construction and engineering cases is that where there is concurrent
delay to completion caused by matters for which both employer and contractor are
responsible, the contractor is entitled to an extension of time but he cannot recover in
respect of the loss caused by the delay. In the case of the former, this is because the rule
where delay is caused by the employer is that not only must the contractor complete
within a reasonable time but also the contractor must have a reasonable time within
which to complete. It therefore does not matter if the contractor would have been unable
to complete by the contractual completion date if there had been no breaches of contract
by the employer (or other events which entitled the contractor to an extension of time),
because he is entitled to have the time within which to complete which the contract
allows or which the employer's conduct has made reasonably necessary.”
Whatever approach is adopted, however, the courts have recently stated the importance of
establishing causation: Adyard Abu Dhabi v SDS Marine Service [2011] EWHC 848(Comm).
The Court rejected an attempt to argue that notional or theoretical delay would suffice in
establishing a right to an extension of time.
In Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd 16 the Court
accepted the principle that a Contractor would be entitled to an extension of time for the whole
of the period of delay in circumstances where there was another, concurrent delay. Dyson J
stated:
“… if there are two concurrent causes of delay, one of which is a relevant event, and
the other is not, then the contractor is entitled to an extension of time for the period of
delay caused by the relevant event notwithstanding the concurrent effect of the other
event. Thus to take a simple example, if no work is possible on a site for a week not
only because of exceptionally inclement weather (a relevant event), but also because
15
[2010] EWHC 3276 (TCC)
16
(1999) Con LR 32

the contractor has a shortage of labour (not a relevant event), and if the failure to work
during that week is likely to delay the works beyond the completion date by one week,
then if he considers it fair and reasonable to do so, the architect is required to grant an
extension of time of one week. He cannot refuse to do so on the grounds that the delay
would have occurred in any event by reason of the shortage of labour.”
This approach was adopted by Akenhead J in the case of Walter Lilly & Company Ltd v Mackay
& Anor. 17 In this case Akenhead J stated:
“I am clearly of the view that, where there is an extension of time clause such as that
agreed upon in this case and where delay is caused by two or more effective causes,
one of which entitles the Contractor to an extension of time as being a Relevant Event,
the Contractor is entitled to a full extension of time.”
In contrast it was held by the Scottish Court of Appeal in the decision of City Inn Ltd v Shepherd
Construction 18 that an apportionment could be possible on delays where the events causing
delay were both in operation at the same time with a single consequence and the Court there
was concerned with the application of a common sense approach to the assessment. However,
this case is to be treated cautiously and in Adyard Abu Dhabi v Sds Marine Services 19 the Court
held that the approach adopted in City Inn “does not reflect English law.”
The Engineer is required by Sub-Clause 20.1 to determine an extension of time (in the absence
of agreement after consultation) in accordance with Sub-Clause 3.5 – Determinations. This
requires him (after consulting with each Party to try to reach agreement) then to ‘make a fair
determination in accordance with the Contract.’ Similarly to the Red Book 4th edition,
therefore, he is obliged not only to consider the causation of the delay but the fairness of his
determination where time is concerned.
On the question of prolongation costs which may have been suffered as a result of the delay,
note that the clauses giving Cost, and how that is to be determined, should all be considered
individually. The provisions giving an entitlement to Cost cross-refer to Sub-Clause 3.5, while
the provisions providing for payment and Variations do not – namely Sub-Clauses 11.2, 13.2,
15.5 and 16.4. Where Cost is to be determined, therefore, it is to be made in accordance with
Sub-Clause 3.5; i.e., the determination is to be fair. This is different to the 4th edition where the
Engineer was not asked to consider fairness in relation to Cost, only causation.
For example, consider the situation where a Contractor has suffered delay as a result of an error
in the setting out of levels on a road project and he has shown that he could not reasonably
have discovered it and avoided the delay and/or Cost but he has also had problems with a
defaulting Sub-Contractor, for which he was responsible. Under Sub-Clause 4.7 – Setting Out,
17
[2012] EWHC 1773 [370]
18
[2010] BLR 473
19
[2011] EWHC 848 (Comm)

he will be entitled to both time (under Sub-Clause 8.4 assuming compliance with Sub-Clause
20.1) and thus relief from payment of delay damages, and Cost, to be determined in accordance
with Sub-Clause 3.5.
It is suggested that the sensible and fair result in many instances of concurrent delay would be
for the time but not the money to be given to the Contractor (unless the Contractor can identify
costs which are solely attributable to the Employer caused delay) and the addition of the
requirement of fairness in determining Cost goes some way to enabling the Engineer to make
such a decision.
Where the Engineer refuses an extension of time, the payment of delay damages must follow;
see Sub-Clause 8.7 below.
The last part of Sub-Clause 8.4 requires the Contractor to give Notice to the Engineer in
accordance with Sub-Clause 20.1. Sub-Clause 20.1 now requires that the Contractor gives
Notice of a claim within 28 days of becoming aware of the event giving rise to delay and
particulars are to be provided within 42 days. It is worth highlighting here that there is a clear
departure from the position in the 4th edition in that failure to comply with the provisions of
Sub-Clause 20.1 will now expressly bar the claim.
Sub-Clause 8.5 Delays Caused by Authorities
This Sub-Clause provides that unforeseeable delay or disruption caused to a Contractor by a

public authority will give entitlement to an extension of time. It is expressly provided that such
delay or disruption will fall within Sub-Clause 8.4 b) for the purposes of entitlement to time.
However, it is difficult to see how the reference to ‘disruption’ can be reconciled with the
wording set out in Sub-Clause 8.4 elsewhere which is perfectly clear; it must be a delay to
completion for the purposes of Sub-Clause 10.1 which will trigger a right to an extension of
time and mere disruption to progress as distinct from delay to the completion date would not
be sufficient. This point is specifically highlighted in the FIDIC Guide in the commentary to
Sub-Clause 8.4 and there seems to be no clear reason for the inconsistency.
Sub-Clause 8.6 Rate of Progress
This Sub-Clause provides the basis for the Engineer to monitor progress by reference to the
Programme submitted by the Contractor under Sub-Clause 8.3 and to require a Contractor who
is in delay for reasons which are his responsibility under the Contract, to provide a Programme
describing how he will accelerate to ensure completion within the Time for Completion (which
is to include any extension of time granted). The Contractor shall adopt the methods described
and the Employer can claim his costs incurred.
This Clause should be read together with the provisions set out in Sub-Clause 8.3.

The Sub-Clause only operates when the causes of delay are not ones which fall within Sub-
Clause 8.4, thus giving relief to the Contractor by means of an extension of time. Whether the
delay qualifies for an extension of time or not will be the first major question which arises and
is beset with problems. The process of determining the actual entitlement of the Contractor
could well be a lengthy one. Several applications for further time may be made which overlap.
Since the Sub-Clause suggests that it is to be used when the Engineer has gone through the
process of determining any extension of time, in practice therefore a Contractor could frustrate
and prevent the use of the Sub-Clause by keeping the Engineer busy considering his claim(s).
If the Contractor has applied for one or more extensions of time, the Engineer will have to
determine them. If, for example, he has determined that the Contractor is entitled to only part
of the claimed extension of time, then this Clause will operate for the period of delay for which
relief has not been given.
A problem for the Contractor is that if, claiming that the delay warrants further time for
completion, he refuses to act on the Sub-Clause 8.6 Notice – he might put himself at risk of a
possible Employer termination under Sub-Clause 15.2 as having ‘abandoned the Works or
otherwise plainly demonstrated the intention not to continue performance’ or ‘failing... to
proceed with the Works in accordance with Clause 8.’ What constitutes a failure to proceed
will be decided on the facts and see further the detailed commentary on Clause 15.
On the other hand if a Contractor complies with the Sub-Clause 8.6 Notice and it is
subsequently found that the delay did indeed entitle him to an extension of time, the Employer
will argue that he should not have complied and further that any costs of the compliance; i.e.
the costs of the measures taken by the Contractor to complete on time, should not be met by
him. It is suggested that the Contractor is likely to take the prudent course and comply and then
argue his case later. He may then well say that he has been requested to accelerate by
implication; this is not an uncommon argument in practice and there may well be many
examples of correspondence between the parties on the topic which may build a picture of the
facts on which the parties will rely in a dispute. However, simply because the Engineer (in
error as it turned out) refused to grant an extension of time, this is unlikely to amount to an
implied acceleration agreement. However, if the Contractor can show that he had no real
alternative but to accelerate in light of the serious risk of termination, it is suggested that faced
with this situation a DAB or Arbitrator may have some sympathy with that position.
The General Conditions contain no express mechanism for the Contractor to be instructed to
complete ahead of the Time for Completion although the addition of the Value Engineering
clause at 13.2 does allow the Contractor to submit a proposal for acceleration and reduction of
cost and improvements to the efficiency or value of the Works. As indicated above it is difficult
to demonstrate an implied instruction to accelerate. The FIDIC Guide advises that the parties
should reach a separate agreement.

What happens if the Engineer fails to determine an extension of time? If the Engineer (or the
Employer in the Silver Book) fails to operate the contractual procedure for determining an
extension in accordance with the contract provisions, it would be open to the Contractor to
argue that there would be no Time for Completion and that time was at large (at least under
English Law) and the Contractor would be obliged to complete in a reasonable time and be
paid his reasonable costs. Note however that there would be a distinction between failure to
operate the mechanism set out in the contract and simply disagreeing with the Contractor, in
which case the Contractor would have to operate the procedure for disputes under Clause 20.
This is the Sub-Clause which sets out the amount, up to the maximum stated in the Appendix
(for the Red and Yellow Books) and Particular Conditions (for the Silver Book) which can be
paid by the Contractor to the Employer in the event of late completion of the Works or any
Section, if applicable. The Employer is required to comply with the provisions in Sub-Clause
2.5 – Employer’s Claims. The Employer is not entitled to recover his actual losses save for
where he has terminated the Contract and for the effect here see the Clause 15 commentary.
The payment of damages for delay, previously called ’Liquidated Damages for Delay’, was
dealt with in the 4th edition Red Book at Clause 47. The requirement for the Employer to
comply with his claims procedure (Sub-Clause 2.5) is new. The words in the 4th edition ‘...and
not as a penalty...’ have been removed. The express power given to the Employer in the 4th
edition to deduct such damages from monies due or to become due to the Contractor has been
removed. However, despite these changes, the overall concept of capped damages has been
retained in the new forms and thus the parties agree a mechanism for a sum to be paid in the
event of delay. The Contractor knows in advance the likely level of his risk in the event of
delay and the Employer has some certainty as to his recovery levels in the event of delay and
avoids the hurdles involved in proving his actual loss.
Historically, under English law, a liquidated damages provision had to be a genuine pre-
estimate of loss. However, in Cavendish Square Holding BV v Talal El Makdessi (Rev 3)20
the Supreme Court held that it was unhelpful to ask the question since the fact that the clause
is not a pre-estimate of loss does not automatically mean it should be regarded as a penalty.
The Supreme Court held that there may be other reasons to uphold the clause and the key
question was whether the clause is penal, not whether it is a pre-estimate of loss. In assessing
whether a liquidated damages provision was penal in nature the clause in question had to be
considered including evidence of the commercial background.
Further, when considering the penal nature of a clause, the court or arbitrator must ask 21
“whether the impugned provision is a secondary obligation which imposes a detriment on the
20
[2015] UKSC 67
21
Ibid at [32]

contract-breaker out of all proportion to any legitimate interest of the innocent party in the
enforcement of the primary obligation.” The penalty may therefore be considered as a security
for performance of the primary obligation. However, although the English courts may strike
down a liquidated damages clause if the amount is “out of all proportion to any legitimate
interest of the innocent party” it will not increase the amount. 22 The parties may agree a limited
loss if they choose to do so and indeed can insert ‘nil’ per week as the specified loss and in
English Law this will be upheld: Temloc v Errill Properties Limited [1987] 39 BLR 30.
The Sub-Clause is triggered when the Contractor fails to comply with the Time for Completion
in Sub-Clause 8.2 and the Works are not complete in accordance with that clause. The
complicated references in the Red Book 4th edition to Clauses 48 and 43 in that contract have
been removed and the clause is simpler and better for it.
The delay damages are stated to be the only damages due from the Contractor to the Employer
for ‘such default’; i.e. for the failure to comply with the Time for Completion, save in the event
of termination under Sub-Clause 15.2. It is to be noted that the clause maintains the last
sentence that the Contractor is not relieved of his ‘...obligation to complete the Works, or from
any other duties, obligations or responsibilities which he may have under the Contract.’ In
some jurisdictions these words might give an Employer a potential argument as to recovery of
damages for other defaults. This point was debated in Biffa Waste Services Ltd & Anor v
Maschinenfabrik Ernst Hese GmbH and Ors 23. Ramsey J rejected an argument by Biffa that
similar wording opened up a claim for unliquidated damages. He said that the words were to
be read in context as a reminder of the other obligations under the contract. There were other
rights of the Employer under the contract in relation to rates of progress and termination but
Ramsey J. found that the provisions of the clause could not be construed to draw a distinction
between simple failure to complete and failure to complete caused by a breach of another
obligation. Biffa could not recover damages for delay caused by breaches of the contract, other
than the liquidated damages.
Note that the limitation of liability under Sub-Clause 17.6 poses a real conflict with the
provisions of this Sub-Clause and is wholly inconsistent with the Employer’s right to recover
delay damages. It expressly excludes liability of the Contractor to the Employer for loss of use
of the Works (permanent or temporary) even if that loss of use is caused by the Contractor’s
failure to comply with the Time for Completion and otherwise delay damages would be
triggered. Upon termination by the Employer under Clause 15 the position is different as the
provisions for delay damages do not operate anyway. It is unclear how these clauses are to be
reconciled and the FIDIC Guide does not currently assist on the matter.
Clauses 8.8 – 8.12 Suspension of Work, Consequences and Resumption of Work
22
The position is different in a number of Civil law jurisdictions.
23
[2008] EWHC 6 (TCC)(11 January 2008)

Sub-Clause 8.8 empowers the Engineer (in the Red and Yellow Books) and the Employer (in
the Silver Book) to instruct the Contractor to suspend part or all of the Works. If this occurs
the Contractor must protect the Works against damage. The Employer may inform the
Contractor of the reason for the suspension but is under no obligation to do so. If he does and
the reason is the Contractor’s responsibility, the provisions contained in Sub-Clauses 8.9, 8.10
and 8.11 will not apply.
If the suspension is not due to the Contractor’s default there is a procedure for the parties to
follow set out in Sub-Clauses 8.9 and 8.10. In the event of a prolonged suspension, Sub-Clause
8.11 allows the Contractor to ask permission to proceed and if permission is declined, he may
notify an omission for the purposes of Clause 13 or may give notice of termination under Sub-
Clause 16.2.
The Engineer can instruct a suspension at any time. There would seem to be no restriction on
his power to do so and there is no advice on this in the FIDIC Guide. For example, the Engineer
could instruct a suspension in the event that the Employer is having funding difficulties. The
Engineer is of course obliged to carry out his duties generally in accordance with Sub-Clause
3.1 in that he shall be deemed to act for the Employer. In making determinations, however,
such as the one he makes under Sub-Clause 8.9, he is to proceed in accordance with Sub-Clause
3.5; i.e., to make a fair determination taking regard of relevant circumstances, but this
requirement does not apply to the giving of the initial instruction under Sub-Clause 8.8 (see
Sub-Clause 3.3). In the example given above, where the Employer asks the Engineer to suspend
to allow him to deal with financing difficulties, it is suggested that there would be no major
injustice if the Engineer then exercised his power to grant time and cost under Sub-Clause 8.9.
The FIDIC Guide does suggest that the reason for the instruction to suspend is given to the
Contractor in order to clarify the applicability of the provisions of Sub-Clause 8.9 which he
may invoke.
Sub-Clause 8.8 requires the Contractor to ‘protect, store and secure such part or the Works
against any deterioration, loss or damage.’ Any Cost which the Engineer may determine under
Sub-Clause 8.9 would no doubt include the cost of the secure storage of the Works or part of
the Works.
The Contractor must comply with the notification requirements in Sub-Clause 8.9 when
claiming that the instruction to suspend caused him delay and /or Cost. He is required to give
notice to the Engineer (or to the Employer for the Silver Book). Sub-Clause 8.9 sensibly
provides that a Contractor will not be entitled to recover time or Cost if he is responsible for
making good his own faulty design or workmanship or materials, nor his failure to comply with
the safe protection provisions in Sub-Clause 8.8.
Where the suspension has been for work on Plant or delivery of Plant /Materials for more than
28 days and the Plant/Materials have been marked as the Employer’s property, Sub-Clause

8.10 provides for the Contractor to be paid the value of Plant and Materials which have not
been delivered to Site.
Sub-Clause 8.11 provides for what happens in the event of a prolonged suspension; if the
suspension under Sub-Clause 8.8 has continued for more than 84 days then the Contractor may
ask for ‘permission’ to proceed. If the Engineer (or Employer) declines to so do within 28 days,
the Contractor may notify that the suspension is an omission under Clause 13 in respect of the
affected part of the Works, to be valued in accordance with Clause 12. There is no requirement
that this notice should be given in accordance with and comply with the provisions of Sub-
Clause 20.1. If the whole of the Works is affected then the Contractor may terminate the
Contract under Sub-Clause 16.2(f).
Sub-Clause 8.12 then goes on to refer to the ‘permission or instruction to proceed’ being given.
It is not clear what the difference is between permission and instruction as neither term is
defined. If the Engineer does give either permission or an instruction to proceed then the parties
are to examine the Works, Plant and Materials jointly and the Contractor is obliged to make
good any damage if it has occurred during the suspension period. On resumption of work, Sub-
Clause 8.9 expressly provides that the Contractor will be entitled to both time and Cost not
only for complying with the suspension instruction under Sub-Clause 8.8 but also for resuming
work under Sub-Clause 8.12.
By: Liz Slattery (Consultant) and Andrew Tweeddale (Director)

Clause 9
Summary
Clause 9 deals with the Tests on Completion. Sub-Clause 9.1 requires the Contractor to give
notice when it is ready to carry out the Tests on Completion. Tests on Completion are a
defined term at Sub-Clause 1.1.3.4. Sub-Clause 9.2 deals with delayed testing caused by
either the Employer or the Contractor. Sub-Clause 9.3 deals with retesting after a failure
to pass the Tests on Completion. Sub-Clause 9.4 deals with a failure to meet the requirements
of the contract after retesting.
Origin of clause
There is no clause similar to Clause 9 of FIDIC 99 within the FIDIC 4th edition; although there
was a reference in the definition section to Tests on Completion - clause 1.1(d)(i) and Clause 37
of FIDIC 4th edition dealt with inspection and testing.
Cross-references
Reference to Clause 9 or to the Tests on Completion is found in the following clauses:-
• Sub-Clause 1.1.3.4 Definitions - “Tests on Completion”

• Sub-Clause 4.1 Contractor’s General Obligations
• Sub-Clause 8.2 Time for Completion
• Sub-Clause 10.1 Taking Over of the Works and Sections
• Sub-Clause 10.2 Taking Over of Parts of the Works
• Sub-Clause 10.3 Interference with Tests on Completion
• Sub-Clause 13.1 Right to Vary
Sub-Clause 9.1 Contractor’s Obligations
Tests on Completion are defined by the Contract as tests that have been specified, agreed or
instructed by the Engineer and are carried out before Taking Over. They are intended to include
any type of tests which the Contractor is required to carry out prior to or at completion. Their
purpose is to show to the Employer that the Works (or a Section) has reached a stage where it can
be Taken Over under Clause 10. Before it is possible for the Contractor to test whether the Works
or a Section have passed any Tests on Completion, it must first provide to the Engineer the
complete, specified as-built documents and operation and maintenance manuals required under
Sub-Clause 4.1(d). The Contractor must then provide everything necessary to conduct the Tests

on Completion efficiently and observe all of the detailed obligations regarding attendance, notice
and timing of these tests given in Sub-Clause 7.4 (Testing).
The Sub-Clause makes no reference to “additional” testing that may be required, in

contradistinction to retesting. Such additional testing would form part of the Tests on Completion
as the phrase ‘Tests on Completion’ is defined in Sub-Clause 1.1.3.4 as including additional tests
“instructed as a Variation.” The consequence of failing to meet an additional testing requirement,
which has been instructed as a Variation, is not spelt out. There appears to be a tension between
Sub-Clause 8.4(a) and Sub-Clause 7.5, which deals with the rejection of testing. Under Sub-
Clause 8.4(a) the Contractor could argue that the Variation has led to the delay and it is entitled to
an extension of time and consequential costs. However, Sub-Clause 7.5 states that if the Employer
incurs additional costs as a result of a failure to pass the testing, the Contract shall pay these costs.
The Contractor must give 21 days’ advance notice of his readiness to start each Test on
Completion. The test should then be completed within 14 days after that, on the day(s) instructed
by the Engineer.
The Engineer must take into account whether the Employer’s use of the Works has affected the
performance of the Works under test.
Immediately when the Works have passed the Tests on Completion, the Contractor shall certify
the results to the Engineer. Typically, Tests on Completion are specified in detail within the
Contract and therefore the report, required by the last sentence of the Sub-Clause, is usually
necessary. They are not, however, used in every type of contract. Their main use is where the
contract requires the provision of, for example, a process plant or power-generation plant. In such
cases the requirement for performance testing is central to the purpose of the contract. In road
building contracts or other similar types of works there may not be a requirement for any Tests on
Completion. All the required testing may have been carried out as the works progressed.
Sub-Clause 9.2 Delayed Tests

This Sub-Clause deals with two situations. The first relates to delays caused by the Employer.
The second relates to delays caused by the Contractor.
Delays Caused by the Employer
Sub-Clause 9.2 states that if the Tests on Completion are being unduly delayed then Sub-Clause
7.4 [Testing] (fifth paragraph) and Sub-Clause 10.3 [Interference with Tests on Completion] become
applicable.
Sub-Clause 7.4 [Testing] (fifth paragraph) deals with the consequences of additional time and Cost
resulting from delayed testing for which the Employer is responsible. The Sub-Clause states that
subject to Sub-Clause 20.1 the Contractor is entitled to claim an extension of time, if completion
is or will be delayed, and payment of such Cost and reasonable profit. Given that the Tests on
Completion are the final step before Taking Over of the Works it is almost inevitable that any
2

delay caused by the Employer at this stage will lead to an extension of time claim. However, this
must be read with Sub-Clause 10.3 [Interference with Tests on Completion].
Sub-Clause 10.3 is dealt with in more detail when considering Clause 10. In summary Sub-Clause
10.3 states that where the Contractor is prevented for more than 14 days from carrying out the
Tests on Completion then the Employer shall be deemed to have Taken-Over the Works or Section
(as the case may be) and the Engineer is then required to issue a Taking-Over Certificate. An
extension of time and Cost plus reasonable profit may then be claimed. The words “unduly
delayed” in Sub-Clause 9.2 must therefore refer to a delay which is more than 14 days.
Delays Caused by the Contractor
Given that the Contractor must give 21 days’ notice that it is ready to carry out the Tests on
Completion, it will be unusual for the Tests on Completion to be delayed by the Contractor.
However, if this does occur, perhaps because a piece of plant breaks down and needs to be
replaced, and the Tests on Completion are unduly delayed then the Engineer may give notice
requiring the Contractor to carry out tests within 21 days after receiving the notice.
The FIDIC Guide states that the Contractor should first be given the opportunity to rectify his
default, in accordance with the second paragraph of the Sub-Clause. If the Contractor then fails to
carry out the Tests on Completion within the 21 days then these may be carried out by the
Employer's Personnel. It is deemed that the Tests on Completion are carried out in the presence
of the Contractor who is required to accept the results of the Tests.
The Employer's Personnel are not obliged to carry out these Tests, and may consider that it would
be unwise to do so.
Undue Delay
Within Sub-Clause 9.2 reference is made to the Tests on Completion being ‘unduly delayed’. This
reference arises in relation to both the rights that the Contractor has to claim time and Cost and the
Employer’s rights in carrying out the Tests through the Employer’s Personnel. Simply delaying
the Tests on Completion appears not to give either party a right to claim; the Tests must be delayed
‘unduly’. In Lichfield Securities Ltd, R (on the application of) v Lichfield District Council & Anor 1
the English Court of Appeal addressed what was meant by undue delay. Sedley LJ stated as
follows:
“I believe that the question of undue delay is to be approached more, rather than less,
objectively than the earlier question of promptness. Perhaps some analogy is to be found
in the concept of inordinate delay developed in the authorities governing the striking out
of actions for want of prosecution. Inordinate delay means materially longer than the time
usually regarded by the profession and courts as acceptable. It falls to be judged
1
[2001] EWCA Civ 304
3

objectively. Why should undue delay be judged differently? If one has delayed
inordinately, surely one has delayed unduly.”
Sedley LJ then stated at para 37:

“But promptness, like undue delay, is not to be gauged simply by locating the earliest
practicable opportunity and adding a short time for lawyers to advise and launch
proceedings. It is crucially affected by the potential or actual effects of the passage of time
on others.”
Factors that the parties may have regard to when considering whether there has been an undue
delay are the level of delay damages, the losses that might be caused to the Employer, how this
impacts on follow on trades, and the purpose of the project. What appears to be evident though
is that the Tests on Completion will be considered to be unduly delayed even a short time after
they ought to have been carried out. The specific reference to a 14 day period in Sub-Clause 10.3
makes this abundantly clear.
Sub-Clause 9.3 Retesting

If the Works or a Section fails to pass the Tests on Completion, Sub-Clause 7.5 shall apply and the
Engineer or the Contractor may require that the Tests be repeated. Sub-Clause 7.5 states that the
Engineer may reject the Plant, Materials or workmanship and the Contractor shall then promptly
make good the defect and make sure that the rejected item complies with the Contract. Sub-Clause
7.5 also repeats in similar terms what is stated in Sub-Clause 9.3; i.e. that any repeated tests shall
be carried out under the same terms and conditions.
If the rejection and retesting cause the Employer to incur additional costs, the Contractor shall,
subject to Sub-Clause 2.5, pay these costs to the Employer. There are potentially two types of loss
that the Employer may incur. The first relates to delay related costs. However, it is less than clear
whether the delay damages cap would apply to this type of loss. There is one view that the delay
damages clause is an exclusive remedy for delay 2 and on ‘all obligations that bite on delay’;
however, there is another view that when construing a contract, which includes other specified
heads of loss, it cannot have been intended to create an exclusive remedy. 3 Furthermore, the delay
damages clause does not specifically refer to this breach. The second head of loss relates to the
additional costs of re-testing; for example, additional costs of people attending Site or reviewing
the results. 4 These losses will be recoverable: Decoma UK Ltd v Haden Drysys International Ltd
[2005] EWHC 2948.
2
Temloc Ltd v Errol Properties Ltd (1987) 39 BLR; and Biffa Waste Services Ltd v Maschinenfabrik [2008] EWHC
6.
3
See Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689.
4
Scottish Coal Company v Kier Construction Ltd [2005] CSOH, where the judge took a divisible approach to the
obligation to complete by the Time for Completion and other obligations.
4

The FIDIC Guide states that “If tests are repeated after the cause of previous failures has been
remedied, and it seems likely that other (related) work may have been affected by the remedial
work, that other work may therefore need to be retested.”
The clause is silent about Works where the Employer has provided free issue material for the
project. If it is the free issue material that is the cause of the failure to the Tests on Completion
then the Contractor will be entitled to an extension of time and may also argue that unless the
Employer remedies these defects within 14 days there should be a deemed Taking Over under Sub-
Clause 9.2. In order to overcome this problem the parties in RTS Flexible Systems Ltd v Molkerei
Alois Müller GmbH & Co Kg (Uk Productions) 5 agreed that there would be an assumption that
performance of free issued items would be sufficient to test the elements of contractor’s scope of
supply together with a provision that, if those items were insufficient to test the elements of
contractor’s scope of supply (i.e. to enable the contractor to pass the Tests), the test would be based
on the maximum throughput allowed by the free issued items.

Where the works fail to pass the repeated Test on Completion the Engineer is provided with three
choices:
a) Order further tests under Sub-Clause 9.3.
b) If the failure deprives the Employer of substantially the whole benefit of the Works or
Section, reject the Works and terminate the contract.
c) Permit a Taking-Over Certificate to be issued.
The FIDIC Guide suggests that there is no limit on the number of repetitions which may be ordered,
because after any Test it may appear that only minor remedial work will be required to overcome
the apparent reasons for the failure.
Sub-paragraph b) has been described as “some sort of nuclear weapon newly granted to the
Employer in relation to alleged defects and is found in all three books of the new rainbow. Under
the normal principles of English contract law it is inconceivable that an Employer could have any
such rights. He would be entitled to damages under the normal measure of foreseeable damages
under the rules in Hadley & Baxendale 6 and Victoria Laundry 7 and the measure of those damages
would be subject to his obligation to mitigate his loss.” 8 This issue is discussed in more detail
under Clause 11 as is the meaning of the phrase ‘substantially the whole benefit.’
Sub-paragraph c) allows for the issue of a Taking-Over Certificate. Where this occurs then the
Contractor is still obliged to complete all its obligations under the Contract, including completing
5
[2008] EWHC 1087
6
Hadley & Anor v Baxendale & Ors [1854] EWHC Exch J70
7
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528
8
Robert Knutson: An English Lawyer’s View of the New Fidic Rainbow – Where is the Pot of Gold?
5

all the Works (see Sub-Clause 8.2(b)). If the Contractor cannot carry out the remedial work, the
Employer may issue a notice to correct under Sub-Clause 15.1 or seek agreement to a reduction in
the Contract Price. In such circumstances the Employer is likely to first indicate the reduction it
would require and seek the Contractor's agreement prior to the issue of a Taking-Over Certificate.
If agreement cannot be reached prior to the issue of the Taking-Over Certificate under sub-
paragraph (c), then sub-paragraph (a) or (b) could be applied.
By Andrew Tweeddale

Clause 10
Summary
Clause 10 deals with the Taking-Over of the Works, Sections, or parts of the
Works. Sub-Clause 10.1 deals with the Taking-Over of the Works and Sections.
Taking-Over by the Employer happens when the Works (a) pass the Tests on
Completion; (b) are substantially complete; (c) any contractual requirements
relating to Taking-Over have been met; and (d) the Taking-Over Certificate has
been issued or is deemed to have been issued.
Sub-Clauses 10.2 and 10.3 deal with deemed Taking-Over where the Employer
uses part of the Works or interferes with the Tests on Completion for more than
14 days. The failure to issue a Taking-Over Certificate by the Engineer, where
the Employer has taken into commercial use the Works, will amount to a breach
of contract.
Origin of clause
There is a similar clause to Clause 10 of FIDIC 1999 at clause 48 of the 4th edition.
There were also similar provisions within the 3rd edition, except that there was no
provision for Taking-Over of Sections or Parts.
Cross-references
Reference to Clause 10 or to the Taking-Over Certificate is found in the following

clauses:-
• Sub-Clause 1.1.3.5 (Definitions - “Taking-Over Certificate”)

• Sub-Clause 1.1.3.7 (Definitions - “Defects Notification Period”)
• Sub-Clause 4.1 Contractor’s General Obligations
• Sub-Clause 4.8 Safety Obligations
• Sub-Clause 4.21 Progress Reports
• Sub-Clause 4.23 Contractor’s Operations on Site
• Sub-Clause 6.10 Records of Contractor’s Personnel and Equipment
• Sub-Clause 8.2 Time for Completion
• Sub-Clause 8.4 Extension of Time for Completion
• Sub-Clause 8.7 Delay Damages
• Sub-Clause 9.2 Delayed Tests
• Sub-Clause 9.4 Failure to Pass Tests on Completion
• Sub-Clause 11.1 Completion of Outstanding Work and Remedying
Defects
• Sub-Clause 13.1 Right to Vary
• Sub-Clause 14.2 Advance Payment
• Sub-Clause 14.3 Schedule of Payments
1

• Sub-Clause 14.6 Issue of Interim Payment Certificates
• Sub-Clause 14.9 Payment of Retention Money
• Sub-Clause 14.10 Statement at Completion
• Sub-Clause 14.14 Cessation of Employer’s Liability
• Sub-Clause 17.2 Contractor’s Care of the Works
• Sub-Clause 18.2 Insurance for Works and Contractor’s Equipment
• Clause 6 of the General Conditions of Dispute Adjudication Agreement
Sub-Clause 10.1 – Taking-Over of the Works and Sections
Sub-Clause 10.1 deals with the Employer’s obligation of Taking-Over of the Works.
This Sub-Clause applies except as stated in Sub-Clause 9.4 [Failure to Pass Tests on
Completion]. Therefore, if the Works pass the Tests on Completion, the Employer
shall Take-Over the Works (or a Section, if any) when:
“(i) the Works have been completed in accordance with the Contract,
including the matters described in Sub-Clause 8.2 and except as allowed in
sub-paragraph (a) below [minor outstanding work and defects], and (ii) a
Taking-Over Certificate has been issued, or is deemed to have been issued in
accordance with this Sub-Clause.”
In order for Taking-Over to occur under Sub-Clause 10.1, the Works must be
completed in accordance with the Contract including:
(i) The Matters Described in Sub-Clause 8.2
Sub-Clause 8.2 states that the Contractor shall complete the whole of the Works, and
each Section (if any), including: (a) achieving the passing of the Tests on Completion;
and (b) completing all work which is stated in the Contract as being required for the
Works or Section to be considered to be completed for the purposes of Taking-Over
under Sub-Clause 10.1.
(a) achieving the passing of the Tests on Completion

The Tests on Completion are dealt with at Clause 9 of the Contract. If the Contractor
fails to pass the repeated Tests on Completion (Sub-Clause 9.3) then there are
remedies available to the Employer. He may instruct the Engineer to order further re-
testing until the Works pass; reject the Works if the failure deprives the Employer of
substantially the whole benefit of the Contract; or issue a Taking-Over Certificate.
(b) completing all work which is stated in the Contract as being required for the
Works or Section to be considered to be completed
Subject to sub-paragraph (a) of Sub-Clause 10.1, the Contractor must carry out and
complete the Works as specified within the Contract (see Sub-Clause 7.1[Manner of
Execution]). It is also required to have regard to the provisions of Sub-Clause 4.1(d) 1,
1 Prior to the list of requirements at (a) to (d), Sub-Clause 4.1 states: “If the Contract specifies that the
Contractor shall design any part of the Permanent Works, then unless otherwise stated in the Particular
Conditions…” However, from the wording of Sub-Clause 9.1 is appears that the requirements of Sub-
2

which state that:
“prior to the commencement of the Tests on Completion, the Contractor shall

submit to the Engineer the “as-built” documents and operation and
maintenance manuals in accordance with the Specification and in sufficient
detail for the Employer to operate, maintain, dismantle, reassemble, adjust and
repair this part of the Works. Such part shall not be considered to be completed
for the purposes of taking-over under Sub-Clause 10.1 [Taking Over of the
Works and Sections] until these documents and manuals have been submitted to
the Engineer.”
But Excluding Those Matters Referred to in Sub-Paragraph (a)
The obligation to complete the Works “in accordance with the Contract” prior to
Taking-Over is tempered by sub-paragraph (a). The effect of this sub-paragraph is
that the Engineer may still issue a Taking-Over Certificate despite there being "minor
outstanding work and defects which will not substantially affect the use of the Works
or Section for their intended purpose.”
This reference to minor outstanding work allows the Employer therefore to Take-
Over the Works when they are practically or substantially complete. These phrases
have been judicially considered in a number of cases. In J. Jarvis and Sons v
Westminster Corporation 2, Lord Justice Salmon defined practical completion as
completion for the purpose of allowing the employers to take possession of the works
and use them as intended. 3 He held that practical completion did not mean completion
down to the last detail, however trivial and unimportant. Similarly in H.W. Neville
(Sunblest) Ltd v William Press and Son Ltd 4, it was held that practical completion did
not mean that very minor de minimus work had to be carried out, but did mean that if
there were any patent defects the Architect should not give a certificate of practical
completion. Regard may also be had to the value of work outstanding and the
importance of defects to the safety of the facility. 5
(ii) A Taking-Over Certificate Has Been Issued
The definition section of FIDIC 1999 is unhelpful and “Taking-Over Certificate” is

defined as meaning the certificate issued under Clause 10.
Sub-Clause 10.1 provides that within 28 days of the Contractor’s application for a
Taking-Over Certificate it shall be issued or rejected. If the Engineer fails to issue or
reject the application within 28 days and “if the Works or Section (as the case may be)
Clause 4.1(d) applies even where the Contractor has not designed a part of the Permanent Works.
2 (1978) 7 BLR 64 HL
3
This statement was approved in the Australian case of Murphy Corporation Ltd v Acumen Design &
Development (Queensland) Pty Ltd and Derek Hooper (1995) 11 BCL 274
4 (1981) 20 BLR 78
5
Big Island Contracting (H. K.) Ltd v Skink Ltd (1990) 52 BLR 110 and see also Hoenig v Isaacs
[1952] 2 All E.R. 176.
3

are substantially in accordance with the Contract, the Taking-Over Certificate shall be
deemed to have been issued.” “Substantially in accordance with the Contract” allows
for “minor outstanding works and defects” to exist which do not substantially affect
the “intended purpose” of the Works. The deeming provision is otiose as the
Contractor may still have to prove that the Works are “substantially in accordance
with the Contract.” Again the drafting of this Sub-Clause could be improved.
The reference in sub-paragraph (a) to the “intended purpose” of the Works is

confusing. There is no obligation on the Contractor to ensure that the Works are fit
for purpose, except where the Contractor takes on a design obligation – see Sub-
Clause 4.1(c). The Contractor’s obligation is to construct the works as specified in
the Contract – see Sub-Clause 7.1.
Applying for a Taking-Over Certificate
Under the second paragraph of Sub-Clause 10.1, the Contractor applies for the
Taking-Over Certificate by written notice. It is envisaged that the Contractor will
anticipate completion and give notice up to 14 days in advance of his expected
completion date. Although it may be desirable for there to be a joint inspection of the
Works or Section when the Contractor asserts that they are complete, there is no
express requirement for this to happen. This early notice allows the Employer time to
take responsibility for the care of the Works. Once the Taking-Over Certificate is
issued (or it is deemed to be issued) for the Works, a Section or a part, responsibility
for its care passes to the Employer (see Sub-Clause 17.2). There may be a conflict
between this provision and the substantive law, which may lay down provisions
relating to acceptance of construction works. 6 The Taking-Over Certificate is also
relevant to the obligation to insure the Works, Plant, Materials and Contractor’s
Documents – see Sub-Clause 18.2.
The FIDIC Guide provides “Sample Forms” for a Taking-Over Certificate for the
Works and Sections.
Sample Form for Works
“Having received your notice under Sub-Clause 10.1 of the Conditions of

Contract, we hereby certify that the Works were completed in accordance with
the Contract on … [date], except for minor outstanding work and defects
[which include those listed in the attached Snagging List and] which should
not substantially affect the use of the Works for their intended purpose.”
Sample Form for a Section
“Having received your notice under Sub-Clause 10.1 of the Conditions of

Contract, we hereby certify that the following Section of the Works was
completed in accordance with the Contract on the date stated below, except
6
See for example, the Romanian Government Decision No. 273/1994, regarding the approval of
reception regulation of construction works and related plant.
4

for minor outstanding work and defects [which include those listed in the
attached Snagging List and] which should not substantially affect the use of
such Section for its intended purpose:
[name or description of the Section; and state the completion date]”
When considering Sub-Clause 10.1 regard must be had to the substantive law of the
contract. The substantive law may dictate when acceptance or reception of the Works
takes place and this may have an impact on the obligations that the Contractor owes to
the Employer and also when the limitation period for defects begins to run. 7
As the requirements for Taking Over of the Works are not linked to the Time for
Completion it therefore follows that the Contractor can apply for Taking Over prior to
the Time for Completion or any extended date for the Time for Completion, as
determined by the DAB. In the case of Laker Vent Engineering Ltd v Jacobs E&C
Ltd 8 it was argued that a decision by an adjudicator awarding an extension of time to
October 2013 was inconsistent with a later decision that Taking Over occurred in
August 2013. Mr Justice Ramsey held that these two decisions were not inconsistent
and stated:
“I do not consider that there is anything inconsistent with the Adjudicator

determining that an extension of time should be given to 11 October 2013 and
a decision that taking over took place on 30 August 2013. That is the effect of
the decisions which are temporarily binding on the parties and those decisions
are enforceable. It follows that I do not consider that there is any uncertainty
or any conflict between the two decisions, one dealing with extensions of time
and the other dealing with the date of the taking over certificate.”
Sub-Clause 10.2 Taking Over of Parts of the Works.
Sub-Clause 10.2 states that the Engineer may, at the sole discretion of the Employer,
issue a Taking-Over Certificate for any part of the Permanent Works. The Employer
is therefore entitled to take back possession if it issues a Taking-Over Certificate for a
part of the Works and, unless a Taking–Over Certificate is issued for a part of the
Works, the Employer shall not use a part of the Works. There are two exceptions to
this: where the Employer uses the Works (a) as a temporary measure, as specified in
the Contract, or (b) agreed by both Parties. The next section of the Sub-Clause then
deals with what happens if the Employer does use any part of the Works.
These provisions were recently considered in the case of Doosan Babcock Ltd v
Comercializadora De Equipos Y Materiales Mabe Limitada.9 In this case counsel for
the Contractor argued that the reference to "a temporary measure" in Sub-Clause 10.2
applied only to the prohibition on use by the Employer referred to in the first sentence
7
See further - A.V Jaeger and G.S Hök, FIDIC – A Guide for practitioners, page 290; and G.S Hök,
Taking Over, Acceptance and Completion Certificate Under German Law.
8 [2014] EWHC 1058 at para 93
9 [2013] EWHC 3010 (TCC)

of the second paragraph of the clause and not to the second sentence and sub-
paragraphs (a) - (c). The judge, Edwards-Stuart J., however stated:
“I am not persuaded that he is necessarily right about this, but I do not need to
decide that question because I am wholly satisfied on the material before the
court about the use of the units, to which I have already referred, that the
Claimant has established a strong case to the effect that the boilers have not
been taken into use by MABE as a temporary measure. On the face of it, the
units have been put into commercial operation as the contract contemplated.”
The judge went on to state that the failure therefore to issue a Taking-Over Certificate
was a clear breach of contract.
Where the Employer uses part of the Works before a Taking-Over Certificate is
issued then: (a) that part shall be deemed to have been taken over from the date it is
used; (b) the Contractor ceases to be liable for the care of that part of the Works; and
(c) the Engineer shall issue a Taking-Over Certificate for that part if requested by the
Contractor. The failure to issue a Taking-Over Certificate, where a part of the Works
is in commercial use or is permanently under the control of the Employer, will be a
breach of contract: Doosan Babcock Ltd v Comercializadora De Equipos Y
Materiales Mabe Limitada.
Use of a Section or part of the Works will pass responsibility for the care of that
Section or part back to the Employer (see Sub-Clause 17.2). The Employer must also
make sure that there is insurance in place in relation to damage to the Works and third
parties. The Employer must also be aware that delay damages are reduced by a
proportional amount to the value of the work Taken-Over. The FIDIC Guide suggests
that in some countries this may in fact undermine the Employer’s entitlement to any
delay damages as: “The Laws of some countries require liquidated delay damages to
be predetermined, and not to be subject to assessment by someone appointed by the
payee.” It is, however, unlikely that this statement reflects the current position under
English law on the payment of liquidated damages as recently set out by the Supreme
Court in Cavendish Square Holding BV v Talal El Makdessi; Parkingeye Ltd v
Beavis.10
It is the Engineer that determines the proportional reduction of delay damages under
Sub-Clause 3.5. The Engineer does this by looking at the value of the works Taken-
Over as a proportion of the value of a Section (if applicable) or the whole of the
Works. The last sentence of Sub-Clause 10.2 states that the proportional reduction
affects only the daily rate of the delay damages and does not affect the maximum
amount of the delay damages.
10 [2015] UKSC 67
6

If the Contractor suffers loss as a result of the Employer Taking-Over a part of the
Works under Sub-Clause 10.2, it must give notice of its loss. The Contractor is
required to comply with Sub-Clause 20.1 and may claim Cost plus reasonable profit,
which shall be included in the Contract Price. The Engineer is required to determine
the value of the claim under Sub-Clause 3.5. There is no express mention of a right to
an extension of time. However, if in Taking-Over a part of the Works the Employer
impedes or delays completion of a Section or the whole of the Works then the
Contractor may claim an extension of time under Sub-Clause 8.4(e). Sub-Clause
8.4(e) states that Contractor may claim an extension of the Time for Completion if it
is delayed, impeded or prevented by a cause attributable to the Employer, the
Employer’s Personnel, or the Employer’s other contractors on the Site. It should be
noted that where the Employer Takes-Over a part of the Works, the Contractor will
still be required to complete that part of the Works – see Sub-Clause 11.1(a).
The FIDIC Guide provides sample forms for the Taking-Over Certificate:
“Sample Form of Taking-Over Certificate for Parts of the Works (CONS or

P&DB)
We hereby certify, in the terms of Sub-Clause 10.2 of the Conditions of

Contract, that the following parts of the Works were completed in accordance
with the Contract on the dates stated below, except for minor outstanding
work and defects [which include those listed in the attached Snagging List]:
[description of each part taken over; and state its completion date]”
Sub-Clause 10.3 Interference with Tests on Completion

Once again the FIDIC draftsmen have included a deeming provision in this Sub-
Clause. In circumstances where the Employer is responsible for preventing the Tests
on Completion from being carried out for more than 14 days, the Employer shall be
deemed to have Taken Over the Works or Section. The thinking behind this Sub-
Clause is that the Test on Completion will immediately precede the Taking-Over of
the Works and therefore if the Employer is preventing the Tests on Completion being
carried out, the Employer should become responsible for the Works or Section (if
applicable).
The Engineer is then required to issue a Taking-Over Certificate for the Works or
Section (if applicable). This will therefore prevent the Employer deducting delay
damages. The Sub-Clause then proceeds to state that where the Contractor suffers
delay or incurs additional Cost it shall be entitled, subject to Sub-Clause 20.1, to
claim an extension of time and Cost plus reasonable profit.
The mere fact that the Employer prevents the Test on Completion occurring for more
than 14 days does not relieve the Contractor of his obligation to complete these tests.
The Contractor must still carry out the Tests on Completion as soon as practicable,
and before the expiry of the Defects Notification Period. The Contractor does not
have to give a further notice that it is still ready to carry out the Test on Completion
7

but the Engineer has to give 14 days’ notice of the date when it wishes the tests to be
carried out.11
Sub-Clause 10.4 Surfaces Requiring Reinstatement

Reinstatement has presumably to be distinguished from repair and maintenance,
particularly in circumstances where the Employer has moved onto and is making use
of the surface concerned. On road projects, the wearing course is sometimes left off
when the Employer first takes occupation so that, shortly before the works are
complete as a whole, the entire project can be brought up to the same standard with
the wearing course being laid for the whole project.
By: Andrew Tweeddale
11
See Sub-Clause 9.1 paragraph 2
8

Clause 11
Summary
Clause 11 requires that the Works shall be in the condition required by the
Contract at the end of the Defects Notification Period. Where the Contractor
carries out work in the Defects Notification Period, it is not entitled to receive
payment if the work was a result of a defect in the design for which the
Contractor was responsible. Similarly, if the Plant, Materials or workmanship
are not in accordance with the Contract or there is a failure by the Contractor to
comply with any other obligation then it is required to remedy the problem
without payment.
The Employer may obtain an extension of the Defects Notification Period if the
Works, a Section or a major piece of Plant cannot be used during the Defects
Notification Period. The Contractor is required to remedy any defect during the
Defect Notification Period and, if it does not, the Employer may claim against the
Contractor. Rights are given to the Contractor to undertake this work subject to
the Employer’s reasonable security restrictions. Once the Defects Notification
Period has expired the Engineer is required within 28 days, subject to receipt of
the Contractor’s Documents and the completion of any tests, to issue a
Performance Certificate. It is the Performance Certificate that is deemed to
constitute acceptance of the Works. Sub-Clause 11.10 provides that after the
Performance Certificate has been issued, each Party will remain liable for the
fulfillment of any obligation which remains unperformed at the time. The extent
and meaning of this clause is open to debate.
Origin of clause
The equivalent clauses within FIDIC Red Book 3rd and 4th editions were found in
various places.
• Sub-Clause 11.1 to 11.4 – remedying defects and costs - was found at Clause
49 of FIDIC 3rd edn and was entitled “Period of Maintenance” and at Clause
49 of FIDIC 4th edn and was entitled “Defects Liability Period.”
• Sub-Clause 11.8 – Contractor to Search - was found at Clause 50 of both the
3rd and 4th edn Red Books.
• Sub-Clause 11.9 – Performance Certificate - was found at Clause 62.1 of both
the FIDIC 3rd edn and 4th edn and was entitled Defects Liability Certificate.
• Sub-Clause 11.10 - Unfulfilled Obligations - was found at Clause 62.2 of
FIDIC 4th edn.
There are substantial differences between Clause 11 and FIDIC 4th edn.

Cross-references
• Sub-Clause 1.1.3.7 (Definitions – Defects Notification Period);

• Sub-Clause 1.1.3.8 (Definitions – Performance Certificate);
• Sub-Clause 2.5 (Employer’s Claims);
• Sub-Clause 9.4 (Failure to Pass Tests on Completion);
• Sub-Clause 14.9 (Payment of Retention Money); and
• Sub-Clause 18.2 (Insurance for Works and Contractor’s Equipment).
The Purpose of the Clause
A significant change in procedure occurs during the Defects Notification Period. The
Engineer’s role is reduced and the Employer takes over direct responsibility for the
notification of defects. The reason for this is that the Employer will now have
possession of the Works and it is the Employer who will be aware of defects. The
Contractor will also need to liaise with the Employer in order to gain access to
remedy these defects.
During the Defects Notification Period the Engineer no longer has the power to issue
Variations to the Contract. Clause 13.1 expressly states that: “Variations may be
initiated by the Engineer at any time prior to issuing the Taking-Over Certificate.”
However, there is an obligation on the Contractor to remedy all defects or damage
notified by the Employer. 1 This includes work for which the Contractor is not
responsible and in such cases the Contractor is paid for such work as if it was a
Variation. 2
The phrase "Defects Notification Period" is new to FIDIC 1999. Previously it was
referred to as a defects liability period (FIDIC 4th) or maintenance period (FIDIC 3rd).
The new terminology recognises the most significant aspect of this period, namely
that the Contractor is notified of defects. It is anticipated that the Defects Notification
Period will be 365 days, however, this period may be extended by the Employer. The
Defects Notification Period is a defined term:
“1.1.3.7 “Defects Notification Period” means the period for notifying defects in the
Works or a Section (as the case may be) under Sub-Clause 11.1 [Completion
of Outstanding Work and Remedying Defects], as stated in the Appendix to
Tender (with any extension under Sub-Clause 11.3 [Extension of Defects
Notification Period]), calculated from the date on which the Works or Section
is completed as certified under Sub-Clause 10.1 [Taking Over of the Works
and Sections].”
1
Sub-Clause 11.1(b)
2
Sub-Clause 11.2
2

Where the Works are taken over in Sections then it is possible for the Defects
Notification Period to expire for one Section before another Section has been
completed. Therefore, Sub-Clause 11.9 (Performance Certificate) refers to "the latest
of the expiry dates of the Defects Notification Periods".
Sub-Clause 11.1 Completion of Outstanding Work and Remedying Defects
The obligation on the Contractor is to ensure that the Works, Contractor’s Documents
and each Section shall be in a condition as required by the Contract (fair wear and tear
excepted) at the end of the Defects Notification Period or as soon as practicable
thereafter. Sub-paragraph (a) places a responsibility on the Contractor to complete all
work which is outstanding at the date of the Taking-Over Certificate within such
reasonable time as instructed by the Engineer. Sub-paragraph (b) requires the
Contractor to execute all work required to remedy defects or damage, as may be
notified by (or on behalf of) the Employer on or before the expiry date of the Defects
Notification Period. The expression "Defects Notification Period" recognizes that the
Contractor’s obligation is to remedy defects which are notified to it or instructed
under this Sub-Clause.
However, not all damage or defects will be at the Contractor’s risk and cost – so, for
example, defects in the Engineer’s design will need to be remedied but this will not be
to the Contractor’s account.
The expression “fair wear and tear excepted” is an English legal term which is used,
primarily, when considering landlord and tenant law or hire purchase contracts. It
requires a tenant/hirer to return the property in the same state it was when it was
let/hired apart from “fair wear and tear” which resulted from the normal use of the
goods/property.
In the context of landlord and tenant law, “fair wear and tear” has been defined by the
English House of Lords as meaning “reasonable use of the premises by the tenant and
the ordinary operation of natural forces (i.e. the passage of time)”. By analogy, the
Contractor has no obligation to re-paint chipped paintwork or replace a scratched
plate if such ‘defect’ resulted from the reasonable use of the Works. Difficulties may,
however, arise where a defect occurs but is one which the Contractor argues is as a
result of fair wear and tear. Robert Knutson provides the following example: 3
“[T]he engineer specified and the Contractor built a tarmacadam (asphalt)

parking lot with a specified thickness of asphalt of only 50mm on top of
hardcore. It was probably a northern hemisphere specification because under
the hot tropical suns of the site, the tarmacadam was torn up the first and
3
An English Lawyer’s View of the New FIDIC Rainbow – where is the pot of gold? Robert Knutson,
http://www.robertknutson.com/downloads/Analysis_of_English_construction_law.pdf
3

every subsequent time a truck did a tight turn on the lot. Given the Engineer’s
deficient specification, was this “fair wear and tear”? Under FIDIC 2nd
which was the relevant Contract at the time this was not at all clear. The
provisions of Sub-Clause 11.2 would have been of much assistance because
the “opinion of the Engineer” has happily been removed from this provision
and it simply states “if and to the extent that such work is attributable to any
other cause … the variation procedure shall apply.”
The obligation on the Contractor to remedy defects is set out in sub-paragraphs (a)
and (b) of Sub-Clause 11.1. Under Sub-Clause 10.1, the Contractor is entitled to a
Taking-Over Certificate notwithstanding that some work may still be incomplete.
Sub-Clause 11.1(a) therefore states that the Contractor is required to complete this
outstanding work within an instructed time which must be reasonable. If no
reasonable time is so instructed, this work must be completed "by the expiry date of
the relevant Defects Notification Period" or (if that was impractical) as soon as
practicable thereafter.
Under Sub-Clause 11.1(b), the Contractor is required to remedy defects or damage

which have been notified by the Employer, or (on his behalf) by the Engineer.
Having been notified under Sub-Clause 11.1(b), the Contractor is both obliged and
entitled to carry out the remedial work, including to the right of access under Sub-
Clause 11.7. The Employer should not remedy the defects or damage himself, unless
and until he is entitled to do so under Sub-Clause 11.4.
If the Employer refrains from notifying a defect or damage, because he prefers to

remedy the defect himself, then the Employer will be in breach of the last sentence of
Sub-Clause 11.1. The effects of this are uncertain. It may be argued that where the
Employer does not allow the Contractor to rectify a defect then any claim that the
Employer has will be limited to that which it would have cost that Contractor to
remedy the defects 4. The failure to allow the Contractor to remedy the damage or
defects would amount to a failure to mitigate a loss. 5 However, in AMEC Foster
Wheeler Group Ltd v Morgan Sindall Professional Services Ltd & Anor, 6 on wording
having similar effect to Clause 11.1(b), the judge indicated that the breach was more
fundamental. The judge stated that: “It is clear from the wording of this part of the
clause that there can be no liability on [the contractor] in connection with defects
unless it was made aware of those defects. In the absence of knowledge of the defects,
no liability can arise under this limb of the clause.” In London and SW Railway v
Flower 7 it was also stated: “it would seem to be contrary to natural justice to hold that
the plaintiffs can, without giving the defendants notice of the duty which is sought to
be cast upon them, take upon themselves to perform that duty for the defendants and
4 Pearce and High v Baxter and Baxter [1999] BLR 101 CA and Mul v Hutton Construction Ltd
[2014] EWHC 1797

5
Woodlands Oak Ltd v Conwell [2011] BLR 365
6
[2016] EWHC 902
7 (1875) 1 CPD 77

charge them with the expense.”
However, the Employer may under the applicable law to refuse to allow the
Contractor to remedy defects if it has demonstrable grounds for believing that the
Contractor would fail to carry out the work with the necessary skill and care.
After the Defects Notification Period has expired then the Employer may engage any
third party to rectify defects instead of allowing the original Contractor to return. In
such circumstances the Employer may be criticized for acting unreasonably and
failing to mitigate its loss. However, the Employer would not be in breach of contract
for refusing the original Contractor access to the site.
Sub-Clause 11.2 Cost of Remedying Defects
Any defect or damage, as defined within sub-paragraphs (a) to (c), and notified during
the Defects Notification Period, has to be remedied by and at the cost of the
Contractor. This Sub-Clause states that the defects for which the Contractor is
responsible for are:
(a) any design for which the Contractor is responsible,

(b) Plant, Materials or workmanship not being in accordance with the Contract, or
(c) failure by the Contractor to comply with any other obligation.
Other defects that are notified to the Contractor under Sub-Clause 11.1(b) are subject
to the Variation Procedure under Sub-Clause 13.3. However, there is an
inconsistency in the wording of these two Sub-Clauses. Sub-Clause 11.1 sets out a
mandatory requirement that the Contractor remedy the defect notified, irrespective of
cause. Sub-Clause 11.2 however requires that where the Contractor is not responsible
for the defect then the Sub-Clause 13.3 procedure applies. This requires the
Contractor to set out in writing a programme for the works and an evaluation for the
Variation. 8
This is an interesting new provision within the FIDIC 1999 contract which allows the
Defects Notification Period to be extended if a defect or damage prevents the Works,
Section or a major item of Plant being operated. The FIDIC Guide states that if the
Works, Section or a major item of Plant cannot be operated for a certain number of
days, the Employer is entitled (subject to Sub-Clause 2.5) to require the Defects
Notification Period to be extended by that number of days. What this clause does not
state, and what might cause concern to a Contractor, is that the defect or damage has
8
Sub-Clause 13.3(b) cannot be applicable as the Sub-Clause 8.3 programme setting out the Time for
Completion has passed.
5

to have been caused by any breach of obligation by the Contractor. It would appear
that if the Works cannot be used by reason of a defect in the design, or because the
Employer has prevented the Test on Completion, 9 the Employer would still be
entitled to an extension of the Defects Notification Period. It seems that the FIDIC
Guide supports the above interpretation as it refers to the extension of the Defects
Notification Period being caused (or not caused) by the shortcomings of the
Contractor.
Sub-Clause 2.5 states that a notice relating to the Defects Notification Period has to be
given before the expiry of that period. It also states that the Employer must give
particulars specifying the basis of the claim and the amount of time required. The
Engineer then makes his Determination.
Where, however, the defect or damage which prevents the operation of the Works,
Section or major item of Plant is caused by an event for which the Contractor is not
responsible then it would be entitled to its associated costs. If the Contractor is not
responsible for the defect or damage, the remedial work would constitute a Variation
and entitle the Contractor to additional payment, including compensation for the
extension to the Defects Notification Period.
The Defects Notification Period cannot be extended by more than 2 years. This again
is a welcome inclusion as it has relevance to the call dates for the Bonds and
Guarantees issued by the Contractor.
11.4 Failure to Remedy Defects
The Contractor has a reasonable time to remedy any effect or damage. What
constitutes "reasonable" will be a question of fact in each case. In Go West Ltd. v
Spigarolo & Anor 10, the English Court of Appeal stated that what is a reasonable time
had “to be assessed … having regard to all the circumstances of the particular case.”
Matters which will be relevant to what is a reasonable time include the delivery
periods for replacement Plant and the operational status of the Works.
If the Contractor fails to remedy the defects within a reasonable time then the
Employer may fix a date when the works are to be carried out. In default of
undertaking the remedial work by the fixed date, the Employer has a number of
options available.
Sub-paragraph (a)
Here the Employer can elect to carry out the work himself but at the Contractor’s cost.
9
See Sub-Clause 10.3 which states that the Tests on Completion are to be carried out before expiry of
the Defects Notification Period. Sub-Clause 10.3 applies where the Employer prevents the Tests on
Completion being carried out.
10 [2003] EWCA Civ 17 (31 January 2003)

The Employer is however responsible for the remedial work. The Employer's best
interests therefore lie in having the Contractor carry out the remedial works, in order
to avoid subsequent disputes as to whether any element of under-performance of the
Works is due to the Employer's own rectification works.
Sub-paragraph (b)
Here the Employer can ask the Engineer to determine a reduction to the Contract
Price. How that reduction should be determined is left unclear – it could be measured
as against the cost of the remedial works, an abatement for failing to complete the
works or a diminution in value of the Works itself. It is also unclear whether the
Engineer would be able to take account of any losses incurred by the Employer in
arriving at its Determination.
Sub-paragraph (c)
This sub-paragraph envisages the defect or damage being so serious as to deprive the
Employer of substantially the whole benefit of the Works or a major part of the
Works. In such a situation the Employer may terminate the contract in whole or in
part. Under English law a breach of contract, which deprives a party of substantially
the whole benefit of the Contract, would give rise to a right to treat the contract as
rescinded. Lord Diplock in Lep Air Services v. Rolloswin Limited 11 stated:
"The debtor failed to perform voluntarily many of his obligations under the
contract - both the obligation of which performance was guaranteed and other
obligations. The cumulative effect of these failures by December 22 1967 was
to deprive the creditor of substantially the whole benefit of which it was the
intention of the parties that he should obtain from the contract. The creditor
accordingly became entitled although not bound to treat the contract as
rescinded."
However, a breach or even a number of breaches will not, on their own, be sufficient
to show that the Employer has had substantially no benefit. In Shawton Engineering
Ltd v DGP International Ltd (t/a Design Group Partnership) & Anor 12 the Court of
Appeal stated: “But what has to be shown is, not mere breach, but a breach of such
gravity as to deprive the other party of substantially the whole benefit which it was
the intention of the parties that they should obtain from the contract.”
Where there has been no performance at all then it will be clear that there has been a
repudiation of the contract. However, this will not be the case as Sub-Clause 11.4
only comes into play where the Works are substantially complete and have been so
certified by the Engineer. It will therefore be rare that this provision can be relied
upon and the Employer should exercise extreme caution before considering
11 [1972] AC 331, 349

12 [2005] EWCA Civ 1359
7

termination under Sub-Clause 11.4(c). In Astea (UK) Ltd. v Time Group Ltd13 Judge
Seymour warned about the risks of repudiation where performance of some of the
works had taken place. He stated:
“The application of the test of repudiation formulated by Diplock LJ in

Hongkong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd. is most
straightforward in a case in which no performance at all of the obligations of
one of the contracting parties has taken place and there is a straightforward
refusal of performance. In any case in which there has been any degree of
performance before the alleged repudiation the application of the test requires
a qualitative judgment of whether failure to perform the remainder of the
obligations of the relevant party will deprive the other party of substantially
the whole benefit of the contract judged against the commercial purpose of the
contract. It is likely to be necessary to consider not only what has been done,
but also the value of that to the other party if nothing else is done. However, a
flat refusal to continue performance will probably amount to a repudiation
however much work has been done. On the other hand, if considerable work
has been done in performance of a party's contractual obligations and what is
alleged to amount to a repudiation is not a flat refusal to perform, but an
indication of an intention to continue to perform at a speed considered by the
other party to be unreasonably slow, it may be very difficult to conclude that
in those circumstances what is being offered will deprive the other party of
substantially the whole benefit of the contract. On the contrary, it may appear
that the innocent party will eventually gain exactly the benefit contemplated.
The question will be whether, by reason of the time which will need to elapse
before that happens, in commercial terms the party entitled to performance
will be deprived of substantially the whole of the benefit which it was intended
he should derive from the contract.”
In addition to the right to terminate the Employer shall then be entitled to “recover all
sums paid for the Works … plus financing costs and the costs of dismantling the
same, clearing the site and returning the plant and materials to the Contractor.” Robert
Knutson has described this as “some sort of nuclear weapon newly granted to the
Employer in relation to alleged defects” 14 and has argued that:
“Sub-Clause 11(4)c seems to me to be an unsuitable new addition to these

Contracts and one which would be difficult to apply on its literal terms under
English law. The tricky area for employers may well lie in successfully
arguing that they have been deprived of “substantially the whole benefit” of
the plant/Works. Such situations are bound in truth to be both rare and highly
arguable.”
13 [2003] EWHC 725 (TCC)

14
http://www.robertknutson.com/downloads/Analysis_of_English_construction_law.pdf
8

11.5 Removal of Defective Work
Where the Contractor cannot remedy the defect or damage expeditiously on Site then
it may be necessary for the remedial work to be carried out off the Site. The consent
of the Employer must be given. Consent is a term dealt with in Sub-Clause 1.3 and
“shall not be unreasonably withheld or delayed.” The Employer may require the
Contractor either to increase the amount of the Performance Security or provide
another form of security. The FIDIC Guide suggests that this is at the Contractor's
option; however, the wording of the clause suggests the opposite.
11.6 Further Tests
If the carrying out of work to any defect or damage affects the performance of the
Works, the Engineer may require the repetition of the test described in the Contract.
The Engineer is required to give notice that these tests will be required within 28 days
after the defect or damage has been rectified. This clause applies to both defects and
damage for which the Contractor is responsible and for which it is not responsible. If
the Contractor is not responsible for the defect and damage it is entitled to payment as
the work is carried out at the risk and cost of the Party liable.
If the Contractor considers that it is entitled to an additional payment for the Further
Tests then it should promptly give notice and detailed particulars of its claim in
accordance with the procedure specified in Sub-Clause 20.1.
11.7 Right of Access.
The Contractor is entitled to “such right of access to the Works as is reasonably

required” in order to remedy any defect or damage until the issue of the Performance
Certificate (see Sub-Clause 11.9 below). The FIDIC Guide states that: “The
Employer must grant a right of access for the Contractor to remedy defects and
damage, or Sub-Clause 11.4 may be inapplicable.”
11.8 Contractor to Search
If there is a defect in the Works the Engineer may instruct the Contractor to search for
the cause of it. It is unclear whether this provision could be used by the Engineer for
defects that arise before Taking-Over of the Works. Its position in the Contract (in
the section entitled Defects Liability) suggests that this provision should only be used
when Taking-Over has occurred. However, Sub-Clause 1.2 states that: “The marginal
words and other headings shall not be taken into consideration in the interpretation of
these Conditions.” The Sub-Clause states that: “Unless the defect is to be remedied at
the cost of the Contractor under Sub-Clause 11.2 …” Sub-Clause 11.2 refers to Sub-
Clause 11.1 and therefore the natural reading of this clause suggests that this is a
defect discovered in the Defects Notification Period and therefore the Engineer may

only instruct under this Sub-Clause after Taking-Over of the Works.
Where a defect is discovered within the Defects Notification Period, for which the
Contractor is responsible, Sub-Clause 11.2 is stated to apply. However, the remedy of
rejection of the Plant, Materials and workmanship following testing, as set out in Sub-
Clause 7.6, could also be used by an Employer. Once again there is a tension created
by the fact that headings and marginal notes should not be used for interpretation
purposes. Sub-Clause 7.6 is applicable following any examination, inspection,
measurement, or testing. However, it is doubted that the FIDIC draftsmen intended
that the Employer should be able to reject Plant, Materials or workmanship a year
after Taking-Over of the Works. A right to reject Plant, Materials and workmanship a
year after being taken into use goes well beyond remedies that are provided by
English common law. In Kwei Tek Chao v British Traders and Shippers 15 Devlin J
stated that in cases where goods have passed to the buyer, the buyer must not act
inconsistently with the reversionary interest of the seller. If he does so then the buyer
loses the right to reject the goods.
11.9 Performance Certificate.
The Performance Certificate provides written confirmation that the Engineer has
completed his obligations and this document constitutes “acceptance of the Works.”
The definition of Performance Certificate at Sub-Clause 1.1.3.8 is singularly

unhelpful. It defines the Performance Certificate as follows: “Performance Certificate”
means the certificate issued under Sub-Clause 11.9 [Performance Certificate].”
The Performance Certificate is important in that it is linked to the Employer’s

obligation to return the Performance Security within 21 days after receiving the
Performance Certificate (Sub-Clause 4.2). It is also linked to the Contractor’s right of
access to the Site (Sub-Clause 11.7), the obligation on the Contractor to issue the draft
final statement (Sub-Clause 14.11), and some of the Contractor’s insurance obligations
(Sub-Clauses 18.2 and 18.3).
The Performance Certificate should be issued within 28 days after the latest of the
expiry dates of the Defects Notification Periods or as soon thereafter as the
Contractor:
(1) has supplied all the Contractor’s Documents;
(2) completed and tested all the Works; and/or
(3) remedied any defects.
It should be noted that under Sub-Clause 11.3 the Defects Notification Period shall
not be extended by more than two years. Sub-Clause 11.3 was included to prevent an
Employer from indefinitely extending the Defects Notification Period and thereby
preventing the issue of a Performance Certificate.
15 [1954] 2 QB 459, 487

10

Robert Knutson 16 raises the interesting question of whether under English law the
issuing of this Certificate is final and conclusive as to the Contractor’s satisfactory
performance of the Contract and thus stops the Employer from subsequently alleging
that the work was defective. He states that there is a line of English authorities on
different forms of Contract and arbitral decisions in international contracts to this
effect and that the FIDIC language found here allows such arguments to be made,
although their efficacy may be tempered by Sub-Clause 11.10. In Matthew Hall
Ortech Ltd v Tarmac Roadstone Ltd17 the court had to consider whether the Final
Certificate issued under an IChemE Red Book was conclusive evidence that the works
had been completed in accordance with the contract. The court held that it was.
However, the contract stated that the Final Certificate was “conclusive evidence ...
that the Contractor had completed the Works and made good all defects.” The
wording under Sub-Clause 11.9 is substantially different.
The alternative view is that there is nothing within the Performance Certificate that
indicates that it is intended to be conclusive evidence of the facts certified. Without
such a clear statement the Performance Certificate does not become final and
conclusive. In AG v Wang Chong Construction Co Ltd 18 the Hong Kong Court of
Appeal stated that if the parties to a contract intended the completion certificate to be
final and conclusive such that an employer would be left without a remedy even for
latent defects of a very serious nature, the certificate would have to set out in the
clearest possible terms that this was what was intended. Similarly, Lord Diplock in
Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd 19 stated:
“So when one is concerned with a building contract one starts with the
presumption that each party is to be entitled to all those remedies for its
breach as would arise by operation of law …To rebut that presumption one
must be able to find in the contract clear unequivocal words in which the
parties have expressed their agreement that this remedy shall not be available
in respect of breaches of that particular contract.”
11.10 Unfulfilled Obligations
It is submitted that the Performance Certificate does not relieve the Contractor of its
liability for any defect discovered after the issue of that Certificate. The Performance
Certificate is not final and conclusive and the Contractor retains responsibility for the
work it has carried. Judge To in Wong Chuk Kin v Millennium Engineering Ltd20 held
that:
16 An English Lawyer’s View of the New FIDIC Rainbow – where is the pot of gold? Robert
Knutson, http://www.robertknutson.com/downloads/Analysis_of_English_construction_law.pdf
17 (1997) 87 BLR 96
18 [1991] 2 HKC 30
19 [1974] 1 AC 689, 718
20 (2004) HCA 876/2004
11

“The provision in a building contract of a defect liability period, without
more, does not have the effect of an exemption clause exempting a contractor
from liability for defective work discovered after expiry of the defect liability
period. It only imposes on the contractor a contractual duty to rectify any
defect discovered during the defect liability period … Nor do I consider the
certification by the Defendant’s project manager conclusive that the work was
of the required standard.”
It has been a common misapprehension by some lawyers in some jurisdictions that the
issue of the Performance Certificate in some way replaces the limitation period under
the proper law of the contract. 21 Contractors ought to be aware that their liability will
continue until claims against them become time barred. Under the law of England
and Wales, claims in contract will be barred after 6 years from the date of the cause of
action or 15 years for latent defects. In many civil law countries there is decennial
liability, which makes the Contractor liable for defects for 10 years following the
issue of the Performance Certificate.22 Contractors ought also to be aware that
decennial liability may arise irrespective of the proper law of the contract as a
mandatory rule of law of the place where the Works were constructed.
Although a contractor may still have a liability after the Defects Notification Period
and after the Performance Certificate is issued, that liability is usually one to pay
damages and not to remedy defects. The issue was considered in AMEC Foster
Wheeler Group Ltd v Morgan Sindall Professional Services Ltd & Anor. 23 Here the
judge stated:
65. “For the reasons that I have already given, under this form of Building
Contract a contractor is under no obligation under clause 16 to make good a
defect which appears after the expiry of the Defects Liability Period. He may
have a duty to pay damages for breach of contract in carrying out non-
compliant work in the first place, but that is a general secondary obligation
arising as a consequence of a failure to fulfil a primary obligation under the
Building Contract. So the contractor's omission to act upon being made aware
of a defect which has appeared after expiry of the Defects Liability Period is
not likely to be a legally relevant omission, unless the contractor is still
carrying out the Works at the time (in which case the obligations under clause
21
http://www.robertknutson.com/downloads/Analysis_of_English_construction_law.pdf; and Civil Law
decennial liability under FIDIC Contracts, Dr Götz-Sebastian Hök, http://www.dr-hoek.de
22
See also FIDIC, An Analysis of International Construction Contracts, edited by Robert Knutson
(2005) Kluwer at p.27 (liability under Egyptian law); p.60 (liability under English law); p.108 (liability
under German law); p.163 (liability under Indian law); p. 201 (liability under Japanese law); and p.272
(liability under Saudi Arabian law).
23
[2016] EWHC 902 at paras 65-67
12

8.7 may come into play). That is because, in general, there is no duty on the
contractor in those circumstances to do anything.
66. The qualification to these general statements is that circumstances may exist
which do impose a duty on the contractor to do something upon being made
aware of a defect. For example, suppose that whilst the contractor is on site
after the expiry of the Defects Liability Period at an inspection to see whether
or not notified defects have been made good, he is told by the window cleaners
that a cladding panel appears to be loose. A senior employee of the contractor
then inspects the panel in question using the window cleaners' hoist. He
discovers at once that there is a problem with the adequacy of the fixings and
a distinct possibility that, if left unremedied, the panel may become loose and
fall.
67. In those circumstances a court might need a great deal of persuasion to be

satisfied that in such a situation the contractor did not owe a duty to someone
to do something: in this case a duty owed to the building owner and, perhaps,
to the public at large, to report the defect. However, the contractor would be
under no duty to repair the defect: indeed, he would have no right to do so in
the absence of the consent of the building owner. Accordingly, in this
hypothetical situation the contractor would probably discharge any duty of
care by reporting the existence of the defect to the building owner (or,
perhaps, to a proper authority).”
Both Employers and Contractors should take note that many forms of standard
insurance, such as the Contractors’ All Risk or Professional Indemnity Insurance will
not cover the Contractor after the works have been completed. The Works will
therefore often be uninsured unless particular cover has been obtained. In other
countries the Contractor will be obliged to take out decennial insurance. The cost of
such insurance policies is large and therefore the Contractor must allow provision in
his tender for this.
While this clause refers to “each Party” remaining liable to the other the reality is that
only in rare circumstances will an Employer remain liable to the Contractor because
of other provisions of the Contract. Reference should be had to Sub-Clause 14.14 of
the Contract, which is entitled “Cessation of Employer’s Liability” and Sub-Clause
14.12, which is entitled “Discharge.”
11.11 Clearance of Site
This Sub-Clause requires the Contractor to remove its Equipment, materials,

wreckage, rubbish and Temporary Works. In the event that the Contractor fails to do
this the Employer may sell these items and will then account to the Contractor for the
proceeds, minus any costs incurred.
13

The Employer should ascertain whether the local law prohibits this action. In some
countries such an action would be illegal and the Employer may find himself on a
substantial claim from the Contractor, where he has dealt with the Contractor’s goods
or equipment without a court order.
14

Clause 12
Summary
FIDIC 1999 is a re-measurement contract so that the Employer takes the risk of
variations to the quantities and, in certain cases, to the rates and prices which
may be applied for the work executed. If the Employer wishes to employ a
Contractor on a lump-sum or cost plus basis then this clause needs to be deleted.
Sub-Clause 12.1 deals with the measurement of the works. Sub-Clause 12.2 does
not include a reference to any standard method of measurement but states that
the works are to be measured in accordance with the Bill of Quantities or other
applicable Schedules. The lack of reference to a particular standard method of
measurement has been criticised. 1 Sub-Clause 12.3 deals with evaluating the
appropriate rate or price for the works. There are three methods of evaluating
the works:-
a) The rate or price specified for such item in the Contract; but if there is no
such item
b) The rate or price specified for similar work.
c) However, in certain specified circumstances, a new rate or price shall be
appropriate.
Sub-Clause 12.4 deals with the valuation of omissions from the Work.
As this is a re-measurement contract there is no warranty that the quantities

measured in the Bill of Quantities are accurate. Nael Bunni suggests that when
quantities within the Bill of Quantities are exceeded then payment should be at
the rates set out in the Bill. 2 There have been some cases where the courts have
adopted differing approaches; however, in those cases the wording of the re-
measurement clause differed to that within FIDIC. These decisions have been
described by Dr. Bunni as being controversial.
Origin of clause
The clause has its origins in clauses 52, 56, 57.1 of FIDIC 4th edn, which in turn were
also found in the 3rd edn.
Cross-references
Reference to clause 12 or ‘measurement’ is found in the following clauses:-
• 1 Jaeger & Hök, FIDIC – A Guide for practitioners (2010) p.297

2
Nael Bunni, The FIDIC Form of Contract, (2005) 3rd edn Blackwell

• Sub-Clause 7.3 (Inspection)
• Sub-Clause 7.5 (Rejection)
• Sub-Clause 13.3 (Variation Procedure)
• Sub-Clause 14.1 (The Contract Price)
The Purpose of the Clause
Sub-Clause 14.1 provides that the quantities, which may be set out in the Bill of
Quantities or other Schedule, are estimated quantities and are not to be taken as the
actual and correct quantities for the purposes of Clause 12 [Measurement and
Evaluation]. Clause 12 is based upon the principle that the Works are to be valued by
measuring the quantity of each item of work under Sub-Clause 12.2 and then applying
the appropriate rate per unit quantity or the appropriate lump-sum price under Sub-
Clause 12.3.
If the Employer prefers to have a lump-sum contract then Clause 12 needs to be

deleted. In the “Guidance for the Preparation of Particular Conditions” there is an
example of a “Lump Sum Contract.”
The Contractor should check the substantive law of the contract to ensure that it
allows for the re-measurement of work, without additional notices being given.
Certain laws place prohibitions or restrictions on additional payments of more than
the contract sum. For example under Article 886(1) of the Federal Law No 5 of 1985
of the UAE the following applies: “If a contract is made under an itemized list on the
basis of unit prices, the contractor must immediately notify the employer thereof,
setting out the increased price expected, and if he does not do so he shall lose his right
to recovered the excess cost over and above the value of the itemized list.” While it
remains unclear whether this Article of Federal Law No 5 would have the effect of
displacing Sub-Clause 12.3, it has been argued that it may have a very significant
impact. 3 The suggestion is that the re-measurement provisions of FIDIC 1999 would
fall foul of Article 886(1) as there is no provision within FIDIC to give a notice if the
estimated quantities are to be exceeded.
Sub-Clause 12.1 Works to be Measured
Sub-Clause 12.1 describes the procedure for measuring the quantity of each item of
work. Quantities should preferably be agreed between the representatives of the
Engineer and the Contractor, as a continuing process, and as the execution of the
Works proceeds. Although the second paragraph empowers the Engineer to take the
initiative in requiring a measurement to be made, this activity should be regarded as a
3
Chris Larkin Quantity Clause Needs Update – http://cmguide.org/archives/1365/print

joint activity.
The contract does not specify any particular time in which measurements are to be
taken. The Sub-Clause refers only to when the Engineer requires the works to be
measured and then he must give reasonable notice. Once reasonable notice has been
given the Contractor’s representative (or other representative) is required to attend
and assist the Engineer and provide any particulars requested. Although it is the
Engineer that is obliged to measure the works this often does not happen in practice.
The Contractor is often more likely to be in a better position to measure the works
itself and often does measure the works rather than merely assist the Engineer. The
Engineer then checks and confirms the Contractor’s measurement.
If the Contractor fails to attend or send a representative, the measurement made by (or
on behalf of) the Engineer shall be considered to be accurate. The Contractor will not
be able to open up, review or revise this measurement at a later stage because the
Engineer does not make a determination regarding the measurement. Instead the
Contract deems the measurement to be accurate. Similarly, where the measurement is
made from records and the Contractor does not attend and does not dispute the records
then these records will be considered to be accurate. If the Contractor disagrees with
the records then it must give notice to the Engineer within 14 days or, again, the records
will be accepted as being accurate.
In the case of Norwest Holst Construction v Co-operative Wholesale Society 4 the
parties failed to measure the works as it progressed and at the end of the job it became
impractical to re-measure. The Employer sought to argue that the works should be
measured from a schematic drawing within the tender drawings and that any bends or
deviations amounted to uninstructed work and therefore should be ignored for the re-
measure. The arbitrator referred to this as nonsense and concluded that the works to
be valued were the works which had been undertaken.
12.2 Method of Measurement
These two sub-paragraphs describe what is typically referred to as the "method of

measurement" applicable to the Works. This method relates primarily to what
quantities are to be applicable to the evaluation, rather than to the measuring
techniques (although they may also be described), and plays an important part in the
whole evaluation of the Contract Price.
Sub-paragraph (a) states that measurement shall be made of the net actual quantity.
The meaning of this phrase is far from settled, particularly in the absence of a Standard
Method of Measurement being referred to within the contract.5
4
[1998] All ER (D) 61
5
EC Corbett, FIDIC 4th A Practical Legal Guide, page 344

This method (or principles) of measurement may comprise:
• principles for measurement which are specified in a preamble to the Bill of

Quantities,
• a publication which specifies principles of measurement and which is
incorporated (by reference) into the Bill of Quantities, or
• for a contract which does not contain many or complex items of work,
principles included in each of the item descriptions in the Bill of Quantities.
The FIDIC Guide states that “each item of the Works is to be measured in accordance
with such principles/method of measurement, which takes precedence over the
general principle described in sub-paragraph (a) of this Sub-Clause.” However, there
is nothing which indicates this within the Contract as sub-paragraphs (a) and (b) are
conjoined with the word “and.”
A Bill of Quantities has been defined as: 6
“The product specification that details the operations required to build a

standard construction project. It covers the costs of inputs (labour, materials
and plant), subcontracting, preliminaries and overheads. It also covers
contractor’s profit or loss, architect’s and engineer’s fees and non-deductible
taxes. A bill of quantities is structured to provide a weighted price for each
component specified which, when summed across components, provide the
purchasers’ price for the standard construction project described.”
The Contractor must always take care to verify that the Bill of Quantities contains all
item descriptions of work within the Drawings or Specification. The Bill of
Quantities should have been made up from a detailed analysis of the design
calculations, Specifications and Drawings. The works are then divided into separate
trades or types of activity and a brief description of the activity is then provided.
Quantities are then inserted – these quantities may be either estimated or calculated
precisely. The rates within the Bill of Quantities are often a single rate compounded
from the costs of labour and materials. The rates may not consider all the main costs
incurred by a Contractor such as temporary works. Bills of Quantities have therefore
been criticized 7 as not reflecting real cost in the event that there are changes to the
scope of the works.8 For this reason the British Research Establishment has
developed operational bills which it considers more accurately reflect the real costs.
6
Definition from the Stat Extracts of the Organisation for Economic Co-operation and Development
(OECD)
7
Ian Duncan-Wallace, Construction Contracts: Principles and Policies
in Tort and Contract at paragraph 26-16
8
In contrast John Molloy Civil Engineering Measurement Claims in Hong Kong
http://www.fig.net/pub/fig2007/papers/ts_3g/ts03g_02_molloy_1664.pdf advocated the use of Bills of
Quantity

In England the use of a Bill of Quantities is on the decline with more lump sum
contracts and with the NEC Engineering and Construction Contract using priced-
activity schedules.
The FIDIC Guide suggests that where there are omissions within the Bill of
Quantities, which are discovered during the course of the works, then disputes may
arise as to whether an additional item ought to be included. The FIDIC Guide
suggests that Clause 12 ought to be read as follows:
• If the Bill of Quantities includes (either incorporated by reference or specified)

principles of measurement which clearly require that an item of work be
measured, and if the Bill of Quantities contains no such item, then an
additional Bill item will be required in order to satisfy the requirement for
measurement in accordance with such principles.
• If the Bill of Quantities includes (either incorporated by reference or specified)

principles of measurement which do not clearly require that a particular item
of work be measured, and the work was as described in the Contract and did
not arise from a Variation, then measurement in accordance with such
principles does not require the addition of a new Bill item.
• If the Bill of Quantities does not include principles of measurement for a

particular item of work, and the work was as described in the Contract and
did not arise from a Variation, then measurement in accordance with such
principles does not require the addition of a new Bill item.
12.3 Evaluation
The Engineer is required to agree or determine the value of each item of work,
applying measured quantities to rates and prices in accordance with this Sub-Clause.
The second paragraph confirms that, for each item, the appropriate rate or price shall
be:
(a) The rate or price specified for such item in the Contract; or
(b) If there is no such item, the rate or price specified for similar works.
(c) However, in certain defined circumstances, a new rate or price shall be
specified.
Each of the grounds, as set out above, is looked at individually.
Ground (a)
Sub-Clause 12.3 requires that the parties will start by ascertaining whether there is a
rate or price specified for such item in the Contract. The difficulty comes when

considering the words “specified for such item in the Contract.” The works as set out
in the Specifications and Drawings are therefore valued in accordance with the rates
and prices in the Contract. Additional quantities should also be valued in accordance
with this ground where the work was specified in the Contract. 9
It is less clear when a variation should be valued in accordance with this ground as the
varied work is not work specified in the Contract. It should also be noted that there
are fundamental differences in the wording of FIDIC 4th Red Book clause 52
compared to Sub-Clause 12.3 of FIDIC 1999. Clause 52 of FIDIC 4th Red Book
specified that a ground (a) type evaluation was to be used as a basis for valuing
variations. Sub-Clause 12.3 of FIDIC 1999 is less obvious. However, having regard
to ground (c) below it seems clear that the drafters of this clause intended ground (a)
to be used for valuing Variations and it is the norm that where an Engineer instructs
varied work (for example more piles) and there is a bill item for the particular type of
piles used, then the Engineer will value the work using bill rates.
Ground (b)
Ground (b) applies where there is no specified item for the work in the Contract and
therefore a rate is used for similar work. The FIDIC Guide suggests that in order to
determine whether there is “similarity of work” the Engineer should consider the
description in sub-paragraph 12.3(b)(iii), which refers to similarity in terms of work
being of similar character and executed under similar conditions.
“Similar character” and “similar conditions” are not always easy terms to define.
Where the contract foresees large areas of soil replacement then if, for example, there
are lots of small additional areas where ground improvement works have to be
undertaken this will not fall within ground (b). The works may well be of a similar
character as foreseen in the Contract but will not be carried out under similar
conditions.
There are numerous circumstances which may arise where the Contractor may claim
that works were not carried out under similar conditions. For example, there may be
winter working rather than summer working; night rather than day working; the
discovery of antiquities may change the way the works are executed and so on.
However a change in economic conditions is not considered a change under ground
(b). This issue was considered in Henry Boot Ltd v Alstom Combined Cycles Ltd 10
where Judge Humphrey Lloyd held that:
“The words ‘executed under similar conditions’ do not of course refer to

economic or financial conditions or considerations … Intrinsic profitability or
otherwise of the rate or price is not therefore a relevant consideration to be
taken into account in the application of the principle set out in clause
9
Grinaker Construction (TVL) (PTY) Ltd v Transvall Provincial Administration (1982) S.A.R 78
10
[1999] EWHC Technology 263

52(1)(a)…. The work is not executed under dissimilar conditions simply
because the applicable rate may result in the contractor being paid markedly
more or less than that which might be regarded as ‘fair’, eg more or less than
actual or reasonable cost plus profit and overheads.”
Ground (c)
Ground (c) applies only in specific circumstances. It applies to mitigate the effects of
grounds (a) and (b) if certain criteria are met. Where a contractor submits a global
claim, ground (c) should not be used to value the claim if parts of the claim should be
properly valued under ground (a) or (b). 11
Sub-paragraph (a) specifies four criteria which are applicable without reference to
Clause 13, and a new rate shall only be appropriate if all four criteria are satisfied.
Therefore it is possible for the Contractor to claim a new rate under Sub-Clause 12.3
on the basis of additional quantities. The four criteria are:
(i) The measured quantity of the item of work must be less than 90%, or more
than 110%, of the quantity stated in the Bill of Quantities. This criterion is
consistent with the principle that Bill of Quantities provides only an
estimate – see Sub-Clause 14.1(c).
(ii) When the difference in quantity (namely, the difference between the
Measured Quantity and quantity in the Bill of Quantities) is multiplied by
the rate per unit quantity stated in the Bill of Quantities, the result must be
more than 0.01% of the Accepted Contract Amount. This criterion is
specified in order to avoid adjusting a rate if the adjustment will have little
effect on the final Contract Price.
(iii) The difference in quantity (namely, the difference between the Measured
Quantity and quantity in the Bill of Quantities) must have affected the
"Cost per unit quantity", which is the Cost incurred executing the work
covered by the item, divided by the quantity of the item as measurable in
accordance with the applicable method of measurement.
(iv) The Contract must not have used phrase "fixed rate item" in relation to the
item in the Bill.
If the four criteria are met, the Bill rate would typically be changed in proportion to
such change in Cost per unit quantity which was the direct result of the change in
quantity.
11
Final Award in Case 5634, ICC International Court of Arbitration Bulletin Vol 2, No 1 page 22; and
J. Crosby & Sons Ltd v Portland UDC (1967) 5 BLR 121

Sub-paragraph (b) specifies criteria relating to work instructed under Clause 13,
which includes Variations, work under Provisional Sums, and (possibly) some types
of work valued under the provisions in the Daywork Schedule. In these cases, a new
rate or price will be considered appropriate if there is no Bill rate or price for work of
similar character and executed under similar conditions. In other words where there is
a Variation then evaluation under ground (c) occurs only when the works, the subject
of the variation, cannot be evaluated under grounds (a) or (b). If a new rate or price is
to be assessed, it may be derived from relevant rates and/or prices in the Bill of
Quantities or other appropriate Schedules, and/or from reasonable Costs. Where the
rate is to be built up then this is often termed as a ‘star rate’.
Galliford (UK) Ltd v Aldi Stores Ltd12 illustrates that these provisions of the contract
can have a significant effect on the costs of undertaking the works. In Galliford Judge
Bowsher QC had to consider a claim for additional payment by the Contractor where
it had written £0.00 in its Bill of Quantities for removal of contaminated material. A
variation had been instructed by which the Contractor had to move a significant
quantity of contaminated material. The Employer claimed that the Contractor was not
entitled to recover anything. The court agreed and held that the Contractor could
recover nothing as it had not proven that the works were not carried out under similar
conditions or that there had been a significant change in the quantity of the work.
Similarly, Lord Lloyd, in Henry Boot Construction v Alston Combined Cycles 13 stated
that there were limited exceptions which would allow an Engineer to correct the rates
in a contract. The Engineer could not make a correction just because they were too
high or too low or inserted by mistake. His lordship then stated: 14
“If the Engineer were free to open up the rates at the request of one party or
the other because they were inserted in the Bill of Quantities by mistake, it
would not only unsettle the basis of competitive tendering, but also create the
sort of uncertainty in the administration of building contracts which should be
avoided at all costs.”
However, where the mistake does not reflect the common intention of the parties then
the courts may be able to interpret the contract to remove an ambiguity in drafting or
rectify the contract. The difference between contractual interpretation and
rectification is however important. Lord Neuberger in Marley v Rawlings 15 (a case on
wills) held:
"At first sight, it might seem to be a rather dry question whether a particular
12
[2000] All ER (D) 302
13
[2000] EWCA Civ 99
14
Ibid at page 8
15
[2015] AC 129 at para 40

approach is one of interpretation or rectification. However, it is by no means
simply an academic issue of categorisation. If it is a question of interpretation,
then the document in question has, and has always had, the meaning and
effect as determined by the court, and that is the end of the matter. On the
other hand, if it is a question of rectification, then the document, as rectified,
has a different meaning from that which it appears to have on its face, and the
court would have jurisdiction to refuse rectification or to grant it on terms
(e.g. if there had been delay, change of position, or C third party reliance)."
Rectification is therefore a discretionary remedy while interpreting the contract is

simply finding the true meaning of the parties within the contract. While a DAB can
interpret the contract it is extremely doubtful whether it has the power to rectify a
contract, as this would involve changing the “Contract” as defined at Sub-Clause
1.1.1.1. In contradistinction, when dealing with contractual interpretation the DAB
should seek to ascertain the intention of the parties
“from the language they have used interpreted in the light of the relevant
factual situation in which the contract was made. But the poorer the quality of
the drafting, the less willing any court should be to be driven by semantic
niceties to attribute to the parties an improbable and unbusinesslike intention,
if the language used, whatever it may lack in precision, is reasonably capable
of an interpretation which attributes to the parties an intention to make
provision for contingencies inherent in the work contracted for on a sensible
and businesslike basis." 16
This statement was recently approved by the Supreme Court in Rainy Sky SA & Orsd
v Kookmin Bank. 17
In most cases where there has been an error in the Bill of Quantities then the task will
be one of rectification rather than contractual interpretation. It will however be an
extremely rare case where the courts decide to rectify the Bill of Quantities. 18
12.4 Omissions
Sub-Clause 12.4 must be read alongside Sub-Clause 13.1 and 13.3. As a general principle of
law: a contract for the execution of work confers on the contractor not only the duty to carry
out the work but the corresponding right to complete the work which it contracted to carry
out. To take away or vary the work is an intrusion into and an infringement of that right
entitling the contractor to damages, unless the contract provides for work to be varied or
omitted. … reasonably clear words are needed in order to remove work from the contractor
to have it done by somebody else. It is implicit in most contracts that an employer who
16
Mitsui Construction Co Ltd v AG of Hong Kong [1986] 33 Build LR 1 at 14 per Lord Bridge
17
[2011] UKSC 50
18
See, for example, Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 EGLR 71

exercises a power to omit work must genuinely require the work not to be done at all, and it
cannot exercise such power with a view to obtain having the work undertaken by another at a
cheaper price – see Abbey Developments Limited v PP Brickwork Limited 19 and Stratfield
Saye Estate Trustees v AHL Construction Ltd 20. This is the position within FIDIC 1999; i.e.,
that the Employer can omit work but cannot do so in order to have the work done by another.
It is accepted that an Employer can omit work and have that work done by another
contractor only if there are clear words in the contract. In Multiplex Construction
(UK) Limited v Cleveland Bridge UK Limited and Cleveland Bridge Dorman Long
Engineering Limited21 Jackson J held that: “A variation clause entitles the employer
to omit work which he no longer requires. Absent specific provision to that effect, a
variation clause does not entitle the employer to omit work for the purpose of giving it
to another contractor”.
Where the Employer does omit work and the valuation of that work is not agreed then
Sub-Clause 12.4 is applicable. This provision entitles the Contractor to compensation
for the costs reasonably incurred in the expectation of carrying out work subsequently
omitted. It should be noted that the Sub-Clause refers to "cost" rather than to "Cost."
The Engineer is obliged to determine the cost in accordance with Sub-Clause 3.5 and
the sum determined will be added to the Contract Price.
19
[2003] EWHC 1987
20
[2004] EWHC 3286
21
[2008] EWHC 2220 (TCC) at para 1553
10

Clause 13
Summary
Sub-Clause 13.1 deals with the right of the Engineer to vary the Contract. This
right can be exercised at any time up to the issue of the Taking-Over Certificate.
Sub-Clause 13.2 deals with value engineering and permits the Contractor to propose
a change which will benefit the Employer. The proposal is prepared at the cost of
the Contractor, who designs the change. Sub-Clause 13.3 deals with the procedure
prior to the Engineer instructing a variation. The Engineer may request a proposal
from the Contractor. However, while the Contractor is preparing the proposal it
must proceed with the works.
Sub-Clause 13.4 deals with payment in applicable currencies. Sub-Clause 13.5 deals
with Provisional Sums and ought to be read with Sub-Clause 1.1.4.10 which defines
Provisional Sum as follows:- “a sum (if any) which is specified in the Contract as a
provisional sum, for the execution of any part of the Works or for the supply of Plant,
Materials or services under Sub-Clause 13.5 [Provisional Sums].” The Provisional
Sum can only be used where there is an Engineer’s instruction and the Contractor
receives payment for only the work done to which the Provisional Sum relates.
Sub-Clause 13.6 deals with daywork. This is where work of a minor or incidental
nature is to be carried out. The work is then valued in accordance with the
Daywork Schedule in the Contract or if there is no Daywork Schedule then the
alternative method of payment as prescribed in the Contract.
Sub-Clause 13.7 deals with the Cost arising from changes in the Laws of the
Country which affect the Contractor in performance of his obligations under the
Contract. Where the Contractor suffers delay or additional Cost then it must give
notice under Sub-Clause 20.1 of the Contract. Sub-Clause 13.8 deals with
adjustments for changes in cost. This Sub-Clause only applies where the “table of
adjustment data” included in the Appendix to Tender has been completed. If the
Sub-Clause does apply then the amounts payable to the Contractor for rises and fall
in the cost of the Works are adjusted by a formula.
Origin of clause
The right to vary work was found in Clause 51 of the Red Book 4th edn and 3rd edn.
There are, however, substantial differences. In particular the clarification in Clause 51.2
regarding an increase or decrease in quantities has been omitted from FIDIC 1999. This
is a retrograde step. Sub-Clause 13.2 (Value Engineering) is a new clause – although it
had been included at Sub-Clause 14.2 of FIDIC’s Orange Book. Sub-Clauses 13.3 and

13.6 were found at Clause 53 of the Red Book 4th edn. Once again these clauses have
been substantially changed.
Sub-Clause 13.4 is a new clause, although currency proportions were dealt with at Clause
72 of the 4th edn. Sub-Clause 13.5 has its origins in the 3rd edn of the Red Book and is
found at Clause 58 of the 4th edn. One complaint regarding Clause 58 in the FIDIC 4th
edn was that there was no definition of Provisional Sum; this has been rectified in FIDIC
1999. Sub-Clause 13.7 is similar to Clause 70.2 of both 3rd edn and 4th edn Red Books.
Sub-Clause 13.8 was previously found at Clause 70.1 of the 4th edn Red Book, in a much
simplified form.
Cross-references
References to Clause 13 or Provisional Sum are found in the following clauses:-
• Sub-Clause 1.1.4.10 (Definitions – Provisional Sum);

• Sub-Clause 1.1.6.9 (Definitions – Variations);
• Sub-Clause 3.3 Instructions of the Engineer;
• Sub-Clause 4.11 Sufficiency of Accepted Contract Amount;
• Sub-Clause 4.12 Unforeseeable Physical Obstructions;
• Sub-Clause 5.1 Definition of “nominated Subcontractor”;
• Sub-Clause 5.3 Payments to nominated Subcontractors;
• Sub-Clause 7.4 Testing;
• Sub-Clause 8.3 Programme;
• Sub-Clause 8.4 Extension of Time for Completion;
• Sub-Clause 8.11 Prolonged Suspension;
• Sub-Clause 11.2 Cost of Remedying Defects;
• Sub-Clause 12.3 Evaluation;
• Sub-Clause 14.1 The Contract Price;
• Sub-Clause 14.3 Application for Interim Payment Certificates;#
• Sub-Clause 14.9 Payment of Retention Money; and
• Sub-Clause 14.15 Currencies of Payment.
Sub-Clause 13.1 Right to Vary
This Sub-Clause gives the Engineer the right at any time prior to the issue of the Taking-
Over Certificate to initiate a Variation either by an instruction or by a request for the
Contractor to submit a proposal.
The Contractor is obliged to carry out every Variation unless he cannot readily obtain the
Goods required for the Variation.
2

Variations may include
(a) changes to quantities;

(b) changes to quality or other characteristics;
(c) changes to levels positions or dimensions;
(d) omission of work unless it is to be carried out by others;
(e) any additional work Plant Materials or services necessary for the permanent
Works including tests; or
(f) changes to the sequence or timing of the Works.
The Contractor may not make any alteration or modification of the Permanent Works
unless a Variation has been ordered. The power to vary is an essential part of every
construction contract but the scope of the power to vary differs considerably between
different forms. Sub-Clause 13.1 confers a very wide power and it will only be in
unusual circumstances that the Contractor will not be obliged to follow a variation
instruction.
There is no useful definition of the term “Variation”. The definition in Sub-Clause

1.1.6.9 is not very helpful:
“’Variation’ means any change to the Works which is instructed or approved as a

variation under Clause 13 [Variations and Adjustments]’”
This at least makes it clear that any instruction about the Works not instructed or
approved as a variation under Clause 13 is not a Variation. This has implications when
an Engineer issues an instruction under Sub-Clause 3.3. Sub-Clause 3.3 attempts to deal
with this by stating that
“If an instruction constitutes a variation, Clause 13 [Variations and Adjustments]

shall apply”
Thus it seems that contrary to Sub-Clause 1.1.6.9, a Variation is not only a change to the
Works instructed under Clause 13 but may also be instructed under Sub-Clause 3.3.
For an instruction to amount to a Variation the Contractor must act on it. In Obrascon
Huarte Lain SA v HM Attorney General for Gibraltar 1 the Engineer issued a document
entitled draft fill guidelines, which gave directions about undertaking certain works,
which if implemented would have amounted to a Variation. The Contractor, however,
chose not to act upon the draft fill guidelines when removing contaminated material from
site and dealt with the contaminated material by another accepted method. The Court of
1
[2015] EWCA Civ 712
3

Appeal therefore stated: “Accordingly the issue of the draft fill guidelines did not
constitute a variation instruction.”
In the normal course of virtually every construction contract the Engineer will give
instructions which he wishes to be treated as being entirely within the scope of the
Contract and thus not a Variation. However one of the most common causes of dispute
between the Contractor and the Engineer and the Employer, is the Contractor’s belief or
assertion that this instruction in fact takes him outside the scope of his obligations and is
thus a variation.
Although it is not a standard term, it is very common for Employers to include a

particular condition in contracts which limits the Engineer’s authority to instruct a
variation. If the Contractor is aware of this limitation (as he almost always is) he is not
obliged to follow an instruction which he considers to be a variation unless the Engineer
can demonstrate that he has the required authority to issue it.
One of the most common disputes under construction contracts is where the Contractor
and the Engineer differ on whether a particular instruction is or is not a variation. If the
Contractor considers that the instruction constitutes a Variation he will make an
application for payment on that basis, and, if the Engineer refuses to pay, the issue will
become a matter for dispute. The Contractor is required to follow the Sub-Clause 20.1
[Contractor’s Claims] procedure.
Where, as is common, the Engineer issues an instruction, believing it to be a simple

instruction and not a Variation but it is subsequently shown to be a Variation, but the
Engineer had no authority to do so because of a limitation imposed by a Particular
Condition in the Contract, the Contract provides no clear solution.
The Employer can argue that, under Sub-Clause 13.1, the Contractor is expressly
forbidden from carrying out a Variation unless there is a variation order. Whatever the
Engineer may have done, he did not issue a variation order as that was outside his
authority. The Contractor will argue that he acted in good faith by following an
instruction which, at the time, the Engineer clearly considered to be within his authority.
Indeed at the time the Contractor may not have realised it was a variation.
An example of this is the following:
In a road rehabilitation project a particular condition forbad the Engineer from issuing a
Variation Order without prior approval from the Employer. The design of the project
required the contractor to level the existing seriously degraded pavement and then to
place a well graded capping layer both over any exposed sub-surface material and over
any remaining original pavement. The design assumed that the sub-surface material had

good bearing qualities. Once excavation started it began to become apparent that the sub-
surface material was of very poor bearing quality and that it would be necessary to
replace much of the capping layer with a crushed rock material. Such material was
already specified for soft spots and the Engineer initially ordered greater quantities of the
soft spot material. Eventually this became the main material to be used in place of the
capping material for a large part of the road. In hind-sight it was clear that this amounted
to a variation, but at the time it merely appeared to be an instruction to use one item
rather than another to resolve what initially seemed to be an isolated problem. In reality
there was a Variation, but the Engineer had acted under Sub-Clause 3.3 without being
aware of this and had never sought or received the Employer’s permission.
Thus the Employer was in a position to argue that the Contractor had been obliged not to
carry out the Engineer’s instruction and the Contractor wanted to argue that what was
originally merely an instruction became, because of the accumulation of such
instructions, a variation.
The outcome of such a situation will depend on the law of the Contract but in all
probability the Contractor will succeed regardless of the limitation on the Engineer’s
powers. Under English law the Contractor would argue that, once the Engineer issued
the instruction and repeated it several times without intervention from the Employer, the
Employer would be estopped from denying that there had been a variation. A different
version of this would be that, having become aware of the repeated instructions by the
Engineer without intervening, the Employer had waived his right to rely on the limitation
of the Engineer’s instructions. Under many systems of law the Contractor would succeed
on the basis that to require him to do the extra work would effectively unjustly enrich the
Employer. In other words the limitation on the Engineer’s powers in these circumstances
will be largely ineffective at least in respect of instructions which were not consciously
intended to increase the scope of the Works.
Even in those situations where the Instruction is unambiguously intended to be a

Variation, the Contract is not explicit as to what is required before the Contractor is
entitled to payment or to an appropriate extension of time. There is no special procedure
for payment or extensions of time under Sub-Clause 13.1 and, in the absence of an
exception to the general provision of Sub-Clause 20.1 [Contractor’s Claims] the
Contractor will be required to give notice of claim in order to establish his entitlement to
an extension of time. However this does not apply to the right to additional cost as the
Contractor is not making a claim but is simply entitled to payment for the varied works.
Although the Engineer has power to issue a Variation instruction, the Contractor is not
always bound to obey it. There are not many limits to the Engineer’s power to issue a
variation but we discuss these below (see heading “Scope of Variation”).

Even if the Variation instruction is within the Engineer’s authority under the first
paragraph of Sub-Clause 13.1 there are limits on the Contractor’s obligations to carry out
the Variation. These are set out in the second paragraph of Sub-Clause 13.1:
“The Contractor shall execute and be bound by each Variation, unless the
Contractor promptly gives notice the Engineer stating (with supporting
particulars) that the Contractor cannot readily obtain the Goods required for the
Variation. Upon receiving this notice the Engineer shall cancel, confirm or vary
the instruction.”
To fully understand the implications of this sub-paragraph it is necessary to refer to the

following definitions
Sub-Clause 1.1.5.2 which reads:
‘“Goods” means Contractor’s Equipment, Materials, Plant and Temporary Work

or any of them as appropriate.’
‘”Contractor’s Equipment” means all apparatus, vehicles and other things

required for the execution and completion of the Works and the remedying of any
defects. However Constructor’s Equipment excludes Temporary Works,
Employer’s Equipment (if any), Plant, Materials and any other things intended to
form or forming part of the Permanent Works.
“Materials” means things of all kinds (other than Plant) intended to form or
forming part of the Permanent Works, including the supply-only materials (if any)
to be supplied by the Contractor under the Contract.
“Plant” means the apparatus, machinery and vehicles intended to form or forming
part of the Permanent Works
“Temporary Works” means all Temporary Works of every kind (other than
Contractor’s Equipment) required on Site for the execution and completion of the
Permanent Works and the remedying of any defects.

And
“Permanent Works” means the permanent works to be executed by the

Contractor under the Contract.
It can be seen that the term “Goods” is therefore a very wide one, including not only
materials but also the construction equipment required to carry out a Variation and any
machinery which might need to be installed as part of the Variation. It also includes such
materials and equipment as may be necessary for any Temporary Works associated with
the Variation. If all such Goods are not readily available the Contractor is entitled to
refuse to carry out the Variation. To give such refusal he must serve a detailed notice,
but, having done that he is not required to continue unless the Engineer alters the
instruction so that the Goods, not readily available, are no longer necessary.
The question is therefore what is meant by the expression “cannot readily obtain the
Goods required for the variation.” It is clearly only intended to apply to the situation
where the Contractor does not already have the materials and equipment necessary and
must obtain them. The word “readily” is therefore key. The Oxford dictionary definition
of “readily” is
“without delay, without difficulty”.
Thus the effect is that if any goods, materials or equipment required to be obtained by the
Contractor to carry out the variation are not available immediately and without difficulty,
the Contractor is entitled to give notice that it does not wish to execute or be bound by the
Variation.
The consequence of such a notice is not entirely clear. The Engineer, having received the
notice may cancel, confirm or vary the instruction. If the Engineer chooses to cancel
there is clearly no problem. If he chooses to vary and the Contractor still finds he cannot
readily obtain the Goods, there seems to be no reason why the Contractor cannot again
give notice. However if the Engineer chooses to confirm the instruction, this effectively
means that he is rejecting the Contractor’s assertions and it would seem that in those
circumstances the Contractor is bound to continue and carry out the Variation instruction.
In those circumstances the Contractor will certainly have put the Engineer on notice that
the variation is likely to be costly and/or cause significant delay. Thus if a Contractor has
given notice that it cannot readily obtain the Goods and the Engineer has confirmed the
instruction, the Contractor should immediately give notice under Clause 20.1 (repeating
what it has said in its notice under the present Sub-Clause and adding any additional

relevant information) so as to set the basis for a claim for additional payment and an
extension of time.
It is clear from the above that Variations by instruction are fraught with problems – from
the Employer’s point of view they open up the risk of additional expense outside the
original contract scope and of delay which cannot be readily quantified in advance. From
the Contractor’s point of view they are treated as an ordinary basis of claim and the
Contractor therefore runs the risk of falling foul of the time bar under Sub-Clause 20.1.
Variations are much better dealt with by way of agreement and a procedure which will
hopefully lead to a variation agreement is set out in Sub-Clause 13.3 [Variation
Procedure]. However where the parties cannot reach agreement the procedure of
variation by instruction is essential to the successful completion of all construction
projects.
When the Contractor gives notice under Sub-Clause 20.1, it must do so within 28 days of
the “the event or circumstance” giving rise to the claim. In Obrascon Huarte Lain SA v
Her Majesty's Attorney General for Gibraltar 2 Akenhead J considered when the "event or
circumstance" described in the first paragraph of Sub-Clause 20.1 would arise. His
lordship concluded that there were two dates and stated it “can mean either the incident
(variation, exceptional weather or one of the other specified grounds for extension) or the
delay which results or will inevitably result from the incident in question.” Akenhead J
used the following example. If an instruction for a Variation was issued on 1 June but the
delay caused by the instruction did not occur until November then the Contractor had to
28 days from the date of the delay (i.e. November) to give its Sub-Clause 20.1 notice.
Summary – Variation by Instruction
Because of the interaction of Sub-Clause 3.3 [Instructions of the Engineer] and Sub-
Clause 13.1 [Right to Vary] it is clear that a Variation need not follow a particular format
and that whether or not it is a Variation will depend, not so much on how it is described,
as on what it requires the Contractor to do. The scope and limitations of Variation orders
is discussed in more detail below.
If the Variation is given by instruction, the Contractor will have to give notice under Sub-
Clause 20.1 [Contractor’s Claims] to be granted any appropriate extension of time. It is
preferable for the Engineer/Employer and Contractor to agree on the cost and time
implications of a Variation, rather than for the Engineer to rely on his power to issue a
Variation instruction.
2
[2014] EWHC 1028 at para 312
8

A Contractor may not be obliged to carry out a Variation instruction if he can show that
he cannot easily and quickly obtain the necessary goods, materials and equipment to
enable him to do so.
Scope of Variation
Sub-Clause 13.1 includes a list of items which may constitute a Variation but it does not
attempt an all inclusive definition. It is thus possible that instructions other than those
included within the list in the Sub-Clause might be considered to constitute a Variation.
However, as will be seen below, none of the items in Sub-Clause 13.1 contemplate any
substantial departure from the original scope of the Works. Paragraph (a) allows changes
of quantities, but does not contemplate new items. Paragraph (b) contemplates changes
to quality and characteristics of items but, again not new items. Paragraph (c) simply
deals with topographical changes to the originally contemplated works. Paragraph (d) is
only about omission of work. Although Paragraph (e) refers to additional work this
additional work is limited to that necessary for the originally contemplated Work and
Paragraph (f) again only refers to a change to the sequence or timing of what was
originally intended.
It is therefore arguable in the absence of any other clarification of what is intended by the
word “Variation” in this Contract that the concept of Variation is not intended to allow
the Employer to expand the scope of the Works as originally intended in any significant
way.
This is not an issue which will normally be contentious – Contractors normally welcome
the opportunity to be paid for doing more work – but there are times when additional
work is not welcome. It may be outside the normal capability of the particular
Contractor. The Contractor may have committed his resources to new and more
profitable work with a different employer once the current project is complete. The rates
and prices on the basis of which the varied work will be valued under Sub-Clause 12.3
[Evaluation] may be unprofitable for the Contractor. It would therefore be incorrect for
an Employer to assume that it can simply instruct the Contractor to carry out any work
where the Contractor objects and the work is clearly outside the original scope of the
works.
Under English Law there is probably an implied term, based on the concept of business
efficacy, that instructions should be reasonable and not stray ‘outside the Contract’3. In
3
The International Civil Engineering Contract, I.N. Duncan Wallace QC, Sweet and Maxwell, London
1974, p 97; Thorn v London Corporation (1876) 1 AC 120. At p 127, of the judgment it is suggested that
the Contractor faced with a demand for a variation which is “so peculiar, so unexpected, so different from
what any person reckoned or calculated upon that it is not in the contract at all …” may either refuse to the
do the Work, or demand a new price based on the true value of the Work. See also Blue Circle Industries
9

Thorn v London Corporation 4 it was suggested that where the scope of the variation
could not have been foreseen in the contract then the Contractor could either refuse to
undertake the work or claim a quantum meruit for payment of this work. In the United
States this is referred to as the principle of “cardinal change”. In Luria Brothers &
Company Inc v United States 5 the court held that the ground conditions for the work had
so changed that the Contractor was able to establish that a cardinal change had occurred. 6
However, what one needs to do “is to look at the variation clause in question and
determine, depending on what the variation clause covers, whether the extra or altered
work falls within it or not.”7 In ICS (Grenada) Limited v NH international (Caribbean)
Limited 8 the High Court of Trinidad and Tobago held that an implied agreement to
accelerate the works would not amount to a variation but would be a separate contract.
Dealing with each of the items listed in Sub-Clause 13.1
(a) Changes to the quantities of any item of work included in the Contract
(however such changes do not necessarily constitute a Variation)
In a remeasurement contract it is expected that there will be changes in quantities as the

amounts included in the Bills are always estimates. Thus such changes are not
variations. 9 The changes referred to here can only be those which result from an
instruction. If they are the result of an instruction which is in fact a change to the scope of
the Works they will be a variation. 10 The words in brackets are apparently only there to
re-iterate the normal position that changes in quantities, not the result of a Variation
instruction, are not a variation.
It should be noted that this provision as drafted is wide enough to allow for an omission
of quantities and that, in contrast to sub paragraph (d) below there is nothing to prevent
the Employer omitting a quantity in order to have it carried out by others. It is suggested
that in order to achieve the clear intention set out in Sub-paragraph (d) below, Sub-
plc v Holland Dredging Co Ltd (1987) 37 BLR 40 in which it was said that the varied works must have
some relationship to the current contract works.
4
(1876) 1 AC 120
5
(1966) 369 F 2d 701
6
See further Sergeant & Wieliczko, Construction Contract Variations (2014) Informa Law at paras 5.29-
5.35
7
Supablast (Nationwide) Ltd. v Story Rail Ltd. [2010] EWHC 56 (TCC) at para 31
8
[2004] TTHC 6
9
Grinaker Construction (Transvaal) (Proprietary) Ltd v Transvaal Provincial Administration (1982) 20
BLR 30 and National Highways Authority of India v M/S ITD Cementation India Ltd (formerly M/S Skansk
- OMP 23/2007 [2009] INDLHC 3050. However, see National Highways Authority of India v Som Datt
Builders & ORS FAO(OS)No.427 of 2007 where the High Court agreed that new rates should be used
where there was a serious error within the Bill of Quantities.
10
English Industrial Estates Corporation v Kier Construction Ltd (1992) 56 BLR 93 and Crosby v
Portland UDC (1977) 5 BLR 121.
10

Paragraph (a) should also be read subject to the limitation that there cannot be an
omission of a quantity of an item in order to have it carried out by others. 11
(b) Changes to the quality and other characteristics of any item of work.
This item refers to changes to items which are already included in the Specification and
Bills.
(c) Changes to the levels, positions, and/or dimensions of any part of the
Works
This item does not envisage any change to the general scope as such, only the location
and size of the Works – although these changes may make a significant difference.
(d) Omission of any work unless it is to be carried out by others
This provision is clearly intended to prevent Employers omitting work so as to get it done
more cheaply or better by others. It is thus intended to protect the Contractor’s position.
However it should be noted that under Sub-Paragraph (a) the Engineer can omit
quantities without limitation. It is suggested that Sub-Paragraph (a) should also be read
as being subject to the limitation that an omission of quantities cannot be instructed if the
intention is to have the same work carried out by others. 12
This limitation may turn out to be very burdensome for some Employers. If, for some
reason, a project has over-run its budget the Employer may wish to omit part of the
Works and only return when it has the money to do so. Sub-Paragraph (d) would prevent
this strategy. However if the Employer has realised during the course of the Works that
the design or the working conditions have to be changed, or has decided that it no longer
needs the works this provision may be used.
The omission of works by an Employer who intended to have the works carried out by
other contractors was considered in the case of Abbey Developments v PP Brickwork. 13 In
this case the court stated that provisions allowing for omissions had to be construed
carefully:
“so as not to deprive the contractor of its contractual right to the opportunity to complete
the works and realise such profit as may then be made.... The basic bargain struck
between the employer and the contractor has to be honoured, and an employer who finds
that it has entered into what he might regard as a bad bargain is not allowed to escape
from it by the use of the omissions clause so as to enable it then to try and get a better
11
See the “purpose test” as set out in Abbey Developments v PP Brickwork [2003] CILL 2033, TCC
12
See Partial Award in Case 13258, ICC International Court of Arbitration Bulletin Vol 23, No 2 page 88
13
[2003] CILL 2033, TCC
11

bargain by having the work done by somebody else at a lower cost once the contractor is
out of the way...”
Judge Lloyd QC in Abbey Developments then posed the following question: "What
purpose did the contract envisage?" His Lordship stated:
“In my judgement,... the purpose of a variations clause is to enable the employer

to alter the scope of the works to meet its requirements. As a project proceeds it
may become clear that some change of mind is needed to attain the result now
desired. That might be... for some other reasons such as lack of money. The test
must therefore be whether the variations clause is or is not wide enough to permit
the change that was made. If, with the advantage of hindsight, it turns out that the
variation was not ordered for a purpose for which the power to vary was intended
then there will be a breach of contract.”
The above principles were subsequently approved by Jackson J in Trustees of the

Stratfield Saye Estate v AHL Construction Ltd14 and again in Multiplex Constructions
(UK) Ltd v Cleveland Bridge UK Ltd & Anor. 15
There is similar authority in Australia which restricts the right of the Employer to omit
works so as to give it to another contractor: Carr v J.A. Berriman. 16 In Commissioner for
Main Roads v Reed & Stuart, 17 the High Court of Australia followed the court’s
reasoning in Carr v J.A. Berriman stated that the variation clause:
“permits the omission from time to time by the proprietor of portion of the
contract works. What it clearly enough does not permit is the taking away of
portion of the contract work from the contractor so that the proprietor may have it
performed by some other contractor.”
The principle that an omissions clause does not permit an Employer to omit work simply
to give it to another contractor is also applicable in the United States. In
Gallagher v Hirsh, 18 the court interpreted the word "omissions" contained in a variations
clause and concluded that:
“It is evident that under the word ‘omissions’ were intended to be included these
things which were abandoned and left out of the plaintiff's contract and not such
as were taken out of the plaintiff's contract and given to another to perform. The
word ‘omission’ did not mean omitted from the plaintiff's contract, but omitted
14
[2004] EWHC 3286
15
[2008] EWHC 2220
16
[1953] 89 CLR 327
17
[1980] 12 Lloyd's Rep. 55
18
45 N.Y. App. Div. 467 (1899)
12

from the work; and clearly could not be construed to have allowed the defendant
to take two-thirds of the work from the plaintiff and then compel him to perform
the rest.”
(e) Any additional work, Plant, Materials or services necessary for the
Permanent Works, including any associated Tests on Completion,
boreholes, testing and exploratory work.
This provision is limited to additional work etc “necessary for the Permanent Works” –
i.e. for what was originally contemplated under the Contract. In other words, although
this item refers to “additional work” it does not mean anything which changes the
original concept of the Permanent Works.
(f) Changes to the sequence or timing of the execution of the Works
Like the earlier items listed above this item does not contemplate anything substantially
different to the originally contemplated Works. The sequence or timing of the Works is
normally under the control of the Contractor. The sequence and timing of the execution
of the Works will have been set out in the Programme provided by the Contractor under
Sub-Clause 8.3 [Programme] and the Contractor is required under Sub-Clause 8.3 to
proceed in accordance with the Programme it submits. Thus it appears that the purpose
of this provision is simply to allow the Engineer to require the Contractor to alter the
elements of its programme which relate to sequence and timing. “Timing” in Sub-Clause
8.3 does not refer to the speed at which the Contractor carries out his work but to the
dates on which various events are to take place. However a change to timing could in
some circumstances mean that the Works have to be carried out more quickly. Thus a
Variation instruction under (f) could have the effect of requiring the Contractor to
accelerate or slow down and of course to complete parts of the work at times it had not
originally intended. However paragraph (f) does not state that the Engineer can use his
power of instructing a Variation to change the Time for Completion – only the sequence
and timing of the Works in the interim. It can thus be said that the Engineer does not
have the power to order the Contractor to accelerate as a Variation, though the effect of
ordering a change to sequence or timing may have much the same effect.
Any instruction under (f) will inevitably lead to a need to change the programme and,
following such an instruction the Engineer should also issue an instruction under the last
paragraph of Sub-Clause 8.3 requiring the Contractor to submit a revised programme.
Sub-Clause 13.2 – Value Engineering
13

The Contractor has the right to submit proposals for variations which may accelerate
completion, reduce the cost either of completing the Works or of their ultimate
maintenance or operation, improve the efficiency or the value of the Works or otherwise
benefit the Employer.
The proposal is provided at the Contractor’s cost and must include a description of the
proposed changes and a programme, details of any modifications necessary to the pre-
existing programme and the Time for Completion and the proposed payment.
If the proposal requires a design change, then, unless otherwise agreed, the new design
will have to be prepared by the Contractor.
If the change reduces the contract value, the engineer will determine a fee to be payable
by the Employer to the Contractor. The fee will be 50% of the benefit which the
Employer derives from the variation.
The intention of this provision is to encourage Contractors to apply their knowledge and
experience to the benefit of both themselves and the Employer. A Contractor may
benefit in two ways from a variation it proposes. It may benefit because its costs of
production are reduced but the Employer receives a product which is as good as that
originally designed. Alternatively it may find a way in which it increases the value of the
final product to the Employer without incurring additional costs.
If the Employer accepts a proposal which reduces the Contractor’s cost of production
without impacting on the quality of the product received by the Employer, no adjustment
is to be made to the contract sum.
Similarly, if the proposal results in increased value to the Employer, and either reducing
or without increasing the Contractor’s cost of production, there is no adjustment to be
made.
It is only where the reduced production cost is also matched by a reduction in final value
or no change to the final value to the Employer that an adjustment has to be made. In that
case the Engineer is required to make a determination under Sub-Clause 3.5 of the
reduction in value to the Employer. If the reduction in value is less than the reduction in
cost to the Employer, the benefit is split 50/50. Strangely the formula does not take
account of the possible situation where there is a reduction in cost but an increase in
value – one of the main purposes of value engineering.
The provision is thus a rather limited one. It does not provide for any incentives for
schemes which increase the value to the Employer, only for those which reduce the value
to the Employer by less than the reduction in the cost to the Employer. Clearly an
employer is likely to be pleased if its contractor develops an idea which increases the
14

value of the Works, without increasing the cost. Many Employers will be happy even if
there is a lower increase in cost than the increased value. However the Sub-Clause does
not provide for any fee to be paid in these cases and thus there is no built-in incentive for
Contractors to take the risk of making such a proposal.
It is also unlikely that, even in return for a reduced cost, Employers will be interested in a
proposal which will reduce the value of the works.
Thus the only situation in which the Employer has a real incentive to accept such a
proposal and pay a fee is where the Contractor proposes a method by which costs can be
reduced without any reduction in value of the final product.
Should a Contractor believe that it can produce a proposal which increases the value of
the works at no cost or at a cost significantly less than the increase in value, it would need
to persuade the Engineer and the Employer in advance to agree to a sharing of any
benefits it can demonstrate. Similarly if the proposal would produce an intangible benefit
– such as early completion – there is no clear mechanism built into the contract and this
would have to be agreed before the Contractor made the effort to produce a proposal.
If the Contractor has a proposal which would reduce its costs without reducing the value
to the Employer, the Employer has no incentive on the strict wording of the Sub-Clause
to accept it. However, the Contractor may be able to persuade the Employer to consider
such a proposal if it is prepared to share the benefits with the Employer.
To assess the fee due to the Contractor under the Sub-Clause, the Engineer has to
establish any reduction of the contract value and the value to the Employer, taking into
account any reductions in quality, anticipated life or operational efficiencies. The
assessment of the reduction in the contract value may be more difficult than appears at
first sight. The Contract will originally have been entered using an Employer’s design,
but the Contractor’s proposal will be based on the Contractor’s own design. The
Engineer may have difficulty establishing a new value as it may not be possible to apply
bill rates in order to reach a new value. Similarly the assessment of the final value to the
Employer is a difficult task, because it requires the Engineer to look into the future –
what changes will there be to quality? How will the life expectancy be effected and so
on? The supervising Engineer will have had no design responsibility up to this stage and
may not even be qualified to make such assessments. This is clearly a complex task and,
from the point of view of the Contractor, not easily predictable and often arguable.
Further as will be seen in the discussion below of Sub-Clause 13.3 [Variation
Procedure], the Contractor, having made his proposal may be forced to implement it even
if he is not happy with the Engineer’s determination of a fee.
Sub-Clause 13.3 Variation Procedure
15

This Sub-Clause supplements Sub-Clauses 13.1 and 13.2 to deal with those Variations
where the Engineer has not instructed a variation.
Where the Engineer has requested the proposal the Contractor is entitled to reply by
advising why he cannot comply with this request (if this is the case) or by submitting
• a proposal setting out the work proposed and a programme,

• any necessary modifications to the programme,
• his price proposal
The Engineer is required to respond as soon as practicable with approval, disapproval or

comments.
The Contractor is not permitted to delay any work (i.e. work other than that included in
the variation proposal request) while awaiting a response.
The Engineer then may issue the Contractor an instruction to execute the Variation. Such
instructions may include requirements for the Contractor to record his Cost. The
Contractor is required to acknowledge receipt.
The rules set out in Clause 12 [Measurement and Evaluation] will be applied for the
evaluation of the Variation unless the Engineer has instructed or agreed another price.
The Contract does not indicate any preference as between Variations by instruction or by
proposal, followed by agreement or instruction. From a project management point of
view the latter course is obviously preferable as it allows the project to proceed without
uncertainty as to the cost or need for extension of time.
The Engineer is required to make a request in order to set this procedure in motion. A
request is not the same thing as an instruction. The FIDIC Guide states that while a
Contractor is obliged to comply with an instruction (Sub-Clause 3.3 [Instructions of the
Engineer]) it is not obliged to comply with a request. Indeed the Guide recommends that
the Engineer make it very clear that he is merely making a request. The Engineer should
specifically use the word “request” when he makes his written approach to the
Contractor. The Guide suggests that if the word “instruction” is used, or if there is any
ambiguity, the Contractor may be able to argue that the instruction is itself a variation, for
which the Contractor would be entitled to be paid.
If a request is not binding the Contractor would, in the absence of any other wording in
the Sub-Clause be entitled not to respond. The Sub-Clause, however, places a positive
obligation on the Contractor to respond either by giving reasons why he cannot comply
with the request, or by making his proposal. Thus it would appear that while the
16

Contractor is not contractually obliged to respond to the request, it is obliged to explain
why it cannot respond. Unless the Contractor is entitled to say he cannot respond
because he does not wish to, the final result seems to be that, contrary to the guidance
given in the Guide, the Contractor is not entitled to ignore the request and must at the
very least give a good explanation as to why he does not intend to respond.
The Sub-Clause does not spell out what might be good reasons for the Contractor to
refuse to reply. The reason for not complying with a variation given in Sub-Clause 13.1
(cannot readily obtain the Goods), would be one justifiable reason not to respond to the
request – there is not much point in responding to a request if, once the Contractor gave a
proposal he was entitled to refuse the consequential variation instruction. However what
is in issue here is the Contractor’s ability to respond to the request, not to carry out a
Variation which might eventually follow. Thus it would be a good reason not to comply
with a request if it were too vague. Arguably, also the Contractor would be entitled to
refuse if he did not have the staff resources to respond. The response is broken into three
elements and the Contractor would also be within his rights to respond to part of the
request but not to other parts – again providing reasons why he cannot respond to the
other parts.
In some circumstances the Contractor may be in breach of Contract by not responding, by

giving inadequate reasons for not responding, or (not having given reasons why he cannot
respond) by submitting a response which does not cover all the elements that the Sub-
Clause require. However in view of the Guidance stating that the Contractor is not
obliged to respond to a request, an Engineer should be very careful before taking the only
remedial action open to him – the issuance of a Notice to Correct under Sub-Clause 15.1
The Engineer, faced with a refusal to respond or an inadequate response still has the
option to go ahead with a Variation by instruction under Sub-Clause 13.1, and it is
suggested that this is the wisest approach for him to take in the absence of co-operation
by the Contractor.
The Contract does not indicate whether the Contractor should be paid for his work in
preparing a proposal – the costs can be substantial. The FIDIC Guide explains (not very
helpfully):
“Since the Contractor’s obligation to comply with a request is limited to such an

explanation [i.e. why he cannot respond] and/or to the listed documents, he is not
stated as having any entitlement to payment. He may be unwilling to incur much
Cost, such as by undertaking detailed design, for the purpose of complying with
the request. Typically, those preparing an offer are not paid for doing so, but
payment may be appropriate if detailed design is involved.”
17

The information which the Contractor is required to provide includes a description of the
proposed varied work and a programme. This requirement for a programme relates only
to the variation itself and is not cross-referenced to Sub-Clause 8.3 [Programme] and it is
thus unclear whether the Contractor is obliged to provide a method statement and details
of resources. Clearly such information is important to enable the Engineer to evaluate the
proposal, so the Contractor would be unwise not to include such information. However if
the Contractor is not enthusiastic about the prospect of carrying out the variation, this
lack of clarity in the wording may provide him with an opportunity to disrupt the process
by giving the Engineer less information than he needs. However the Contractor is also
required to provide modifications to the Sub-Clause 8.3 Programme (i.e. the programme
for the whole of the Works) and this may to some extent ensure that the necessary
methodology and resource information is provided.
The Contractor is also required to submit its proposal for the evaluation of the Variation.
This goes further than simply a proposed price for the Variation. Evaluation is a process
(see Sub-Clause 12.3 [Evaluation]) and the Contractor should provide the Engineer not
only with its final price but with its proposal as to how the Engineer should reach this
figure based on the Sub-Clause 12.3 methodology.
The Sub-Clause provides that the Engineer should respond as soon as practicable.
Although this does not set a time limit, it clearly requires prompt action. The amount of
time may depend on the amount of documentation, the complexity of the proposal and the
extent to which the Employer needs to be consulted. The obligation to respond as soon as
practicable may be important for the Contractor because the methodology, resourcing and
evaluation may change with time. The Contractor would be wise to place a time limit for
the validity of its information, although this may not prevent the Engineer taking too long
to evaluate the proposal.
The Engineer’s response may be approval, disapproval or comments. If the Engineer

does not approve and either issues a disapproval or makes comments which do not lead to
agreement on a proposal, there is no reason why the Engineer should not proceed with a
Variation on terms he considers appropriate by issuing a variation.
The Contractor is obliged not to delay any work whilst awaiting a response. This refers
to work other than that included in the requested or proposed Variation. However if the
request or proposal is expected to require changes to work which is already under way
and a Variation is probable, it will almost certainly be to the Employer’s advantage to
delay carrying out work which would otherwise later have to be removed or altered. The
Contractor is entitled (in fact required) to proceed with this work. Thus, if the Variation
is later instructed, the Contractor will be entitled to be paid for the expense of removing
any unnecessary work and given an appropriate extension of time for any delay caused by
the removal. It follows that the contractual obligation placed on the Contractor not to
delay other work while waiting for a variation instruction effectively places an obligation
18

on the Engineer (a) to act quickly and (b) if necessary to take steps to mitigate losses to
the Employer by suspending work under Sub-Clause 8.8 [Suspension of Work].
Sub-Clause 13.4 Payment in Applicable Currencies
Where the Contract provides for payment in more than one currency the amounts payable
in each currency for any variation shall be set out in the variation. The way in which the
payment is apportioned shall be by reference to the actual or expected currency
proportions of the Cost of the varied work and the proportions of various currencies
specified for payment of the Contract Price.
This Sub-Clause sets out two tests for determining the proportions of currency for
payment for Variations. The first is by reference to actual Cost and the second is by
reference to the proportions in the Contract Price. These two methods may not be
consistent. The discretion as to how to resolve any inconsistency is left entirely to the
Engineer.
Since this Sub-Clause does not cross refer to Sub-Clause 3.5 [Determinations] there is no
obligation on the Engineer to consult with the parties or to make a fair determination.
Thus if the Contractor is dissatisfied he will be obliged to make a claim within 28 days
under Sub-Clause 20.1 [Contractor’s Claims]. This would be on the basis that the choice
of currencies reduces the effective amount due to him and he is entitled to an additional
payment. Sub-Clause 2.5 [Employer’s Claims] would not seem to apply to Employers’
equivalent issues as it only applies where the Employer considers himself entitled to a
payment. The Employer’s only recourse will therefore be direct to the DAB under Sub-
Clause 20.4 [Obtaining Dispute Adjudication Board’s Decision].
Sub-Clause 13.5 Provisional Sums
Provisional sums are only to be used when, and to the extent, instructed. Depending on
the particular purpose of the Provisional Sum, the Engineer may either instruct the work
to be executed by the Contractor and valued under Sub-Clause 13.3 [Variation
Procedure]; and/or instruct the Contractor to purchase the relevant Plant, Materials or
services from a nominated Sub-contractor and then include in the Contract Price the
actual amounts paid (or due) and overhead charges and profit. Overhead and profit
should either have been agreed in the Contract for the particular item or should have been
included in the Appendix to Tender. The Contractor is required to produce proof of his
costs if asked.
The term “Provisional Sum” is defined in Sub-Clause 1.1.4.10 by cross-reference to Sub-

Clause 13.5. This definition does not add anything to the meaning of the present Sub-
Clause.
19

A Provisional Sum will be included in the Contract because, at the time the Contract is
awarded, the Employer has not yet decided whether or not to instruct the Contractor to
carry out the work which it covers. This may be because the relevant work is not already
designed or because the Employer is not sure whether he wants, needs, or can afford it. It
will be entirely at the discretion of the Engineer or Employer whether the work is
instructed, but the Contractor will be obliged to carry out the work, if so instructed.
An instruction to carry out work covered by a Provisional Sum is therefore not equivalent
to a Variation, though it may have a similar effect on the Contractor’s progress and will
obviously lead to additional payment. In the English case of Midland Expressway Ltd v.
Carillion Construction Ltd 19, the Court of Appeal provided a definition of what a
“provisional sum” was:
“The term “provisional sum” is generally well understood in the construction

industry. It is used in pricing construction contracts to refer either to work which
is truly provisional, in the sense that it may or may not be carried out at all, or to
work whose content is undefined, so that the parties decide not to try to price it
accurately when they enter into their contract. A provisional sum is usually
included as a round figure guess. It is included mathematically in the original
contract price but the parties do not expect the initial round figure to be paid
without adjustment. The contract usually provides expressly how it is to be dealt
with. A common clause in substance provides for the provisional sum to be
omitted and an appropriate valuation of the work actually carried out to be
substituted for it. In this general sense, the term “provisional sum” is close to a
term of art but its precise meaning and effect depends on the terms of the
individual contract…..
Provisional Sums and Programming
As stated in Midland Expressway v Carillion a provisional sum may “refer either to work
which is truly provisional, in the sense that it may or may not be carried out at all, or to
work whose content is undefined, so that the parties decide not to try to price it
accurately when they enter into their contract.” A question therefore arises - if a
Contractor does not include any time within his programme for Provisional Sum works
then will he be entitled to an extension of time when the Engineer instructs the expenditure
of the Provisional Sum? The issue was briefly considered in FIDIC 4th A Practical Legal
Guide.20 The conclusion reached was that the wording was uncertain and that there was
considerable doubt whether a claim for an extension of time would succeed. It was stated
that the expenditure of a Provisional Sum does not fall comfortably within any of the
19
[2006] EWCA Civ 936
20
EC Corbett, FIDIC 4th A Practical Legal Guide, (1991) Sweet and Maxwell London at pp. 350 - 351
20

categories of variation listed and, as stated by EC Corbett, “it was not the intention of the
draftsmen that provisional sum work should fall within ‘varied work’.”
Other commentators concur that because there is no provision in Sub-Clause 8.4 of

FIDIC 1999 (extensions of time), which expressly deals with Provisional Sums, the
presumption must be that the Contractor takes the programming risk. 21 This conclusion
is supported by the wording of Sub-Clause 4.11, which states: “Unless otherwise stated in
the Contract, the Accepted Contract Amount covers all the Contractor’s obligations under
the Contract (including those under Provisional Sums, if any) and all things necessary for
the proper execution and completion of the Works and the remedying of any defects.” (our
emphasis). “All the Contractor’s obligations” includes the obligation to complete by the
Time for Completion.
However, this is not to say that when a Provisional Sum is exceeded the Contractor is
without a remedy. A Contractor cannot programme for works which are not foreseen. If
the scope of the work increases so that a Provisional Sum of say £5 million becomes £12
million then this should entitle the Contractor to an extension of time under Sub-Clause
8.4(a). In the case of Forest Heath DC v ISG Jackson Ltd 22 an adjudicator considered
that such an increase in the quantities of a provisional sum item may entitle the
Contractor to an extension of time if delay could be proven. 23 Ramsey J in the TCC did
not disagree with this conclusion. The Red Book Guide endorses this view. It states:
Provisional Sums are defined as any sums specified in the Contract as provisional
sums, so the Engineer or Employer cannot add new Provisional Sums (by
Variation or otherwise). Also, Sub-Clause 13.5 refers to each Provisional Sum
being used "in whole or in part", but not in excess, so the Engineer or Employer
cannot increase the amount of a Provisional Sum (by Variation or otherwise).
Under [the Red Book], if the amount stated in a Provisional Sum is exceeded, the
Contractor must still comply with the Engineer's instructions which he received
under sub-paragraph (a) and/or (b), but he may not be bound by the financial
consequences under this Sub-Clause in respect of the excess.
Furthermore if the expenditure of the Provisional Sum arises because of an event that
gives rise to an entitlement to an extension of time under the Contract then there should
be no good reason why the Contractor would not be awarded an extension of time. For
example, the Provisional Sum may be included to deal with expenditure on ground
conditions or utilities. In such circumstances, if a delay is caused because of
unforeseeable physical conditions or delays by the utility provider then there is no reason
why the Contractor should not claim an extension of time.
21
James Doe, Who Holds the Programming Risk, Construction Law , January 2008, page 7
22
[2010] EWHC 322 (TCC)
23
Although this case did not deal with a FIDIC form of contract the principle should equally apply.
21

A Contractor should give notice if it considers the works will be delayed in the absence
of an instruction from the Engineer relating to the provisional sum. The Contractor
should advise the Engineer when it needs the instruction and such other information as
prescribed buy Sub-Clause 1.9. In this way the Contractor can then claim an extension of
time in the event that the instruction of the Provisional Sum is made after this date.
Provisional Sums - Defined or Undefined
The FIDIC forms of contract do not make any distinction between defined and undefined
work. This is a concept which is used in other forms of contract and at General Rule 10.4
of the Standard Method of Measurement, 7th Edition (SMM7). If SMM7 is incorporated
into the FIDIC Red Book contract then the following would apply: ‘where Provisional
sums are given for defined work the Contractor will be deemed to have made due
allowance in programming, planning and pricing preliminaries’.
General Rule 10.6 of SMM 7 states that the Contractor is deemed to have made no such
allowance for undefined work. It is therefore important to understand the categorisation
of ‘defined’ and ‘undefined’ Provisional Sums. A Defined Provisional Sum is a sum of
money intended for elements of the Works which have not been sufficiently designed but
where there is certain defined information available. In order to be ‘defined’ provisional
sum the following information has to be included in the Bill of Quantities:
(a) The nature and construction of the work.
(b) How and where the work is to be fixed.
(c) Quantities showing the scope and extent of the work.
(d) Limitations and the like identified in Section A35 of SMM 7 on the method of
construction, sequence and timing
If this information is not included, the Bills of Quantity should describe the provisional
sum as ‘undefined’. When instructions have been issued regarding the expenditure for
undefined Provisional Sums then the Contractor will be entitled to an extension of time if
the work instructed has delayed completion of the Works.
Although an instruction to use a Provisional Sum is not treated as being similar to a

Variation for extension of time purposes, for valuation purposes a Provisional Sum is
treated in the same way as a Variation under Sub-Clause 13.3 [Variation Procedure].
Sub-Clause 13.3 simply says that the evaluation is to be carried out in accordance with
Clause 12 [Measurement and Evaluation]. Thus if the Provisional Sum is explicit about
22

the rate or price to paid for the work, this is the rate to be applied, but otherwise one of
the other methods set out in Sub-Clause 12.3 [Evaluation] will have to be applied. It is
therefore good practice to ensure that the price for Provisional Sum includes details of the
amount to be paid for any discrete elements within it. As will be seen from the following
paragraph, this means that in some circumstances a Provisional Sum does not in fact
place a cap on what is to be paid for the works when they are instructed.
If the Provisional Sum is not fully costed in advance and particularly if it is to be used to
pay suppliers or subcontractors nominated by the Employer, it is clearly possible that the
amount set aside will be exceeded. There is a question then as to whether the Employer
or the Contractor takes this risk. As with the programme effects of Provisional Sums, a
lot will depend on the nature of the intended use of the Provisional Sum. If the work
required is very clearly set out in the description of the Provisional Sum and does not
change, the pricing mechanism under Sub-Clause 12.3 [Evaluation] should produce the
result that the Contractor will not be entitled to additional payment. However if there is
only a rather vague description set against the Provisional Sum in the original Bill item,
the Sub-Clause 12.3 process will require the Engineer to determine a price based on
actual cost or on the basis of analogous items in the Bill of Quantities and there is no
reason why this should not turn out to be higher than that originally included. As with
the programming implications of Provisional Sums, this means that, when using
Provisional Sums, the price implications need to be carefully thought through in advance.
Provisional Sums and Omissions
A question arises as to whether a Provisional Sum can be said to form part of the Works
so that in the event that the Employer terminates the contract for convenience he could
then carry out the works which were the subject of the Provisional Sum himself. On one
view, as the Provisional Sum can only be expended on the Instruction of the Engineer, it
cannot, until that time, be said to form part of the Works. The contrary view is that “if
the provisional sum is inserted in the contract for special works, it would seem that the
works cannot be omitted and given to another contractor without rendering the employer
liable for damages for loss of profit.” 24 There appears to be no clear answer to this
question.
Sub-Clause 13.6 Daywork
This Sub-Clause only applies if a Daywork Schedule is included in the Contract and to
minor incidental work. In that case a Variation can be instructed on the basis that is paid
for in accordance with the Schedule. Goods may not be ordered until the Contractor
submits quotations to the Engineer. The Contractor must submit proof of payment before
being paid. The Contractor is required to deliver a daily breakdown in duplicate listing
24
Som Mandal and Pooja Dood, FIDIC An Analysis of International Construction Contracts, Kluwer Law
International
23

all items for which payment is due and including details of the personnel used, equipment
and temporary Works used and the quantities used. The Engineer signs off on one copy.
The Contractor then prices the resources and includes the cost in his next Interim
Payment Certificate.
Unlike the previous Sub-Clause, this is a true Variation provision. Its main effect is to
provide for an alternative method of valuation, instead of that in Sub-Clause 12.3
[Evaluation]. It does not provide for a method of payment except where such a variation
is ordered.
The FIDIC Guide suggests that the Daywork Schedule should contain the following:
(a) a time charge rate for each person or category (money per person per
hour, for example),
(b) a time charge rate for each category of Contractor's Equipment (money
per hour per item, for example), and
(c) the payment due for each category of Materials. This is usually on a basis
similar to that described in Sub-Clause 13.5(b). However, for some Materials (for
example, natural Materials and Materials manufactured on Site), it may be
appropriate to provide items for pricing on a money per unit quantity basis.
The Sub-Clause specifically contemplates that some dayworks items may not be the
subject of separate payment (presumably their cost is incorporated into one of the other
rates). Thus it is important that, if this is intended, the Dayworks Schedule list those
items for which no payment is to be made.
However, although the Sub-Clause does not come into effect unless a Daywork Schedule
has been included in the Contract, there is nothing in it to say that work not listed should
not be paid for. The Sub-Clause does not spell out how such work is to be valued. It is
suggested that if there are items of work necessary for the carrying out of the Dayworks
Variation which are not priced in the Dayworks Schedule, they should be valued in
accordance with the general principles set out in Sub-Clause 12.3 [Evaluation] as they
would be if this were any other variation.
13.7 Adjustments for Changes in Legislation
The Contract Price is to be adjusted for increases or decreases in Cost resulting from
changes to the law in the country where the works are being carried out. Changes to law
include not only new laws or modifications to old laws but changes of interpretation.
Adjustments will be made where the changes have taken place after the Base Date and
where they affect the Contractor in the performance of the Contract.
24

Where the Contractor is affected by a change in Law he is required to give notice to the
Engineer and may be entitled to an extension of time and/or Cost. The Engineer
determines the compensation either case in accordance with Sub-Clause 3.5
[Determinations].
In two respects, this provision is more limited than appears at first glance.
a. Although the Contractor may be entitled to both an extension of time and

to Cost, he will only be entitled to the extension of time if he can show that his
Costs have increased.
b. The provision is limited to changes of law in the Country where the Works
are being carried out. In an international project, the Contractor is as likely to be
affected in another country as in the country where the Works are actually being
taken place – much of the manufacture may be taking place off shore and
materials and labour may well be being procured elsewhere. There is thus an
arbitrary distinction between changes in the Country of the Works and changes in
other countries.
However in another respect, depending on the legislative system in the Country of the
works, the provision may be wider than it appears at first glance. In many countries
prices and wages are to some extent determined by law or decree, so some increases in
Cost may as a result be recoverable.
In these circumstances there may be a risk of double counting as a result of the provisions
of Sub-Clause 13.8 [Adjustments for Changes in Cost]. Sub-Clause 13.8 may, for
example provide for an adjustment to take into account an increase in wages or fuel – yet
the price of these may both be controlled by legislation. If an index for an item whose
increase is a result of changes in law is included under Sub-Clause 13.8, the Employer
should be able to argue that, though the Contractor may have suffered Cost as a result of
this change in law, such Cost is not in fact additional Cost as he has an entitlement to
recover under Sub-Clause 13.8. However if there is no indexing of a particular item
affected by the Change in Legislation, this Sub-Clause will apply
Base Date is defined in Sub-Clause 1.1.3.1 as the date 28 days prior to the latest date for
submission of the Tender.
The definition of Laws in Sub-Cause 1.1.6.5 is very wide – covering all national (or state)
legislation, statutes, ordinances and other laws, and regulations and by-laws of any
legally constituted public authority. However it is not so wide as to cover changes in law
which affect the Country, even though they are not made in the Country. An example
would be a sanctions regime imposed on nationals of a particular country working in the
25

Country in which the Works are being carried out. Although such sanctions may lead to
increased costs and or delay, they are not compensable under this Sub-Clause. The
Contractor affected by sanctions and other similar external changes of law, will need to
consider whether he has a claim based on Clause 19 [Force Majeure]. In an extreme case
a Clause 19 [Force Majeure] claim may also be a more appropriate basis for a claim by a
Contractor affected by domestic changes of legislation.
In some extreme cases governments have resorted to legislation to prevent a contractor

continuing its works. One of the most notorious is the case known as the “Pyramids”
case 25 in which the Government of Egypt passed legislation which effectively prevented
the contract being carried out. The construction company, victim of this change of
legislation engaged in years of creative arbitration in which it tried to argue that the
Government as owner of its Employer should be able to be joined as a party in arbitration
and be subject to a claim for damages. The Contractor was unsuccessful because of the
nature of the State ownership of the Employer, but the principle was established. Since
then the courses open to a Contractor affected by State interference in its contracts (not
merely by changes of the law) has been made easier as a result of the conclusion of
Bilateral Investment Treaties (“BIT’s”) between many countries. Under these treaties
foreign contractors are treated as “investors” and are entitled to protection against
discriminatory treatment and against state action which has the effect of expropriating
some of their rights. Many treaties also bind States to abide by the terms of their
contracts with foreign investors and may in some circumstances provide an alternative
means of redress where the State is the Employer. 26 Under most BIT’s the investor has
the right to make a claim directly against the states party to the treaty. Sub-Clause 13.7
gives substantially equivalent rights with one serious limitation. The Contractor is
entitled to its Costs but not to loss of profit.
Sub-Clause 13.8 Adjustments for Changes in Cost
This provision only has effect if the Parties establish a table of adjustment data in
accordance with it. The table is to be included in the Appendix to Tender. Once applied
the Sub-Clause entitles the Contractor to an adjustment to all amounts paid to it to take
into account rises or falls in the cost of Labour, Goods and other inputs to the Works.
The Sub-Clause sets out a formula which will be the basis for such calculations. Even if
there are rises or falls in Costs which are not covered by this or other Clauses, the
Contract Price will not be altered.
25
SPP (Middle East) Ltd, Southern Pacific Properties Ltd., v Arab Republic of Egypt General Company for
Tourism and Hotels ICC Award 2493 and subsequent decisions of the Paris Cour d’Appel (1984) 23 ILM
1048 and the Cour de Cassation 6 January 1987, (1987) 26 ILM 1004.
26
The texts of Bilateral Investment Treaties are available at
http://www.unctadxi.org/templates/DocSearch____779.aspx and for contractors working internationally it
is worth checking whether their home country and the country they are working in has a BIT.
26

The table generally lists a number of items included in the Contract and the Contractor
proposes an index for each item and a base cost. These are then totalled to produce an
overall index which is applied to all prices when changes have to be made.
The index does not have to be calculated in the currency in which payments are to be
made, but if it is calculated in another currency, that currency has to be converted into the
relevant currency at the selling rate established by the currency’s central bank.
There is provision for the Engineer to determine a provisional index if none is available at
the time the calculation is to be made. This can then be adjusted later.
If the Contractor has not completed by the Time for Completion any adjustment is to be
calculated on the basis of indices or prices applicable 49 days prior to the Time for
Completion or at the current level – whichever is most beneficial to the Employer.
The weightings of the factors in the table of adjustment data may only be adjusted if they
have been rendered unreasonable, unbalanced or inapplicable as a result of Variations.
The draft Appendix to Tender sets out a sample of what is intended by the Table of
Adjustment Data:
Coefficient: Country of origin: Source of Index: Value on stated date(s)

Scope of Index Currency of index Title/definition Value Date
A=0.10 Fixed
B=0.20 Labour
On a careful examination of the formula it can be seen that the choices made by the
Contractor carry considerable risks. The adjustment number is applied to all amounts
payable to the Contractor on the applicable date. This adjustment number is the product
of a formula listing a number of indices and the proportions that they form of the total
figure. Thus, for example, if, as suggested in the draft table above, the Contractor
chooses to make the labour cost adjustment .20 of the total adjustment and wages
increase by 20%, while other prices stay stable, the total value of the adjustment will be
20% of 20% - i.e. 4%. If labour constitutes 50% of the Contractor’s cost base he will
suffer a real increase in cost of 20% of 50% of his total costs – i.e. 10% but, as a result of
the formula will only recover 4%. If the Contract is being entered into at a time of great
market instability, or if the cost of one particular input increases well beyond market
expectations, the Contractor may find himself well out of pocket. If, on the other hand,
the cost of one item which has a high weighting in the index increases well beyond
market expectations, while other prices increase as expected, the Contractor may enjoy a
windfall.
27

By: George Rosenberg (Consultant) and Andrew Tweeddale
28

Clause 14
Summary
Clause 14 deals with all aspects of payment. It also deals with the Statement at
Completion, the Final Payment Certificate, Discharge and Cessation of the
Employer’s Liability.
The Clause provides that this is a re-measurement contract and that the quantities
stated in the Bill of Quantities are estimated. There is provision for an advance
payment to be made to the Contract. Applications for Interim Payment
Certificates are made monthly and these must be supported by documents and a
report on progress. Unless the amount assessed is less than the minimum amount
set out in the Appendix to Tender, the Engineer has 28 days to issue an Interim
Payment Certificate, which states the amount the Engineer fairly determines to be
due. The Employer thereafter has an obligation to pay the amount certified, in
the currencies named in the Appendix to Tender. In the event that payment is not
received the Contractor can claim financing charges compounded monthly.
Fifty per cent of the retention monies are paid when the Taking-Over Certificate
is issued. Where there are Sections then a proportion is paid. The balance of
retention is paid on the expiry of the latest Defects Notification Period or, where
there are Sections, a proportion at the expiry of the Defects Notification Period for
that Section. Within 84 days of receiving the Taking-Over Certificate the
Contractor submits a Statement at Completion. This must include an estimate of
all sums which the Contractor considers due.
Within 56 days of receiving a Performance Certificate, the Contractor submits a

Final Statement. The Contractor must also submit with the Final Statement a
written discharge which confirms that the total of the Final Statement represents
full and final settlement of all moneys due. The Engineer then issues to the
Employer a Final Payment Certificate. The Contract states that the Employer
shall have no liability to the Contractor except to the extent that the Contractor
has included an amount expressly for that matter in the Final Statement and also
the Statement at Completion.
Origin of clause
Sub-Clauses 14.1(c) and 14.1(d) of the FIDIC Red Book 1999 are based on Clause 55
and Sub-Clause 57.2 of the FIDIC Red Book 4th edition respectively. Sub-Clause 14.15
is based on Clause 72 of the FIDIC Red Book 4th edition.
Sub-Clauses 14.3 and 14.5 - 14.14 of the FIDIC Red Book 1999 have their origins in
Clause 60 of the FIDIC Red Book 4th edition. There was no similar provision in the
1

FIDIC 3rd edition and it was suggested in that edition that detailed provisions relating
to payment should be drafted by the Parties.
Sub-Clauses 14.2 and 14.4 of the FIDIC Red Book 1999 are new. However, an
Advance Payment was one of the suggested Conditions of Particular Application within
the FIDIC Red Book 4th edition.
Cross-references
Reference to Clause 14 is found in the following clauses:
Sub-Clause 1.1.4.2 Definitions – Contract Price

Sub-Clause 1.1.4.4 Definitions – Final Payment Certificate
Sub-Clause 1.1.4.5 Definitions – Final Statement
Sub-Clause 1.1.4.7 Definitions – Interim Payment Certificate
Sub-Clause 1.1.4.9 Definitions – Payment Certificate
Sub-Clause 1.1.4.11 Definitions – Retention Money
Sub-Clause 1.1.4.12 Definitions – Statement
Sub-Clause 2.4 Employer’s Financial Arrangements
Sub-Clause 13.6 Daywork
Sub-Clause 16.1 Contractor’s Entitlement to Suspend Work
Sub-Clause 16.2 Termination by Contractor
Sub-Clause 18.2 Insurance for Works and Contractor’s Equipment
Sub-Clause 20.2 Appointment of the Dispute Adjudication Board
Clause 6 Payment – of the General Conditions of Dispute Adjudication
Agreement
Sub-Clause 14.1 - Contract Price

Sub-Clause 14.1(a) states that this Contract is not a lump sum contract but a
measurement contract. The Guidance for the Preparation of Particular Conditions states
that lump sum contracts may be suitable if the tender documents include details which
are sufficiently complete for construction and for Variations to be unlikely. From the
information supplied in the tender documents, the Contractor can prepare any other
details necessary, and construct the Works, without having to refer back to the Engineer
for clarification or further information. Further design by the Contractor (under sub-
paragraphs (a) to (d) of Sub-Clause 4.1) is not precluded. However, these Conditions
would be inappropriate if significant design input by the Contractor is required. In those
cases, FIDIC’s other forms may be more appropriate: see FIDIC’s Conditions of Contract
for Plant and Design-Build (the FIDIC Yellow Book 1999) or Conditions of Contract for
EPC/Turnkey Projects (the FIDIC Silver Book 1999). For a lump sum contract, the
tender documents should include a schedule of payments (see Sub-Clause 14.4), and any
drawings required for construction may be specified as being Contractor’s Documents.
The Specification should describe the procedures under which the Contractor submits
2

these Documents for the Engineer to approve. The Guidance gives the following example
clause for a lump sum contract:
• “Delete Clause 12 [Measurement and Evaluation].
• Delete the last sentence of Sub-Clause 13.3 and substitute: “Upon instructing or
approving a Variation, the Engineer shall proceed in accordance with Sub-
Clause 3.5 to agree or determine adjustments to the Contract Price and to the
schedule of payments under Sub-Clause 14.4. These adjustments shall include
reasonable profit, and shall take account of the Contractor’s submissions under
Sub-Clause 13.2 if applicable.”
• Delete sub-paragraph (a) of Sub-Clause 14.1 and substitute: “(a) the Contract
Price shall be the lump sum Accepted Contract Amount and be subject to adjust-
ments in accordance with the Contract;”
Unless otherwise provided in the Particular Conditions, the Contract Price is agreed and
determined in accordance with the measurement provisions in Sub-Clause 12.3
[Evaluation] and is subject to further adjustment (primarily under Clause 13 [Variations
& Adjustments]) as the Contract proceeds.
The Contract Price is defined at Sub-Clause 1.1.4.2 to be “the price defined in Sub-
Clause 14.1 [The Contract Price], and includes adjustments in accordance with the
Contract”. The Contract Price is expressly subject to adjustments in accordance with
the Contract. Primarily, such adjustments will be found in Clause 13 [Variations and
Adjustments] but will also include automatic changes in the quantities, i.e. “automatic
variations” where a change in quantity is simply due to the inaccuracy of the Bill of
Quantities and for which no Engineer’s Instruction is necessary. Therefore, the
Contract Price is not fixed. Some commentators have questioned whether damages
arising from claims for breach of contract should properly be included in the Contract
Price. FIDIC Contracts: Law and Practice1 asserts that this has implications for both
security and tax payable on the Contract Price, as in some legal jurisdictions tax is not
payable on awards for damages or settlement of proceedings commenced.
In the FIDIC Red Book 4th edition, Contract Price was defined as the sum stated in the
Letter of Acceptance. In this edition it is the Accepted Contract Amount which is
defined by reference to the amount accepted in the Letter of Acceptance – see Sub-
Clause 1.1.4.1. The Accepted Contract Amount must be distinguished from the
Contract Price. The Accepted Contract Amount is fixed, but the Contract Price will
change as a result of Variations and other adjustments.
In the FIDIC Red Book 1999, the Contract Price is agreed and determined in accordance
with the measurement provisions in Sub-Clause 12.3. Sub-Clause 12.3 requires the
1
FIDIC Contracts: Law and Practice by Ellis Baker, Ben Mellors, paragraph 6.17.
3

Engineer to agree or determine the Contract Price in accordance with Sub-Clause 3.5
[Determinations] by evaluating each item of work, applying the measurement agreed
or determined in accordance with Sub-Clauses 12.1 and 12.2 and the appropriate rate
or price for the item.
Sub-Clause 14.1(b) provides that the Contractor is obliged to bear the costs of all taxes,
duties and fees. This is repeated in Sub-Clause 1.13 [Compliance with Laws]. Unless
otherwise stated in the Particular Conditions time and costs are recoverable only to the
extent they amount to changes in legislation under Sub-Clause 13.7. The Contractor is
obliged to give notice of such.
The Guidance for the Preparation of Particular Conditions provides the following
example clause where the Contractor is to be exempt from paying duties:
“All Goods imported by the Contractor into the Country shall be exempt from
customs and other import duties, if the Employer’s prior written approval is
obtained for import. The Employer shall endorse the necessary exemption
documents prepared by the Contractor for presentation in order to clear the
Goods through Customs, and shall also provide the following exemption
documents: (describe the necessary documents, which the Contractor will be
unable to prepare).
If exemption is not then granted, the customs duties payable and paid shall be
reimbursed by the Employer.
All imported Goods, which are not incorporated in or expended in connection with
the Works, shall be exported on completion of the Contract. If not exported, the
Goods will be assessed for duties as applicable to the Goods involved in
accordance with the Laws of the Country.
However, exemption may not available for:
(a) Goods which are similar to those locally produced, unless they are not
available in sufficient quantities or are of a different standard to that which
is necessary for the Works; and
(b) any element of duty or tax inherent in the price of goods or services procured
in the Country, which shall be deemed to be included in the Accepted Contract
Amount.
Port dues, quay dues and, except as set out above, any element of tax or duty
inherent in the price of goods or services shall be deemed to be included in the
Accepted Contract Amount”.
The Guidance for the Preparation of Particular Conditions provides the following
example clause where the Contractor is to be exempt from paying taxes:
4

“Expatriate (foreign) personnel shall not be liable for income tax levied in the
Country on earnings paid in any foreign currency, or for income tax levied on
subsistence, rentals and similar services directly furnished by the Contractor to
Contractor’s Personnel, or for allowances in lieu. If any Contractor’s Personnel
have part of their earnings paid in the Country in a foreign currency, they may
export (after the conclusion of their term of service on the Works) any balance
remaining of their earnings paid in foreign currencies.
The Employer shall seek exemption for the purposes of this Sub-Clause. If it is
not granted, the relevant taxes paid shall be reimbursed by the Employer”.
Sub-Clause 14.1(c) states that the Bill of Quantities and other Schedules provide only
estimates of the quantities of the Works the Contractor is required to execute, and for
the purpose of Clause 12 [Measurement and Evaluation] unless otherwise stated in the
Particular Conditions. As in Clause 55 of the FIDIC Red Book 4th edition the quantities
are not to be taken as the actual and correct quantities – and this confirms that this
Contract is intended to be re-measurement. However, if the final measurement results
have changed by more than 10% (i.e less than 90%, or more than 110%), of the quantity
stated in the Bill of Quantities included in the Contract, the criteria in Sub-Clause
12.3(a)(i) is satisfied and either Party should consider whether the criteria in Sub-Clause
12.3 paragraphs (a)(ii) to (iv) have also been satisfied, in which case a new rate or price
will be appropriate. Therefore, a Contractor might argue for a new rate or price where
the Bill of Quantities is inaccurate, and the Engineer may exercise his discretion in
determining the rate or price of an item. Errors in the Bill of Quantities will be
automatically corrected in the measurement and valuation process. Employers must
always perform a mathematical check of the prices in the tender to ensure that “errors”
have not crept into the Bill of Quantities in order to obtain a more competitive price. It
should be made clear to all tenderers that other last-minute adjustments in tenders to
achieve a competitive price, e.g. less 1.5% or less £100,000 are not acceptable. A
formal Variation is not required for this process and changes made in this way have
been given the tag of “automatic variation”.
In National Highways Authority of India v Som Datt Builders – NCC - NEC (JV &
Ors) (29 August 2007) the High Court of Delhi considered the FIDIC Red Book 4th
edition, and the consequences of the quantities of soil reinforcing geogrid / geotextile
material exceeding those set out in the Bill of Quantities. The issue was whether this
material should be paid at the contract rates (as asserted by Som Datt) or at a newly
negotiated rate (as asserted by the Highways Authority). Whilst the case primarily
concerned the interpretation of Clause 51 [Alterations, Additions and Omissions]
reliance was placed on Sub-Clause 55.1 which states, “The quantities set out in the Bill
of Quantities are the estimated quantities for the Works, and they are not to be taken
as the actual and correct quantities of the Works to be executed by the Contractor in
fulfilment of his obligations under the Contract”. Sanjay Kishan Kaul, J found that it
was an ordinary increase in quantities to be paid at the contract rate and not as a
Variation. The decision was appealed by the Highways Authority in National
5

Highways Authority of India v Som Datt Builders – NCC - NEC (JV & Ors) (17
November 2009)2. The geogrid / geotextile material as originally estimated in the Bill
of Quantities had been exceeded by nearly three times. There had been no instruction
from the Engineer. The Highways Authority considered that a Variation existed and
that as the actual quantities had exceeded the tolerance limits set out in the Contract,
the Engineer was entitled to seek a renegotiation of the rate for the additional quantities.
Som Datt disagreed that there had been a Variation and that any renegotiation was
required. The Court found for the Highways Authority and overturned the earlier
decision.
Note: there are also various cases in the High Court of Delhi considering whether a
Contractor was entitled to a price adjustment on items of work referred to in the Bill of
Quantities under Sub-Clauses 60.1(d) and Clause 70 of the FIDIC Red Book 4th edition.
See for example, National Highways Authority of India v Unitech - NCC Joint
Venture (30 August 2010)3, M/S JSC Centrodostroy v M/S National Highways
Authority (5 September 2013)4, and National Highways Authority v MS KMC-RK-SD
JV (22 October 2013)5.
Sub-Clause 14.1(d) is based on Sub-Clause 57.2 of the FIDIC Red Book 4th edition.
Under this Sub-Clause the Contractor is obliged to provide the Engineer with a
proposed breakdown of each lump sum price in the Schedules (within 28 days of the
Commencement Date) unless otherwise stated in the Particular Conditions. The
breakdown does not bind the Engineer, who may or may not take it into account when
preparing the Payment Certificates, but he would be expected to discuss any queries or
changes with the Contractor. As with the FIDIC Red Book 4th edition its purpose and
effect is to reduce the scope for argument as to the proportion of items included in the
Schedules as lump sums which should be included in each Variation so that the
payments reasonably reflect the distribution of the lump sums over the period of the
Contract. The Contractor will wish to be paid in full for the item at the earliest possible
moment.
Sub-Clause 14.2 - Advance Payment

The Employer is obliged to provide an advance payment for mobilisation as detailed in
the Appendix to Tender, in exchange for the Contractor’s guarantee. It is expressed
either as a sum or as a percentage of the Accepted Contract Amount. The advance
payment is repaid through percentage reductions in Payment Certificates. If the
advance payment is not repaid correctly, the whole of the outstanding balance
immediately becomes due and payable by the Contractor to the Employer.
2FAO(OS) No. 427 of 2007.

3 FAO(OS) No.338/2010 & CM No.8828/2010.
4 O.M.P. 855/2013.
5 O.M.P. No. 1043/2013.
6

Advance payment is not a defined term. It is a payment made by the Employer to the
Contractor in advance of the Works by way of an interest free loan to cover the costs
of mobilisation. Its purpose is to ease the Contractor’s cash flow. Although provision
for advance payment was given at Clause 60 of the Suggested Conditions of Particular
Application under the FIDIC Red Book 4th edition, this is a new provision in the FIDIC
Red Book 1999.
The total advance payment (expressed either as a sum or as a percentage of the Accepted
Contract Amount), the number and timing of instalments (if more than one), and the
applicable currencies and proportions, must be stated in the Appendix to Tender.
If the total advance payment is not specified in the Appendix to Tender this Sub-Clause
does not apply, but if the Contractor is not to receive advance payment it is good practice
to strike through this clause and insert “not applicable” in the relevant part of the
Particular Conditions.
The advance payment is repaid through percentage deductions in Payment Certificates.

These percentages must be provided in the Appendix to Tender. If no percentages are
stated in the Appendix to Tender, deductions start in the Payment Certificate in which
the total of all certified interim payments (excluding the advance payment and
deductions and repayments of retention) exceeds 10% of the Accepted Contract
Amount less Provisional Sums. The deductions will be made at 25% of the amount of
each Payment Certificate (excluding the advance payment and deductions and
repayments of retention) in the currencies and proportions of the advance payment,
until the advance payment has been repaid. The rate of deduction for the repayments
should be checked to ensure that repayment is achieved before completion. According to
the Guidance for Preparation of Particular Conditions these percentages are based on the
assumption that the total advance payment is less than 22% of the Accepted Contract
Amount.
In exchange for the advance payment the Contractor must give a guarantee. FIDIC gives
an example form at Annex E. The guarantee must be issued by an entity and from within
a jurisdiction approved by the Employer and in the form either annexed to the Particular
Conditions or approved by the Employer. This is a more stringent condition than in the
more recent MPA Harmonised Edition (the FIDIC Pink Book 1999) where the guarantee
need only be issued by a “reputable bank or financial institution” which may be selected
by the Contractor. The guarantee should take into account the law by which it will be
governed and be drafted by lawyers familiar with such. The Contractor must ensure that
the guarantee is valid and enforceable until the advance payment has been repaid by the
Contractor as indicated in the Payment Certificates. The ease of enforceability of
guarantees varies considerably between jurisdictions and therefore the choice of law
applicable to the guarantee is worth careful consideration. It does not necessarily need to
be the same as the governing law of the FIDIC contract.
If the terms of the guarantee specify an expiry date (which might be required by the
issuing entity), and the advance payment has not been repaid 28 days prior to that expiry
7

date, the Contractor must extend the validity of the guarantee until the advance payment
has been repaid. An expiry date should therefore take into account possible delays to
completion. If the Contractor fails to extend the guarantee the Employer may call upon
it for the unpaid balance. The 28 days is specified to allow the Employer a reasonable
period in which to make the necessary arrangements for the call. The Employer may then
proceed on the basis that the advance has been repaid by the guarantor.
The Engineer may only issue an Interim Payment Certificate for the first instalment after:
• he receives a Statement (plus supporting documentation) from the Contractor under

Sub-Clause 14.3 [Application for Interim Payment Certificates] detailing the
amount which the Contractor considers himself to be entitled; and
• the Employer receives (i) the Performance Security in accordance with Sub-
Clause 4.2 [Performance Security] and (ii) the guarantee in the amounts and
currencies equal to the advance payment.
If, following receipt of this information, the Engineer fails to issue the Interim Payment
Certificate, the provisions of Clause 16 [Suspension and Termination by Contractor]
apply.
Sub-Clause 14.7(a) provides for payment of the first instalment of the advance payment
on the later of either:
• 42 days after issuing the Letter of Acceptance; or
• within 21 days after receiving the documents in accordance with Sub-Clause 4.2
[Performance Security] and Sub-Clause 14.2 [Advance Payment].
The Employer will be aware that this payment is to be made and initiate arrangements
for making prompt payment. If the Engineer fails to pay, the provisions of Clause 16
[Suspension and Termination by Contractor] apply. Delay in payment by the Engineer
might delay mobilisation. If payment is made but mobilisation is slow the Employer
might query the use of the monies.
If the advance payment has not been repaid prior to the issue of the Taking-Over
Certificate for the Works or prior to termination under Clause 15 [Termination by
Employer], Clause 16 [Suspension and Termination by Contractor] or Clause 19 [Force
Majeure] (as the case may be), the whole of the balance then outstanding shall
immediately become due and payable by the Contractor to the Employer.
Sub-Clause 14.3 - Application for Interim Payment Certificates

The Contractor is obliged to provide the Engineer with copies of a monthly Statement,
in an approved form. This must detail the amounts to which the Contractor considers
8

himself to be entitled, together with supporting documents including a report on
progress. There is no definition of the term “supporting documentation” and so this
may be open to dispute. It is not clear, for example, whether the supporting
documentation would be considered to be incomplete if the progress report was
included but was not complete.
The Statement must list the estimated contract value of the Works, together with
specified amounts of money to be added or deducted to the estimated contract value (as
applicable), in the order prescribed.
This Sub-Clause is similar to Sub-Clause 60.1 of the FIDIC Red Book 4th edition. It
starts the mechanism for payment. It is in the Contractor’s interest to comply as soon as
he is able because as soon as he does the sooner he is paid.
The Contractor is obliged to submit six copies of a Statement to the Engineer monthly,
in a form approved by the Engineer (preferably in advance and incorporated into the
Contract documents) together with supporting documents. The timing of the first
Statement for the work executed will depend on the progress of the Works, and will
occur when the net amount due to be paid exceeds the minimum amount of Interim
Payment Certificate stated in the Appendix to Tender.
Unlike the FIDIC Red Book 4th edition there is no express provision for the Statement to
be signed by the Contractor.
It is prudent for the Contractor to send the Statement and supporting documents in a way
which requires a receipt, e.g. recorded delivery, because Sub-Clause 14.7 requires the
Employer to make payment of the sum certified by the Engineer within 56 days from the
date the Engineer receives the Statement and supporting documents.
The Statement must show “in detail” the amounts to which the Contractor considers
himself to be entitled, and attach all supporting documents including the report on the
progress during this month in accordance with Sub-Clause 4.21 [Progress Reports].
Whilst there may be argument as to whether the Contractor has shown sufficient detail,
as discussed in the commentary on Sub-Clause 14.7 below, the trigger for payment is the
Engineer’s receipt of the Statement and supporting documentation.
The Statement must include the following items, as applicable (and expressed in the
currencies in which the Contract Price is payable) in the precise order listed:
(a) The estimated contract value of the Works executed and the Contractor’s
Documents produced up to the end of the month (including Variations but
expressly excluding the items described below). Sub-Clause 14.4 [Schedule of
Payments] assists with the calculation of the estimated contract value. There is no
requirement for the Works to have been properly executed or executed in
accordance with the Contract. Works are defined to include both Permanent
Works and Temporary Works. Permanent Works are defined to be “executed by
9

the Contractor under the Contract”. Temporary Works are defined as required
“for the execution and completion of the Permanent Works”. Included in the
estimated contract value will be Works which have been measured in accordance
with Clause 12 [Measurement and Evaluation] and an estimate of the value of the
Works which have not yet been certified by the Engineer. The estimated contract
value must be calculated with reference to Sub-Clause 14.4 [Schedule of
Payments].
(b) Any amounts to be added and deducted for changes in legislation and changes in
cost, in accordance with Sub-Clause 13.7 [Adjustments for Changes in Legislation]
and Sub-Clause 13.8 [Adjustments for Changes in Cost].
(c) Any amount to be deducted for retention, calculated by applying the percentage of
retention stated in the Appendix to Tender to the total of the above amounts, until
the amount retained by the Employer reaches the limit of Retention Money (if any)
stated in the Appendix to Tender.
(d) Any amounts to be added and deducted for the advance payment and repayments
in accordance with Sub-Clause 14.2 [Advance Payment].
(e) Any amounts to be added and deducted for Plant and Materials in accordance with
Sub-Clause 14.5 [Plant and Materials intended for the Works].
(f) Any other additions or deductions which may have become due under the Contract
or otherwise, including those under Clause 20 [Claims, Disputes and Arbitration].
The “or otherwise” has been added to the corresponding paragraph of the FIDIC
Red Book 4th edition. Therefore, claims for breach of contract, in tort (for example,
negligence or misrepresentation), in equity (for example, for breach of good faith)
should also be detailed in the Statement, otherwise they may be barred. It would
be incorrect for a Contractor to assume that this Statement automatically
constitutes formal notice of a claim. Notice of a Contractor’s Claim must be
given under Sub-Clause 20.1 describing in detail the event or circumstance giving
rise to the claim rather than merely the amount to which the Contractor considers
himself entitled under this Sub-Clause. However, if the claim were described in
detail in the Statement, it is at least arguable that it might constitute satisfactory
notice.6
6
In ICC Case 5634 (1989) - Final Award, in an unspecified location, the arbitral tribunal considered
whether a claim for damages should be valued and certified under Clause 60(5) of the FIDIC 3rd edition
(as amended). Clause 60(2)(b) required the Monthly Statement to set out: "Any amounts to which the
Contractor considers himself entitled in connection with all other matters for which provision is made
under the Contract including any Temporary Works or Constructional Plant for which separate amounts
are included in the Bills of Quantities.". The arbitral tribunal found that a claim for damages for breach
cannot properly be said to be a matter "for which provisions is made under the Contract". Quite apart
from the general context of this paragraph, there was a significant contrast between the words "under the
Contract" and the wider languages used in the opening sentence of Clause 67.
10

(g) The deduction of amounts certified in all previous Payment Certificates.
The stipulated order in which the interim payment application is to be calculated is

important. For example, price escalation under Sub-Clause 13.8 is calculated before
the cost of materials on Site as this will naturally include for inflation as any invoiced
cost will be the cost current at the date of purchase of the materials.
The list does not include any amounts to be added for Provisional Sums under Sub-
Clause 13.5 or any amount to be added and deducted for electricity, water and gas under
Sub-Clause 4.19.
It is not necessary to have a Statement for any amounts which have been certified by
the Engineer but not paid by the Employer. The Contractor should confirm the
Certificates which have been paid and the due dates for unpaid Certificates. The
Contractor is entitled to finance charges for delayed payments without formal notice or
certification under Sub-Clause 14.8 [Delayed Payment] but a prudent Contractor would
have a calculation of any finance charges due under Sub-Clause 14.3(f).
The Engineer will not certify any payment until the Employer has received and
approved the Performance Security under Sub-Clause 14.6 [Issues of Interim Payment
Certificates]. This approval must not be unreasonably withheld or delayed under Sub-
Clause 1.3 [Communications].
Sub-Clause 14.4 - Schedule of Payments

This Sub-Clause assists with the calculation of the estimated contract value required
under Sub-Clause 14.3(a). If the Contract includes a schedule of payments then, unless
otherwise stated, the instalments listed in the schedule of payments will be the estimated
contract values. If the Contract does not include a schedule of payments, the Contractor
shall submit non-binding estimates of the payments which he expects to become due
during each quarterly period.
A schedule of payments is not compulsory, but it allows the Parties to plan their cash
flow (and in that respect is similar to Sub-Clause 14.3 of the FIDIC Red Book 4th edition).
The schedule of payments is not a defined term. It might be based on (i) calendar months,
or (ii) on actual progress, i.e. defined milestone events. If the instalments are not defined
by reference to the actual progress achieved in executing the Works, and if actual progress
is found to be less than that on which this schedule of payments was based, then the
Engineer may proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or
determine revised instalments, which will take account of the extent to which progress is
less than that on which the instalments were previously based. It is only in these
circumstances that the Engineer is permitted to revise a payment schedule.
11

If the Contract does not include a schedule of payments, the Contractor must submit non-
binding estimates of the payments which he expects to become due during each quarterly
period so that the Employer may plan his finances accordingly. Unless otherwise stated,
this can be assumed to be January-March, April-June, July-September and October-
December. The first estimate must be submitted 42 days after the Commencement Date.
There is no prescribed form for the estimate, so if the Employer requires certain details
they should be specified in the Particular Conditions.
Neither Party is bound by the Contractor’s estimates. However, revised estimates are
required at quarterly intervals, until the Taking-Over Certificate has been issued for the
Works.
Sub-Clause 14.5 - Plant and Materials Intended for the Works

This Sub-Clause provides for the payment for Plant and Materials which are not yet
fixed, but either en-route to Site or delivered and properly stored on Site. It therefore
takes into account Plant and Materials which have been allocated to the Works but are
not yet incorporated into the Works. This minimises the Contractor’s financing costs.
The sums previously paid in respect of materials are automatically deducted in the
Interim Payment Certificate once the materials have been incorporated into the Works.
Firstly, the value of the materials on Site recorded at Sub-Clause 14.3(e)7 is reduced by
the amount of materials used up. Secondly, the 80% paid is taken into account as a sum
paid in Sub-Clause 14.3(g). There is no possibility of duplication.
Importantly, this Sub-Clause only applies if the relevant Plant and Materials are listed
in the Appendix to Tender, where there is no schedule of payments to specify the
instalments in which payment is to be made (i.e. where Sub-Clause 14.4 [Schedule of
Payments] has been deleted), and where it is not otherwise excluded in the Contract.
Plant is defined in Sub-Clause 1.1.5.5 as “the apparatus, machinery and vehicles

intended to form or forming part of the Permanent Works” and Materials at Sub-Clause
1.1.5.3 as “things of all kinds (other than Plant) intended to form or forming part of the
Permanent Works, including the supply-only materials (if any) to be supplied to the
Contractor under the Contract”.
There are two lists of relevant Plant and Materials – (i) those for payment when they
are shipped, and (ii) those for payment when they are delivered to Site.
If (i) there are lists of relevant Plant and Materials in the Appendix to Tender, (ii) the
Contractor has kept satisfactory records, and (iii) the Contractor has submitted a
Statement of the costs of acquiring and delivering the Plants and Materials to Site (with
evidence), then the Engineer may consider any amount to be added or deducted for
Plant and Materials in a Contractor’s application for an Interim Payment Certificate
7
Previously considered in Sub-Clause 60.1(c) of the FIDIC Red Book 4th edition.
12

under Sub-Clause 14.3 [Application for Interim Payment Certificate] and shall
“determine and certify each addition”8. There is no provision for disagreement in
compliance with these requirements. It is not clear, for example, who determines
whether the Contractor’s records are satisfactory.
The amount to be included in the Interim Payment Certificate must be 80% of the cost of
the Plant and Materials as determined by the Engineer. This "cost" is to include delivery
to the Site although, for the items shipped and en-route to the Site (under paragraph
(b)), such delivery may not be complete until after the Payment Certificate has been
issued. It must take into account the documents mentioned in this Sub-Clause and the
contract value of the Plant and Materials. This "contract value" is their value in
accordance with the Contract, i.e. the applicable part of the Contract Price as defined in
Sub-Clause 14.1(a). The expression "contract value" is also used in Sub-Clause 14.3(a),
and Sub-Clause 14.4.
The same currencies will apply as those in which payment will become due when the
contract value is included Sub-Clause 14.3 [Application for Interim Payment Cert-
ificates]. At that time, the Payment Certificate shall include the applicable reduction
which shall be equivalent to, and in the same currencies and proportions as, this additional
amount for the relevant Plant and Materials.
The Contractor must provide a bank guarantee in a form and issued by an entity
approved by the Employer in respect of Plant and Materials listed for payment when
shipped. The guarantee should be in the amounts and currencies equal to the amount
due under this Sub-Clause. The guarantee may be in a similar form to the form referred
to in Sub-Clause 14.2 [Advance Payment] and must be valid until the Plant and Materials
are properly stored on Site and protected against loss, damage or deterioration.
Consequently, if any interim payment expressly includes an amount for Plant or Materials
which are not on Site, payment of such amount may be withheld unless and until the
Contractor provides the guarantee.
Sub-Clause 1.3 requires approvals to be given in writing and not unreasonably

withheld. The reasonableness of withholding an approval will depend upon the extent
to which the guarantee and the guarantor, which issued it, comply with any
requirements specified in the Particular Conditions. If the security is "in a similar form
to the form referred to in Sub-Clause 14.2", the Employer cannot insist upon a more
onerous form.
The Plant and Materials shipped must “be in accordance with the Contract” whereas
those delivered to Site must “appear to be in accordance with the Contract”. Plant
and Materials shipped and en-route to the Site do not have to "appear" to be in
accordance with the Contract, because they may not have been inspected by the
Engineer. Therefore, the Contractor has to provide security in the form of a guarantee,
8
Note: there is no express reference to Sub-Clause 3.5 [Determinations].
13

because the shipped Plant and Materials may not become the Employer's property until
the time defined in Sub-Clause 7.7 [Ownership of Plant and Materials].
It is worth noting that escalation is not applied to payments for materials brought onto
Site under Sub-Clause 14.5. This is for two reasons. Firstly, the Contractor is entitled to
be paid 80% of “cost”, namely the invoiced cost of the materials. This payment naturally
includes for inflation as the invoiced cost will be the cost current at the date of the
purchase of the materials. Secondly, Sub-Clause 14.3 stipulates the order in which the
interim payment application is to be calculated. Escalation is calculated before the cost
of materials on Site is to be claimed.
Sub-Clause 13.8 defines “Pn” as “the adjustment multiplier to be applied to the estimated
contract value in the relevant currency of the work carried out in period “n”, this period
being a month unless otherwise stated in the Appendix to Tender”. Sub-Clause 14.3(a)
also refers to the “estimated contract value of the Works” and specifically excludes Sub-
Clause 14.3(e). Sub-Clause 14.3(e) is “any amounts to be added and deducted for Plant
and Materials in accordance with Sub-Clause 14.5 [Plant and Materials intended for the
Works]”. Therefore, only the value of the executed works is to be included in the formula
governing Price Adjustment under Sub-Clause 13.8. Price Escalation under Sub-Clause
13.8 will be applied to the value of the executed works for the relevant month (which will
include the cost of the incorporated plant and materials but not the stockpiled plant and
materials).
The result is that the Contractor may gain an advantage over the months between the time
the materials are purchased and the time they are incorporated into the Works. Of course,
if prices fall during that period, the Employer could benefit. That is the way the contract
works and should be taken into account by an Employer deciding whether to operate
Clause 14.5, just as it will be taken into account by contractors bidding for work.
Sub-Clause 14.6 - Issue of Interim Payment Certificates

This Sub-Clause is a development on Sub-Clause 60.2 and Sub-Clause 60.4 of the
FIDIC Red Book 4th edition. Once (i) the Employer has received and approved the
Performance Security, and (ii) the Engineer has received a Statement with supporting
documentation, the Engineer must issue to the Employer an Interim Payment Certificate
(with supporting particulars) stating the amount which the Engineer “fairly
determines” to be due strictly in accordance with the terms of the Contract. Presumably
this may be a positive or negative amount. There is no express provision for a copy to
be sent to the Contractor, and there is no provision for the Engineer to give reasons
and/or an explanation of any difference between the Interim Payment application
(Statement) and the Interim Payment Certificate (for example, why any amount is
withheld). Further, there is no provision for the Engineer to be requested to amend his
Statement if, for example, there are errors in it. If the Contractor is not satisfied with
the figure he will need to give notice under Clause 20 [Claim, Disputes and
Arbitration].
14

Where the Engineer has received the Statement and supporting documentation, but the
Employer has not received the Performance Security, the Engineer cannot issue the
Interim Payment Certificate. It is only after the Performance Security has been received
that the Engineer is obliged to issue an Interim Payment Certificate.
In the English case of Honeywell International Middle East Ltd v Meydan Group
LLC9 Meydan alleged that an arbitration award was procured by perjury because it was
falsely asserted in the arbitration that Honeywell had provided Meydan with the
relevant performance security under the Contract. Meydan denied that the Performance
Security was provided, and that until the Performance Security was provided, nothing
was due under the Contract. Under Sub-Clause 14.6 no payment could be certified in
the absence of Meydan having received the Performance Security. It was alleged that
Honeywell made a deliberately false claim when it said that the original document had
been delivered to Meydan on 20 May 2010, because it was not delivered at all. It was
also alleged that the document provided referred to Meydan LLC not Meydan Group
LLC. Mr Justice Ramsay concluded that Meydan did not participate in the arbitration
and therefore did not raise these matters there (but could have) so that the arbitral
tribunal would have been able to decide whether or not the Performance Security was
sent to Meydan. Meydan did not, at the relevant times during the performance of the
Contract, refuse to make payment to Honeywell on the basis that the Performance
Security had not been provided. Further there do not appear to have been any requests
for the Performance Security which, if it had not been provided and Meydan had been
insisting that it should have been provided, would have been expected. It is correct that
the document which Honeywell says enclosed the Performance Security was not sent
until May 2010 and that does not appear to have been of concern to Meydan at the time.
As set out in Dicey, Morris and Collins at 16-151 it is necessary to show either that the
evidence of fraud was not available to the party alleging it at the time of the arbitration
hearing or, if perjury is alleged, that the evidence for it is so strong that it would
reasonably be expected to be decisive at the hearing: see Westacre at 309. In the present
case the allegation by Meydan necessarily amounts to an allegation that the letter and
the attached performance security were forgeries. That was something which Meydan
could evidently have asserted in the arbitration at the time and it had the evidence
available to say that if it had wanted to. The mere assertion by Meydan of alleged
perjury based on Mr Sulaiman's evidence did not amount to evidence that is so strong
that it would reasonably have been expected to have been decisive at the hearing. The
evidence that the document was sent and that the attached performance security issued
by HSBC was genuine, is very strong evidence that the Performance Security was
obtained from HSBC and that on that basis it is strong evidence that it would have been
sent to Meydan at the time. Mr Sulaiman does not give evidence himself that Meydan
did not receive, only that he did not see it and he would have expected to have seen it.
On that basis Mr Jutice Ramsay did not consider that Meydan could raise a point on
fraud or perjury on an application to enforce which they could have, but did not, raise
in the arbitration. Nor did he consider that the evidence of perjury was so strong that it
would reasonably have been expected to be decisive at the arbitration hearing.
9
[2014] EWHC 1344 (TCC).
15

If the Engineer fails to issue the Interim Payment Certificate within 28 days of receipt
of the Statement and supporting documents (including the progress report under Sub-
Clause 4.21) the Contractor may give 21 days’ notice and then suspend or reduce the
rate of work, under Clause 16 [Suspension and Termination by the Contractor]. If the
Engineer has still failed to issue the Interim Payment Certificate after 56 days from
receipt of the Statement and supporting documents, the Contractor may proceed to
terminate the Contract (which in effect means 28 days after failure to issue the Interim
Payment Certificate). However, termination is not to be exercised lightly as the
consequences of doing so wrongly may be severe under the governing law. It would
of course be totally unjust for a Contractor to suspend or reduce the Work or terminate
the Contract for lack of an Interim Payment Certificate, where the Employer had not
received the Performance Security.
If the Employer has received the Performance Certificate, an Interim Payment Certificate
can only be withheld in the following circumstances.
Firstly, where before issuing the Taking-Over Certificate for the Works, the amount of
the Interim Payment Certificate would be less than the minimum amount of Interim
Payment Certificates stated in the Appendix to Tender. Where this happens, the
Engineer must give notice to the Contractor. However, the Engineer should not
endeavor to minimise certification, and decline to certify whenever he is entitled to do
so. Withholding of certification may not be to either Party’s benefit.
Secondly, if anything supplied or work done by the Contractor is not in accordance with
the Contract, the cost of rectification or replacement may be withheld until rectification
or replacement has been completed. Further, if the Contractor was, or is, failing to
perform any work or obligation in accordance with the Contract, and had been so
notified by the Engineer, the value of this work or obligation may be withheld until the
work or obligation has been performed. Although the Retention Money retained under
Sub-Clause 14.3 [Application for Interim Payment Certificates] may be sufficient to
cover the withheld amounts, the withholdings described are not limited to the amount
of Retention Money retained. The "contract value" of the item (as described in Sub-
Clause 14.3(a)) is typically the value prescribed by the Contract less the anticipated
cost of making it comply with the Contract. If an item of work is so non-compliant that
its contract value is zero, there would typically be no payment due and therefore nothing
from which a deduction for withholding may be affected.
The Engineer may correct or modify any Payment Certificate that should properly be
made to any previous Payment Certificate. The term “that should properly be made” is
open to interpretation. Although the title of the Sub-Clause only mentions Interim
Certificates, the last sentence of the Sub-Clause expands the provision to allow the
Engineer to make any correction or modification that should be made to any previous
Payment Certificate. Whilst it could be argued that the provision might mean that the
Final Payment Certificate could be corrected or modified, such an interpretation would
be inconsistent with Sub-Clauses 1.1.4.4 [Final Payment Certificate], 14.11
16

[Application for Final Payment Certificate] and 14.13 [Issue of Final Payment
Certificate].
A Payment Certificate is not deemed to indicate the Engineer’s acceptance, approval,

consent or satisfaction. This discourages:
• the Employer from withholding an interim payment if he feels entitled to withhold

acceptance, approval, consent or satisfaction; and
• the Contractor from relying upon certificates or payments as evidence of

acceptance, approval, consent or satisfaction in respect of paid work.
Once the Interim Payment Certificate is issued the Employer is bound by it. He must
make payment in full, irrespective of any entitlement to compensation arising from any
claim which the Employer may have against the Contractor. If the Employer considers
himself entitled to claim against the Contractor, notice and particulars must first be
submitted under Sub-Clause 2.5 [Employer’s Claims]. The Employer's entitlement is
then to be agreed or determined in accordance with Sub-Clause 3.5, and incorporated
as a deduction in a Payment Certificate. This procedure, as prescribed in Sub-Clause
2.5 (notice, particulars, and agreement or determination), may require less time than the
28-day period given in the first paragraph of Sub-Clause 14.6 in which the Engineer is
obliged to issue an Interim Payment Certificate.
As well as the contractual mechanisms, the laws and doctrines of the relevant governing
law must also be considered, and this is particularly so when regarding the withholding
of payment.
It should be noted that in UK construction contracts the terms of the Housing Grants,
Construction and Regeneration Act 1999 (HGCRA) as amended by the Local
Democracy, Economic Development and Construction Act 2009 (LDEDC) apply.
The Act provides that a party to a UK construction contract may not withhold payment
after the final date for payment of a sum due under the contract unless he has given an
effective notice of intention to withhold payment.
Further, as stated by Robert Knutson10, “Distinction must be made between contractual

rights to withhold sums said to be due (as found in this Sub-Clause) and rights which
exist at Common Law”. He continues, “Rights said to exist at Common Law exist
primarily by virtue of the operation of the doctrines of set-off and abatement. Whilst
the law in this area is probably unnecessarily complicated, it is certainly true to say
that the right to set-off must be distinguished from the right to counterclaim if a dispute
arises. Set-off (like abatement) is an absolute defence which exists by virtue of the
operation of the law and could normally be raised very late in the day … While it may
be easy to assert that contractual mechanisms should work in accordance with their
terms and of course to be effective should be operated exactly in accordance with the
10
17

clause in question, the existence of this doctrine creates a threat, under English law,
the contractual payment provisions will be frustrated in the face of a set-off claim.”
In ICC Case 11813 (2002) - Interim Award, in London, an arbitral tribunal was asked
to consider the FIDIC Yellow Book (Test Edition 1998) and whether the Respondent
was entitled to set-off amounts which it claimed from the First Claimant against the
amounts of unpaid certified sums due to the First Claimant. The Claimant argued that
the Respondent had no right to set-off as a matter of law. Reliance was placed on a
number of provisions of the Contract which, it was argued, determine that the
agreement between the Parties was a "pay and then fight" contract and that any rights
of set-off were effectively excluded. It was accepted by both Parties that English law
was the proper or substantive law of the Contract. It is a well-established principle of
English law that rights of common law and equitable set-off are not excluded in the
absence of a clear contractual intention otherwise. This principle was confirmed in the
English case of Gilbert-Ash (Northern) Ltd v. Modern Engineering (Bristol) Ltd11 in
particular in the judgments of Lords Diplock and Salmon and Viscount Dilhorne. The
arbitral tribunal stated that the principles enunciated in Gilbert-Ash are particularly
appropriate for application in an international construction contract of the present sort,
where parties from different nationalities operate under a contract in a foreign language.
In such circumstances, the arbitral tribunal said it would be most reluctant to conclude
that a party accepts the exclusion or extinction of rights of set-off - which could involve
very substantial sums - based on anything other than obvious and precise language,
putting the parties on clear notice that such an extinction would occur. The Claimant
relied on a number of different provisions in the Contract as assertedly excluding any
right of set-off by the Respondent, in particular, Sub-Clauses 2.5, 14.6, 14.7, 20.4 and
20.6. However, the arbitral tribunal concluded that for purposes of the summary
application none of these provisions had been shown to satisfy the Gilbert-Ash
standard. For example, Sub-Clause 14.6 permits, but does not require, the Engineer to
adjust what would otherwise be certified to reflect defects and other contractual failures
to perform. Further, Sub-Clause 14.6 does not, expressly or at all, purport to exclude
the Employer's rights of set-off. Also, Sub-Clause 14.7 provides that the Employer is
required to "pay to the Contractor ... (b) the amount certified in the Final Payment
Certificate within 56 days after the Engineer receives the [Clause 14.3] Statement and
Supporting documents..." Although there are no express words permitting any set-off,
equally there are no words excluding any set-off. Absent such an exclusion, the arbitral
tribunal found that the test of Gilbert-Ash was not satisfied and there was no basis for
concluding that the parties meant to exclude common law set-off rights. Therefore, the
arbitral tribunal concluded that there was no express language excluding set-off in the
test edition of the FIDIC Yellow Book 1998. Set-off was therefore permitted as a
defence to the claim.
In the case of Sedgman South Africa (Pty) Limited & Ors v Discovery Copper
Botswana (Pty) Limited12, the Supreme Court of Queensland analysed the meaning of
11
[1974] AC 689.
12
[2013] QSC 105.
18

Sub-Clause 14.6 in an amended FIDIC Silver Book 1999, in particular, the words
“Payments due shall not be withheld …”. Sedgman contracted to design and construct
parts of the Boseto Copper Project in Botswana for Discovery Copper. Sedgman
applied for an interim payment of US$20 million. Amended Sub-Clause 14.6 required
Discovery Copper to give notice within 7 days [rather than the standard 28 days] if they
disagreed with any items in the application (Statement). Discovery Copper failed to
give the notice and did not contest the application until 14 days later. Sedgman applied
to the Court for payment of the sum claimed. The Court dismissed Sedgman’s
application for payment, holding that there was a genuine dispute and that Sedgman’s
interpretation of the contract was incorrect. The Court held that: “This contract did not
entitle the applicants to be paid the sum which they now claim, simply from the fact that
there was no response to their interim claim within the period of seven days stipulated
in the contract.”. McMurdo J considered the words “Payments due shall not be
withheld” at Sub-Clause 14.6 and stated that they were “different from saying that a
payment will become due if a notice of disagreement is not given” as Sedgman
contended. He said: “The alternative view [...] is that it does not make a payment due.
Rather, it governs payments which, by the operation of another term or terms, have
[already] become due.”. If Sedgman were correct, the operation of the contractual
clauses to determine claims and Variations could otherwise be displaced by the
operation of Sub-Clause 14.6. If the Contractor included a claim in his application for
payment which was inconsistent with, for example, a Dispute Adjudication Board’s
decision, and the Employer did not notify disagreement, the outcome would be that
Dispute Adjudication Board’s decision would be displaced.
In County Government of Homa Bay v Oasis Group International and GA Insurance

Limited (2017)13, among other things, the High Court of Kenya at Migori considered
the status of Interim Payment Certificates. Oasis’s claim was mainly based on the fact
that works were undertaken, and Interim Payment Certificates were prepared and
approved by the Government’s consultants who then forwarded them to the
Government for payment, but rather than pay them in full the Government chose to
make part payments thereof. The claim was for the balances of the amounts contained
in the Interim Payment Certificates. The Government argued that the Interim Payment
Certificates were not the final agreed and approved payments but remained subject to
verification and approval by the Government even though the same were forwarded to
it by its Consultant. Unfortunately, due to a procedural error in the exhibiting of
evidence (i.e. the Interim Payment Certificates) the court was unable to reach a decision
on this matter. However, Judge A.C.Mrima said, “I wish to state that even upon the
consideration of the IPCs, this Court would have agreed with the Plaintiff that the IPCs
are not the finally agreed payments and are subject to verification by the Plaintiff.
(See General Condition 14 of the General Conditions of Contract for Construction as
adopted by the International Federation of Engineers and Consultants (FIDIC)).”.
13
CIVIL CASE NO. 13 OF 2015.
19

Sub-Clause 14.7 - Payment
This Sub-Clause has been developed from Sub-Clause 60.10 of the FIDIC Red Book 4th
edition. Provision is now expressly made for payment in instalments.
The first instalment of the advance payment must be paid by the Employer within 42
days after issuing the Letter of Acceptance or within 21 days after receiving the
documents in accordance with Sub-Clause 4.2 [Performance Security] and Sub-
Clause 14.2 [Advance Payment], whichever is later. When entering into the Contract,
the Employer will typically be able to calculate the amount of this first payment and
should immediately initiate arrangements for making prompt payment.
The amount certified in each Interim Payment Certificate must be paid by the
Employer within 56 days after the Engineer receives the Contractor’s Statement and
supporting documents. Arguably, even if the Engineer does not certify, the time for
payment still expires 56 days after receipt of the Contractor’s Statement and supporting
documentation and the Employer can open himself up to termination if he does not pay.
The Employer will have the cash flow estimate provided by the Contractor under Sub-
Clause 14.4 as a forewarning.
The amount certified in the Final Payment Certificate must be paid by the Employer
within 56 days after the Employer receives the Payment Certificate.
The Employer is obliged to pay these sums without any deduction. If the Employer
considers himself entitled to claim against the Contractor, notice and particulars must
first be submitted under Sub-Clause 2.5 [Employer’s Claims], subject to the exceptions
listed. The Employer's entitlement is then to be agreed or determined, and maybe
incorporated as a deduction in the Contract Price and Payment Certificates. This
procedure may require less time than the 28 days specified in Sub-Clause 14.6 [Issue
of Interim Payment Certificates]. The clear intention is to ensure that the Contractor is
paid whatever is certified, when it is certified, with disputes to be considered later, i.e.
pay now argue later.
Payment of the amount due in each currency must be made into the bank account,
nominated by the Contractor, in the payment country (for this currency where there is
more than one payment country) specified in the Contract. For each of the currencies
of payment, a "payment country" may have been specified, which might be the country
of the currency of payment. Only the number of currencies in which payment is to be
made therefore limits the number of bank accounts nominated. Alternatively, all
payments may have been specified as being made into the Contractor's bank in his
country. When pricing their tenders, tenderers will take account of the option to specify
a payment country, and of the periods for payment. Longer periods for payment
increase the Contractor's financing costs, so tenderers would wish to increase their
prices accordingly.
20

If payment is delayed the Contractor may be entitled to financing charges under Sub-
Clause 14.8 [Delayed Payment] (as well as his entitlement to payment), calculated for
a period, which is deemed to commence on the date for payment specified in Sub-
Clause 14.7, irrespective of the date on which any Interim Payment Certificate is issued.
For example, if the Certificate is a week late, the Contractor will be entitled to financing
charges under Sub-Clause 14.8 unless the Employer manages to accelerate his
procedures and comply with Sub-Clause 14.7.
If the Employer fails to comply with these requirements, then the Contractor may give
21 days’ notice and then suspend or reduce the rate of the work under Clause 16
[Suspension and Termination by Contractor]. The Contractor may then proceed to
terminate the Contract if payment is not received within 42 days of the due date.
The Parties may agree for different periods for payment to apply. If so, the Guidance
for the Preparation of Particular Conditions provides that the Sub-Clause may be
amended as follows, “In sub-paragraph (b) of Sub-Clause 14.7, delete ‘56’ and
substitute ‘42’”.
If the country/countries of payment need to be specified, details may be included in a

Schedule.
In the case of General Earthmovers Limited v Estate Management and Business

Development Company14, the High Court of Trinidad and Tobago was asked to
consider an application by Estate Management to set aside a default judgement relating
to the non-payment of two Interim Payment Certificates. Estate Management referred
to errors in the Interim Payment Certificates relating to a reduction in the scope of works
and a lack of agreement in respect of additional works. Judgement was set aside
because there was a realistic prospect of success.
In Construction Associates (Pty) Ltd v CS Group of Companies (Pty) Ltd15 (13 June
2008) the High Court of Swaziland was asked to consider non-payment of Construction
Associates’ Final Payment Certificate. Construction Associates sought summary
judgement. CS Group argued that: (i) the Parties were obliged to refer the matter to
arbitration before referring to a court of law, (ii) Construction Associates had been
overpaid, (iii) Construction Associates had overcharged the Employer in respect of the
Bill of Quantities, and (iv) the quality of Construction Associates’ workmanship was
poor. The court discussed the following: (i) the architect/Engineer is the agent of the
Employer when issuing the certificates, (ii) the Employer is bound by the acts of his
agent, (iii) the Employer cannot dispute the validity of a payment certificate merely
because it has been given negligently or the architect/Engineer has used his discretion
wrongly, (iv) the Employer is bound to pay the sum certified, v) the fact that the amount
of the certificate is so payable does not mean that the Employer is left without a remedy
if the architect/Engineer, in an interim certificate, has certified in respect of defective
14
[2007] TTHC 50 (6 November 2007)
15
CIVIL CASE NO. 3026/06
21

work or has certified too large an amount. In relation to CS Group’s claims the court
held that: i) there was no "dispute" between the parties, therefore parties were not
obliged to refer the matter to arbitration prior to the court, ii) the Works were inspected
prior to the issue of Interim Payment Certificates, therefore there was no overcharging,
and iii) the alleged defects in the workmanship were not identified. The court referred
to the FIDIC guidance on Bill of Quantities as follows: “According to the NOTES ON
DOCUMENTS. FOR CIVIL ENGINEERING CONTRACTS by FIDIC at page 38, "Bill
of Quantities means a list of items giving identifying descriptions and estimated
quantities of work comprised in the execution of the works to be performed. The objects
of the Bill of Quantities are: (i) enable tenders to be prepared efficiently and accurately
and facilitate the comparison of tenders when received; and (ii) when the contract has
been awarded, to provide the basis for the valuation of work executed and to assist in
the fixing of prices for varied or additional work." (my underlining)”.
In the case of Bosch Munitech (Pty) Ltd v Govan Mbeki Municipality16, Govan paid
Bosch in respect of five interim payments issued between October 2013 and April 2014
but refused to pay amounts claimed in eight certificates issued between April 2014 and
October 2014. Following Govan’s refusal to pay, Bosch elected to terminate the alleged
contract. Bosch considered that it was entitled to all the amounts payable under the
outstanding interim payment certificates, as well as the release of retention held under
the contract. The South African court was asked to consider the formation of the
contract and incorporation of the FIDIC Red Book 1999 General Conditions of
Contract. The Court held that no contract was formed between the Parties. It stated:
“This court has some sympathy with [Bosch]. It is clear from the evidence that both
parties proceeded in good faith on the supposition that a contract had been concluded.
The real problem resulting in the termination of the project was that funding was not
available. The project was not properly budgeted for by [Govan]. Both parties engaged
in efforts to acquire funding from alternative sources. All correspondence between the
engineer and [Bosch] was conducted on the assumption that a contract existed. At no
stage prior to this application did [Govan] inform [Bosch] that it was of the view that
no valid contract existed. Sight must not be lost on the fact that the Bid Adjudication
Committee approved [Bosch’s] bid, but for a more limited scope of work, and directed
that an award be made to it. Moreover, [Govan] offered no explanation for the steps it
took beyond the expiration of the validity period, and the payments it made before April
2014, from which [Bosch] legitimately inferred that [Govan] considered itself bound
by the contract supported by the signatures of Mr Mahlangu and Mr Mtshali on
Annexure SM1. While it is still debateable whether a valid contract ever came into
existence, [Govan’s] silence and its conduct led [Bosch] bona fide to assert a cause of
action which ultimately has proved to be unsustainable on the basis alleged … I am of
the view that [Govan’s] conduct falls short of the standard of ethical dealing one might
legitimately expect of an organ of government in a constitutional state.”
16 (88360/2014) [2015] ZAGPPHC 1096; [2015] 4 All SA 674 (GP) (17 September 2015).
22

Sub-Clause 14.8 - Delayed Payment
This Sub-Clause sets out the consequences of delayed payment in much more detail
than Sub-Clause 60.10 of the FIDIC Red Book 4th edition.
If payment is not received by the Contractor by the due date, this Sub-Clause gives the
procedure for calculating financing charges.
Financing charges are not defined. They are commonly understood to be damages for
breach of contract - the reimbursement of interest which has been incurred as a
consequence of wrongfully delayed payment. It has been suggested that the term
“financing charges” may have been adopted in this version rather than the term
“interest” adopted in the FIDIC Red Book 4th edition to avoid offence to Sha’aria
countries. The relevant governing law relating to interest may therefore be pertinent.
As Robert Knutson17 explains, “It is worthwhile to record that the phrase “financing
charges” is a legal term of art in England and may be, because of the complicated case
law referred to above, distinguished from the concept of interest as damages for late
payment. In Minter v WHTSO (1980) 13 BLR 1, financing charges for late payment of
Variations for disturbed progress was recoverable as “direct loss and expense””.
The distinction between financing charges and interest may be relevant not least of all
because a Dispute Adjudication Board is only empowered to “decide upon the payment
of financing charges” under Clause 8f of the Dispute Adjudication Board Procedural
Rules in the Annex to the FIDIC 1999 edition. There is no express provision for the
Dispute Adjudication Board to award interest. If there was no financing in fact, would
there be no right to financing charges and/or interest?
The financing charges are compounded monthly on the amount unpaid during the
period of delay. The date on which the Interim Payment Certificate is issued is not
relevant when calculating these financing charges. Financing charges are calculated for
a period which is "deemed to commence on the date for payment specified in Sub-
Clause 14.7". The FIDIC Contracts Guide states, “This period applies even if no
Interim Payment Certificate is issued, although it would then be difficult to establish
the amount to which the rate is to be applied. If the Certificate is a week late and the
Employer accelerates his procedures and complies with Sub-Clause 14.7, the
Contractor will not be entitled to financing charges”.
The Contractor is entitled to these financing charges without being required to give
formal notice or certification. There is no time limit for payment and no express
provision for interest on the financing charges if payment is delayed. The FIDIC
Contracts Guide suggests that it may be preferable for financing charges to be included
in the Contractor’s Statement under Sub-Clause 14.3(f) for accounting purposes.
17
23

Financing charges are to be calculated at the annual rate of 3% above the discount rate
of the central bank in the country of the currency of payment. This might become
complicated if payments are due in several different currencies. Further, there may or
may not be something called a discount rate in the country in question and there could
be more than one rate identified as a possible candidate. The Guidance for the
Preparation of Particular Conditions provides that if this rate is considered
inappropriate when the tender documents are being prepared, a new rate may be defined
in the Particular Conditions. Alternatively, the actual financing charges could be
claimed and paid, taking account of local financing arrangements.
Robert Knutson18 suggests that if Sub-Clause 14.8 is deleted, The Late Payment of
Commercial Debts (Interest) Act 1998 may apply under English law.
Note: Sub-Clause 14.8 [Delayed Payment] deals only with a failure to receive payment
under Sub-Clause 14.7 [Payment]. It does not deal with the withholding of retention
monies without good reason under Sub-Clause 14.3 [Application for Interim Payment
Certificates] and 14.9 [Payment of Retention Money].
For further provisions relating to delayed payment, see for example Sub-Clauses 16.1
[Contractor’s Entitlement to Suspend Work], and 16.2 [Termination by Contractor].
Sub-Clause 14.9 - Payment of Retention Money

Retention Money is retained under Sub-Clause 14.3(c) and is released under this Sub-
Clause in instalments. It is outside the normal Interim Payment process.
The first part of the Retention Money is released when the Taking-Over Certificate is
issued under Clause 10 [Employer’s Taking Over] (as in Sub-Clause 60.3 of the FIDIC
Red Book 4th edition). If it is issued for the whole of the Works, 50% of the Retention
Money must be certified by the Engineer for payment to the Contractor. However, if it
is issued for a Section and/or part of the Works, under Sub-Clause 10.1 [Taking Over
of the Works and Sections] and/or Sub-Clause 10.2 [Taking Over of Parts of the Works]
respectively, it is now calculated at 40% of the proportion calculated by dividing the
estimated contract value of the Section or Part by the estimated final Contract Price. Only
40% (not 50%) of this proportion is stated as being released at this stage. If half is
released, there might be very little left (of the half of Retention Money) to be released
on completion of the Works, because of Variations.
The date on which each Section is completed is to be stated in its Taking-Over

Certificate. On this date, the Defect Notification Period commences, the duration of
which is to be stated in the Appendix to Tender. No prescribed time limits are given
for the payment of the balance of the Retention Money. The balance of the Retention
Money is merely to be released “promptly” after the latest of the expiry dates of the
Defects Notification Period. If a Taking-Over Certificate was issued for a Section, a
18
24

proportion of the second part of the Retention Money shall be certified and paid promptly
after the latest of the expiry dates of the Defects Notification Period for the Section. This
proportion shall be 40% of the proportion calculated by dividing the estimated contract
value of the Section by the estimated final Contract Price.
The FIDIC Contracts Guide states that the word "promptly" suggests that it would not
be appropriate to await the next application under Sub-Clause 14.3 [Application for
Interim Payment Certificates]. It also states that the phrase "latest of the expiry dates"
is used, because of the possibility of a Defect Notification Period (which is not the last
to commence) being extended under Sub-Clause 11.3 [Extension of Defects
Notification Period] and becoming the period with the latest expiry date.
In ICC Case 15789 (2010) - Final Award, in an Eastern European capital city, a sole
arbitrator was asked to consider the correlation between an extended 5-year warranty
period (comprising of a 1-year Defects Liability Period plus an additional 4-years running
from expiry of the Defects Liability Period) and payment of the Retention Money under
an amended FIDIC Red Book 4th edition form of contract. A minimum 5-year warranty
period was required under local law. The sole arbitrator decided as follows: “94.
Contractual agreements of the Parties comply with the requirements of the Act on Public
Works when in Clause 9 of the Contract Agreement states the Warranty Period to 60
months [sic], and do not act contra provisions of this Act when in Annex 2 to the Contract
Agreement Appendix to Tender they agree on the split of the warranty period to 12-month
(basic) Defects Liability Period and 48-month (additional) Warranty Period, which in
total represent the 60-month warranty period, requested by the law. 95. With respect to
the mentioned, the Retention Money can be released at any time post accomplishment of
the Work with contractually agreed conditions. 96. It is a purpose of the Retention Money
to provide guarantee to the contractor that in case the works will not be finished in
compliance with qualitative parameters, so that the hand-over and take-over will not be
confirmed by the engineer and the builder will not be willing to remove all declared
defects, such finances can be used to employ third persons to remove such defects of Work
(visible at the hand-over). 97. Without a doubt, the time period for release of the
Retention Money can be shorter than the warranty period. 98. As reasoned above, release
of the Retention Money prior the lapse of the whole Warranty Period is not in conflict
with the Act on Public Works; neither circumvents nor contravenes the purpose of law.
99. The division of the Warranty Period into two parts (regardless how they are called -
split/additional), where after the lapse of the first one the Retention Money will be paid,
is possible.”. Therefore, release of the Retention Money upon expiry of the 1-year
Defects Liability Period was compatible with the 5-year warranty period.
The Engineer may withhold the estimated cost of any work which remains to be
executed under Clause 11 [Defects Liability]. This entitlement applies to any release of
Retention Money but is typically of greatest importance at the latest of the expiry dates
of the Defect Notification Periods. In order to protect the Employer's interests, the
amount withheld should be sufficient to cover the cost of another contractor completing
the work but must be reasonable and not penalise the Contractor.
25

It has been suggested that disputes regarding the return of the retention would be less
likely if the Employer were prepared to accept a guarantee in lieu of retention. If part of
the Retention Money is to be released and substituted by an appropriate guarantee, an
additional Sub-Clause may be added, such as this given in the Guidance for the
Preparation of Particular Conditions:
“When the Retention Money has reached three-fifths (60%) of the limit of
Retention Money stated in the Appendix to Tender, the Engineer shall certify and
the Employer shall make payment of half (50%) of the limit of Retention Money
to the Contractor if he obtains a guarantee, in a form and provided by an entity
approved by the Employer, in amounts and currencies equal to the payment.
The Contractor shall ensure that the guarantee is valid and enforceable until the
Contractor has executed and completed the Works and remedied any defects, as
specified for the Performance Security in Sub-Clause 4.2, and shall be returned to
the Contractor accordingly. This release of retention shall be in lieu of the release
of the second half of the Retention Money under the second paragraph of Sub-
Clause 14.9.”
An acceptable form(s) of guarantee should be included in the tender documents, annexed

to the Particular Conditions: an example form is provided in the Guidance for the
Preparation of Particular Conditions at Annex F.
There is no express provision dealing with the withholding of Retention Money without
good reason, which is not an uncommon occurrence.
Sub-Clause 14.10 - Statement at Completion

This is an amended version of Sub-Clause 60.5 of the FIDIC Red Book 4th edition.
Within 84 days (i.e. 12 weeks) after receipt of the Taking-Over Certificate for the Works,
the Contractor is obliged to submit to the Engineer six copies of a Statement at completion
with supporting documents. Time runs from receipt of the Taking-Over Certificate, not
from the date stated in the Taking-Over Certificate or from issue of the Taking-Over
Certificate as stated in the FIDIC Red Book 4th edition. However, there is no sanction
provided if the time limit is not met, which suggests that the time period should be treated
as directory rather than mandatory. It is usually in the Contractor’s interest not to delay
submittal of the Statement and supporting documents.
The Taking-Over Certificate is defined as the certificate issued under Clause 10

[Employer’s Taking Over].
The Statement at completion must be in accordance with Sub-Clause 14.3 [Application

for Interim Payment Certificates]. As pointed out in the FIDIC Contract Guide, it must
therefore have supporting documents which shall include the detailed progress report
26

complying with Sub-Clause 4.21 [Progress Reports], unless all the reports required by
the Contract have already been submitted. The Statement at completion must show:
(a) The value of all work done in accordance with the Contract up to the date stated
in the Taking-Over Certificate. This revised wording clarifies the ambiguity of
the use of the word “final” in the FIDIC Red Book 4th edition.
(b) Any further sums which the Contractor considers are currently due. This is not
limited to claims under the Contract, so might include claims for breach of contract
or arguably for claims in tort, for example, for negligence or misrepresentation.
(c) An estimate of any other amounts (to be shown separately in the Statement) which
the Contractor considers will become due to him under the Contract in the future.
Note that the Statement at completion is one basis of the Cessation of Employer’s
Liability specified in Sub-Clause 14.14 and encourages the early settlement of financial
aspects. The FIDIC Contracts Guide suggests that the Contractor should prepare the
Statement at completion with these aspects in mind and include amounts or estimates
for every payment for which the Contractor considers the Employer has a liability,
including all claims and potential claims, even though it is initially only processed like
other interim Statements, i.e. certified in accordance with Sub-Clause 14.6 [Issue of
Interim Payment Certificates].
Sub-Clause 14.11 - Application for Final Payment Certificate

This is similar to Sub-Clause 60.6 of the FIDIC Red Book 4th edition.
56 days (8 weeks) after receiving the Performance Certificate, the Contractor must
submit to the Engineer six copies of a draft final statement with supporting documents
in detail in a form approved by the Engineer. The time limit starts to run from issue of
the Performance Certificate, not issue of the Defects Liability Certificate as stated in
Sub-Clause 60.6 of the FIDIC Red Book 4th edition. However, there is no sanction
provided if the time limit is not met which suggests that it should be treated as directory
rather than mandatory.
The Performance Certificate is defined as the certificate issued under Sub-Clause 11.9
[Performance Certificate]. It is issued following expiry of the Defects Notification
Periods or as soon thereafter as the Contractor has supplied all the Contractor’s
Documents and completed and tested all the Works, including remedying any defects.
The draft final statement must show both:
(a) the value of all work done in accordance with the Contract; and
(b) any further sums which the Contractor considers to be due to him under the
Contract or otherwise. The “or otherwise” is an addition to the FIDIC Red Book
27

4th edition, and therefore clarifies that this Sub-Clause contemplates monies due,
for example, for breach of contract and in tort (negligence, misrepresentation
etc.).
Note also Sub-Clause 14.14(b) [Cessation of Employer’s Liability].
If the Engineer disagrees with or cannot verify any part of the draft final statement, the
Contractor is obliged to provide such further information as the Engineer reasonably
requires and make such changes in the draft as agreed between them. The Contractor
must then prepare and submit to the Engineer the Final Statement as agreed.
However, following discussions between the Engineer and the Contractor, if it becomes
evident that a dispute exists, the Engineer must deliver to the Employer (with a copy to
the Contractor) an Interim Payment Certificate for the agreed parts of the draft final
statement, and those sums must be paid. The draft final statement remains open until the
dispute is finally resolved under Sub-Clause 20.4 [Obtaining Dispute Adjudication
Board’s Decision] or Sub-Clause 20.5 [Amicable Settlement]. There is no provision for
an interim draft final statement.
If the dispute is resolved under Sub-Clause 20.4 or 20.5 the Contractor will prepare and
submit to the Employer (with a copy to the Engineer) a Final Statement in accordance
with the outcome. If there is a delay in payment of the Interim Payment Certificate
and it is not paid 56 days after the Engineer receives the [Final] Statement and
supporting documents in accordance with Sub-Clause 14.7 [Payment], the Contractor
is entitled to financing charges under Sub-Clause 14.8 [Delayed Payment].
There is no express provision in the event that the dispute is not resolved under Sub-
Clause 20.4 or 20.5. The FIDIC Contracts Guide suggests that it would probably need
to be resolved under Sub-Clause 20.6 [Arbitration]. After resolution by arbitration,
which may be considerably later, there may be no need for a Final Statement, so Sub-
Clause 14.11 does not require it to be prepared. The only necessary documentation
may have been prepared or defined by the arbitrator(s).
If there is no Final Statement, Sub-Clause 14.12 [Discharge], Sub-Clause 14.13 [Issue

of Final Payment Certificate] and sub-paragraph (a) of Sub-Clause 14.14 [Cessation of
Employer’s Liability] cannot apply.
It is essential that, to the extent there is a Final Statement, all the Contractor’s claims
are recorded in it. The Final Statement is one basis of the Cessation of Employer’s
Liability specified in Sub-Clause 14.14 and encourages the early settlement of financial
aspects. The Contractor should therefore prepare this Statement with these aspects in
mind and include amounts or estimates for every payment for which the Contractor
considers the Employer has a liability, including all claims and potential claims, even
though it is initially only processed like other interim Statements.
28

In ICC Case 19105 (2014) - Procedural Order, in Bucharest, Romania, a sole arbitrator
was asked to allow new claims to be introduced in to an ongoing arbitration after the
main arbitration hearing had taken place. The arbitrator declined to do so. The new
claims concerned the Claimant’s right to repayment of the outstanding balance of the
Retention Money under a 1999 edition of the FIDIC forms of contract. There was a
question during the main arbitration hearing as to whether the Engineer had issued the
necessary certification. After the main arbitration hearing had taken place, the Final
Payment Certificate was issued by the Engineer. The Claimant then sought permission
to submit a new claim for revision of the Final Payment Certificate because: (i) the
Final Payment Certificate included an entry ... named “Deduct amount as per FIDIC
Sub-Clause 2.5” and the said amount corresponded to the net total amount certified for
payment in the Final Payment Certificate; (ii) the Parties were in disagreement about
the meaning of “deduct(ion)”; (iii) claims deriving from the Final Payment Certificate
fall under the scope of Sub-Clause 20.6; (iv) the Final Payment Certificate should be
revised in the arbitration since it interferes with it and contradicts the arbitrator’s
findings; and (v) the arbitrator had jurisdiction over the new claim “since the matters
to be revised are overlapping the claims already brought in this arbitration”. The
arbitrator declined to admit the new claim into the arbitration on the basis that the
arbitration had come to its very end and the connection, between the new claim and the
claims to be decided in the Final Award, was not strong enough to justify now a
reopening of the proceedings.
Sub-Clause 14.12 - Discharge

This discharge is similar to that provided for in Sub-Clause 60.7 of the FIDIC Red Book
4th edition.
With the Final Statement, the Contractor must submit a written discharge confirming
the Final Statement represents full and final settlement of all moneys due to the
Contractor “under or in connection with the Contract”. Thus, it only takes effect once
all outstanding claims have been satisfied. The wording is more restrictive to that in
Sub-Clause 14.11 [Application for Final Payment Certificate] where the Final
Certificate must show further sums the Contractors thinks is due to him “under the
Contract or otherwise”.
As the Final Certificate takes no account of an Employer’s right to delay damages, it is

possible that payment of the sum stated in the Final Certificate will not take place. In
such circumstances, question whether the discharge would be effective?
The discharge should be submitted in the same way as the Final Statement, i.e. to the
Employer with a copy to the Engineer.
This Sub-Clause must be read with Sub-Clauses 11.10 and 14.14. Sub-Clause 11.10
[Unfulfilled Obligations] provides that the Parties remain liable for the fulfilment of
any obligation which remains unperformed after the Performance Certificate has been
issued, and for the purposes of determining the nature and extent of unperformed
29

obligations, the Contract is deemed to remain in force. Sub-Clause 14.14 [Cessation of
Employer’s Liability] provides that the Employer remains liable for sums in the Final
Statement and the Statement at Completion, in respect of his indemnification
obligations, and in respect of his liability in any case of fraud, deliberate default or
reckless misconduct. The Employer gives to the Contractor indemnities in, for
example, Sub-Clauses 1.13 [Compliance with Laws], 4.2 [Performance Security], 5.2
[Objection to Nomination], 17.1 [Indemnities], and Clause 5 of the Appendix – General
Conditions of Dispute Adjudication Agreement.
A prudent Contractor will word the discharge so as to provide for the discharge to
become effective when the final payment has been received and all bonds and
guarantees returned, otherwise the discharge will become effective immediately. For
example, the discharge may state the effective date of the discharge is the date when
the Contractor has received the Performance Security (i.e. the security for proper
performance under Sub-Clause 4.2 [Performance Security] which is returnable to the
Contractor 21 days after receipt of the Performance Certificate) and the outstanding
balance of this total.
Brian Totterdill19 suggests, “If parts of the draft Final Statement are eventually settled
in arbitration then the Contractor does not seem to have to submit a Final Statement
and hence would not submit a discharge. The submissions to the arbitration tribunal
would normally cover any amounts which the Contractor considers to be due”. Query
whether the same could be said in respect of a Dispute Adjudication Board decision
which becomes final and binding?
Sub-Clause 14.13 - Issue of Final Payment Certificate

This is similar to Sub-Clause 60.8 of the FIDIC Red Book 4th edition.
28 days after receiving the Final Statement and written discharge in accordance with Sub-
Clause 14.11 [Application for Final Payment Certificate] and Sub-Clause 14.12
[Discharge], the Engineer must issue to the Employer, the Final Payment Certificate for
payment. There is no express provision requiring it to be copied to the Contractor. The
time limit is important because if the Contractor fails to submit an application within it,
the Engineer will issue the Final Payment Certificate for such amount as he fairly
determines to be due. Under Sub-Clause 1.3 [Communications], certificates must not
be unreasonably withheld or delayed.
If the Contractor has not applied for a Final Payment Certificate in accordance with Sub-
Clause 14.11 [Application for Final Payment Certificate] and Sub-Clause 14.12
[Discharge], the Engineer will request the Contractor to do so.
The Final Payment Certificate must state both:
19
FIDIC Users’ Guide: A Practical Guide to the 1999 Red and Yellow Books at pages 251-252.
30

(a) the amount which is finally due; and
(b) the balance (if any) due from the Employer to the Contractor or from the
Contractor to the Employer, after giving credit to the Employer for all amounts
previously paid by the Employer and for all sums to which the Employer is
entitled.
Unlike Sub-Clause 60.8 of the FIDIC Red Book 4th edition, sums which the Employer
is due are not limited to those under the Contract.
Sub-Clause 14.13(a) is widely drafted and might include any additions or deductions
that have become due under Sub-Clause 3.5 [Determinations], and any additions or
deductions that have become due under the Contract or otherwise (i.e. for breach of
Contract or in tort, equity etc.) The Employer must pay the Contractor the amount
certified in the Final Payment Certificate within 56 days after the Employer receives
this Payment Certificate under Sub-Clause 14.7(c) [Payment] failing which the
Contractor might be entitled to financing charges.
It is worth noting that, under the governing law, the issue of the Final Payment
Certificate may be relevant to limitation and when a cause of action arises. In the
English case of Henry Boot Construction Ltd v Alstom Combined Cycles Ltd20, the
Court of Appeal considered (among other things) whether under the ICE Conditions of
Contract (6th edition)21 (i) the Contractor’s right to receive payment for the value of
work done and materials supplied arose upon the work being done and the materials
being supplied, or only upon the issue of the certificate, and (ii) if the latter, whether it
arose once and for all as soon as the Contractor was entitled to have the sum certified
in an interim certificate, or whether the Contractor had a continuing right to have the
sum certified in subsequent certificates, and in particular the final certificate, so that
(where the sum was not certified) each failure to certify in accordance with the contract
gave rise to a new cause of action. The Court of Appeal held on the first issue that on
a true construction of the contract, certificates were a condition precedent to the
Contractor’s right to payment and not merely evidence of the Engineer’s opinion, i.e.
the right to payment arose when a certificate was issued or should have been issued and
not earlier, such as when the work was done, or the materials supplied. However, it did
not follow from this that the absence of a certificate was a bar to the right for payment,
because the Engineer’s decision in relation to certification was not conclusive of the
rights upon the Parties and could be reviewed by an arbitrator or the court (relying on
the English case of Beaufort Developments Ltd v Gilbert Ash Ltd22). The Court of
Appeal held on the second issue that as the nature of the exercise the Engineer had to
perform in relation to an interim payment certificate, and a final payment certificate is
so different, a failure of the Engineer to comply with the interim payment obligations
20
[2005] BLR 437 CA.
21
The FIDIC Red Book was originally derived from the English ICE Conditions of Contract (4 th
edition), and the FIDIC and ICE forms tracked each other through successive editions for a number of
years.
22
[1999] 1 AC 266.
31

could not start time running in respect of a cause of action based on the failure of the
Engineer to comply with the final certificate obligations.
Sub-Clause 14.14 - Cessation of Employer’s Liability

The Employer is not liable to the Contractor for anything under or in connection with
the Contract or execution of the Works, in the same way as Sub-Clause 60.9 of the
FIDIC Red Book 4th edition.
If the Contractor is not happy with anything under, or in connection with, the Contract
or execution of the Works, he must include an amount expressly for it (a) in the Final
Statement, and (b) in the Statement at Completion described in Sub-Clause 14.10
[Statement at Completion] (except for matters or things arising after the issue of the
Taking-Over Certificate for the Works). This notification is in addition to that required
under Sub-Clause 20.1.
The Contractor should also include all future cost of Dispute Adjudication Board
proceedings and arbitration in the Final Statement or Statement at Completion.
It is a surprising provision in its obvious bias against the Contractor. The relevant
governing law may therefore be pertinent. As stated by Robert Knutson23, unfair
contract terms’ arguments (such as the Unfair Contract Terms Act (1977) in England)
may be invoked, and the exclusionary aspects of the Clause will probably be considered
contra proferentem.
This Sub-Clause is difficult to read with Sub-Clause 11.10 [Unfulfilled Obligations]

which seeks to preserve liabilities which the Contractor cannot enforce unless expressly
provided for in the Final Statement or Statement at completion under this Sub-Clause.
New to this addition and for the avoidance of doubt, it is now expressly provided that the
Employer’s liability under his indemnification obligations, or the Employer’s liability in
any case of fraud, deliberate default or reckless misconduct by the Employer, is not
limited. These are not terms of art under English law and the words would have to be
construed according to their ordinary meaning. As stated by Robert Knutson24, “As
many failures by an Employer to pay are in my experience a result of honest differences
of opinion with Contractors it would remain to be seen if deliberate but honest failure
to pay would be barred. On its face the word “deliberate” makes no distinction
between honest and somehow fault based failures to pay, but the word “default” implies
a failure to comply with a contractual obligation, perhaps simply through reckless
neglect”.
The Employer gives to the Contractor indemnities in, for example, Sub-Clauses 1.13
[Compliance with Laws], 4.2 [Performance Security], 5.2 [Objection to Nomination],
23
FIDIC An Analysis of International Construction Contracts, pages 68-69.
24
32

17.1 [Indemnities], and Clause 5 of the Appendix – General Conditions of Dispute
Adjudication Agreement.
The Contractor’s liability ceases in accordance with Sub-Clause 11.9 [Performance

Certificate], save for unfulfilled obligations under Sub-Clause 11.10 [Unfulfilled
Obligations].
Sub-Clause 14.15 - Currencies of Payment

Rates of exchange were provided for in Sub-Clause 72 of the FIDIC Red Book 4th
edition.
In this edition, currencies in which payment is to be made should be expressly stated in

the spaces provided in the Letter of Tender and the Appendix to Tender.
If all payments are to be made in one named currency, this Sub-Clause becomes
inapplicable, subject to any Particular Conditions. The FIDIC Guidance for the
Preparation of Particular Conditions provides the following example clause for a single
currency contract:
“The currency of account shall be the Local Currency and all payments made in
accordance with the Contract shall be in Local Currency. The Local Currency
payments shall be fully convertible, except those for local costs. The percentage
attributed to local costs shall be as stated in the Appendix to Tender”.
If payment is to be made in more than one currency, or if different currencies are

specified in the Letter of Tender and Appendix to Tender, this Sub-Clause (in the
absence of any agreement between the Parties) provides for the currencies in which
payments are to be made.
• Where the Accepted Contract Amount (i.e. the amount accepted in the Letter of
Acceptance for the execution and completion of the Works and the remedying of
any defects) is expressed in Local Currency only (i.e. the currency of the Country
in which the Site is located) but is to be made partly or wholly in other currencies,
agreed proportions and rates of exchange must be given in the Appendix to
Tender.
• Payments for damages specified in the Appendix to Tender will be made in the
currencies and proportions specified in the Appendix to Tender.
• Other payments to the Employer by the Contractor will be made in the currency
in which the sum was expended by the Employer, or in such currency as may be
agreed by both Parties.
33

• When an amount payable by the Contractor to the Employer in a particular
currency exceeds the sum payable by the Employer to the Contractor in that
currency, the Employer may recover the balance of this amount from the sums
otherwise payable to the Contractor in other currencies.
The rates of exchange are fixed in the Appendix to Tender. There is no provision for
change in the rates of exchange, which is a risk area for both Parties. If rates of exchange
are to be adjusted to allow for currency fluctuations, then provision should be made for
such in the Particular Conditions.
If no rates of exchange are stated in the Appendix to Tender, they will be those prevailing
on the Base Date and determined by the central bank of the Country.
By Victoria Tyson
34

Clause 15
Summary
Clause 15 deals with Termination by the Employer.
Sub-Clause 15.1 deals with a Notice to Correct. This permits the Engineer to issue a
Notice to the Contractor about a failure to carry out any obligation under the
Contract. The Engineer can require that the Contractor make good the failure and
remedy it within a specified reasonable time.
Sub-Clause 15.2 deals with Termination by the Employer. There are six grounds
specified. In most cases the Employer may give 14 days’ notice if it intends to
terminate the contract; however, where the Contractor has become bankrupt or
insolvent etc. under Sub-Clause 15.2(e) or gives a bribe, gift, inducement or reward
etc. under Sub-Clause 15.2(f) then the Employer may by notice terminate
immediately. The Contractor must then leave Site and deliver any required Goods,
all Contractor’s Documents and other design documents made by or for him to the
Engineer.
Sub-Clause 15.3 deals with valuation at the date of Termination. When termination
has taken effect the Engineer is required to determine the value of the Works,
Goods and Contractor’s Documents, and any other sums due to the Contractor for
work executed in accordance with the Contract.
Sub-Clause 15.4 deals with Payment after Termination. Once termination under
Sub-Clause 15.2 [Termination by Employer] has taken effect then the Employer may
proceed in accordance with Sub-Clause 2.5; withhold further payments to the
Contractor; and recover from the contractor any losses and damages incurred by
the Employer and the extra costs of completing the Works.
Sub-Clause 15.5 deals with the Employer’s Entitlement to Terminate. This is a

termination at will provision that allows the Employer to terminate the Contract by
giving 28 days’ notice, so long as the Employer does not intend to have the Works
executed by himself or another contractor. In the event that termination occurs
under this Sub-Clause then the Contractor is paid under Sub-Clause 19.6 [Optional
termination, Payment and Release].

Origin of clause
The Notice to Correct provisions as well as the Employer’s Entitlement to Terminate are
new to FIDIC Red Book 1999. The termination and payment provisions on termination
in Clause 15 of FIDIC 1999 had its origins in the 4th edition Red Book Clause 63.
Cross-references

Sub-Clause 4.4 Subcontractors
Sub-Clause 16.3 Cessation of Work and Removal of Contractor’s Equipment
Clause 15.1 Notice to Correct
Some terminations are possible even if the Employer has not given a notice to correct
under Sub-Clause 15.1. (See Sub-Clause 15.2 below); however, the notice to correct
procedure may open a way to termination on grounds which might not normally be
thought to justify termination.
This Sub-Clause is new to the present edition and represents a substantial change from
the previous situation. Previously it was only a persistent or flagrant failure to meet
obligations that could lead to a termination following notice to comply with obligations.
Now mere failure to comply may lead directly to termination. The Contractor will need
to treat any notice given under Sub-Clause 15.1 very seriously.
Notable features of this Sub-Clause are as follows:
1. It applies if the Contractor fails to carry out any obligation under the Contract.
This is as broad as such a provision can be. On its face it would appear that the
obligation need not be an important or material obligation and there is no time limitation.
It would seem that it is possible for the Engineer to give a notice in respect of a failure
which occurred months or years earlier and which then had, and still has, no significant
impact on the Contract’s operation. However recent case law has suggested that a Notice
to Correct must relate to a more than insignificant contractual failure and it would not be
possible to give a Notice to Correct if, by the time the notice is given, the obligation the
Contractor has failed to carry out can no longer be remedied or has been remedied.

There are many examples of where a Contractor might fail to carry out an obligation
which can no longer be remedied or has been remedied. For example under Sub-Clause
4.18 the Contractor is required, amongst other things, to ensure that emissions do not
exceed values indicated in the specification. The Contractor might have allowed
emissions early in the Contract contrary to this requirement but has remedied the
situation later on. Nonetheless an emission is an emission – once it has been emitted it
has been emitted, so the default remains forever. The Contractor will therefore have
failed to carry out its obligation at that time, even though it is now too late to do anything
about it. Obviously if the illegal emissions continue a Notice to Correct could apply to
future emissions.
It is also suggested that where, what may be described as an obligation, is in fact a pre-
condition (for example the notice requirements without which a claim under Clause 20.1
will fail, or the requirements for an application for payment under Clause 14.3 without
which the Employer is not obliged to pay for Work done) this cannot be the basis of a
Notice to Correct. These are pre-conditions, the failure to obey which may prejudice the
Contractor’s position but are not strictly obligations under the Contract.
However some obligations which are not pre-conditions and might otherwise be difficult
to enforce such as the obligation to provide particulars of claim under Sub-Clause 20.1
after the initial notice, may be the subject of a Notice to Correct.
The Contract includes dozens of obligations on the Contractor’s part, any one of which
(subject to the above reservations) could form the basis of a Notice to Correct. The
following is a list of all the obligations which might form the basis of a Notice to Correct.
Some of these obligations may seem insignificant or trivial. However once a Notice to
Correct has been given, the basis of any termination which might follow will not be the
initial breach, but the failure to correct.
Clause Obligation Comment

Not to assign the whole or any part of
the Contract or any benefit in or under
the Contract without the prior
1.7 Assignment agreement of the other Party. (There is
an exception to allow assignment of the
right to any moneys due to a bank or
financial institution)
1.8 Care and
Contractor to supply 6 copies of each
Supply of
Contractor Document
Documents
Contractor to keep on Site copy of
Contract, publications named in
Specification, Contractor’s Documents,
3

Drawings, Variations and other
communications
Employer’s Personnel to be given
access to such documents
Contractor to give notice to Employer
of any defect in documents of a
technical nature
Contractor to give notice to the
Engineer whenever the Works are likely
1.9 Delayed
to be delayed or disrupted if any
Drawings or
necessary drawing or instruction is not
Instructions
issued within a particular reasonable
time.
Contractor not to copy, use
1.11 Contractor’s
communicate Employer’s Documents to
use of Employer’s
third parties except as necessary for the
Documents
Contract.
This right may be very
valuable to the Employer
or Engineer when
dealing with claims or
Contractor to disclose confidential and disputes. The Contractor
1.12 Confidential other information as the Engineer may may prefer the Engineer
Details reasonably require in order to verify its or Employer not to see
compliance with the Contract this information but the
Engineer or Employer
can use the Notice to
Correct procedure to
insist on compliance.
1.13 Compliance Contractor shall in performing the
with Laws Contract comply with applicable Laws
Contractor shall give all notices, pay all
1.13(b) taxes, duties and fees and obtain all
permits, licences and approvals
If Contractor is a joint venture or
1.14 (b) Joint and
consortium or other grouping they shall
Several Liability
notify Employer of their leader
The leader shall have authority to bind
the Contractor
If Contractor is a joint venture,
1.14(c) consortium or other grouping it shall not
alter its composition or legal status
4

without prior consent of the Employer
Contractor shall comply with
3.3 Instructions of instructions given by the Engineer or
Engineer delegated assistant on any matter related
to the Contract
Design to the extent specified in the
4.1
Contract
Execute the Works in accordance with
the Contract and the Engineer’s
Instructions
Complete the Works in accordance with
the Contract and the Engineer’s
Instructions
Provide the Plant specified in the
Contract
Provide the Contractor’s Documents
specified in the Contract
Provide all Contractor’s Personnel
required in and for the design,
execution, completion and remedying of
defects
Provide all Goods required in and for
the design, execution, completion and
remedying of defects
Provide all consumables required in and
for the design, execution, completion
and remedying of defects
Provide all other things and services
required in and for the design,
execution, completion and remedying of
defects
Contractor is responsible for the
adequacy of all Site operations
stability of all Site operations
Contractor is responsible for the safety
of all Site operations
adequacy of all methods of construction
stability of all methods of construction

Contractor is responsible for the safety
of all methods of construction
Contractor is responsible for all
Contractor’s Documents
Contractor is responsible for Temporary
Works
Contractor is responsible for such
design of each item of Plant as is
required for the item to be in
accordance with the Contract
Contractor is responsible for such
design of each item of Materials as is
required for the item to be in
Contractor shall, whenever required by
the Engineer, submit details of the
arrangements which the Contractor
proposes to adopt for the execution of
the Works
Contractor shall, whenever required by
the Engineer, submit details of the
methods which the Contractor proposes
to adopt for the execution of the Works
Contractor shall not make significant
alteration to arrangements or methods
which it proposes to adopt for the
execution of the Works without having
previously notified this to the Engineer.
If the Contract specifies that the
Contractor shall design any part of the
Permanent Works then the Contractor
4.1(a) shall submit to the Engineer the
required Contractor’s documents in
procedures
The Contractor’s Documents shall be in
4.1(b)
accordance with the Specification
accordance with the Drawings
the language of the Contract
The Contractor’s Documents shall
6

include additional information required
by the Engineer to add to the Drawings
for co-ordination of each Party’s
designs
Any part designed by the Contractor
4.1(c) shall when the Works are completed be
fit for purpose
Prior to Tests on Completion Contractor
shall submit “as-built” documents and
operation and maintenance manuals
which are both in accordance with the
4.1(d)
Specification and in sufficient detail for
the Employer to operate, maintain,
dismantle, reassemble adjust and repair
this part of the Works.
4.2 Performance Separate provision (not necessary to
Security consider as subject to notice to correct)
Contractor to appoint Contractor’s
4.3
Representative
Contractor to give Contractor’s
Representative all authority necessary to
act on the Contractor’s behalf under the
Contract
Contractor shall provide full particulars
of Contractor’s Representative
Contractor shall provide full particulars
of new Contractor’s Representative if
original is not approved or fails to act
Contractor shall not revoke appointment
of Contractor's Representative or
appoint new one without Engineer’s
consent
The whole time of the Contractor's
Representative shall be given to
Very easy to be breached
directing the Contractor’s performance
of the Contract.
A suitable person to replace
Contractor's Representative in his
absence subject to Engineer’s consent
and with notice to the Engineer
The Contractor's Representative shall be
fluent in the language of the Contract
7

4.4 Not to Sub-
The Contractor shall not subcontract the
contract the Whole
whole of the Works
of the Works
The Engineer’s prior consent shall be
4.4(b) obtained for proposed Subcontractor’s
not named in the Contract
Contractor shall give Engineer at least
28 days notice of the intended date of
4.4(c)
commencement of each Subcontractor’s
work
Contractor shall give Engineer notice of
commencement of each Subcontractor’s
work on the Site
Each Subcontract shall include
provisions which would entitle the
Employer to require the Subcontract to
be assigned to the Employer
The Contractor shall as specified in the
Contract allow appropriate
opportunities (including use of
4.6 Cooperation Contractor’s Equipment, Temporary
Works or access arrangements) for
carrying out work to the Employer’s
Personnel
opportunities for carrying out
work(including use of Contractor’s
Equipment, Temporary Works or access
arrangements) to any other Contractors
employed by the Employer
opportunities (including use of
Contractor’s Equipment, Temporary
Works or access arrangements) for
carrying out work to the personnel of
any legally constituted public
authorities.
If the Employer is required to give the
Contractor access in accordance with
Contractor’s Documents the Contractor
8

shall submit such documents to the
Engineer in accordance with the
Specification
The Contractor shall set out the Works
in relation to the original points lines
4.7 Setting Out
and levels of reference specified or
notified
The Contractor shall be responsible for
the correct positioning of all parts of the
Works
the rectification or any error in the
positions, levels, dimensions or
alignment of the Works.
The Contractor shall comply with all
4.8 (a) Safety
applicable safety regulations
The Contractor shall take care for the
4.8(b) safety of all persons entitled to be on the
Site
The Contractor shall use reasonable
efforts to keep the Site and Works clear
4.8(c)
of unnecessary obstruction so as to
avoid danger
Provide fencing, lighting, guarding and
4.8(d)
watching of the Works
Provide any Temporary Works which
4.8(e) may be necessary for the use and
protection of the public
The Contractor shall institute a quality
4.9 Quality
assurance system in accordance with the
Assurance
Contract.
Details of all procedures and
compliance documents shall be
submitted to the Engineer before each
design and execution stage.
All documents shall show Contractor’s
approval
4.12 Contractor to give notice where he
Unforeseeable encounters adverse physical conditions
Physical which he considers to have been
Conditions Unforeseeable
Contractor to continue executing the
9
Works after encountering physical
conditions
Contractor shall comply with
instructions of Engineer relevant to
Unforeseeable physical conditions
The Contractor shall obtain any
4.13 Rights of additional facilities outside the Site
Way and Facilities which he may require for the purpose of
the Works
The Contractor shall bear all costs and
charges for special and/or temporary
rights-of-way
Contractor shall not interfere
4.14 Avoidance of
unnecessarily or improperly with the
interference
convenience of the public
Contractor shall not interfere
unnecessarily or improperly with access
to and use and occupation of all roads
and footpaths
The Contractor shall use reasonable
efforts to prevent any road or bridge
4.15 Access Route from being damaged by the
Contractor’s traffic or the Contractor’s
Personnel.
any maintenance which may be required
for his use of access routes
The Contractor shall provide all
necessary signs or directions along
access routes
The Contractor shall obtain any
permission required from relevant
authorities for use of access, signs or
directions
Contractor shall give Engineer not less
4.16 Transport of than 21 days notice of the date on which
Goods any Plant or a major item of other
Goods will be delivered to the Site
This is an interpretation
Contractor’s Equipment on Site shall be
4.17 Contractor’s of the Clause which in
used exclusively for execution of the
Equipment fact says: Contractor’s
Works
Equipment shall be
10

deemed to be exclusively
intended for execution of
the Works.
Contractor shall not remove from the
Site any major items of the Contractor’s
Equipment without the consent of the
Engineer.
Contractor shall take all reasonable
4.18 Protection of
steps to protect the environment both on
the Environment
and off the Site
Contractor shall take all reasonable
steps to limit damage and nuisance to
people and property resulting from
pollution, noise and other results of his
operations.
Contractor shall ensure that emissions,
surface discharges and effluent from the
Contractor’s activities shall not exceed
the values indicated in the
Specifications
Contractor shall ensure that emissions,
surface discharges and effluent from the
Contractor’s activities shall not exceed
the values prescribed by Applicable
Laws.
Contractor shall provide any apparatus
4.19 Electricity, necessary for his use of electricity water
Water and gas and gas and for measuring the quantities
used.
4.20 Employer’s The free issue materials shall come
Equipment and under the care custody and ontrol of the
Free-issue Material Contractor.
Unless otherwise provided monthly
4.21 Progress progress reports shall be submitted by
Reports the Contractor to the Engineer in six
copies
Each report shall be submitted within 7
days of the last day of the period to
which it relates.
Each report shall include:
(a) charts and detailed descriptions of
11

progress, including each stage of
design (if any), Contractor’s
Documents, procurement,
manufacture, delivery to Site,
construction, erection and testing;
and including these stages for work
by each nominated Subcontractor
(as defined in Clause 5 [Nominated
Subcontractors]),
(b) photographs showing the status of
manufacture and of progress on the
Site;
(c) for the manufacture of each main
item of Plant and Materials, the
name of the manufacturer,
manufacture location, percentage
progress, and the actual or expected
dates of:
(i) commencement of
manufacture,
(ii) Contractor’s inspections,
(iii) tests, and
(iv) shipment and arrival at the Site;
(d) the details described in Sub-
Clause 6.10 [Records of
Contractor’s Personnel and
Equipment];
(e) copies of quality assurance
documents, test results and
certificates of Materials;
(f) list of notices given under Sub-
Clause 2.5 [Employer’s Claims] and
notices given under Sub-Clause 20.1
[Contractor’s Claims];
(g) safety statistics, including details of
any hazardous incidents and
activities relating to environmental
12

aspects and public relations; and
(h) comparisons of actual and planned
progress, with details of any events
or circumstances which may
jeopardise the completion in
accordance with the Contract, and
the measures being (or to be)
adopted to overcome delays.
4.22 Security of Contractor shall keep unauthorised
the Site persons off the Site
4.23 Contractor’s Contractor shall confine operations to
Operations on Site Site and additional agreed areas
Contractor shall take all necessary
precautions to keep Contractor’s
Equipment and Contractor’s Personnel
within the Site and additional agreed
areas.
Contractor shall take all necessary
precautions to keep Contractor’s
Equipment and Contractor’s Personnel
off adjacent land.
Contractor shall keep Site free from
unnecessary obstruction
Contractor shall store or dispose of
Contractor’s Equipment or surplus
materials
Contractor shall clear away from and
remove from the Site any wreckage,
rubbish and Temporary Works no
longer required.
All fossils, coins, articles of value or
antiquity and structures and other
remains or items of geological or
4.24 Fossils
archaeological interest found on Site
shall be placed under due care and
authority of the Employer
On finding any such items Contractor
shall promptly notify Engineer
5.3 Payments to Contractor shall pay to the Nominated
Nominated Sub- Subcontractor the amounts which the
Contractor’s Engineer certifies
13

If Engineer requests Contractor to
supply evidence that Nominated
Subcontractor has received all amounts
5.4 Evidence of due, Contractor shall submit this
Payments evidence or provide evidence that the
Contractor has the right to withhold the
amounts and the Subcontractor has been
so notified.
Contractor shall pay rates and observe
6.2 Rates of
conditions of labour which are not
Wages and
lower than those established for the
Conditions of
trade or industry where the work is
Labour
carried out.
If no rates established Contractor shall
pay rates and observe conditions of
labour which are not lower than the
general level of wages and conditions
observed locally by employers whose
trade or industry is similarto that of the
Contractor.
6.3 Persons in the Contractor shall not recruit or attempt to
Service of the recruit staff and labour from amongst
Employer the Employer’s Personnel
Contractor shall comply with all
relevant labour laws including
6.4 Labour Laws employment, health, safety, welfare,
immigration and emigration in relation
to own and Subcontractor employees
Contractor shall require employees and
subcontractor employees to obey all
applicable laws including safety laws.
No work on Site on local holidays or
outside working hours in Appendix to
6.5 Working Hours
Tender unless otherwise stated in
Contract, agreed, or emergency.
Contractor to provide and maintain all
6.6 Facilities for necessary accommodation and welfare
Staff and Labour facilities for own staff and as specified
for Employer’s what?
Contractor shall not permit personnel to
live within structures forming part of
the Permanent Works
14

Contractor shall at all times take all
6.7 Health and reasonable precautions to maintain the
Safety health and safety of Contractor’s
Personnel
Contractor shall ensure medical staff,
first aid facilities, sick bay and
ambulance services available at all
times
Contractor shall ensure that suitable
arrangements are made for all necessary
welfare and hygiene requirements and
the prevention of epidemics
Contractor shall Appoint qualified and

empowered accident prevention officer
Contractor shall send details of all
accidents to Engineer as soon as
practicable
Contractor shall maintain records and
make reports regarding health, safety
and welfare of persons and damage to
property as required by the Engineer.
Contractor shall provide all necessary
6.8 Contractor’s
superintendence to plan, arrange, direct
Superintendence
manage, inspect and test the Work.
Superintendence personnel shall have
good knowledge of language of the
contract and of the operations to be
carried out for the safe and satisfactory
execution of the Works.
6.9 Contractor’s Shall be appropriately qualified skilled
Personnel and experienced
If required by Engineer will remove any
person who persists in misconduct or
lack of care; carries out duties
incompetently or negligently; fails to
conform with Contract; persists in
conduct prejudicial to safety, health or
the protection of the environment.
Contractor will replace person removed.
6.10 Records of Contractor shall monthly submit to
Contractor’s Engineer records of personnel and
15

Personnel and equipment
Equipment
Contractor shall take reasonable
precautions to prevent unlawful, riotous
6.11 Disorderly or disorderly conduct by its personnel
Conduct and to preserve peace and the protection
of persons and property on and near the
Site.
Manufacture of Plant, production and
7.1 Manner of manufacture of Materials and execution
Execution of the Works to be in manner required
by Contract
manufacture of Materials and execution
of the Works to be in a proper workman
like and careful manner
manufacture of Materials and execution
of the Works to be with properly
equipped facilities and non-hazardous
Materials
Contractor to give Employer’s
7.3 Inspection
Personnel full access and protection
Contractor to give notice before work is
covered up
If Contractor has not given such notice
he shall, at request, uncover to allow
inspection
Contractor to provide all necessary
7.4 Testing
equipment and staff
Contractor shall agree time and place of
testing with Engineer
Contractor shall promptly forward
results to Engineer
If the Engineer rejects anything, the
7.5 Rejection Contractor shall properly make good the
defect.
7.6 Remedial Even if Work not rejected, Engineer can
Work require that it be repaired.
8.1 Contractor shall commence the Works
Commencement of as soon as reasonably practicable after
Works the Commencement Date.
16

Contractor will proceed with the Works
with due expedition and without delay
Contractor to complete the whole of the
8.2 Time for
Works and each Section within the
Completion
Time for Completion
Contractor shall submit a detailed time
8.3 Programme programme within 28 days after notice
of Commencement
Contractor shall submit a revised
programme whenever the previous
programme is inconsistent with actual
progress or with Contractor’s
obligations.
Content of the Programme will include
the following:
(a) the order in which the Contractor

intends to carry out the Works,
including the anticipated timing of
each stage of design (if any),
Contractor’s Documents,
procurement, manufacture of Plant,
delivery to Site, construction,
erection and testing,
(b) each of these stages for work by
each nominated Subcontractor (as
defined in Clause 5 [Nominated
Subcontractors]),
(c) the sequence and timing of
inspections and tests specified in the
Contract, and
(d) a supporting report which includes:
(i) a general description of the
methods which the Contractor
intends to adopt, and of the
major stages, in the execution
of the Works, and
(ii) details showing the
Contractor’s reasonable
estimate of the number of each
17

class of Contractor’s Personnel
and of each type of
Contractor’s Equipment,
required on the Site for each
major stage.
Unless the Engineer so orders the
Contractor shall proceed in accordance
with the programme
Contractor shall promptly give notice to
the Engineer of specific probable future
events or circumstances which may
adversely affect the work
increase the Contract Price
delay the execution of the Works
Contractor will at the Engineer’s
request submit an estimate of the
anticipated effect of the future event or
circumstances or a Variation proposal
Contractor shall submit a revised
programme if the Engineer gives notice
that a programme fails to comply with
the Contract or to be consistent with
actual and the Contractor’s stated
intentions
Where progress will not achieve Time
for Completion or is behind programme,
8.6 Rate of Engineer may instruct Contractor to
Progress submit revised programme and method
statement to expedite progress and
complete within time
Contractor shall adopt revised methods
If so instructed by the Engineer, the
8.8 Suspension of
Contractor shall suspend progress on all
Work
or part of the Works
Where work is suspended on
18

instructions of Engineer the Contractor
shall protect store and secure the Works
9.1 Tests on Various obligations not dealt with here
Completion as unlikely to be relevant to termination
10 Employer’s Various obligations not dealt with here
Taking Over as unlikely to be relevant to termination
11 Defects Various obligations not dealt with here
Liability as unlikely to be relevant to termination
Contractor’s representative shall, on
12.1 Works to be notice from the Engineer, assist in
Measured making the measurement and supply
any particulars requested.
Contractor shall attend to examine and
agree records.
If Contractor does not agree shall give
notice of respect in which records are
asserted to be inaccurate
Contractor shall execute and be bound
by each Variation unless it promptly
13.1 Right to Vary
gives notice that it cannot readily obtain
the Goods required for the Variation.
Contractor shall not make any alteration
and/or modification of the Permanent
Works unless and until the Engineer
instructs or approves a Variation.
If Engineer requests a variation
13.3 Variation
proposal Contractor shall respond as
Procedure
soon as practicable
If Contractor can comply the following
details shall be included:
Description of work to be performed

and a programme
Proposed modification to the
programme
Proposal for evaluation of the Variation
Contractor must acknowledge receipt of
Variation
Contractor shall when required produce
13.5 Provisional
quotations, invoices, vouchers and
Sums
accounts or receipts
13.6 Daywork Contractor shall when required produce
19

quotations, invoices, vouchers and
accounts or receipts
Contractor shall deliver accurate
statements daily including names of
Personnel, details of Equipment and
Temporary Works and quantities and
types of Plant and Materials used. After
agreement the Contractor will submit
priced statements of these resources.
14.1 Contract
Price
Contractor shall pay all taxes, duties
14.1(b) Pay Taxes
and fees required to be paid by him
Contractor shall submit within 28 days
14.1(d) of Commencement Date a proposed
breakdown of each lump sum price.
Contractor will take full responsibility
17.2 Contractor’s for the care of the Works and Goods
Care of the Works during carrying out of the Works except
as per Employer’s risks
During this period the Contractor will
rectify loss or damage
17.4 Consequences If any loss or damage occurs as a result
of Employer’s of Employer’s risk the Contractor shall
Risk promptly give notice to the Employer
If any loss or damage occurs as a result
of Employer’s risk the Contractor shall
rectify this loss or damage to the extent
required by the Engineer.
Contractor shall obtain insurance for
matters which it is required to insure,
18 Insurance maintain that insurance and not do
anything which might prevent the
insurance being enforceable.
Contractor shall keep such
contemporary records as may be
20.1 Contractor’s
necessary to substantiate any claim and
Claims
shall permit the Engineer to inspect
such records.
Within 42 days after the Contractor
became aware (or should have become
aware) of the event or circumstance
20

giving rise to the Claim, or within an
agreed extended period, the Contractor
shall provide a fully detailed claim.
Subsequently the Contractor shall send
further interim claims at monthly
intervals including such further
particulars as the Engineer requires.
The final claim shall be submitted
within 28 days of the end of the effects
resulting from the event or
circumstances or as agreed.
Unless the Contractor gives a notice of
20.4 and 20.7
dissatisfaction within 28 days the
DAB decision
decision is final and binding
Where a notice of dissatisfaction has
20.5 Amicable
been given both parties shall attempt to
Settlement
settle the dispute amicably.
2. The notice is to make good the failure and to remedy it.
“Make good” is obviously intended to mean something other than “remedy”. In the
context this must mean that to “make good” is to undo the bad effects caused by the
failure and “remedy” is to bring things back to the state they would have been without the
failure to carry out the obligations.
Similar language is used in England in leasing agreements where a tenant is required on

leaving to remedy and make good any damage he has caused while a tenant. If, for
example he has cut a hole in a wall to make a door he needs to remove the door, and refill
the hole (remedy) and make it as good as it was when he first occupied the premises
(make good).
In the emission example above this would mean somehow reversing the bad effects of the
emissions as well as stopping further wrongful emissions.
The language used is not to make good and/or to remedy, but make good and to remedy.
Either the Sub-Clause means that the Engineer is allowed to require the Contractor to do
the impossible, and then to allow the Employer to terminate if he does not, or it is only
intended to allow a notice to be given where it is possible both to make good and to
remedy the defect. Thus no notice should be possible unless the obligation is one that
can (in theory) both be made good and remedied. In the emission example, the
21

consequences of the emission might be capable of being made good but it is too late to
ask for remedy. Therefore no notice under Sub-Clause 15.1 can be given.
To take a different example from the emission example above, under Sub-Clause 1.3, the
Contractor is required in performing the Contract, to comply with all applicable laws. In
the common situation where the Contractor is only temporarily based in the country
where the Works are being carried out, many Contractors, unfamiliar with the local
environment may find themselves in breach of one regulation or another. Say, for
example, the Contractor does not register for VAT when this is its obligation under local
law, this is something which is capable of remedy (by late registration) and also of
making good (late registration undoes the harm which was done in the first place).
However, there are situations where it is possible to remedy but not make good. It is an
obligation of the Contractor under Sub-Clause 6.7 “at all times to take all reasonable
precautions to maintain the health and safety of all the Contractor’s Personnel.” If, as a
result of its failure to take all reasonable precautions, a worker is killed, it is too late to
make good the default but it may not be too late to remedy the breach – by introducing
appropriate or additional precautions. Arguably no notice could be given because the
breach was not capable of making good and remedying.
The FIDIC guide itself overlooks the reference to both “make good” and “remedy” – it
refers only to “remedy” and gives the following advice about the way in which the notice
should be given: -
It should:
- state that it is given under this sub-clause;

- describe the nature of the Contractor’s failure;
- specify a reasonable time within which the Contractor is to remedy the failure.
3. De minimis and insignificant breaches.
In the case of Obrascon Huarte Lain SA v Her Majesty's Attorney General for Gibraltar 1
the court had to consider whether Sub-Clause 15.1 could be used for any type of breach,
irrespective of how insignificant it was. Despite the fact that there are no restrictions on
the types of obligation that Sub-Clause 15.1 will apply to, and the nature of the breaches,
the court concluded not every breach of an obligation was subject to Sub-Clause 15.1.
Akenhead J stated:
“Clause 15.1 relates only to more than insignificant contractual failures by the
Contractor. It could be a health and safety failure, bad work, serious delay on
1
[2014] EWHC 1028 [318]
22

aspects of the work or the like. It will need to be established as a failure to comply
with the Contract. Something may have not yet become a failure; for instance the
delivery to site of the wrong type of cement may not become a failure until the
cement is or is about to be used.”
A de minimis failure to comply with the Contract will therefore not entitle an Engineer to
issue a Sub-Clause 15.1 notice. Akenhead J. in Obrascon Huarte Lain SA v Her
Majesty's Attorney General for Gibraltar 2 then proceeded to state:
“It follows that, in construing both Clauses 15.1 and 15.2 of the Contract, a
commercially sensible construction is required. 3 The parties can not sensibly have
thought (objectively) that a trivial contractual failure in itself could lead to
contractual termination. Thus, there being one day's culpable delay on a 730 day
contract or 1m² of defective paintwork out of 10,000m² good paintwork would
not, if reasonable and sensible commercial persons had anything to do with it,
justify termination even if the Contractor does not comply with a Clause 15.1
notice. What is trivial and what is significant or serious will depend on the facts.”
The editors of Hudson's Building and Engineering Contracts (12th edn.) support this
position and state at para 8.056:
"Termination clauses occasionally allow termination on the ground of "any

breach" or "any default". Although in principle, parties may agree whatever they
wish, the courts will generally be reluctant to read such wording literally.
"Default" will be read as meaning a default relevant to the contract, and the courts
will treat matters which are not a breach of contract as excluded from the meaning
of default. "Any breach" will be held to refer only to important breaches, to
exclude minor breaches, and to include only such breaches as are of substantial
importance."
4. The Contractor must be given a reasonable time for the making good and remedy
of the failure.
What time is reasonable must depend on the nature of the default. An Employer giving
notice cannot afford to take the risk that the time given is not reasonable – if a DAB or
Arbitral Tribunal were later to find that the time given was not reasonable the entire
termination process would fail. So the wise Employer will be not only reasonable but
generous in the time it gives the Contractor to make good and remedy.
2
Ibid at [321]
3
See also Mannai Investment Co Ltd v Eagle Star Assurance Company Ltd [1997] UKHL 19
23

The reasonable time will depend upon how long it will realistically take to make good
and remedy the failure. This may sometimes be a very long time. If for example the
failure consisted of using inferior materials within a building or structure, the making
good might require substantial demolition and therefore a very substantial time. A failure
on the part of the Contractor to provide a programme or updated programme required
under Clause 8.3 might reasonably only require 2-3 weeks – assuming the Contractor had
the software and the staff to do it and had been making the necessary preparations. But in
many situations this is unrealistic. The Employer is unlikely to have got to the point of
giving notice unless the Contractor is having the greatest difficulty preparing its
programmes. So what is a reasonable time? The time it would take a normal Contractor
to comply with sub-Clause 8.3 or the time it would take a Contractor with the defects of
the specific Contractor party to this Contract to prepare it? The Sub-Clause gives no
guidance and either argument might be valid in some circumstances. The wise
Employer, however impatient by this stage will give what it judges to be more than
enough time.
In Obrascon Huarte Lain SA v Her Majesty's Attorney General for Gibraltar 4 Akenhead
J. stated as follows:
“The specified time for compliance with the Clause 15.1 notice must be
reasonable in all the circumstances prevailing at the time of the notice. Thus, if
90% of the workforce had gone down with cholera at that time, the period given
for compliance would need reasonably to take that into account, even if that
problem was the Contractor's risk. It may well be relevant to take into account
whether the Clause 15.1 notice is coming out of the blue or if the subject matter
has been raised before and the Contractor has chosen to ignore what it has been
told. What is reasonable is fact sensitive.” 5
In the appeal in Obrascon Huarte Lain SA v HM Attorney General for Gibraltar 6 the
Court of Appeal held that there was no challenge to the correctness of the analysis
undertaken by Akenhead J.
The FIDIC Guide gives the following advice:
“If the Time for Completion expired before the notice is issued but the Works
have not been completed and the notice requires the Contractor to make good this
failure and to complete the Works within a specified time, it may be desirable for
the notice to state that it is given without prejudice to the Employer’s rights under
the Contract or otherwise. If the notice does not mention this matter, it may be
construed as indicating that the Employer is waiving his entitlement to delay
4
[2014] EWHC 1028 [318]
5
See also Shawton Engineering Ltd v. DGP International Ltd [2005] EWCA Civ 1359 [69])
6
[2015] EWCA Civ 712 (09 July 2015) [114]
24

damages in respect of the period up to the expiry of the “specified reasonable
time”. Sub-Clause 8.7 does not mention this aspect, so as to avoid any effect on
the applicability of Clause 15.”
15.2 Termination by Employer
The Sub-Clause provides multiple ways for the Employer to terminate the Contractor.
Some of these are easier to apply than others and since it is almost inevitable that an
Employer’s termination will be contested in arbitration, the Employer needs to approach
the possibility of termination with the greatest of care.
Almost invariably Employers will only consider termination where the contract has
encountered multiple problems. In such a situation it is more than likely that the
Contractor will also be looking for ways to exercise its right to terminate. Thus it is
common for both Parties to serve notices of termination very quickly after one another.
If the Employer, in its notice of termination, relies on a ground which may have only
occurred in circumstances where the Contractor also has the right to terminate, the
subsequent dispute will be about who had the right to terminate and the risks are high that
the Employer’s termination will be regarded as invalid in the face of the Contractor’s
legitimate rights to behave as it has.
A very common example is where the Employer exercises its right relying on Clause 15.2
ground (a) – alleging that the Contractor has abandoned the Works or otherwise plainly
demonstrated the intention not to continue performance of his obligations under the
Contract or ground (c), failing without reasonable excuse to proceed with the Works in
accordance with Clause 8. The Employer will undoubtedly be able to point to very
serious performance failures on the part of the Contractor – if not the Employer would
certainly not have relied on this ground to terminate. However the Contractor will have
his own reasons for abandoning the Works or slowing to the extent that the Employer
thinks he is about to abandon. Whether he is at fault or not he will certainly have some
arguments to explain why he has been so treated that he cannot go on. The Employer
will have decided (or been advised by the Engineer) that these reasons are unsupportable,
but that is not to say they will not gain some sympathy from an arbitral tribunal. Battle
will be joined on the basis of these conflicting views of why the Contractor was not
performing and the outcome will be far from certain.
To avoid this situation the Employer is far better advised to try to identify grounds for
termination which do not depend on who may have been at fault in the lead-up to the
termination. If there are serious concerns about the Contractor’s manner of carrying out
its obligations under the Contract, there should be the basis for a series of notices to
correct under Clause 15.1. If the Contractor is really under-performing it will not be able
25

to make good and remedy within a reasonable time and there should be several clear
grounds for termination.
Whichever ground is chosen, the best advice is to be very well prepared. The Contractor
will know things the Employer does not know and the process of arbitration will mean
that the facts will be examined in a degree of detail which never occurs in the normal
administration of a contract.
Dealing with specific grounds in Clause 15.2 in detail
(a) fails to comply with Sub-Clause 4.2 [Performance Security] or with a notice
under Sub-Clause 15.1 [Notice to Correct].
The failure to comply with Sub-Clause 4.2 [Performance Security] speaks for itself.
The requirements relating to a Sub-Clause 15.1 notice to correct are set out above. An
Employer cannot rely on a notice to correct which has been wrongly given by the
Engineer in order to terminate the contract. In ICS (Grenada) Ltd v NH International
(Caribbean) Ltd 7 the arbitrator had found that instructions given by the Engineer had
been wrongly given as the defective work was not as a result of defective workmanship
or design for which the contractor was responsible. The arbitrator concluded that the
termination under Clause 63.1 of FIDIC’s 4th edn. was unjustified since it was based on
the legitimacy of the said instructions. The High Court of Trinidad and Tobago agreed
with this finding by the arbitrator. 8
(b) abandons the Works or otherwise plainly demonstrates the intention not to
continue performance of his obligations under the Contract.
Abandons is a word which was itself abandoned in the previous edition of the FIDIC
contract, though it had been used before in earlier editions. The expression used in the 4th
edition was “repudiate the Contract” and the legal effect of “abandon or plainly
demonstrate the intention not to continue performance of his obligations” is probably
intended to have the same meaning.
However the word “abandon” has its own problems. In a situation where the
Contractor’s work has slowed to a crawl or where he is doing no on-going work but is
continuing security on the Site it may be arguable that he has not actually abandoned the
Works. Unless the Contractor has disappeared from the Site without any pretence at all
of continuing the work an Employer who wants to rely on this ground may be better to
identify some more specific grounds in addition to the abandonment ground.
7
HCA No. Cv. 1541 of 2002
8
Ibid at page 23 of 38
26

Similarly plainly demonstrates the intention not to continue performance of his
obligations may sometimes be unarguable, but if the acts which, in the Employer’s view
demonstrate such intention occur in the midst of a dispute in which the Contractor is
alleging some serious breaches of contract on the part of the Employer or some difficult
external problem such as Unforeseeable Physical Conditions, the Employer will be best
advised to look for other more specific grounds on which to found a termination. 9 What
may seem a plain demonstration in the midst of an acrimonious dispute may not seem so
plain once all the facts have been carefully assembled by the Contractor for a DAB
hearing or for arbitration.
There are a number of situations where, without actually abandoning the Works a
Contractor can be said to have demonstrated its intention not to continue to perform its
obligations – some examples are as follows:
The Contractor indicates that it will only continue the Works if the Employer immediately
meets claims which the Engineer or Employer has avoided addressing.
This is a common situation where the relationship has become difficult. The Contractor
may have made an application for an extension of time which the Engineer is delaying
determining. There will often be arguments about whether the Contractor has provided
adequate grounds for the extension. The Contractor in frustration advances some basis
on which it believes it has the right to terminate and threatens to give notice of
termination unless the extension of time is granted. Unless it is absolutely clear that the
Contractor’s basis of termination is entirely invalid it would be dangerous here for the
Employer to terminate on the grounds of a demonstrated intention on the part of the
Contractor not to perform its obligations.
The Contractor claims unforeseeable physical conditions - probably under Clause 4.12 –
and then slows work to a crawl saying that he will resume once a decision to issue a
variation order is made.
The Contractor has no right to stop working while awaiting a variation order but the
Employer will find it hard (though not impossible) to show that the Contractor has
abandoned the works or demonstrated his intention not to continue to perform his
obligations. If the Employer wants to terminate he should rely not only on Clause
15.2(b) but also on as many other grounds as he can identify.
It would be dangerous also to assume that Clause 15.2(b) is exactly equivalent to its
predecessor, “repudiation”, because there can be a repudiation where a party
demonstrates its intention not to perform substantially all its obligations; or where what it
9
See Obrascon Huarte Lain SA v Her Majesty's Attorney General for Gibraltar[2014] EWHC 1028 [360]
27

shows it intends not to perform is the substance of the Contract. Clause 15(2)(b) is
written in much more general terms and it is difficult to read it as meaning anything other
than requiring that the Contractor has demonstrated that it intends to not to perform any
of its remaining obligations in their entirety.
Where the contract is made under English Law the right to terminate on the basis of
repudiation will continue to exist despite the lack of reference to it in the Contract. This
opens up broader grounds for termination. For example a Contractor who makes its
continuation of its obligations contingent on the Employer doing something which it is
not contractually obliged to do could also, at law, be said to have repudiated the Contract.
This is a complex area of the law and the Employer ought to take legal advice, because it
is possible for the effect of a repudiation to be lost because the Employer has
subsequently “affirmed” the Contract by allowing it to continue.
(c)(i) without reasonable excuse fails to proceed with the Works in accordance
with Clause 8.
Clause 8 contains many obligations to proceed so this ground provides considerable

opportunity for the Employer to give notice; however, the failure must be critical to the
Works. The equivalent termination power under the previous edition only allowed the
Employer to terminate where the Contractor failed to expedite the Works after being
required to do so. This provision is very favourable to the Employer and potentially
dangerous to the Contractor.
The term “proceed” in Clause 8 means more than merely “move ahead”. For example
Sub-Clause 8.3 begins by describing what is in a programme. A programme under
Clause 8 includes a great deal more than merely the dates on which various activities
have to be performed. It includes for example resourcing, sequencing and methods. The
Sub-Clause then requires the Contractor to “proceed” in accordance with the
programme. In the context “proceed” in Clause 8 must mean “act” or “meet obligations
under”.
The following are the requirements to proceed under Clause 8. The particular obligations
are dealt with in more detail in the Chapter on Clause 8
Sub-Clause Obligations to proceed included in the Sub-Clause

8.1 Commence as soon as practicable
8.2 Complete the Works and each Section within the Time for
Completion.
Proceed with due expedition and without delay throughout the
contract
8.3 Obligation to proceed in accordance with the programme i.e.
28

(a) Neither faster nor slower than currently programmed
(b) in the order set out in the programme
(c) to follow the methods set out in the programme
(d) to use the Contractor’s Personnel and Contractor’s
Equipment as set out in the programme.
(e) to follow similar obligations in respect of any revised
programme
8.6 Obligations to follow revised methods proposed in response to an

instruction by the Engineer to expedite progress including
increasing working hours and increasing personnel.
8.7 Obligation to pay delay damages
8.8 Obligation to protect, store and secure the suspended works against
any deterioration loss or damage
8.12 Obligation to make good any deterioration or defect in or loss of the
Works or Plant or Materials, which has occurred during the
suspension.
However, as stated above, the failure must be critical to the progress of the Works in
order for the Employer to terminate under this provision. As stated by the Court of
Appeal in Obrascon Huarte Lain SA v HM Attorney General for Gibraltar 10:
“The obligation under clause 8 of the FIDIC Conditions to "proceed with the
works with due expedition and without delay" is not directed to every task on the
contractor's to-do list. It is principally directed to activities which are or may
become critical. See the reasoning of Stuart-Smith J in Sabic UK Petrochemicals
Ltd (formerly Huntsman Petrochemicals (UK) LTD) v Punj Lloyd Ltd (a company
incorporated in India) [2013] EWHC 2916 (TCC); [2014] BLR 43 in particular at
[166].”
(c)(ii) without reasonable excuse fails to comply with a notice issued under
Clause 7.5 (Rejection), Sub-Clause 7.6 (Remedial Work) within 28 days after
receiving it.
This is an odd provision because it allows termination if the compliance is not carried out
within 28 days whereas both Sub-Clause 7.5 and Sub-Clause 7.6 do not include time
limits. Sub-Clause 7.5 requires that the defective work be made good “promptly” and
Sub-Clause 7.6 requires that the remedial work be done within a “reasonable time”.
What may be prompt or a reasonable time must depend on how difficult the making good
or remedy will be in the particular situation. To make sense of this conflict, the words
“without reasonable excuse” will have to be read so as to mean that the time limit of 28
10
[2015] EWCA Civ 712 (09 July 2015) [132]
29

days will have to be extended to a time consistent with the obligations under the two Sub-
clauses. This makes the Sub-Clause difficult to operate. It would be unwise to assume
that 28 days is definitely enough and Employers should allow considerable leeway for the
Contractor before terminating on this basis.
15.2(d) Subcontracts the whole of the Works or assigns the Contract without the
required agreement.
Although it is common for Contractors to subcontract substantial parts of the Works and
it is also common for Contractors to subcontract more than they originally indicated they
would subcontract when they were awarded the Contract, this is not enough to bring the
Clause into effect. It is also improbable that the Contractor will subcontract the whole of
the Works – Since the term Works means both the Permanent and the Temporary Works
(Clauses 1.1.5.4, 1.1.5.7 and 1.1.5.8) and it is arguable that this includes all the elements
of the project including the supervision, provision of materials etc, it is also improbable
that the Contractor will assign the whole of the Works. This is certainly what Clause 12
and 13 assume (see discussion under Clauses 1.1.5.4, 1.1.5.7 and 1.1.5.8)
If the Employer is concerned that the Contractor has subcontracted more than he had
agreed, and wishes to terminate on this basis, it is safer to give a notice to correct (i.e. to
require the Contractor to cancel the subcontract arrangement) under Clause 15.1 rather
than to take the risk that there may be some elements of the Works which in some
technical sense have not been sub-contracted.
The right to terminate if the Contractor assigns the Contract without the Employer’s
Consent reflects the fact that this would be a breach of Clause 1.7. If an assignment,
prohibited under Clause 1.7 is only partial, the remedy for the Employer would be the
issuing of a notice to correct under Clause 15.1, asking that the assignment be reversed.
(e) becomes bankrupt or insolvent, goes into liquidation, has a receiving or

administration order made against him, compounds with his creditors, or carries
on business under a receiver, trustee or manager for the benefit of his creditors,
or if any act is done or event occurs which (under applicable Laws) has a similar
effect to any of these acts or events.
This is a situation in which the Employer’s decision to terminate may be one of necessity
rather than choice because to continue the Contract could involve the Employer spending
money which it is not able to recover. This will depend, however, on the financial
guarantees which the Contractor has been required to put in place and on the law in the
country where the Works are being carried out (the law applying here will not be the law
chosen by the parties but that of the country in which the Works are being carried out).
30

If, for example, the Contractor is seriously in delay and is already liable for delay
damages, the Employer will normally wish to off-set these against payments otherwise
due to the Contractor. However where the Contractor is bankrupt, amounts due from the
Employer to the Contractor will still be payable but amounts payable by the Contractor to
the Employer will only be payable proportionally with other debts of the Contractor or (if
other debts have priority) possibly not at all. Depending on the underlying legal system,
retention money may not be able to be used for the usual purpose of meeting the costs of
defects. This situation may be moderated if there is a performance, retention or parent
company guarantee.
It is possible that the Contractor’s lenders, vendors or other creditors will have the right
to seize the Contractor’s Equipment or even Plant and Material which has not already
been incorporated into the Works. Subcontractors may have a right of direct claim
against the Employer. Under some legal systems a clause like this may be unenforceable
This clause is very comprehensive ranging from informal insolvency to formal

insolvency (liquidation etc). Thus in England it might include any failure to pay an
undisputed debt within 21 days of service of a Statutory Demand and may also include a
Contractor whose balance sheet discloses an excess of liabilities over assets (Section 123
of the Insolvency Act 1986). The clause is probably wide enough to cover any kind of
insolvency under English law but may not be so under other legal systems.
The Employer faced with a Contractor in financial difficulties must obtain local legal
advice as quickly as possible in order to see whether termination is necessary or possible
to protect its position.
Under the previous editions a voluntary liquidation for the purpose of amalgamation or
reconstruction did not entitle the Employer to terminate. This exemption does not now
apply, so a Contractor considering such a voluntary liquidation, perhaps as part of a
corporate restructuring or for reasons other than financial difficulties, must explain the
situation in advance to the Employer and agree that the Employer will not use the
opportunity to terminate. In return the Employer needs to ensure that all guarantees and
bonds remain valid despite the change to the legal personality of the Contractor.
(f) Giving or Offering Bribes, gifts, gratuities, commissions or other thing of

value
This is an extraordinarily wide provision and, although no one will doubt its moral value
in principle, the Contractor is not in a position entirely to prevent himself breaching it.
The Contractor can be terminated if any of the following people offer bribes:
31

Party whose Comment Degree of
giving of bribes Control
can lead to
Contract
termination
Contractor includes any person with authority Complete
to act on behalf of the Contractor
such as its managers or directors
Contractor’s Contractor’s Representative Complete
Personnel
All personnel whom the The term utilise is May be
Contractor utilises on Site wider than “employ” so minimal
would include any
supplier or self-
employed tradesman as
well. However if the
person is not utilised on
the Site at the time he
offers the bribe he will
not then implicate the
Contractor
Staff, labour and other employees This includes anyone Probably
of each Subcontractor capable of representing minimal
the Subcontractor staff
both on and off Site
because Subcontractor
is mentioned separately
in Clause 15.2(f)
Any other personnel assisting the This may extend to Variable
Contractor in the execution of the people who are not
Works even under the
Contractor’s control.
However, if the person
is not utilised on the
Site at the time he
offers the bribe he will
not then implicate the
Contractor
agents The term agent includes anyone Variable
actually appointed to represent the
Contractor or (at least under
English law) anyone who appears
32

Party whose Comment Degree of
giving of bribes Control
can lead to
Contract
termination
to be so appointed.
Despite this wide reach the Sub-Clause is not carefully thought through as it includes
employees of Subcontractors on Site but only those with power to represent the
Subcontractor when off-Site, does not cover Contractor employees off-Site unless they
are executives or agents and does not refer to suppliers off-Site.
Despite these gaps, Contractors need to be extremely vigilant to ensure that no bribes are
offered by anyone acting or purporting to act on their behalf and to make sure that these
obligations are passed down to sub-contractors. It would be very easy for a Contractor to
find itself facing the risk of termination.
Despite the poor drafting of the Clause, Employers who wish to exercise their right to
terminate need to be particularly careful to make sure that the offeror of the bribe is
covered by the Clause.
Process of Termination
If one of the above events or circumstances exists the Employer may give notice of
termination. In the case of (a) to (d), this must be at least 14 days and in the case of (e) or
(f) must be immediate. Once the 14 days’ notice has been given then the Employer
should wait for the 14 days to elapse before expelling the Contractor from Site. In Final
Award in Case 10892 11 the Employer failed to wait the 14 days before entering onto Site.
The arbitral tribunal, considering a similar provision under Clause 63 of FIDIC’s 4th edn,
held that the failure to wait was a violation of Clause 63.1(e). On appeal to the High
Court of Trinidad and Tobago, the court inferred that this failure to wait the 14 days may
have been a breach of Clause 63.1(e) but might not have resulted in the termination being
wrongful. 12
Nothing within this Sub-Clause precludes the Employer giving the Contractor a prior
warning of his intention to terminate and this may be a wise course because, once notice
is given, while the Contract may be revived by mutual agreement, this may be contrary to
the procurement law or the requirement of funding agencies. Once the Contract has been
terminated, any “revived” contract, may be regarded by the procurement law or the
11
ICC International Court of Arbitration Bulletin (2008) Vol. 19 No. 2, page 91
12
HCA No. Cv. 1541 of 2002
33

agencies as a new contract and (even if it is on the same terms as the old) may require a
new tendering process before it can be awarded.
There is no specific format required for the notice but the Employer needs to take care
that the notice precisely follows the requirements of the Contract. There is some legal
authority, at least under English law, that requirements of termination provisions have to
be meticulously observed, although another authority suggests that all that is essential is
that the intention to act under the Clause is clearly conveyed to the other Party. In
Obrascon Huarte Lain SA v Her Majesty's Attorney General for Gibraltar 13 Akenhead J
considered this issue and stated:
“courts in the past have been slow to regard non-compliance with certain
termination formalities including service at the "wrong" address as ineffective,
provided that the notice has actually been served on responsible officers of the
recipient.”
Akenhead J. then proceeded to set out a number of principles relating to termination.
“(a) Termination of the parties' relationship under the terms of such contracts is a
serious step. There needs to be substantive compliance with the contractual
provisions to achieve an effective contractual termination.
(b) Generally, where notice has to be given to effect termination, it needs to be in

sufficiently clear terms to communicate to the recipient clearly the decision to
exercise the contractual right to terminate.
(c) It is a matter of contractual interpretation, first, as to what the requirements for

the notice are and, secondly, whether each and every specific requirement is an
indispensable condition compliance without which the termination cannot be
effective. That interpretation needs to be tempered by reference to commercial
common sense.
(d) In the Contract in this case, neither Clause 1.3 nor Clause 15.2 use words such
as would give rise to any condition precedent or making the giving of notice
served only at OHL's Madrid office a pre-condition to an effective termination. Of
course, key elements of the notice procedure involve securing that OHL is
actually served with a written notice and receives the notice and it being clear and
unambiguous that the notice is one being served under Clause 15.2, namely that
14 days notice of termination is being given by GOG to OHL, such as to enable it
to expel the Contractor from the Site.
13
[2014] EWHC 1028 [368]
34

(e) The primary purpose of Clause 1.3 is to provide an arrangement whereby
notices, certificates and other communications are effectively dispatched to and
received by OHL. The primary purpose of a Clause 15.2 termination notice is to
ensure that OHL is made aware that its continued employment on the project is to
be at an end.
(f) In my judgment, the service of a Clause 15.2 notice at the Madrid office of
OHL as such is not an indispensable requirement either of Clause 15.2 or Clause
1.3. Provided that service of a written Clause 15.2 notice is actually effected on
OHL personnel at a sufficiently senior level, then that would be sufficient service
to be effective.”
In other jurisdictions, such as New Zealand, the courts have held that termination clauses
must be complied with to the letter if they were to be relied upon. 14 The fact that even
within one legal system the Courts may deal with two similar clauses in different ways
illustrates the need for the party giving the notice to take great care to make certain that
the full period required by the contract is given.
There is a requirement within Clause 15.2 that the Contractor use his best efforts to
comply with any reasonable instruction for assignment of any subcontract included in the
termination notice and the protection of life or property or for the safety of the Works.
This seems to suggest that such requirements will only be enforceable if included in the
notice of termination.
The Effect of Termination
Once the notice has expired, the Contract is terminated and the Employer may expel the
Contractor from the Site. Although the language seems to suggest that the ‘Contract’
itself has been terminated what in fact is cancelled are the rights of the Contractor to
continue working under the Contract and to be remunerated for that. The remainder of
the Clause explains what will happen following the termination. This is made clear by
the following sentence – “The Employer’s election to terminate the Contract shall not
prejudice any other rights of the Employer, under the Contract or otherwise.”
Subsequent clauses then set out the Contractor’s continuing obligations and the
Employer’s rights.
As mentioned above any requirement that the Contractor arrange assignment of sub-
contracts or make arrangements for safety needs to be included in the notice of
termination. Only following termination can the Employer give notice of the release of
the Contractor’s Equipment and Temporary Works. The Contractor has the obligation to
take possession of the Equipment and Temporary Works.
14
Brown and Doherty v Whangarei County Council [1988] 1 NZLR 33
35

In so far as it relates to Contractor’s Equipment this provision makes sense but the
Employer may be placed in a very difficult provision because of the requirement
regarding Temporary Works. It is likely that some of these will be required in order to
protect the Works until they can be resumed by another Contractor. Thus the Employer
will effectively be obliged to return only those parts of the Temporary Works which are
not needed and may therefore be forced to put itself in breach of Contract. 15 The
consequences (if any) of this breach will have to be dealt with in subsequent proceedings.
The Employer can partly protect himself in this situation by making use of the right at the
time of the termination notice to give instructions for the protection of life, property or
safety and making one such instruction an instruction to leave relevant Temporary Works
in place.
The final sentence provides that if the Contractor has failed to make a payment due to the
Employer any items which would otherwise have to be returned may be sold to recover
the amount owed. This would enable undisputed determinations of the DAB to be
recovered. However other claims do not become due for payment until the Employer has
claimed under Clause 2.5 and the Engineer has given a determination. Thus items may
not be sold to cover such claims (however well founded) and there is no provision for
them to be held in the meantime. If the Contractor is bankrupt the right to sell may have
the effect of giving the Employer a first charge over the value of these items, thus
avoiding them being seized and sold for the benefit of other creditors. The precise
position will depend on the law of the country in which the Works are being carried out
(not on the law of the Contract).
15.3 Valuation at Date of Termination
This provision is self-explanatory. Once the Notice of Termination under Sub-Clause

15.2 has taken effect, the Engineer proceeds, as soon as practicable, in accordance with
Sub-Clause 3.5 [Determinations] to agree to determine the value of the Works, Goods
and Documents and any other sum for work executed in accordance with the Contract.
As soon as practicable. Under English law there is a difference between doing

something “as soon as practicable” and doing something “as soon as reasonably
practicable”. The second is more elastic and the former indicates that what is required is
to be done as soon as possible having regard to the facts. In JE v Secretary of State for
the Home Department 16 the English Court of Appeal stated that: “‘as soon as
practicable’… does not mean immediately. It envisages that both parties will require a
reasonable time in which to consider their position.”
15
Employers should amend this provision in Contracts at time of tender.
16
[2014] EWCA Civ 192 [11]
36

In accordance with Sub-Clause 3.5 [Determinations]. The Engineer is required to
consult with each Party in an endeavour to reach agreement and, if agreement is not
reached, then make a “fair determination” in accordance with the Contract. The Engineer
is not entitled to do anything that breaches the term of the Contract. Nael Bunni
suggests 17 that a fair determination should follow the dictionary definition of “just,
unbiased, equitable in accordance with the rules”. Bunni N., also refers to the case of
Semco Salvage Marine Pte Ltd v Lancer Navigation Ltd18where it was suggested that fair
would mean fair to both parties.
Under English law the position is that a party who is appointed to carry out decision
making functions; e.g. determining or certifying the value of works is:
“Required to act in a manner which has variously been described as independent,

impartial, fair and honest. These concepts are overlapping but not synonymous.
They connote that the decision-maker must use his professional skills and his best
endeavours to reach the right decision, as opposed to a decision which favours the
interests of the employer.” 19
The value of the Works …and any other sums due to the Contractor in accordance with
the Contract. It is unclear how the Engineer values the works executed and, in particular,
where various activities in the Specification have been rolled up into one item in the Bill
of Quantities. For example, on a railway project there may be a single BoQ item for the
laying of ballast for the track, the laying of the track and the compacting, levelling and
tamping of the track. If the Contractor has placed 20 km of ballast and then laid the track
on top but has not started the compacting, levelling and tamping is he to be paid nothing?
In these circumstances how is the Engineer to determine the “value of the Works”? If the
Engineer uses the Bill of Quantities to assess the value of the works then he would award
nothing. Alternatively, the Engineer could value these works using Cost but this could
leave the Employer out of pocket in the event that the Contractor has under tendered. In
our opinion as the Engineer is required to value the Works “… in accordance with the
Contract.” Therefore, in the above scenario the Engineer should give a nil value to the
works which had not been completed.
15.4 Payment after Termination
Once the notice under Sub-Clause 15.2 has taken effect then the employer may (a)
proceed in accordance with Sub-Clause 2.5; (b) withhold further payments to the
Contractor until the costs of execution, completion and remedying of defects and other
costs incurred by the Employer have been established; and (c) recover from the
17
Bunni N., The FIDIC Forms of Contract (1991) Blackwell Publishing at page 524
18
[1997] UKHL 2; [1997] 1 All ER 502; [1997] 2 WLR 298; [1997] 1 Lloyds Rep
19
Scheldebouw BV v St. James Homes (Grosvenor Dock) Ltd [2006] EWHC 89 [34]; see also Costain Ltd v
Bechtel Ltd [2005] EWHC 1018 (TCC); and SGL Carbon Fibres Ltd v RBG Ltd [2012] ScotCS CSOH_19
37

Contractor losses and damages incurred by the Employer and any costs of completing the
Works.
The Contractor’s main exposure will be to the cost of completion of the Work – a cost
likely to be substantially more than it itself would have received for doing the same work.
Sub-Clause 15.4 is potentially confusing. In FIDIC Contracts: Law and Practice, 20 this
confusion was identified.
“The word "may" here is potentially confusing, because it could suggest that
compliance with the requirement set out in Sub-Clause 2.5 (...) is optional (...).
Furthermore, the Employer's rights to withhold further payment and to recover
losses and damages from the Contractor under Sub-Clause 15.4 (b) and (c)
respectively are not expressly stated to be subject to Sub-Clause 2.5 (...). In this
way, there is a potential conflict between these provisions and those of Sub-
Clause 2.5 (...), in particular in relation to the Employer's right of set-off ( ...). It
is, however, suggested that, reading the Conditions as a whole, the most
pragmatic interpretation of these provisions is that, on termination under Sub-
Clause 15.2, the Employer's obligation to pay is generally suspended, but that his
entitlement to claim any losses and damages is nevertheless still intended to be
subject to Sub-Clause 2.5 (...). However, it would seem that the Employer does
not have to submit particulars or substantiate the claim until the losses and
damages incurred have been established. 21
The confusion was considered in Partial Award in Case 15956. 22 In this case the contract
was terminated by the Employer and the Works re-let. The Employer made a claim for
the costs of completion without first submitting a claim under Sub-Clause 2.5 and then
20.4. The Contractor challenged the jurisdiction of the arbitral tribunal to deal with these
losses. The Employer relied upon Sub-Clause 15.4 (c) which gave the Employer an
option to claim damages directly.
The arbitral tribunal considered what was termed as the Seppala test. 23 The Seppala test
provides that the Employer must first make a claim, then refer it to the Engineer, and then
to the DAB, prior to commencing arbitration, "unless the Employer can demonstrate that
the counterclaim was effectively included in a dispute which had already been referred to
the DAB for decision under Clause 20 and which is already in arbitration." In this case
the termination of the Contract had already been referred to the DAB. The arbitral
20
Ellis Baker et al., FIDIC Contracts: Law and Practice, Section 8.222, p. 453
21
Brian W. Totterdill, FIDIC Users' Guide, A Practical Guide to the 1999 Red and Yellow Books, Thomas
Telford, p. 260 makes a similar point
22
ICC Dispute Resolution Bulletin 2015 No 1, at p.44
23
Christopher R. Seppala, "The Arbitration Clause in FIDIC Contracts for Major Works", ICLR 2005, p. 4
at 7
38

tribunal concluded that as the issue of termination had been referred to and dealt with by
the DAB, a subsequent referral of the costs resulting from that termination was not
necessary. The arbitral tribunal stated:
“In the instant matter, the Employer seeks to submit directly to arbitration a claim
for the extra costs of completing the Works subsequently to and as a result of
termination by the Employer whilst the DAB has already considered and ruled on
the appropriateness of such termination. The Arbitral Tribunal finds that the two
situations are very similar, to the point that, for all practical purposes, they should
have identical consequences… the Arbitral Tribunal finds that Claimant was
entitled to submit the Disputed Claims directly to arbitration without first notifying
such claims and then following the pre-arbitral procedures laid down in the
Contract.”
The above case does not, however, deal specifically with the issue of whether a Sub-
Clause 2.5 notice is required if the Seppala test has not been met; although the inference
from the arbitral tribunal is that a Sub-Clause 2.5 notice would be required and that an
Employer could not go straight to arbitration without first having a decision of the
Engineer and then the DAB. This conclusion seems also to be supported by the Privy
Council in NH International (Caribbean) Ltd v National Insurance Property
Development Company Ltd (Trinidad and Tobago). 24 However, the contradiction
between Sub-Clause 15.4(a) and 15.4(c) was not specifically considered by the Privy
Council in that case.
15.5 Employer’s Option to Terminate
This Sub-Clause gives the Employer the right to terminate at any time for convenience.
This can be seen as a serious risk for the Contractor and a great benefit for the Employer.
However, where the Employer is a public body, this may simply reflect the legal position
in many jurisdictions, that, with proper payment of compensation, a government always
has the right to terminate contracts which are administrative in nature.
However, in recognition of the serious risks involved for the Contractor the Sub-Clause
places several limitations on the exercise of the power by the Employer as follows:
• The Employer is required to return the Performance Security before exercising the
power
• The Employer is not entitled to terminate the Contract under this Sub-Clause in
order to execute the Works itself or to arrange for the Works to be executed by
another contractor
24
[2015] UKPC 37
39

• The termination is treated in the same way as a termination for Force Majeure –
i.e. the Contractor will be paid in full for work done, for materials ordered for its
costs of demobilisation and for other costs it incurs as a result of the termination.
• In contrast to a termination for cause, the Contractor will not be liable to pay for
the costs of termination.
In order to avoid the risk that the grounds on which it has terminated for cause will be
rejected by a DAB or arbitral tribunal, and that the Contractor is therefore able to claim
loss of profit and other consequential losses resulting from wrongful termination, many
employers issue a combined termination notice when terminating for cause. The notice
will read something like the following:
‘We hereby give you notice of termination under Sub-Clause 15.2 for the
following reason(s). As an alternative and without prejudice to our notice under
Sub-Clause 15.2 we also hereby give notice of termination under Sub-Clause
15.5.’
It will, however be difficult for the Employer to make this effective. Firstly it will have
to equalise the periods of notice – the notice under Sub-Clause 15.2 will have to be
extended to 28 days from the normal minimum of 14 and it is not clear whether the
Contract permits this. Secondly it will be required to return the Performance Security –
something it is unlikely to want to do if it believes the Contractor has been seriously in
breach. It is not clear how the Sub-Clause will apply in any event if the Performance
Security has already been called and cannot be returned. Thirdly, the procedure
following a termination under Sub-Clause 15.5 is different from that under Sub-Clause
15.2. The procedure under Sub-Clause 15.5 is the same as that when the Contractor
exercises its right to terminate.
Finally and most importantly, the Employer’s rights to continue are quite different when
it terminates under Sub-Clause 15.5 compared with when it terminates under Sub-Clause
15.2. The difference as set out clearly in Sub-Clause 15.5 is that the Employer cannot
use its power to terminate under Sub-Clause 15.5 in order to execute the Works itself or
to arrange for the Works to be executed by another Contractor. If the reason the
Employer wished to terminate the Works is in fact for cause, it is unlikely that the
Employer will not wish to continue with the Works and the use of Sub-Clause 15.5 will
preclude it from doing so unless it is prepared to breach the contract.
Even in the situation where the Employer’s primary reason for terminating is that it does
not, for the moment, wish to continue with the Works the restriction on its rights opens
up considerable potential problems.
The most likely reason that an Employer will have for wishing to terminate under Sub-
Clause 15.5 will be that it has run out of money. This may be because the works have
40

proved to be more difficult than expected so that there have been variations or other cost
overruns. It may be that there has been unexpectedly high inflation so that the price
adjustments to which the Contractor is entitled have drained the Employer’s coffers. Or
it may just be that other calls on the Employer’s resources have made it impossible or
undesirable to continue at least for the moment.
Sub-Clause 15.5 forbids the Employer terminating in order to execute the Works himself
or through another contractor. If the termination is genuinely for financial reasons this
would not seem to prevent the Employer terminating, even if it has in mind the possibility
of continuing the works later when its financial position improves.
What it cannot do is terminate with the intention of having the Works continued by
someone it considers better or cheaper.
Another situation is that where the Employer finds that the project as originally
conceived does not meet present day needs. It may need time to reconsider. It could
alter it by issuing variation orders but this would require the Contractor to put present
work on hold for a while (at the Employer’s expense) and might be an expensive way to
carry out the continued Works because the Contractor will be in a good bargaining
position. Thus it prefers to terminate the present Contract, review its options and
continue later.
Arguably such a course of action is permitted under the Sub-Clause, because the
motivation is not to execute the same Works but something different.
An Employer may terminate under Sub-Clause 15.5 in the event that it is unsure whether
it could terminate under Sub-Clause 15.2. However, this option is only realistic if the
Employer does not intend to finish the Works or intends to substantially re-design the
Works. An Employer is not precluded from issuing a Sub-Clause 2.5 [Employer’s
Claims] for losses sustained even if it has given notice under Sub-Clause 15.5. However,
it may be extremely difficult to claim for poor performance in circumstances where the
Works are abruptly cancelled and when only part of the Works have been completed. In
Jacobs UK Ltd v Skidmore Owings & Merrill LLP 25the court stated:
“Likewise, it is difficult to pinpoint loss due to non- or poor performance of

services when the provision of those services is abruptly cancelled part way
through their performance. In both instances, the only demonstrable loss may be
the extra manhours worked by the defendant carrying out further estimation
exercises that should not have needed to be redone, or the additional costs of other
consultants engaged. But since extra hours and/or additional consultant's costs
25
[2008] EWHC 2847 [71]
41

will have been caused by the termination anyway, those that flow from the alleged
breaches must be separately identified to have any prospect of being recovered.”
There will be considerable room for argument about whether the Employer properly
exercised its powers under this Sub-Clause. There are a number of interesting possible
scenarios:
1. The Contractor knows that the Employer has terminated in order to complete
the works more cheaply using another Contractor.
In this case the Employer is clearly in breach. The Contractor would not be obliged to
cease work and would have the right to challenge the decision through the Engineer,
DAB and arbitration. This is not an attractive proposition because, throughout this period
the Contractor has the option of working for an Employer who has made it clear it is not
going to pay it and, if it does stop work, later losing and finding that it has tied up its
resources for a long period with no right of compensation. In these circumstances, the
Contractor probably has no choice but to accept the inevitable, issue a counter
termination notice under Sub-Clause 16.2 and remove itself from the Site. Sub-Clause
16.4(c) gives the Contractor the right to damages for loss of profit and other losses
(including consequential losses) suffered as result.
2. The Employer is unclear what it intends to do about the remainder of the

Works. However months or years later it hires another contractor and
continues the Works.
The Contractor’s loss is loss of profit and loss of opportunity. In a typical scenario the
Contractor will only have discovered the Employer’s real intention when the new
contractor starts work. It may be arguable that the original purported termination by the
Employer was ineffective as it was not entitled to terminate in order to continue the
Works through another contractor. The Contractor can argue that the Contract has
remained alive in the meantime despite the attempt by the Employer to terminate it and
can commence proceedings even at this late stage to terminate and claim loss of profit.
3. The Employer’s financial difficulties were genuine and it abandons any

attempt to continue the Works for some years. Eventually it finds itself able
to continue and, using a new contractor, moves on from where it previously
gave up.
It is unlikely the Contractor has a claim. At the time it made use of its rights under Sub-
Clause 15.5, the Employer was terminating for financial reasons, not in order to continue
the works with another contractor.
4. The Employer continues the same project but after a substantial re-design.
42

Arguably these are not the same “Works” and the Employer is not in breach.
Thus a Contractor who is not completely sure that the Employer has no intention of
continuing the Works will be strongly advised to issue its own notice of termination
before it leaves the Site – thus at least opening the door to a possible loss of profit claim.
There is one circumstance under which the Employer might seek to terminate under Sub-
Clause 15.5. This is the circumstance where the Contractor has good reason to terminate
and is planning to do so, but the Employer has no basis for termination under Sub-Clause
15.2. If the Contractor succeeds in terminating it will be entitled to loss of profit under
Sub-Clause 16.4, but if the Employer exercises its right to terminate (not in order to have
another Contractor continue the works) it will not have to pay loss of profit. An
interesting termination race would then ensue. Under Sub-Clause 15.5, the Contract will
terminate 28 days after the notice or the return of the performance guarantee, whichever
is the later. Under Sub-Clause 16.2 the contract will terminate after 14 days. If the
Contractor gets his notice in within 14 days of the Employer’s notice he may save the
situation but the Contract is by no means clear.
In TSG Building Services PLC v South Anglia Housing Ltd26the English High Court was
faced with this situation. In this case there was a clause which provided that the parties
should work together in “the spirit of trust, fairness and co-operation....within the scope
of their agreed roles, expertise and responsibilities....and in all matters governed by the
Contract they shall act reasonably.....” (Clause 1.1). It was argued that this clause
prevented one party from terminating at convenience in an unreasonable way. The judge
held that the provision of “reasonableness” did not apply to the termination at
convenience clause. The court concluded that either party could terminate for any or no
reason. The clause provided an “unconditional and unqualified right” meaning that
termination under the contract was properly effected by South Anglia with no
compensation payable to TSG Building Services. The court also found that Clause 1.1
should be interpreted narrowly to apply only to matters within the context of that clause
so that good faith did not extend to the whole contract. In countries where there is an
express statutory requirement of good faith then it may still be possible to run an
argument that an Employer faced with termination for default cannot terminate at
convenience to avoid paying to the contractor additional losses.
26
[2013] EWHC 1151 (TCC)
43

Clause 16
Summary
Clause 16 deals with suspension and termination by the Contractor.
Sub-Clause 16.1 deals with the Contractor’s right to suspend work in the event that
the Engineer fails to certify in accordance with Sub-Clause 14.6 [Payment
Certificates] or the Employer fails to comply with Sub-Clause 2.4 [Employer’s
Financial Arrangements] or Sub-Clause 14.7 [Payment]. Prior to the Contractor
suspending work it must give 21 days’ notice. The right to suspend does not affect
the Contractor’s entitlement to terminate or claim financing charges. In the event
that the Contractor suffers delay or cost as a result of suspension it must give notice
under Sub-Clause 20.1 [Contractor’s Claims].
Sub-Clause 16.2 deals with the Termination by the Contractor. There are seven
grounds specified. In most cases the Contractor may give 14 days’ notice if it
intends to terminate the contract; however, where there has been a prolonged
suspension under Sub-Clause 8.11 [Prolonged Suspension] or, inter alia, bankruptcy,
liquidation, insolvency or receiving or administration orders have been made
against the Employer then the Contractor may by notice terminate immediately.
Sub-Clause 16.3 deals with Cessation of Work by the Contractor and Removal of
the Contractor’s Equipment. This Sub-Clause applies where the termination takes
place under Sub-Clause 15.5 [Employer’s Entitlement to Termination]; Sub-Clause
16.2 [Termination by Contractor]; or Sub-Clause 19.6 [Optional Termination,
Payment and Release].
Sub-Clause 16.4 deals with Payment on Termination. Once termination under Sub-
Clause 16.2 [Termination by Contractor] has taken effect then the Contractor is
entitled to the return of the Performance Security; payment in accordance with
Sub-Clause 19.6 [Optional Termination, Payment and Release] and loss of profit or
other loss and damage sustained by the contractor as a result of termination.
Origin of clause
Clause 16 of FIDIC 1999 had its origins in clause 69 of the FIDIC 4th edition. The right
to suspend as well as terminate was included in the 4th edition.
Cross-references

Sub-Clause 8.11 Prolonged Suspension

Sub-Clause 14.2 Advance Payment
Sub-Clause 15.5 Employer’s Entitlement to Termination
Sub-Clause 17.6 Limitation of Liability
Sub-Clause 19.6 Optional Termination, Payment and Release
16.1 Contractor’s Entitlement to Suspend Work
The Contractor has the right under the Contract to suspend in only 3 circumstances and in
each of these circumstances the right only comes into effect once the Contractor has
given notice to the Employer (note not to the Engineer). The right is then to suspend
work or reduce the rate of work.
The Sub-Clause is rather unclear on what is intended by the reduction of the rate of work.
The concept covers a wide range of changes – from a slight go slow to a virtual cessation.
Nor is it clear how proportional the reduction of the rate of work must be. If the breach
justifying the reduction is minimal can the Contractor slow to virtual crawl – or must the
breach be quite substantial in order to justify such a major reduction? In cases of
termination the courts have construed fault clauses in a commercial way so as to exclude
reliance on trivial breaches. This stems from the often followed approach of Lord
Diplock in Antaios Compania Naviera SA v Salen Rederierna AB. 1 Similarly, Akenhead
J. in the English High Court, when considering the FIDIC Red Book, stated “The parties
can not sensibly have thought (objectively) that a trivial contractual failure in itself could
lead to contractual termination.” 2 There is no reason why these principles should not be
equally applicable to suspension. A Contractor who does not act proportionately stands
the risk of being accused of being in breach of Sub-Clause 15.2 (demonstrating an
intention not to continue performance of his obligations under the contract) and facing a
termination notice from the Employer. Even if the Employer does not go this far it may
well later argue that any delay was caused not by the suspension but by the Contractor’s
unjustifiable slowing down of the Works and that there should therefore be no extension
of time.
The three situations where the right to suspend occurs are:
1
[1985] AC 191 at 201D
2
Obrascon Huarte Lain SA v Her Majesty's Attorney General for Gibraltar [2014] EWHC 1028 (TCC) at
[321]
2

(a) if the Engineer fails to certify in accordance with sub-Clause 14.6 (Issue of
Interim Payment Certificates).
Sub-Clause 14.6 sets out the complex arrangements for certification which are the pre-
requisite for the Employer’s obligation to pay. The process is described in the
commentary on Sub-Clause 14.6. As can be seen there is plenty of scope for the
Engineer to delay issue of Interim Payment Certificates without failing to follow the
contractual procedures. The question therefore is – what is the Contractor’s position if
the Engineer fails for good reason or, at least for an arguable reason, to issue the IPC?
The right to suspend arises if the Engineer simply “fails” to issue the IPC so it may be
arguable that any failure to issue an IPC entitles the Contractor to give notice of
suspension. It would be a brave Contractor who proceeded on this basis – because
failure of the Contractor to proceed with the Works is a ground for Employer termination
under Clause 15(2)(c)(i).
However the Engineer should not delay issuing a Payment Certificate, however much he
may consider he needs more information once it is clear that the Contractor intends to
exercise his right to suspend. The Payment Certificate need be for no more than the
Engineer fairly determines to be due.
(b) If the Employer fails to comply with Sub-Clause 2.4 [Employer’s Financial
Arrangements]
As noted under Sub-Clause 2.4, there is no limit to the number of requests that a
Contractor can make under this provision, nor need the Contractor be reasonable in
making his requests. A Contractor who wishes to irritate the Employer is given a very
good opportunity to do so – because the Employer dare not ignore such requests for fear
of giving the Contractor the right to suspend or reduce the rate of work.
Sub-Clause 2.4, moreover, contains two Employer obligations; the first is to provide
reasonable evidence that financial arrangements have been made and are being
maintained that will enable the Employer to pay the Contract Price; the second is to give
detailed particulars to the Contractor if he intends to make any material change to his
financial arrangements. The consequences of the Employer being in breach of the first
provision are clear; although what amounts to reasonable evidence is a matter of fact. 3
They are not so clear in respect of the second. If, for example, the Employer has at some
stage in the Contract formed an intention to make a material change to his financial
circumstances but has failed to notify the Contractor and has then gone ahead with the
3
See NH International (Caribbean) Ltd v National Insurance Property Development Co. Ltd [2015] UKPC
37
3

change, it will be impossible for him to remedy the breach – he can no longer give notice
once the material change has taken place. So long as the new financial arrangements
enable him to meet his financial obligations under the Contract he will have no difficulty
complying with a Contractor’s notice under Sub-Clause 2.4 but he still cannot give the
notice required of his intention to change.
It is unclear whether Sub-Clause 16.1 is intended to deal with this situation as it provides
that any notice of suspension or intention to reduce work is conditional on the Employer
providing reasonable evidence under Sub-Clause 2.4. In the situation described above
the Employer can never provide “reasonable evidence”. Does this mean that the
Contractor has no right to suspend or that the Employer can do nothing to prevent him
having the right to suspend? The Sub-Clause provides no clear answer.
(c) The Employer fails to comply with Sub-Clause 14.7 (Payment).
Sub-Clause 14.7 obliges the Employer to make payments 28 days (in the case of the
advance payment) or 56 days after the Engineer receives the Statement and supporting
documents.
As explained in the discussion of Sub-Clause 14.7 this sub-clause can, potentially, prove
to be unfair to the Employer. Under Sub-Clause 14.7, the amount the Employer is
obliged to pay is that certified in the Interim or Final Payment Certificate but he is
obliged to make that payment 56 days after the Engineer receives the Statement and
supporting documents. In circumstances where the Statement and supporting documents
contain errors, which the Engineer asks the Contractor to correct before issuing the
Interim Payment Certificate, the Employer’s obligation to pay, and the Contractor’s right
to suspend, can come into effect before the Interim Payment Certificate can be issued. If
the statement is correctly completed and there is no problem with the supporting
documents but the Engineer has not certified within 56 days of receipt of the Statement
and supporting documents then, in order to avoid the Contractor taking advantage of the
right to suspend where the Engineer has still failed to certify correctly the Employer will
need to pay the full amount claimed by the Contractor in the statement. Any
overpayment can be recovered in the next interim payment.
The Notice of Suspension or Reduction of Rate of Work
The notice under Sub-Clause 16.1 is a clear condition precedent to the Contractor’s right
to suspend. The Contractor has no right to use a breach by the Employer which might
otherwise give rise to a right to suspend as an excuse for suspending or slowing progress
unless he has given notice as required.

There is no special form required for the notice. However it must:
• Be addressed to the Employer

• State whether it is intended to suspend or to reduce the rate of work
• Describe the basis for the intended suspension or reduction of the rate of work
• State specifically what the Contractor needs to have or to see before he resumes
work
• Give not less than 21 days notice
Consequences of Notice
On the expiry of the notice the Contractor is entitled to suspend work or reduce the rate
of work as specified in the notice.
Once the notice is complied with the Contractor is required to resume work “as soon as is
reasonably practicable.” How long this will take will depend on the circumstances – the
extent of the suspension or reduction in rate, the time it has lasted for, the logistics of
resuming work and any circumstances which have occurred in the meantime.
Care of the Works Must Continue During Suspension
Under Clause 17.2 the Contractor has full responsibility for the care of the Works from
the Commencement Date until the issue of the Taking-Over Certificate. During this
period the Contractor is responsible for rectifying any loss or damage at his own cost.
(See commentary on the effect of Clause 17.2 on the Contractor’s obligations under
Clause 19.2 [Force Majeure]). The consequence is that suspension under Clause 16.1
does not give the Contractor the right to abandon the Site. Indeed a failure to care for the
Works during a period of justified suspension might give the Employer the right to
terminate under Sub-Clause 15.2 (b).
Notice of Claim
In order to claim an extension of time, cost or profit the Contractor must give notice
under Sub-Clause 20.1. The time when the Contractor became aware or should have
become aware of the event or circumstance will be when the suspension or reduction in
work rate period commences. The Contractor should not be required to give notice
earlier because, although he will be aware as soon as the circumstances which give him
the right to give notice under Sub-Clause 16.1 that he might become entitled to suspend
or reduce the rate of work, he cannot be certain that such a right has come into existence
until the Employer has failed to comply with the notice.

16.2 Termination by the Contractor
When the Contractor exercises its rights under this Sub-Clause it can expect to have to
justify its position at least before a DAB and probably in arbitration. A ground for
termination which may seem clear at the time notice is given may seem not so clear once
the whole situation has been considered in the greatest detail by a tribunal, following
detailed work by lawyers for both sides. Contractors need to be cautious when using
their rights to terminate. Even though there may be a fundamental ground for terminating
it is good tactics, and reduces the risk of the process, for the Contractor to identify as
many grounds as possible under the terms of Clause 16.2.
Some grounds are clearer than others. Where the basis of termination is a matter of
opinion (for example an allegation that the Employer has failed to perform one or more
of his obligations), the risk is higher than if the ground can be objectively measured (for
example failure on the part of the Engineer to issue a Payment Certificate within the time
allowed).
It is very common for a Contractor’s notice of Termination to be followed immediately

by an Employer’s notice of Termination or for the notices to be given the other way
round. Sometimes there is a race to terminate. In such circumstances both parties will
be relying on much the same facts as the basis for their termination arguments – what the
Employer calls the Contractor’s abandonment of the Works, may be what the Contractor
calls the Employer’s failure to fulfil his obligation to provide an instruction – thereby
making it impossible for the Contractor to continue. When there is such a clear clash of
reasoning one side is bound to lose the argument. It seems obvious to say that it is
dangerous to rely on an argument which the other side can counter but both Employers
and Contractors often make this mistake and fail to bolster their termination case by
relying not just on the contentious issues but by adding as many other issues as possible.
The Contractor will only need to succeed in one argument to make his case for
termination – the more arguments he advances the better.
A general issue which arises under this Sub-Clause is whether a breach by the Engineer
might qualify as a breach by the Employer and justify termination in those circumstances
where an Employer breach would justify termination. Under Sub-Clause 3.1 (a) the
Engineer when carrying out his duties under the Contract is “deemed to act for the
Employer.” This would seem to suggest that if the Engineer acts in a positive way in
breach of the Contract, his breach is to be treated as that of the Employer. More
commonly, however, the Contractor’s complaint against the Engineer is one of failure to
perform his obligations under the Contract – failure to certify, failure to make a
Determination fairly, failure to provide designs or other documents on time. When
failing to act as appropriate is the Engineer still carrying out his duties under the Contract
6

and therefore acting for the Employer? The answer is probably no. However, whenever
the Employer is mentioned in the discussion below, it is also necessary to consider
whether the reference should be to the Employer or Engineer alone or to the Employer
and the Engineer.
There are seven grounds for Termination by Contractor specified. Each is considered
below.
(a) the Contractor does not receive the reasonable evidence within 42 days after
giving notice under Sub-Clause 16.1 in respect of a failure to comply with Sub-
Clause 2.4 [Employers Financial Arrangements]
See the commentary on Sub-Clause 16.1 above.
Sub-Clause 16.1 is a pre-requisite to the Contractor exercising its rights to suspend but is
also the pre-requisite to the Contractor exercising its rights to terminate under this
provision. The Clause was probably drafted with the thought in mind that the Contractor
would give a 21 day notice of suspension, then suspend and then, after a further 21 days
have the right to terminate. In fact there is nothing to stop the Contractor giving a 42 day
notice of suspension under Sub-Clause 16.1, then (if the required certificate is not given )
immediately giving notice of termination as well as suspending. As noted above, there is
no limit on the number of requests a contractor can make under Sub-Clause 2.4, nor any
requirement of reasonableness – thus a Contractor could use the provision to harass and
annoy an Employer to the point where he stops responding to the requests. Since Sub-
Clause 16.1 requires a minimum notice period of 21 days, a cunning Contractor who has
been looking for an excuse to terminate might decide to give the Employer 43 days notice
to provide evidence in the expectation that the Employer will wait for the last day to
provide the evidence. By the time the Employer had responded, the Contractor’s right to
terminate would have come into effect.
(b) The Engineer fails within 56 days after receiving a Statement and supporting
documents, to issue the relevant Payment Certificate
See the commentary on Sub-Clauses 14.6 and 16.1 for the problems this requirement may
cause the Employer even if the Engineer believes that he has not received all the
documentation necessary to enable him to issue a Payment Certificate.
In order to protect the Employer’s position the Engineer must not delay more than 56
days before issuing his Payment Certificate, however inadequate he believes the
justification. The Certificate need only be for the amount the Engineer fairly considers to
be due.

(c) The Contractor does not receive the amount due under an Interim Payment
Certificate within 42 days after the expiry of the time stated in Sub-Clause 14.7
[Payment] within which payment is to be made (except for deductions in
accordance with Sub-Clause 2.5 [Employer’s Claims])
The expiry of time under Sub-Clause 14.7 for Advance Payments is 42 days after the
issuing of the Letter of Acceptance or 21 days after receipt of the required documents
(See Sub-Clause 14.7(a)). For other payments it is 56 days after the Engineer receives
the Contractor’s Statement and supporting documents.
See the commentary on Sub-Clauses 14.7 and 16.1 for comment on the possible problems
between the obligation for the Employer to receive a Payment Certificate before making
payment and the possible right of the Engineer to delay issuing such a Certificate. If the
Engineer has not issued a Payment Certificate (however right he may be in not doing so),
it may be necessary for the Employer to pay the amount demanded in the Contractor’s
Statement in order to avoid the Contractor having the right to terminate.
The final words in brackets carry a warning for the Employer. The Employer cannot
recover amounts due to him except by following the procedure set out in Sub-Clause 2.5
– i.e. giving notice of claim and then waiting for the Engineer’s Determination. If he
does recover by reducing a payment in breach of this procedure, the Contractor gains the
right to terminate.
Moreover, and more dangerously for the Employer, if the Engineer’s Determination is
later challenged before the DAB and the DAB sets it aside in whole or in part, the DAB’s
decision will be binding immediately and, until the Employer pays the balance of the
relevant IPC, the Contractor has the right to terminate. This right will apply immediately
the DAB’s decision is given.
This is a highly dangerous situation for an Employer who is aware that the Contractor is
looking for a way to escape its contractual obligations. Thus, if an Employer has made a
deduction following an Engineer’s Determination and the Contractor challenges the claim
before a DAB, the Employer needs to consider reimbursing the Contractor at least in the
interim prior to the DAB giving its decision. If the decision then goes in the Employer’s
favour it can deduct the amount due from the next following Interim Payment Certificate.
(d) The Employer substantially fails to perform his obligations under the Contract.
This provision is not the mirror image of the Employer’s right to terminate under Sub-
Clause 15.2(b) – the nearest equivalent, which instead requires the Employer to show that
the Contractor has plainly demonstrated his intention not to continue performance of his
8

obligations under the Contract. Nor does the Contractor have the right given to the
Employer to cement in place a right to terminate by giving a notice to correct as
permitted under Sub-Clause 15.1.
The Sub-Clause is not entirely clear. Is the requirement that the Employer substantially
fails to perform an obligation, several obligations or all obligations?
The meaning may depend on what the adverb “substantially” qualifies. Does it qualify
only the verb “fails” or does it qualify the compound verb “fails to perform”. If the only
requirement is for the Contractor to show that the Employer has substantially failed in
one respect, then the right would come into play when the Employer had substantially
failed to meet an individual obligation. If the requirement is that the Contractor shows
that the Employer has substantially failed to perform his obligations the right to terminate
would only come into effect when the substantiality is applied to the whole package of
obligations under the Contract.
There was no equivalent provision in the 4th edition of FIDIC, so there is no experience
as to how this may be interpreted. Under the 4th edition, the equivalent provision (Clause
63.1), giving the Employer the right to terminate the Contractor, referred to persistently
or flagrantly neglecting to comply with any of his obligations under the Contract. This
has been generally interpreted as giving the right to terminate when the Contractor had
failed to perform any single obligation, though again it could be interpreted to come into
effect when the Contractor was not performing any obligations at all. Since the
interpretation of this clause has tended to recognise that persistent or flagrant failure to
comply with an individual obligation gives rise to a right to terminate, it might be
tempting to assume that the substantially in Sub-Clause 16.2(d) qualifies only “failure”,
and not “failure to perform his obligations” and would therefore apply even if there was
one substantial breach.
However it seems more likely that the provision was intended to apply only where the
Employer was effectively demonstrating that it had no intention of performing all its
obligations under the Contract, rather than one obligation under it. The following reasons
point in this direction:
• The other provisions of Sub-Clause 16.2 provide adequate reasons for termination
in most circumstances. There is no good policy reason to allow a termination for
a breach, however substantial, of what might be quite a minor contractual
obligation. For example Sub-Clause 16.2(e) (see below) would be entirely
unnecessary if Sub-Clause 16.2 allowed termination for a substantial breach of
any single obligation.

• If the provision applied to any single obligation it would be possible for there to
be a substantial breach of some obligation which was not in itself in any way
significant. For example, the Employer is required to give notice under Clause
3.4 of his intention to replace the Engineer. If he entirely fails to give notice but
in fact appoints someone properly qualified and acceptable, he could be said to
have substantially failed to meet his notice requirements. It is unlikely that the
draftsman intended that a breach of this nature, which has no real effect, entitles
the Contractor to terminate – yet that is the effect Sub-Clause 16.2(d) would have
if substantial failure to comply with any single obligation gave the Contractor the
right to terminate.
• Sub-Clause 15.1 [Notice to Correct] provides a means by which a breach can be

turned into a ground justifying termination by the Employer. However this
requires that the Contractor be given the opportunity to correct the breach before
he can be terminated.
• The nearest equivalent provision in Sub-Clause 15.2 (Sub-Clause 15.2(b)) gives

the right to the Contractor to terminate where the Contractor plainly demonstrates
his intention not to continue performance of his obligations under the Contract
and this is tied to circumstances where the Contractor abandons the Works. In
this context it is clear that the failure to continue performance of the obligations is
a reference to the collectivity of the obligations not to an individual obligation. It
is unlikely that it was intended that the Contractor could terminate for a failure to
comply with a specific single obligation when the Employer could only terminate
when the Contractor demonstrated a general intention not to perform.
This is a provision which may be breached by the Engineer on the Employer’s behalf. In
this case it is very clear that a failure to meet obligations is the foundation of the right to
terminate. However it is only when he is carrying out duties or exercising authority that
the Engineer is deemed to act for the Employer under Sub-Clause 3.1. A failure by the
Engineer to act therefore probably does not entitle the Contractor to terminate.
(e) The Employer fails to comply with Sub-Clause 1.6 [Contract Agreement] or Sub-
Clause 1.7 [Assignment].
Sub-Clause 1.6 incorporates two obligations – for the Parties to enter a Contract
Agreement within 28 days after the Letter of Acceptance and for the Employer to bear
any costs of stamp duty etc.
Fortunately the Sub-Clause is easily complied with – the consequences for breach are
extraordinarily draconian. In normal circumstances the submission of a tender and the
10

letter of acceptance would constitute a contract and the signing of the Contract
Agreement is only confirmation of a contractual relationship. The draftsman obviously
assumes this is the case otherwise the Contractor would never get to the point of being
able to rely on the terms of Clause 16.2 in order to terminate the Contract! So although
there will be a Contract in the absence of a Contract Agreement, the Contractor has the
right to terminate if this formality is not complied with. By the time the 28 days have
expired it will be too late for the Employer to remedy the situation. However despite this
the Contractor probably does not retain his right to terminate for the duration of the
contract. Once he continues to perform though aware of this breach, he will probably be
prevented under the principles of estoppel, in common law legal systems, and good faith,
in civil law legal systems, from taking advantage of the situation.
Sub-Clause 1.7 is clear but Employers undergoing corporate reorganisation will need to
take care to ensure that no assignment takes place without the agreement of the other
party.
(g) The Employer becomes bankrupt or insolvent, goes into liquidation, has a
receiving or administration order made against him, compounds with his
creditors, or carries on business under a receiver, trustee or manager for the
benefit of his creditors, or if any act is done or event occurs which (under
applicable Laws )has a similar effect to any of these acts or events.
This is a mirror image of the equivalent provision in Sub-Clause 15.2 – see comment
under that Clause.
Once one of these events has occurred the Contractor has the right, upon giving 14 days
notice (or on a notice having an immediate effect in the case of (f) and (g)) to the
Employer, to terminate the Contract.
The language here is identical to that under Sub-Clause 15.2 and the interpretation of the
Clause will be the same.
Once the event giving rise to the right to terminate has occurred, there is nothing in the
clause which seems to prevent the Contractor holding the threat of termination over the
Employer indefinitely thereafter. Used in this way, a petty failure of compliance with
Sub-Clause 1.6 [Contract Agreement] would effectively give the Contractor a right to
terminate at will with all the financial consequences at any time thereafter. A tribunal
sympathetic to an Employer could however imply a requirement that the Contractor act
reasonably promptly or not at all unless the Employer's default was a continuing one. In
11

this connection, see Mvita Construction Co. Ltd. v Tanzania Harbours Authority 4 and the
decision of the Tanzanian Court of Appeal that although the words "then the Employer
may...terminate" do not mean "at that time" but "in that event", the Employer must
terminate within a reasonable time of the Engineer's notice "to avoid a change of the
circumstances certified [under that Contract] by the Engineer". Under a system of law
which imposes an obligation of good faith on the Parties a much delayed termination
would probably not be treated as effective.
Sub-Clause 16.3 Cessation of Work and Removal of Contractor’s Equipment
This provision applies in all those circumstances where the termination is not the result of
Contractor fault. Upon termination under Sub-Clause 15.5 [Employer’s Entitlement to
Termination]; Sub-Clause 16.2 [Termination by Contractor] or Sub-Clause 19.6
[Optional Termination, Payment and Release] the Contractor shall promptly:
“(a) cease all further work, except for such work as may have been instructed by the
Engineer for the protection of life or property or for the safety of the Works,
(b) hand over Contractor’s Documents, Plant, Materials and other work, for which
the Contractor has received payment, and
(c) remove all other Goods from the Site, except as necessary for safety, and leave
the Site.”
Under 16.3(b) the Contractor is required to hand over Contractor’s Documents, Plant,
Materials and other work, for which the Contractor has received payment. It may not be
clear what amongst these items, the Contractor has been paid for.
The term “Contractor’s Documents” is defined in Sub-Clause 1.1.6.1 to include the

documents of a technical nature (including computer programs and software and models)
supplied by the Contractor under the Contract. The cost of these is unlikely to be
separately mentioned in the payment provisions of the Contract – if the contract has Bills
of Quantity, payment for them may be included in the Preliminaries, in which case it will
still be hard to tell whether they are paid for. More likely there will be a provision that
the cost of such items is included in the rates or prices for physical items of work. The
Contractor will probably expect to recover the cost of these items over the term of the
contract within the rates or prices for other items. Thus, where there is a premature end
to the Contract it will be arguable whether they have been paid for.
There should be no such problem with Plant and Materials which are defined as items
which are to be incorporated into the Permanent Works.
4
(1988) 46 BLR 19
12

It is not clear what is intended by the expression “other work”. It could easily include
Temporary Works, (defined in Sub-Clause 1.1.5.7), which are not normally specifically
paid for but whose cost is included in the rates or prices for the Permanent Works.
However, if the issue of what the Contractor is required to hand over causes arguments
because of the above issues then this ought ultimately to be capable of being resolved
under Sub-Clause 16.4 or Sub-Clause 19.6 which deal with payment on termination.
However these provisions by no means deal with all payment obligations following a
termination which is not the Contractor’s fault.
Under Sub-Clause 16.3(c) the Contractor is required to remove all other Goods from the
Site, except as necessary for safety, and leave the Site. If the termination is disputed, the
Employer may seek to prevent the Contractor from removing its equipment. In such a case
the Contractor’s claim against the Employer would be one in tort for trespass to goods. In
Final Award in Case 6216 5 an ICC arbitral tribunal had to consider whether it had
jurisdiction to deal with a claim which arose out of a tort. The tribunal held that the FIDIC
dispute resolution provisions were sufficiently wide enough to allow them to resolve the
tort claim, applying English law
16.4 Payment on Termination
If the Contractor terminates under Sub-Clause 16.2 [Termination by Contractor], the

Employer is required to promptly:
“(a) return the Performance Security to the Contractor,

(b) pay the Contractor in accordance with Sub-Clause 19.6 [Optional Termination,
Payment and Release], and
(c) pay to the Contractor the amount of any loss of profit or other loss or damage
sustained by the Contractor as a result of this termination.”
In the context of Sub-Clause 16.3, Sub-Clause 19.6 raises several problems.
Under Sub-Clause 16.3(b) the Contractor will have handed over only the items for which
he has received payment. However under Sub-Clause 19.6(a) he is entitled to be paid for
work done and under Sub-Clause 19.6(b) to be paid for Plant and Materials ordered for
the Works. He is then required to hand over anything paid for by the Employer. Thus it
is possible that the Contractor will, under Sub-Clause 16.3 be required to take away
certain Plant and Materials, but under Sub-Clause 19.3, be entitled to be paid for them
5
ICC International Court of Arbitration Bulletin Vol.13, No 2, p.58
13

and required to return them. Employers should therefore not assume that because the
Contractor has removed any Goods from the Site – as required under Sub-Clause 16.3,
they will not be obliged to pay for them.
Sub-Clause 16.4 (c) requires the Employer to pay loss of profit or other loss or damage
sustained by the Contractor as a result of this termination. In this it contrasts with a
termination under Sub-Clauses 15.5 and 19.6 under which only cost is paid. From an
Employer’s point of view a termination under Sub-Clause 15.5 (which is always the
Employer’s right) or Clause 19.6 (which is possible though unlikely) or of course Sub-
Clause 15.2 will be substantially preferable to a Contractor’s termination under Clause
16.2. This may open an interesting strategy for the Employer of which the Contractor
needs to be cautious.
If an Employer realises it is in a position where the Contractor intends to terminate and

good grounds exist for a Contractor’s termination under Sub-Clause 16.2, the Employer
may save himself considerable expense by terminating under Sub-Clause 15.5. That this
is a practical strategy is recognised in the MDB harmonised edition which expressly
forbids termination under Sub-Clause 15.5 for this reason and which also requires an
Employer who terminates under Sub-Clause 15.5 to pay the Contractor in accordance
with Sub-Clause 16.4 (c) – i.e. for loss of profit or other loss or damage.
This issue was recently addressed by the English High Court in TSG Building Services
PLC v South Anglia Housing Ltd.6 In this case there was a clause which provided that
the parties should work together in “the spirit of trust, fairness and co-operation....within
the scope of their agreed roles, expertise and responsibilities....and in all matters
governed by the Contract they shall act reasonably.....” (Clause 1.1). It was argued that
this clause prevented one party from terminating at convenience in an unreasonable way.
The judge held that the provision of “reasonableness” did not apply to the termination at
convenience clause. The court concluded that either party could terminate for any or no
reason. The clause provided an “unconditional and unqualified right” meaning that
termination under the contract was properly effected by South Anglia with no
compensation payable to TSG Building Services. The court also found that Clause 1.1
should be interpreted narrowly to apply only to matters within the context of that clause
so that good faith did not extend to the whole contract. In countries where there is an
express statutory requirement of good faith then it may still be possible to run an
argument that an Employer faced with termination for default cannot terminate at
convenience to avoid paying to the contractor additional losses.
The type of “loss of profit or other loss or damage sustained by the Contractor” was
considered in the case NI Property Development Company Ltd v NH (International)
6
[2013] EWHC 1151 (TCC)
14

Caribbean Ltd. 7 In this case an issue arose about whether the Claimant could recover
overheads on work not executed at the time of termination of the Contract. The arbitrator
found that the Claimant was not entitled to overheads on works not executed holding that if
the contract had intended the contractor to recover this type of loss it would have said so in
terms. The High Court of Tobago agreed with the arbitrator’s reasoning.
‘Other loss or damage’ is a vague term which may have different meanings in different
jurisdictions. Under most common law jurisdictions they will be limited to losses which
were within the contemplation of the parties at the time the contract was entered into and
will exclude losses which are too remote. However it is likely to cover the Contractor’s
direct and indirect losses caused by the need to terminate the contract early. Payment
under Sub-Clause 16.4 is excluded from the limitation of liability provisions in Sub-
Clause 17.6 [Limitation of Liability] and payment under this Sub-Clause is not intended
to form part of the Contract Price. 8
By: Andrew Tweeddale and George Rosenberg (Consultant)
7
(2008) High Court of Trinidad and Tobago
8
Bouygues SA & Herve Pomerleau Int. Inc v Shanghai Links Executive Community Ltd [1998] 4 HKC 206
and see Sub-Clause 14.1 [The Contract Price]
15

Clause 17
Summary
Although Clause 17 is titled ‘Risk and Responsibility’ it also sets out other provisions relating
to indemnities, limitation of liability and, unusually, the specific topic of intellectual and
industrial property rights. The clause provides that the Contractor assumes responsibility
and bears the risk for the care of the works during execution and for remedying any defects
during the Defects Notification Period. Risk transfers to the Employer on issue of the
Taking–Over Certificate to the extent of works defined as being completed.
Generally, in construction contracts ‘risk’ is understood to mean an event or circumstance

which causes delay, loss or damage to the Works. A risk can be said to be Employer caused,
Contractor caused or neutral. The purpose of risk allocation is to determine which party
bears the risk for such events. The Contractor may be required to remediate the damage at
his own cost or the Employer may be required to pay for the damaged works. It has been
stated that the “FIDIC standard forms are generally recognised as being well balanced
because both parties bear parts of the risks arising from the project.” 1
The structure of Clause 17 has been criticised as indemnities are dealt with before risk. 2 It
has been suggested that Clause 17 ought to start with Sub-Clause 17.3 for the provision
regarding risk and that Sub-Clause 17.1 for indemnities should follow after Sub-Clause 17.2.
In respect of indemnities, the insurance provisions at Clause 18 closely relate to Clause 17
and should be considered together to ascertain the scope of indemnities for losses which are
not covered by insurance (or otherwise non-recoverable). Further specific indemnity
provisions are provided elsewhere in the contract which must be considered together with
Clause 17. These are found at:
• Sub-Clause 1.13 [Compliance with Laws]

• Sub-Clause 4.2 [Performance Security]
• Sub-Clause 4.14 [Avoidance of Interference]
• Sub-Clause 4.16 [Transport of Goods]
Risk allocation must be considered against the governing law of the contract. In civil law
countries risk may be allocated by the applicable Civil Code, however, in common law
1
Dr. Götz-Sebastian Hök; Risk allocation in the FIDIC Conditions of Contract (1999) for Construction (Red Book)
and the FIDIC Conditions of Contract (1999) for EPC / Turnkey Projects (Silver Book) from the perspective of a
German lawyer
2
Nael Bunni – Third edition – see at pages 530-531

countries the risk is allocated by the terms of the contract (express or implied), subject to
any statutory prohibitions. 3 Where the contract fails to set out who bears the risk of loss
then the substantive law of the contract must be considered. Civil law courts are more likely
than common law courts to interfere with the risk allocation, which may then disrupt or
displace the agreed balance of risks.4 The English courts tend to uphold the contractual
agreed terms for allocation of rights and obligations. 5
A term will be implied if certain criteria are met in a common law system. In BP Refinery
(Westernport) Pty Ltd v Shire of Hastings 6 the court stated that for a term to be implied "(1)
it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the
contract, so that no term will be implied if the contract is effective without it; (3) it must be so
obvious that 'it goes without saying' (4) it must be capable of clear expression; (5) it must not
contradict any express term of the contract". This statement has been approved recently by
the English Supreme Court and Privy Council. 7
Origin of Clause
The Red Book 4th edn dealt with the topics of risk, responsibility, liability and indemnity for
damage, loss and injury at Clauses 20, 21, 22, 24 and 65. The Red Book 4th edn followed the
illogical sequence of ICE Form 5th Edition. Clauses 20, 22 and 24 allocate responsibility to the
Contractor. Clause 21.3 deals with the Contractor’s responsibility for losses not recovered by
insurance. These clauses are interwoven with various Sub-Clauses providing terms for insurance
requirements with the general insurance requirement at Clause 25.
The Red Book 4th edn provisions were re-organized within FIDIC 1999 so that terms for risk,
responsibility and indemnity are predominantly found at Clause 17 which then leads to the separate
insurance obligations for the indemnities in Clause 18. By segregating insurance topics under
FIDIC 1999, it is simpler to use and understand.
The Employer’s indemnity provisions at Sub-Clause 17.1 originated from Clause 20.1, 22.2 and
22.3 of the Red Book 4th edn. The Employer risks at Sub-Clause 17.3 were found at Clause 20.3
of the Red Book 4th edn.
3
See, for example, the Unfair Contract Terms Act 1997 which prohibits certain exclusion clauses that seek to pass
risk
4
Axel-Volkmar Jaeger et al – see at Chapter 19, page 335
5
Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601, 609
6
(1977) 180 CLR 266, 282-283
7
See Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd and another [2015] UKSC 72
[15] and A-G of Belize v Belize Telecom Ltd [2009] UKPC 10 and BDW Trading Ltd (t/a Barratt North London) v
JM Rowe (Investments) Ltd [2011] EWCA Civ 548

Cross-References
Reference to Clause 17 is found in the following Sub-Clauses:
• Sub-Clause 18.3 [Insurance against Injury to Persons and Damage to Property]
Reference to Risk which is construed as either a Contractor or Employer risk is found in the
following Sub-Clauses:
• Sub-Clause 4.13 [Rights of Way and Facilities]
• Sub-Clause 4.19 [Electricity, Water and Gas]
• Sub-Clause 4.20 [Employer’s Equipment and Free-Issue Material]
• Sub-Clause 8.6 [Rate of Progress]
• Sub-Clause 9.2 [Delayed Tests]
• Sub-Clause 11.2 [Cost of Remedying Defects]
• Sub-Clause 11.6 [Further Tests]
• Sub-Clause 15.2 [Termination by the Employer]
• Sub-Clause 18.2(d) [Insurance for Works and Contractor’s Equipment]
• Sub-Clause 19.6 [Optional Termination, Payment and Release]
Reference to Responsibility which is construed as either a Contractor or Employer responsibility

is found in the following Sub-Clauses
• Sub-Clause 3.1 [Engineer’s Duties and Authority]
• Sub-Clause 4.6 [Co-operation]
• Sub-Clause 6.7 [Health and Safety]
• Sub-Clause 7.3 [Inspection]
• Sub-Clause 8.8 [Suspension of Work]
• Sub-Clause 10.2(b) [Taking Over of Parts of the Works]
• Sub-Clause 11.4(a) [Failure to Remedy of Defects]
Reference to “indemnify”, “indemnification” or “indemnified” which is expressed as either a

Contractor or Employer obligation is found in the following Sub-Clauses:
• Sub-Clause 1.13(a) and (b) [Compliance with Laws]
• Sub-Clause 4.2 [Performance Security]
• Sub-Clause 4.14 [Avoidance of Interference]
• Sub-Clause 4.16 (c) [Transport of Goods]
• Sub-Clause 14.14 [Cessation of Employer’s Liability]
• Sub-Clause 18.4 [Insurance for Contractor’s Personnel]
Reference to “liable”, “liability” or “liabilities” is found in the following Sub-Clauses

• Sub-Clause 1.14 [Joint and Several Liability]
• Sub-Clause 4.5 [Assignment of Benefit of Subcontract]
• Sub-Clause 4.20 [Employer’s Equipment and Free-Issue Material]
• Sub-Clause 5.2(c) [Objection to Nomination]
• Sub-Clause 10.2(b) [Taking Over of Parts of the Works]
• Sub-Clause 11.6 [Further Tests]
• Sub-Clause 11.10 [Unfulfilled Obligations]
• Sub-Clause 14.14 [Cessation of Employer’s Liability]
• Sub-Clause 18.1 [General Requirements for Insurances]
• Sub-Clause 18.3 [Insurance against Injury to Persons and Damage to Property]
• Sub-Clause 18.4 [Insurance for Contractor’s Personnel]
• Sub-Clause 19.6(b) and (c) [Optional Termination, Payment and Release]
• Sub-Clause 20.1 [Contractor’s Claims]
Sub-Clause 17.1 Indemnities
Under Sub-Clause 17.1 the responsibility of the risk for certain types of claims (summarised
below) is allocated by way of indemnities so that each party indemnifies the other for the
consequence of such claim.
a) Personal injury
b) Damage to personal or real property (other than the Works)
c) Other specific matters for which the Employer indemnifies the Contractor
The Contractor is required to give a wide indemnity against “all claims, damages, losses and
expenses” in respect of these types of damage. The indemnity would include legal fees. The
indemnity is not subject to any exclusion of liability for loss of profit, loss of contract or other
indirect losses under Sub-Clause 17.6.
The Contractor is obliged to indemnify not only the Employer but also the ‘Employer’s Personnel
and respective agents’. This covers any personnel who have been ‘notified’ to the Contractor by
the Employer or Engineer and assistants delegated with authority by the Engineer pursuant to Sub-
Clause 3.2 (see Sub-Clause 1.1.2.6). Visitors on site or any specialist advisors must be notified to
the Contractor to ensure that the indemnity covers such persons.
Similarly, the Employer has the equivalent obligation to indemnify the Contractor and the
‘Contractor’s Personnel and their respective agents’ in respect of claims, damages, losses and
expenses for death and personal injury and specific matters which may be excluded from insurance
cover. This captures any personnel ‘assisting’ with the works; however, the difference here is that
there is no requirement to notify the Employer of such persons. The Employer indemnity will

therefore capture those falling within the category.
This Sub-Clause has been developed from Clause 22 of Red Book 4th edn. Sub-Clause 17.1
introduces a new term ‘hold harmless’ to the indemnity obligation. Specifically, each party is
required to give an “indemnity and hold harmless” the other party. Courts in different jurisdictions
are likely to have different conclusions over the meaning and usage of ‘hold harmless’. It may
introduce uncertainty. In the Scottish case of Farstad Supply AS v Enviroco Ltd 8, the Supreme
Court considered the meaning of these terms 9. It was held:
“the word ‘indemnity’ is capable of having a wide meaning but, even assuming that by
itself it might (depending upon the context) have a narrow meaning, it does not stand
alone in the clause. The owner must “defend … and hold harmless” the charterer, not
only against liabilities and causes of action, but also against “all claims, demands” and
proceedings...
the obligation to hold harmless goes further than the obligation to reimburse because
they are words of exception. In some contexts the words “indemnify” and “hold
harmless” have the same meaning… The word “indemnify” can sometimes mean
indemnify a third party. As ever, all will depend upon the context. Here the context is
plain.
The expression “defend, indemnify and hold harmless” is wide enough to include the
exclusion of liability for loss incurred by the owner or charterer…[and] is wide enough
both to provide a defence for one party to claims made by the other party and to provide
an indemnity in respect of the claims of third parties.
The Ontario Superior Court of Justice in Stewart Title Guarantee Company v. Zeppieri 10
considered the same terms and held:
“This language imposes two obligations on Stewart Title with respect to a member of the
LSUC—to “indemnify” that member, and to “save harmless” that member from claims
arising under a title insurance policy. The contractual obligation to save harmless, in my
view, is broader than that of indemnification… the obligation to “save harmless” means that
a LSUC member should never have to put his hand in his pocket in respect of a claim covered
by the terms of the 2005 Indemnity Agreement.” 11
8
[2010] UKSC 18
9
The agreement provided that “the owner shall defend, indemnify and hold harmless the charterer… from and
against any and all claims, demands, liabilities, proceedings and causes of action resulting from loss or damage in
relation to the vessel (including total loss) or property of the owner...irrespective of the cause of loss or damage
including where such loss or damage is caused by, or contributed to, by the negligence of the charterer…”
10
[2009] O.J. No. 322
11
See http://www.adamsdrafting.com/2009/05/10/revisiting-indemnify-and-hold-harmless/ for case Stewart Title

This indicates that the indemnity obligation is to fully and completely indemnify a party. The
interpretation of the indemnity provision is affected by the governing law of the contract.
The Extent of the Indemnity Provisions
The indemnity provisions relate to:
a) Personal Injury
Both Contractor and Employer are responsible for claims relating to personal injury (bodily
injury, sickness, disease or death). The indemnity obligation applies to personal injury caused
to any persons which may include each Party’s personnel. The insurance procured in
accordance with Sub-Clause 18.3 will provide cover for this type of loss where personal injury
is caused to persons other than the Contractor’s Personnel and under Sub-Clause 18.4 where
personal injury is caused to the Contractor’s Personnel.
For losses not recoverable under a particular policy, the Contractor bears the risk by way of its
indemnifying obligation for personal injury claims which may arise “out of or in the course of
or by reason of the Contractor’s design (if any), execution and completion of the Works and
the remedying of any defects”. The Contractor’s indemnifying obligation is therefore limited
to the Works as it is not drafted in the widest possible terms (such as ‘howsoever caused’).
- The terms “any person whatsoever”

The Contractor’s indemnity obligation for personal injury relies on wide language and in
particular extends to injury caused to ‘any person whatsoever’. The effect is that in addition to
personal injury to the Employer’s personnel and agents, personal injury to the Contractor’s
Personnel or agents, visitors and the public is also captured.
- “unless attributable to”

The Contractor’s obligation to indemnify for personal injury losses is excluded where such
losses are caused by the negligence, wilful act or breach of contract of the Employer (its
personnel or agents). The use of the words by any ‘negligence, wilful act or breach’ illustrate
that there must be a factual connection relating to the conduct (act or omission) of the Employer
(its personnel or agent’s) which causes the injury sustained so that the injuries are attributable
to the Employer’s fault.
The provision is silent on whether the personal injury must be attributable in whole to the
Employer’s negligence, wilful act or breach of contract or whether attribution in part would
Guarantee Company v. Zeppieri [2009] O.J. No. 322 (S.C.J.) Ontario Superior Court of Justice

suffice for the exclusion clause to apply. In Central Asbestos Co. Ltd v Dodd 12 Lord Pearson
examined the meaning of "attributable to" in the context of ‘attributable to that negligence,
nuisance or breach of duty.' In contrast, under Sub-Clause 17.1 the words used are 'attributable
to any negligence, nuisance or breach of duty'. Lord Pearson held that the words ‘attributable
to':
“ refers to causation but it has to cover cases of dual or multiple causation and perhaps
another element of responsibility in the case of contributory negligence… In such cases
there would have to be an apportionment of the responsibility, and in the case of
contributory negligence the apportionment would take into account degrees of
blameworthiness as well as causative potency. If this involves another element additional
to causation, it is aptly covered by the phrase 'attributable to’…”
It is submitted that the position in England for use of the words “if any” has the meaning that
the Contractor will be liable to provide the full indemnity less any apportionment for personal
injury which is attributable to the fault of the Employer (its personnel or agents). The
Contractor is not exempt from providing an indemnity where the Employer is less than 100%
at fault for the resulting injury. The Contractor is obliged to provide an indemnity for resulting
injury for the proportion not attributable to fault of the Employer (its personnel or agents).
Specifically, Sub-Clause 17.1 provides that the Contractor is responsible ‘unless’ the personal
injury is due to Employer fault. The meaning and effect of the word ‘unless’ varies across
different jurisdictions. In some jurisdictions the use of the word ‘unless’ will result in a total
exclusion of Contractor indemnity where there is some negligence resting on the Employer
irrespective of whether some (or most) fault is due to the Contractor. Elis Baker et al suggest 13
that where the governing law follows the total exclusion interpretation and where parties intend
merely a narrow carve out from the Contractor’s indemnity obligation so that the Contractor
remains liable to provide an indemnity where some fault does rest on the Contractor (i.e. by
way of contributory negligence) then Sub-Clause 17.1 should be amended to add ‘except to
the extent that’ in replacement of ‘unless’. This would then allow for the indemnity to be
assessed according to proportionate liability of each party for the damage, loss or injury.
- The Employer’s Indemnity Obligation

The Employer’s indemnity obligation is narrow, specifically limiting the indemnity obligation
to injury caused by the Employer (or its personnel or agents). However, it doubtful whether
the Employer’s liability to third parties can be restricted by the contract where the issue is
likely to be governed by local laws. Provided that the claim is not the fault of the Employer,
the Contractor’s responsibility extends to all personal injury claims which arise and even to
those claims arising without any act or negligence (see FIDIC Guide 1999). The result is that
12
[1972] 3 W.L.R. 333
13
Elis Baker et al see at page 361, paragraph 7.67.

the Contractor will be liable to indemnify the Employer for a third-party personal injury claim
against the Employer which may exist in law even if there is no negligence, wilful act or breach
of contract by the Employer (or its personnel and agents) or the Contractor. For example, injury
sustained to an employee as a result of a defective product used in the construction (Product
Liability claims).
b) Damage to Property
Similar to the indemnity obligation for personal injury claims, the Contractor is required to
indemnify the Employer (and Employer’s personnel and agents) for claims for loss or damage
to real or personal property other than the Works. The corresponding insurance obligation is
provided under Sub-Clause 18.3 [Insurance Against Injury to Works and Property Damage].
Similar to the personal injury indemnity obligation, the Contractor’s indemnity obligation for
property damage is also limited to such loss and damage arising during the course of the
Works. 14 The difference here is that the caveat exists to limit the Contractor’s indemnity
obligation to Contractor faults. The Contractor will not be liable for such damage and loss
unless ‘to the extent’ that it is attributable to any negligence, wilful act or breach of contract
by the Contractor (its personnel and agents). This is a newly introduced restriction by way of
Sub-Clause 17.1(b)(ii). Under Sub-Clause 22.1 of the Red Book 4th edn the Contractor’s
indemnity was based on his legal liability as a whole and was not limited. Nael Bunni 15
identifies that neither the Contractor nor the Employer benefits from this change and that
insurers are the only beneficiary to provide cover for non-negligence to cover this gap. For a
consistent Contractor’s indemnity obligation for both property damage and personal injury
then Sub-Clause 17.1(b)(i) should include the terms “unless and to the extent that any such
damage or loss is attributable to the negligence, wilful act or breach of contract by the
Employer [its personnel and agents]”. This is adopted in FIDIC MDB Harmonised Edition
2010. 16
The Contractor’s indemnity obligation under Sub-Clause 17.1(b)(ii) is far reaching as it

extends to loss or damage attributable to Contractor Personnel, their respective agents or
“anyone directly or indirectly employed by any of them”. These terms are not used elsewhere
in FIDIC 1999. In contrast, the Employer’s indemnity obligation is limited to the damage
caused by its personnel and agents only. An indirect employee not captured within the
definition of Contractor’s Personnel is likely to include appointed professional advisors,
material suppliers and manufacturers.
14
Sub-Clause 17.1(b)(i) specifically provides “out of or in the course of or by reason of the Contractor’s design (if
any), execution and completion of the Works and the remedying of any defects”
15
Nael Bunni – third Edition – see at page 532.
16
See at Sub-Clause 17.1(b)

c) The Employer’s Indemnity - Specific Matters
The Employer’s obligation to indemnify extends only to the Contractor, its personnel and
agents. The obligation relates only to:
(i) Personal Injury. The Employer’s indemnity obligation for personal injury is explained
above. It is important as it includes injury attributable by the Employer’s Personnel, or
any of their respective agents. Injury caused by the Engineer’s design is therefore
covered. It has undergone substantial re-drafting from its origin at Sub-Clause 22.2(d)
the Red Book 4th edn, where there was an express provision to provide an indemnity to
be apportioned between the Employer and Contractor according to the proportion of
any contributory negligence. 17
(ii) Property
The Employer gives an indemnity to the Contractor for third party property damage
and thirdparty injury for certain claims which are allocated as Employer responsibility
or risk. The wording of this indemnity in not as clear as it should be and can be
interpreted in a number of ways.
“the matters for which liability may be excluded from insurance cover, as described in
sub-paragraphs (d)(i), (ii) and (iii) of Sub-Clause 18.3.”
The intention of this wording appears to be that only where certain risks have been
excluded from the insurance cover will the Employer’s indemnity obligation arise. The
use of the word ‘may’ recognises that insurance may be available for some of these
risks on commercially reasonable terms. However, the use of the word “may” rather
than “have” leads to some confusion. One could argue that if any insurance cover
relevant to the events described in sub-paragraphs (d)(i), (ii) and (iii) of Sub-Clause
18.3 proved to be ineffective the indemnity obligation would then kick in. However,
this is clearly not the intention.
Sub-Clause 18.3(d)(i), (ii) and (iii) list the matters which may be excluded from
insurance cover. These are:
“Liability to the extent that it arises from:

(i) the Employer’s right to have the Permanent Works executed on, over, under, in
or through any land, and to occupy this land for the Permanent Works,
(ii) damage which is an unavoidable result of the Contractor’s obligations to execute

the Works and remedy any defects.
17
See Sub-Clause 22.2(d) of the Red Book 4th edn...”injury or damage was contributed to by the Contractor, his
servants or agents, such part of the said injury or damage as may be just and equitable having regard to the extent
of the responsibility of the Employer, his servants or agents or other contractors for the injury or damage”

(iii) a cause listed in Sub-Clause 17.3 [Employer Risks], except to the extent that
cover is available at commercially reasonable terms.”
Sub-Clause 18.3(d)(i) is similar to Sub-Clause 22.2(a) and (b) of the Red Book 4th edn.
Sub-Clause 18.3(d)(ii) is similar to Sub-Clause 22.2(c) of the Red Book 4th edn. EC
Corbett, FIDIC 4th A Practical Legal Guide, gives examples of the claims which could
arise such as reduced property value caused by the construction activity or injunctions
brought over boundary disputes which bring works to a halt.
A question arises as to whether the excluded matters must be read alongside the
opening words of Sub-Clause 18.3, which refer to “any loss, damage, death or bodily
injury which may occur to any physical property (except things insured under Sub-
Clause 18.2 [Insurance for Works and Contractor’s Equipment]) or to any person (except
persons insured under Sub-Clause 18.4 [Insurance for Contractor’s Personnel]), which
may arise out of the Contractor’s performance of the Contract”? The words restrict the
scope of the indemnity to third party losses. On balance we take the view that a
restrictive interpretation ought to be placed on the Employer’s indemnity provisions.
“damage which is an unavoidable result of the Contractor’s obligations to execute the

Works and remedy any defects.”
The FIDIC 1999 Guide states that this does not extend to any other damage which is a
result of the particular arrangements and methods which the Contractor elected to adopt
in order to perform his obligations. Here the Contractor would remain responsible for
the risk and the Contractor should adopt appropriate arrangements and methods to
minimise claims from third parties due to its performance of contractual obligations.
“a cause listed in Sub-Clause 17.3 [Employer Risks], except to the extent that cover is
available at commercially reasonable terms.”
The Employer’s indemnity obligation is therefore for all third party18 loss, damage,
death or bodily injury arising from a cause listed in Sub-Clause 17.3, except to the
extent that insurance cover is available at commercially reasonable terms. Sub-Clause
17.1 read together with Sub-Clause 17.3 and 18.3(d)(iii) shows that the Employer is
generally allocated responsibility for Sub-Clause 17.3 matters where it is not insurable.
The FIDIC 1999 Guide does not define what constitutes ‘commercially reasonable’
although it mentions that it may be a matter of opinion given that the scope of cover
required may have been clarified by early agreement of terms. The meaning of
18
Those events which are not covered by Sub-Clause 18.2 or Sub-Clause 18.4.

commercially reasonable terms is likely to lead to conflict as it is an imprecise concept
although the phrase “commercially reasonable” has recently been considered by the
English courts. 19 In the Particular Conditions parties should define which risks are to
be covered by indemnity. If insurance is available for a particular risk under Sub-Clause
17.3 on commercially reasonable terms which has not been effected then the Employer
will not be liable to provide an indemnity if the Contractor is the insuring Party. Here
the Contractor would then be in breach of its obligation to insure and would be liable
for all or part of the resulting loss.
The FIDIC Guide recognizes that although the Sub-Clause 17.1 indemnities may apply widely
they do not necessarily cover every type of claim and so there may be claims for which neither
Party is entitled to an indemnity under this Sub-Clause.
Sub-Clause 17.2 Contractor’s Care of the Works
This provision sets out the Contractor’s responsibility for the care of the Works. The clause
originated from Sub-Clause 20.1 and 20.2 of the Red Book 4th edn. The Contractor assumes full
responsibility for the “care of” the Works and Goods. The insurance requirement for these risks
is set out at Sub-Clause 18.2. ‘Goods’ include items such as Contractor’s Equipment, Materials
and Plant. Employer’s Equipment 20 does not fall within the definition of Works and Goods and
so the Contractor does not assume responsibility for the Employer Equipment which is identified
in the Specification. Also, the Contractor does not assume responsibility for Plant taken over by
the Employer. The Contractor remains responsible for the acts or defaults of any Subcontractor or
its agents and employees pursuant to Sub-Clause 4.4 [Subcontractors].
The Contractor’s responsibility runs from the Commencement Date (and the execution of the
Works commence as soon as is reasonably practicable thereafter) and ends on issue or deemed
issue of the Taking-Over Certificate for the Works, Section or part of the Works under Sub-Clause
10.1 and Sub-Clause 10.2 (as the Works are then completed).
The expression adopted by FIDIC for ‘care of the Works’ may lead to some misunderstanding
across different jurisdictions. Axel-Volkmar Jager et al 21 refer to civil law jurisdictions where ‘care
of the works’ is understood to mean the risk of accidental damage to the Works. 22 German Civil
Code provides that the contractor bears the risk until the work is ‘accepted.’ In Civil Law countries
it is considered that the risk for the care of the Works shifts to the Employer when the Engineer
issues the Performance Certificate (and not on issue of the Taking-Over Certificate as provided in
19
Lehman Brothers Special Financing Inc v National Power Corporation & Anor [2018] EWHC 487 and Barclays
Bank Plc v Unicredit Bank Ag & Anor [2014] EWCA Civ 302
20
See Sub-Clause 1.1.6.3 [Employer’s Equipment], 1.1.5.2 [Goods] and 1.1.5.1 [Contractor’s Equipment].
21
Axel-Volkmar Jaeger, Gotz-Sebastian Hok “FIDIC – A Guide for Practitioners” at page 341
22
A similar definition was also given in the English case of Skanska Construction Ltd v Egger [Barony] Ltd [2002]
EWCA Civ 310 at [18]

the contract). French law is similar and where this applies, parties should understand that issue of
the Taking-Over Certificate does not mean ‘acceptance of the works’. This is only achieved on
issue of the Performance Certificate. Under Romanian law (Law 10/1995 and GD 273/1994) the
Taking-Over Certificate is considered to have the effect of provisional acceptance. 23
Sub-Clause 17.2 expressly provides that responsibility passes to the Employer when the “Taking-
Over Certificate is issued (or is deemed to be issued under Sub-Clause 10.1 [Taking Over of the
Works and Sections])”. Under Sub-Clause 10.1 the Engineer in issuing the Taking-Over
Certificate will state the date that the Works or Section was completed. The Taking-Over
Certificate may therefore record that the Works or Section was completed on an earlier date than
the issue date of the Certificate. Given that under Sub-Clause 17.2 liability does not pass to the
Employer until the issue date (or deemed issue date), the Contractor may, in certain circumstances,
remain responsible for the Works for the gap between the actual taking over date and the date of
issue of the relevant Taking-Over Certificate or deemed issue.
For insurance purposes it is the issue of the Taking-Over Certificate and not the date stated in the
certificate which is relevant. The FIDIC 1999 Guide suggests that insurance to provide cover for
the Employer risks for the Works should become effective by the date of issue of the Taking-Over
Certificate.
It is important to clearly define what constitutes a Section (or part of the Works). The FIDIC 1999
Guide suggests that precise geographical definitions are set out in the tender documents for each
Section or part of the Works as opposed to merely defining a Section by way of construction
milestones.
Contractor Responsibility for Outstanding Works
Following the issue of the Taking-Over Certificate (for Works, Section or part of the Works) the
burden of care for the works remains on the Contractor for any outstanding minor works and
defects to be carried out under Clause 11 [Defects Liability]. The Sub-Clause provides that “the
Contractor shall take responsibility for the care of any work which is outstanding on that date
stated in the Taking-Over Certificate, until this outstanding work has been completed”. Such
outstanding works are then executed and completed by the Contractor during the Defects
Notification Period (which commences on issue of the relevant Taking-Over Certificate). The
Contractor remains responsible and therefore liable for loss and damage until the outstanding work
is completed. This is when responsibility of the outstanding works then passes to the Employer.
23
Axel-Volkmar Jaeger, Gotz-Sebastian Hok “FIDIC – A Guide for Practitioners” at page 329

Risk Allocation for Loss and Damage to the Works
Before a Taking-Over Certificate is issued, or deemed Taking-Over occurs, the Contractor is

responsible for the care of Works, Goods and Contractor’s Documents. The Contractor will,
however, not be liable for loss or damage caused by any event or circumstance which is expressly
allocated to the Employer under Sub-Clause 17.3 [Employer’s Risks] so far as they cause loss or
damage to the Works (Sub-Clause 17.4 [Consequences of Employer’s Risks]). The Contractor
must, however, rectify the loss or damage if required by the Engineer.
If the loss or damage is caused by an event, other than one covered by Sub-Clause 17.3, then the
Contractor is liable to rectify that loss and damage at his risk and cost. 24 It should be noted that the
preceding provisions of Sub-Clause 17.2 do not refer to Contractor Documents. Specifically Sub-
Clause 17.2 is silent on the Contractor’s responsibility for the care of the Contractor’s Documents.
This obligation is found under Sub-Clause 1.8 [Care and Supply of Documents], which provides
that the care of Contractor Documents does not pass to the Employer until they are taken over.
Dominant Cause
There is nothing within Sub-Clause 17.2 which deals with the situation where damage is caused
by multiple events – one being a Contractor’s risk and one being an Employer Risk. The
Employer’s liability is not expressed to be limited ‘to the extent that’ loss or damage is caused by
an Employer risk, which would then allow for split liability between the parties. In practice a split
liability will rarely occur unless it is an Employer risk falling within Sub-Clause 17.3 (f), (g) or
(h).
Loss and Damage after Taking-Over Certificate

On the issue of a Taking-Over Certificate the responsibility for the care of the Works passes to the
Employer (except for outstanding works and defects). However, Sub-Clause 17.2 confers liability
on the Contractor after the issue of the Taking-Over Certificate for “any” loss and damage:
1. Caused by any actions performed by the Contractor after issue of the Taking-Over Certificate
(and therefore actions carried out during the defects notification period).
2. Occurring after issue of the Taking-Over Certificate and which arose from a previous event
for which the Contractor was liable (such as latent defects or poor workmanship).
This liability is consistent with the insurance obligation for Contractor risks at Sub-Clause 18.2
[Insurance for Works and Contractor’s Equipment].
There is no express provision that the Contractor must rectify the loss or damage to the Works.
The Employer, who has care of the Works at this stage, may execute such works itself or arrange
for the works to be carried out by another contractor and recover such cost from the Contractor.
24
Sub-Clause 17.2 specifically provides “If any loss or damage happens... during the period when the Contractor is
responsible for their care, from any cause not listed in Sub-Clause 17.3 [Employer Risks], the Contractor shall
rectify the loss and damage at the Contractor’s risk and cost...”

Sub-Clause 17.3 Employer’s Risks
Sub-Clause 17.3 must be considered in conjunction with Sub-Clause 17.2. These two Sub-Clauses
deal with risk allocation between the parties and liability for loss and damage. However, these are
not the only clauses dealing with risk and regard must be had to Sub-Clauses 17.1, 8.4 and also
the clauses specifically dealing with risk as identified above in the section “cross-reference”.
The Contractor is not responsible for the risks identified in Sub-Clause 17.3, so far as they result
in loss and damage to the Works, Goods or Contractor’s Document. Generally Sub-Clause 17.3
is an amalgamation of risks which the Contractor has no control over or, more usually, are beyond
the control of both the Contractor and the Employer. They are risks which directly affect the
execution of the work.
Overlap with Clause 19 [Force Majeure]

The four categories of force majeure events at Sub-Clause 19.1(d)(i) to (iv) are identical to the
Employer Risks listed at Sub-Clause 17.3(a) to (d). There is therefore a complete overlap between
these four provisions and these clauses should be read together. The FIDIC Guide mentions that
Sub-Clause 17.3 (a) to (d) Employer Risks may constitute a force majeure event depending on the
severity and adverse consequence of the risk event.
Sub-Clause 17.3 is relevant when an event has caused loss or damage to the Works, Goods or
Contractor’s Documents whereas Clause 19 is relevant where an exceptional event prevents
performance of obligations and causes a delay. This distinction is important. The Contractor will
have no right to claim additional time or Cost arising from a Sub-Clause 17.3 event except where
it causes loss and damage to the Works, Goods or Contractor’s Document. For example, if war
occurs and the Contractor is prevented from carrying out the Works (but there is no damage to the
Works), Sub-Clause 17.3 will not assist the Contractor. In order to recover time and cost the
Contractor will have to rely on Clause 19.
Sub-Clause 17.3 risks may cause the Contractor delay or result in additional costs for the
Contractor. Under Sub-Clause 17.4 the Employer bears the risk for rectifying loss and damage
which occurred to the Works, Goods or Contractor Documents as a result of the Sub-Clause 17.3
risks. Pursuant to Sub-Clause 17.4 the Contractor may claim (following the Sub-Clause 20.1
procedure) for additional Cost to ‘rectify’ the loss or damage for Sub-Clause 17.3 risks. Similarly,
under Sub-Clause 19.4 the Contractor can claim (under Sub-Clause 20.1) the ‘additional Cost’ for
cost incurred as a result of force majeure events. The difference is that for a force majeure event
all damages may be recovered from the Employer whereas under Sub-Clause 17.3 the Employer’s
liability to remunerate the Contractor is limited to repair of the Works to the extent that the
Employer instructs repair.

The loss or damage which results such as personal injury or property damage is insurable. 25 The
FIDIC Guide recognizes that the risks at Sub-Clause 17.3 are generally uninsurable on general
insurance cover 26. These risks are summarized below:
a) War and act of foreign enemies
b) Terrorism or civil war
c) Riot and disorder (by persons other than the Contractor or Contractor’s Personnel).
d) Explosives and radioactivity
e) Pressure waves caused by aircraft and other aerial devices
Sub-Clauses 17.3(c), (d) and (e) add the restriction of “within the Country”. This restriction is
absent under the corresponding Clause 19 [Force Majeure] provision 27. Terrorism or riots
occurring in countries where the Works are not carried out could affect the progress of Works by
the Contractor. It is possible that destruction or seizure of equipment or materials manufactured in
other countries may occur during a civil war. It therefore seems that where such events arise
outside the country then it will not fall within a risk at Sub-Clause 17.3(b). It may then be captured
under the provision for force majeure at Clause 19 where the Contractor is prevented from
performing its obligation as a result. However, where the Contractor is not prevented from
performing its obligations (i.e. the Contractor obtains the equipment and materials from another
country) but incurs cost as a result of the equipment or materials seized then the liability for the
risk will rest with the Contractor – see for example the decision in ICC Case No 20930/TO Partial
Award 28, where the Tribunal held that disturbances caused by the Arab Spring did not necessarily
constitute a force majeure event where the materials which had to be supplied were readily
available from other countries.
As a result of changes to the global society some additions to FIDIC 1999 have been made since
its predecessor at Clause 20.4 of Red Book 4th edn. Sub-Clause 17.3(b) now includes the event
of terrorism. Under Sub-Clause 17.3(c) the restriction of “…and arising from the conduct of the
Works” has been removed. The effect is that the Employer does not bear the risk for any riots,
commotions or disorder which is attributable to the Contractor (or its personnel) and therefore the
Contractor bears the risk for such events. 29
25
Nael Bunni – third edition – see at Page 531. These risks are identified as being insurable.
26
See Ellis Baker et al ‘FIDIC Contracts Law and Practice’ at page 345 and footnote 13 which refers to the FIDIC
Contract Guide (1st Edition, 2000).
27
However, in order for a party to recover Cost the event must have occurred in the Country – Sub-Clause 19.4(b).
28
Unreported
29
see Clause 19 and the case of Rumdel Cape v South Africa Roads Agency Soc Ltd (234/2015) [2016] ZASCA 23
where this issue was considered in relation to a force majeure claim

The event of munitions of war and explosive materials is added to Sub-Clause 17.3(d) whilst the
description for matters constituting contamination by radio-activity has been removed, widening
this category, (see Clause 20.4(c) of Red Book 4th edn). Terms are also added at Sub-Clause
17.3(d) to exempt or restrict the Employer’s liability for risks arising due to Contractor fault. The
words used for the exemption are “…except as may be attributable to the Contractor’s use of such
[munitions, explosives, etc.]”. This drafting is similar to that found at Sub-Clauses 17.1(a) and
17.1(b)(ii) where the provision is silent on whether the loss or damage to the Works (Goods or
Contractor Documents) must be attributable in whole or in part to the Contractor’s fault for the use
of those materials.
The term ‘may be’ means ‘might be’ or ‘could be’ attributable to the Contractor. It is submitted
that under English law the phrase “except as may be attributable” will exempt the Employer’s
liability for the proportion of the loss and damage which is attributable to the fault of the
Contractor. The meaning and effect of this phrase is likely to differ across different jurisdictions.
The terms “may be” could result in a total exclusion of Employer liability even in circumstances
were the Contractor is less than 50% responsible for the loss and damage as a result of the Sub-
Clause 17.3(d) risk. The position under the governing law of the contract must be considered
especially where the parties do not intend a full exclusion interpretation for the Employer liability
for this risk. Where parties intend to adopt the apportionment approach according to each party’s
proportion of liability, the terms should be amended to “except to the extent attributable” to avoid
ambiguity and to recognize and apply split liability.
Sub-Clause 17.3(d) does not expressly exempt the Employer from liability where the loss and
damage results from the Contractor’s Personnel or its agents for the use of such materials. English
courts are unlikely to construe this provision to include Contractor Personnel as some of the other
provisions under Sub-Clause 17.3 expressly refer to “Personnel”. Given that the ‘Contractor’ is
defined as the person named as contractor in the letter of tender (see Sub-Clause 1.1.2.3) the
Employer will then be liable for the Sub-Clause 17.3(d) risk where the loss and damage arises
from personnel whom the Contractor utilizes on site such as staff, labour, other employees and
other personnel assisting the Contractor and for each Subcontractor. It is unlikely that this is what
FIDIC intended. Sub-Clause 17.3(d) should be amended to add ‘Contractor Personnel’ to the
exception. Care is required for drafting in respect of Subcontractors which the Employer retains
responsibility for. For such Subcontractors (where the Contractor has little or no responsibility)
the Employer should retain liability for the risk.
The Employer Risks at Sub-Clause 17.3(f), (g) and (h), which are considered below, are not
captured as a force majeure event under Clause 19 as they involve an element of party default.
f) Use or occupation by the Employer of any part of the Permanent Works.

This is relevant for loss and damage where the Contractor has retained responsibility for the
care of the Works under Sub-Clause 17.2 either (i) prior to Taking-Over or (ii) for the

outstanding works and defects at post Taking-Over. This Employer risk will apply irrespective
of whether the Employer’s use or occupation of the permanent works is minor or temporary.
This is a contentious point as disputes are likely to concern what constitutes use or occupation
especially where the Employer has more than one contractor on Site. In contrast, under Sub-
Clause 10.2 [Taking Over of Part of the Works] the Employer is permitted to use part of the
Works as a temporary measure unless and until it is Taken-Over. Where the Employer uses a
part of the Works for purposes other than a temporary measure then that part of the Works is
deemed to have been Taken-Over (and therefore the Contractor responsibility and liability
ceases).
g) Design of any part of the Works by the Employer’s Personnel or by others for whom the
Employer is responsible. This Sub-Clause makes the Employer responsible for damage to the
Works or the Goods caused by the design of the Works, which has been undertaken by the
Employer’s Personnel or others for whom he is responsible. The design must have caused the
loss or damage to the Works or Goods. In most cases under a Red Book form of contract the
Employer will have responsibility for the design of the works except to the extent specified in
the Contract (see Sub-Clause 4.1). Problems may arise where it is unclear how the damage to
the Works or Goods has been caused. Where there are concurrent causes then, similar to the
Red Book 4th edn, each party is liable to the extent that their error in design (or workmanship)
is causative of the loss.
h) Any operation of the forces of nature which is Unforeseeable or against which an experienced
contractor could not reasonably have been expected to have taken adequate preventative
precautions. This Sub-Clause makes the Employer responsible for damage to the Works or
Goods in two situations. First, where the damage is caused by the operation of the forces of
nature which is Unforeseeable. Second, where the damage is caused by the operation of the
forces of nature which an experienced contractor could not prevented by using adequate
preventative precautions.
Unforeseeable Events
Sub-Clause 1.1.6.8 defines "Unforeseeable" to mean "not reasonably foreseeable by an

experienced contractor by the date for submission of the Tender". The FIDIC Guide gives
some guidance on whether a natural event of forces of nature is Unforeseeable. It is suggested
that this could be determined by consideration of historic statistical records for the frequency
of the occurrence of various events against the period of time to be taken to complete the
works:
“if the Time for Completion is three years, an experienced contractor might be expected to
foresee an event which occurs (on average) once in every six years, but an event which

occurs only once in every ten years might be regarded as Unforeseeable.”
EC Corbett refers to civil law and highlights that for exceptional and unforeseen events which
render the Contractor’s obligation onerous resulting in excessive loss then under French law
(Théorie de l’imprévision) such loss may be reduced by way of compensation by the Employer.
This doctrine has wider application in Egypt as the Contractor is completely relieved of
responsibility.
Where the Employer risk under Sub-Clause 17.1(h) (operation of forces of nature) falls within
the risk at Sub-Clause 19.1(v) for natural catastrophes then it may still be treated as an
Employer risk regardless of where it occurs in the world. The risk under Sub-Clause 17.1(h)
is not limited to occurrence in the Country where the Site is located.
Foreseeable Events which an experienced contractor could not have taken adequate
preventative precautions against
The Employer will also bear the risk for loss or damage to the Works or Goods in cases where
the forces of nature were foreseeable but where it would not have been reasonable to expect an
experienced contractor to take adequate preventative precautions. There will be many borderline
cases. This risk is insurable under Sub-Clause 18.3(d).
The terms adopted of ‘experienced’, ‘could not reasonably’ and ‘adequate preventative
precautions’ introduce ambiguity into the Contract. ‘...adequate preventative precautions’ is a
new term. It has been included to place an express duty on the Contractor to mitigate any
resulting loss.
Sub-Clause 17.4 Consequences of Employer’s Risks
Sub-Clause 17.4 sets out a procedure which the Contractor must follow when loss or damage is
caused by one of the Employer risks listed at Sub-Clause 17.3.
Procedure - First Notice

Sub-Clause 17.4 provides for a two stage notice procedure which the Contractor must follow. For
the first notice, the Contractor is required first to give ‘prompt’ notice to the Engineer in
compliance with requirements under Sub-Clause 1.3[Communications] that loss and damage has
been caused by a Sub-Clause 17.3 risk. Specifically the notice should (1) identify and define the
Employer's risk and (2) define the resulting loss or damage to the Works, Goods and/or
Contractor's Documents. 30
30

The giving of ‘prompt’ notice is not defined although its natural meaning is that notice should be
given without delay. Jackson J. in Multiplex Construction v Honeywell Control Systems [2007] 31
explains the reasons for giving prompt notice:
“…serve a valuable purpose, such notice enables matters to be investigated while they
are still current. Furthermore, such notice sometimes gives the employer the opportunity
to withdraw instructions when the financial consequences become apparent”.
The aim of giving prompt notice of an event under Sub-Clause 17.4 is to allow the finding of a
prompt solution and to allow the Engineer to investigate the facts of any potential claim and the
resulting financial outcome whilst the event is still recent, current and existing. Indirectly, prompt
notice acts as a medium to notify the Engineer (and Employer) of any consequential foreseeable
amendments to the Contract Sum.
English courts will construe the contract as a whole and are likely to treat the giving of notice
‘promptly’ as directory and not mandatory. The notice requirement under Sub-Clause 17.3 is not
a condition precedent as there is no sanction attached to this provision if the Contractor fails to
give ‘prompt’ notice – see Aspen v Pectel [2008]. 32 In Aspen v Pectel (which concerned notice
requirements in an insurance policy) the Court held that giving ‘immediate notice’ meant “with all
reasonable speed considering the circumstances of the case.” Similarly in SHV Gas Supply and
Trading SAS v Naftomar Shipping & Trading Co Ltd Inc 33 the court decided that notice had to be
given within a reasonable time after the occurrence to give notice has arisen. Here, time begins to
run from when loss or damage occurs to the Works (Goods or Contractor Documents) as a result
of a Sub-Clause 17.3 risk. It is an objective evaluation of the facts known to the Contractor to
determine when the duty to provide such notice commences.
Engineer’s Instruction to Rectify

Having issued the notice, the Engineer may require the Contractor to rectify the loss or damage to
the Works or Goods. It is noted that there is no express obligation placed on the Engineer to give
an instruction to the Contractor either “promptly” or at all. If the Engineer does not issue an
instruction then the Contractor ought to request an instruction under Sub-Clause 1.9. It should also
be noted that the FIDIC Guide states that the Contractor may have an obligation to repair the
Works under the applicable law or other contract provisions.
If the Engineer does give an instruction to the Contractor to rectify the loss or damage to the Works
then the Contractor is required to comply with that instruction. In the event that the Contractor
incurs delay or Cost it must then give notice of its claim under Sub-Clause 20.1.
31
EWHC 447 (TCC), see paragraph 103
32
[2008]EWHC 2804 (Comm)
33
[2005] EWHC 2528 (Comm), see paragraph 37

Further Notice pursuant to Sub-Clause 20.1
Where the Contractor is instructed by the Engineer to rectify loss or damage to the Works or Goods
caused by a Sub-Clause 17.3 risk and the Contractor suffers delay or incurs loss as a result of the
rectification work then the Contractor is entitled to the type of remedy specified at Sub-Clause
17.4(a) and (b).
The reliefs expressed at Sub-Clause 17.4(a) and (b) are consistent with the reliefs which the
Engineer has power to grant under Sub-Clause 20.1 in conjunction with Sub-Clause 3.5 namely
an extension of time and payment of such Cost, respectively. The Sub-Clause 20.1 notice must be
given “as soon as practicable, and not later than 28 days…” after the Contractor became aware
(or should have become aware) of the event or circumstance. Sub-Clause 17.4 shows that the
relevant ‘event or circumstance’ is the delay and/or additional cost suffered as a result of the
instructed rectification work to the loss and damage caused by a Sub-Clause 17.3 risk event. When
read in conjunction with Sub-Clause 20.1 the Contractor does not give notice unless the Contractor
considers himself to be ‘entitled’ to claim for an extension of time or additional cost. The
‘entitlement’ to claim is not subject to the opinion of another (such as the Employer or Engineer).
Unlike the first notice, this 28 day requirement for giving the second notice is a condition
precedent. There is a sanction attached which discharges the Employer from ‘all liability in
connection with the claim’ and bars the contractor from its claim where the notice period is not
complied with. This limitation provision is therefore expressed to extinguish the claim by failure
to serve the notice within the prescribed time. The law governing the contract should be considered
on this issue – see narrative of Clause 20. The notice should state that it is given under Sub-Clause
17.4 and Sub-Clause 20.1. The FIDIC Guide recommends that the further notice refers back to the
earlier notice.
Claim for additional Cost

Although the Sub-Clause 17.3 Employer risks overlap (to some extent) with Clause 19 [Force
Majeure] they have a specific purpose. Sub-Clause 19.4 deals with the Contractor’s prevention
from performing and so an extension of time or additional cost may be granted whereas Sub-Clause
17.4 deals with loss or damage to the Works as a result of an Employer risk event under Sub-
Clause 17.3 with the result that additional profit may be granted in specific circumstances.
The Employer’s liability is limited to compensate the Contractor for the payment of ‘Cost’ incurred
from ‘rectifying’ the loss or damage (the rectification cost) which is attributable to any of the Sub-
Clause 17.3 Employer risks. The Employer is not therefore wholly liable for ‘all’ the consequences
of these risk events. The burden rests on the Contractor to prove that the loss or damage falls within
the extent of the Employer’s liability.
Sub-Clause 1.1.4.3 defines Cost as follows:

“means all expenditure reasonably incurred (or to be incurred) by the Contractor,
whether on or off the Site, including overhead and similar charges, but does not include

profit.”
Reasonable financing costs will be captured within the definition of Cost. The Contractor may
need to borrow funds as a result of carrying out the rectification work. The Cost recoverable will
only include costs attributable to the relevant event or circumstance and not those costs which are
not attributable.
For the Employer risks at Sub-Clause 17.3(f) or (g) which relate to Employer default (Employer
use of the Works and employer design issues) the Contractor is entitled to claim Cost plus
additional ‘reasonable’ profit. FIDIC Guide 1999 explains that the reason for this is that the
Employer is regarded as being directly responsible and at fault for these two risks. The Contractor
is therefore entitled to recover reasonable profit where the Employer is in breach of contract.
Where the Employer is not at fault, the risk is shared and the Contractor gives up any entitlement
to profit. The parties may wish to specify the amount of profit recoverable. If so an amendment
may be included at Sub-Clause 1.2 [Interpretation] to provide that “Cost plus reasonable profit
means profit to be at [5%] of this Cost”. Under the MDB version the term ‘reasonable’ is deleted
so that the Contractor is entitled to profit.
Claim for Extension of Time

The Contractor is entitled to claim for an extension of time for delay to complete whether
completion has been delayed or will be delayed as a result of compliance with the instruction to
carry out rectification works. The entitlement for relief relates only to rectification of the loss and
damage. It does not relate to any other ‘incidental’ delay or loss incurred as a result of the Employer
risk. However, the Contractor may still have an entitlement to claim an extension of time or
payment for Cost for these ‘incidental’ claims under Sub-Clause 8.4 [Extension of Time for
Completion] or Sub-Clause 19.4 [Consequences of Force Majeure].
Sub-Clause 17.5 Intellectual and Industrial Property Rights
This Sub-Clause deals with Employer and Contractor respective responsibilities for “claims”
arising out of “infringement” of intellectual property rights relating to the Works and the indemnity
obligations for each Party against certain claims. Sub-Clause 17.5 is an expansion of Clause 28.1
of the Red Book 4th edn. The title of this Sub-Clause “Intellectual and Industrial Property Rights”
has changed from its predecessor of “Patent Rights”.
Claims made by third parties is defined to mean either a claim alleging infringement of such
intellectual or industrial property rights or which concern the proceedings pursuing such a claim.
Under Sub-Clause 17.5 the term ‘other Party’ is usually (not always) used to describe the party
who is entitled to an indemnity under this Sub-Clause.

Indemnities
Earlier editions of FIDIC provided for a Contractor indemnity obligation only. Clause 28.1 of the
Red Book 4th edn introduced protection in favour of the Contractor to narrow the Contractor’s
indemnity obligation to the Employer for infringement of patent rights. Specifically, Clause 28.1
provided an express exclusion of claims (from the Contractor’s indemnity obligation) where the
infringement results from the Contractor’s compliance with design or specification provided by
the Engineer. 34 Sub-Clause 17.5 of FIDIC Red Book 1999 developed this further by introduction
of an Employer indemnity obligation. There are separate indemnities for the Employer and the
Contractor for claims made against a Party by a third party alleging infringement of their rights.
Unlike the indemnities provided under Sub-Clause 17.1, the indemnities under Sub-Clause 17.5
do not expressly provide for legal fees and expenses of the innocent party. The scope of the
indemnity obligation under Sub-Clause 17.5 is also narrower than its predecessor. Under Clause
28.1 of the Red Book 4th edn the indemnity was for “…costs, charges and expenses
whatsoever…”, whereas under Sub-Clause 17.5 each Party’s obligation is to indemnify and hold
harmless the other Party “against and from any claim”. 35
The FIDIC Guide recommends each Party consider specialist legal advice for third party claims
alleging infringement. There is a defined list of specific matters constituting an infringement or an
alleged infringement as set out below. The items identified in bold text are also specifically referred
to in the Red Book 4th edn. The other items are new additions in FIDIC 1999:
• Patent
• Registered design
• Copyright
• Trade mark
• Trade name
• Trade secret
• Other intellectual property right or other industrial property right ‘relating to the Works’.
This sweep up provision also appeared under Clause 28.1 of the Red Book 4th edn, although it
was expressed to limit the Contractor indemnity for items “used for or in connection with or
for the incorporation in the Works…”
Sub-Clause 17.5 deals with many types of infringement; however, the FIDIC Guide recognizes
that this Sub-Clause does not cover all types of infringement and for those claims neither party
will be entitled to an indemnity under Sub-Clause 17.5.
Employer’s Indemnity Obligation

The Employer’s indemnity obligation is for any claim alleging an infringement which was an
unavoidable result of the Contractor executing the Works in compliance with the contract or as a
34
Nael Bunni ‘The FIDIC Forms of Contract’ - see at page 144
35
see commentary at Sub-Clause 17.1 which addresses use of the term ‘hold harmless’

result of the Employer’s improper use of the Works. The Employer’s improper use is either:
(1) for a purpose not provided in the Contract or reasonably inferred from the contract or
(2) in conjunction with any thing not supplied by the Contractor (unless such use was disclosed
to the Contractor in the Contract or prior to the Base Date).
Contractor Indemnity Obligation

The Contractor has a limited indemnity obligation to the Employer. The Contractor is required to
indemnify the Employer for claims ‘arising out of or in relation to’:
1. the manufacture, use, sale or import of any ‘Goods’. ‘Goods’ means the Contractor Equipment,
Materials, Plant and Temporary Works used for execution and completion of the Works to
include the remedy of defects (see Sub-Clause 1.1.5.2).
2. “any design for which the Contractor is responsible”. These terms confer a narrower
indemnity obligation on the Contractor than in comparison to its predecessor. Under the Red
Book 4th edn the risk remained with the Contractor unless if shown that the infringement
resulted from the Contractor’s compliance with the design provided by the Employer/Engineer.
At Sub-Clause 17.5 the default position for responsibility and liability rests with the Employer
unless it is proven that the infringement results from a design for which the Contractor is
responsible.
Management of Claims
The Parties must co-operate where claims arise which are being contested by the indemnifying
Party. The indemnifying party may conduct negotiations to settle the claim or deal with litigation
or arbitration which may arise and against which it is liable to indemnify the other Party.
The other Party, including its Personnel, must assist in contesting the claim. The indemnifying
Party is liable for the costs incurred by the other Party in assisting it to contest the claim. The other
Party (and its Personnel) will be in breach of contract if they make any admission which might be
‘prejudicial’ to the indemnifying Party without the consent of the indemnifying Party. The
exception to this is where the other Party requests the indemnifying Party to take over conduct of
any negotiations, litigation or arbitration but the indemnifying Party fails to do so.
Notice Provision and Waiver

A Party receiving the claim must give notice to the other Party within 28 days of that claim. A
Party failing to give notice of the claim is deemed to have waived ‘any’ right to an indemnity under
Sub-Clause 17.5. The purpose of the sanction is to provide a strong incentive for the indemnifying
Party to inform the other Party in good time so as to enhance the opportunity for the other Party to
defend and assist in contesting the claim.

There is no time limit on the indemnity obligations. For example, the obligation is not limited for
infringements in existence at the date of agreement (such a restriction has been criticized
previously as being unusual and unjustified) or to correspond to a time limit for contractors’
liability for defects.
Sub-Clause 17.6 Limitation of Liability
Introduction and origin of the Sub-Clause

FIDIC has introduced a new Sub-Clause into all three 1999 Books which limits the parties’
liability to each other in certain circumstances. The FIDIC Guide explains that the rationale for
the Sub-Clause is to maintain a reasonable balance between differing objectives of the parties
each of whom will wish to limit his liability whilst maintaining his right to full compensation in
the event of default on the part of the other. As with most other forms of contract nowadays one
of the purposes of the introduction of this Sub-Clause appears to be to assist the parties to
appraise their risks at the contract negotiation stage. On a practical level it is presumably
intended to enable the parties to identify and insure (so far as they can) their potential liabilities
under the contract.
Previous incarnations of the Sub-Clause appear in the old Yellow Book (for E&M works) at
Clause 4.2.1 and 4.2.2 and Clause 17.6 of the old Orange Book (for design-build and turnkey
contracts), but it does not appear at all in the Red Book 4th edn.
Explanation of and Function of the Sub-Clause

The Sub-Clause is in three parts; the first substantive part states that neither Party shall be liable
to the other for certain types of loss, i.e.; loss of use of any Works, loss of profit, loss of any
contract or for any indirect or consequential loss or damage which may be suffered by the other
Party in connection with the Contract (other than under Sub-Clauses 16.4 and 17.1, i.e.; in the
event of payment on termination and where indemnities are provided). These clauses will
generally be upheld. 36 It should be noted that loss of Works, loss of profit and loss of contract
may include both direct and consequential losses.
The second part goes on to limit the Contractor’s liability to the Employer under or in
connection with the Contract (save in four situations, namely where Sub-Clauses 4.19, 4.20, 17.1
and 17.5 apply) to the sum inserted in the Particular Conditions or, if that sum is not stated, to the
Accepted Contract Amount. Note that the Accepted Contract Amount is defined in Sub-Clause
1.1.4.1 as the amount accepted in the Letter of Acceptance for the execution and completion of
the Works and the remedying of any defects. There is no similar restriction on the Employer’s
liability to the Contractor.
36
Persimmon Homes Ltd v Over Arup & Partners [2017] EWCA Civ 373

The way in which this part of the Sub-Clause operates will therefore be different for each party.
One can see that where, for example, an Employer’s notice of termination takes effect under
Sub-Clause 15.2 , following one of the Contractor defaults set out there, Sub-Clause 15.4 would
allow the Employer to recover any losses and damages incurred by him and any extra costs of
completing the Works, but Sub-Clause 17.6 is triggered to limit the Contractor’s liability in this
scenario. On the other hand, in the event that the Employer defaults and termination is effected
by the Contractor under Sub-Clause 16.2, payment by the Employer to the Contractor will not be
limited and the Contractor will, under the provisions of Sub-Clause 16.4, be entitled to loss of
profit or other loss and damage sustained by him as a consequence of the termination. The
provisions of the FIDIC 1999 Red Book do allow the Contractor to recover profit in addition to
cost in the event of an Employer default but the text of the relevant clause should be carefully
checked and profit is not in any event recoverable for events which are regarded as “neutral” i.e.;
the fault of neither party.
The third and last part of the Sub-Clause speaks for itself. In the event of fraud, deliberate default
or reckless misconduct by the party in default the Sub-Clause will not apply to limit its liability.
Direct and Indirect and Consequential Loss and Damage
In the seminal case of Hadley v Baxendale 37 the English House of Lords stated:
“Where two parties have made a contract which one of them has broken, the damages
which the other party ought to receive in respect of such a breach of contract should be
such as may fairly and reasonably be considered either arising naturally, i.e. according
to the usual course of things, from such breach of contract itself, [The first limb] or such
as may reasonably be supposed to have been in the contemplation of both parties, at the
time they made the contract, as the probable result of the breach of it. [The second
limb]”
Direct losses are therefore those losses which flow naturally from the breach of contract.
Indirect losses are those which may reasonably be supposed to have been in the contemplation of
the parties, at the time they made the contract, as a probable result of the breach. The distinction
is easy to demonstrate. In Victoria Laundry (Windsor) Ltd v Newman Industries Ltd38 it was
37
[1843-60] All ER Rep 461; (1854) 9 Exch 341, 354
38
[1949] 2 KB 528

held that the direct losses arising from a five month delay to provide an industrial washing
machine would include lost profits from contracts which the claimant would normally carry out
as part of its business whereas the loss of a special contract for the army was an indirect loss, the
losses of which would only be recoverable if the defendant was aware of the existence of that
contract at the time it entered into the contract with the claimant.
It has been stated that the phrase ‘consequential loss’ is not very illuminating, as all damage is in
a sense consequential: per Atkinson J., Saint Line Ltd v Richardsons Westgarth & Co 39.
Atkinson J. proceeded to state that an exemption clause referring to ‘consequential loss’ does not
exclude direct losses; i.e. losses that flow naturally from the breach. 40 In the case of British
Sugar plc v Projects Ltd 41 it was argued that loss of profits were consequential losses. The
argument was advanced that to a reasonable businessman ‘consequential losses’ would include
loss of profits. However, the Court of Appeal held that it was bound by authority and that loss of
profits would usually be a direct loss and therefore not covered by the phrase ‘consequential
loss.’ The Court of Appeal confirmed this in Hotel Services Ltd v Hilton International (Hotels)
Ltd 42 and stated that loss of profits were a natural consequence of the faulty equipment “and
therefore untouched by the exemption clause which (since all recoverable loss is literally
consequential) plainly uses ‘consequential’ as a synonym for ‘indirect’.” Therefore, the
traditional approach of the English courts has been to treat the words ‘consequential loss’ as
being synonymous with ‘indirect loss’.
The traditional approach was questioned in Caledonia North Sea v British Telecommunication 43
and Transocean Drilling v Providence Resources. 44 Both Lord Hoffman and Moore-Bick LJ
considered whether the traditional line of cases, which had considered the words ‘consequential
loss’ to be synonymous with ‘indirect loss,’ would be decided in the same way now.
In the recent case of The Star Polaris 45 the High Court had to consider an arbitrator’s award
which concluded that the words ‘consequential or special losses’ had a wider meaning than
simply being limited to indirect losses (i.e. the second limb of Hadley v Baxendale). The High
Court considered two recent Supreme Court cases on contractual interpretation - Chartbrook v
Persimmon Homes 46 and Arnold v Britton 47. The High Court found that the exemption clause
39
[1940] 2 KB 99
40
See also Croudace Construction Ltd v Cawoods Concrete Products Ltd (1978) 87 BLR 20
41
(1997) 87 BLR 42
42
[1998] EWCA Civ 1822 [8]
43
[2002] BLR 139 (HL)
44
[2016] BLR 360 (CA)
45
[2016] EWHC 2941
46
[2009] 1 AC 1101
47
[2015] AC 1619

had to be construed having regard to the parties’ intentions and against the relevant factual
matrix. The court concluded that despite the line of authorities supporting the traditional
approach “the well-recognised meaning was not the intended meaning of the parties and that the
line of authorities is therefore nothing to the point.” The court therefore held:
“…as in the judgment of the Arbitrators, ‘consequential or special losses, damages or

expenses’ does not mean such losses, damages or expenses as fall within the second limb
of Hadley v Baxendale but does have a wider meaning of financial losses caused by
guaranteed defects, above and beyond the cost of replacement and repair of physical
damage.”
The recent Supreme Court case of Wood v Capita Insurance Services 48 also supports the view
that when construing a contract the court may find on the facts that the parties’ objective
intentions were to give the words ‘consequential loss’ a broader meaning than just simply
‘indirect loss’. The court, when construing a contract, has to look at the contract as a whole.
The court must analyse both the language of the contract (a textual analysis) and the factual
background and implications of the rival constructions (a contextual analysis). As Lord Hodge
stated:
“The extent to which [textualism or contextualism] will assist the court in its task will
vary according to the circumstances of the particular agreement or agreements. Some
agreements may be successfully interpreted principally by textual analysis, for example
because of their sophistication and complexity and because they have been negotiated
and prepared with the assistance of skilled professionals. The correct interpretation of
other contracts may be achieved by a greater emphasis on the factual matrix, for example
because of their informality, brevity or the absence of skilled professional assistance. But
negotiators of complex formal contracts may often not achieve a logical and coherent
text because of, for example, the conflicting aims of the parties, failures of
communication, differing drafting practices, or deadlines which require the parties to
compromise in order to reach agreement. There may often therefore be provisions in a
detailed professionally drawn contract which lack clarity and the lawyer or judge in
interpreting such provisions may be particularly helped by considering the factual matrix
and the purpose of similar provisions in contracts of the same type. ...”
Other Jurisdictions
In Australia there has been a significant departure from the approach taken by the English courts
to the interpretation of the words ‘consequential loss’. In Environmental Systems Pty Ltd v
Peerless Holdings Pty Ltd 49 the court stated that consequential loss would include any loss which
did not “naturally and ordinarily” flow from the breach of contract and therefore would include
48
[2017] UKSC 24
49
[2008] VSCA 26

loss of profits. This approach has been adopted and extended by other courts in Australia: see
Alstom Ltd v Yokogawa Australia Pty Ltd (No 7) 50. In the Alstom case it was held that an
exemption clause prohibiting claims for consequential losses would include all types of loss
except for claims for liquidated damages and damages associated with performance guarantee
payments, which were expressly provided for in separate clauses of the contract.
The issue of what is covered by the phrase ‘consequential loss’ was recently considered again in
Regional Power Corporation v Pacific Hydro Group Two Pty Ltd51. In this case the court held
that the Hadley v Baxendale and the Peerless approach were both wrong. The court stated that
the words in the exclusion clause had to be given their “natural and ordinary meaning, read in
light of the contract as a whole.” In this case the court found that the losses which had been
suffered were direct losses and not consequential losses and therefore were not covered by the
exclusion clause.
The approach taken by some American courts also differs from the English approach. In Jay
Jala v DDG Construction 52 the court followed a similar approach to that taken in the Peerless
case. In this case the court stated:
“Direct damages are the costs of getting what the contracting party was supposed to give
– the costs of replacing [the Defendants] performance. Other costs that may not have
been incurred [but for the breach of contract], but that are not part of what [the
Claimant] was supposed to get from [the Defendant], are consequential or a secondary
consequence.”
Loss of profit or loss of income would therefore be classed as a consequential loss applying the
principles in the Jay Jala case. In other countries it has been suggested that indirect losses are
economic losses (i.e. non-physical) that are a consequence of a defect. 53
Effectiveness of Exclusion Clauses under English Law
Under English law an exclusion or limitation of liability clause will not apply in every
circumstance. An exclusion clause that seeks to exclude all liability might be considered as
ineffective. 54 In the case of A.Turtle Offshore SA Assuranceforeningen Gard-Gjensidig v
Superior Trading Inc 55 the court considered the situation of an abandonment of the Works. The
court stated that despite the wide wording of the exclusion clause there were some breaches of
50
[2012] SASC 49
51
[2013] WASC 356
52
[2016] (US District Court of Pennsylvania)
53
See www.ibanet.org/Forum - Thread: FIDIC 17.6 Limitation of Liability
54
However, see Motortrak v. FCA Australia Pty Ltd [2018] EWHC 990 (Comm) below where the court held that it
would uphold the exclusion clause that severely limited a party’s remedies.
55
[2008] EWHC 3034 (Admlty)

duty against which the exclusion clause cannot have been intended to provide protection. 56 The
court referred to the opinion of Lord Wilberforce in Suisse Atlantique 57 where his lordship stated
that there was a principle that a "total breach of the contract" disentitled a party to rely on
exceptions clauses. In A.Turtle Offshore the court found that not all contracts must be construed
literally. Teare J stated [110]:
"[An exception clause] must, ex hypothesi, reflect the contemplation of the parties that a
breach of contract, or what apart from the clause would be a breach of contract, may be
committed, otherwise the clause would not be there; but the question remains open in any
case whether there is a limit to the type of breach which they have in mind. One may
safely say that the parties cannot, in a contract, have contemplated that the clause should
have so wide an ambit as in effect to deprive one party's stipulations of all contractual
force; to do so would be to reduce the contract to a mere declaration of intent. To this
extent it may be correct to say that there is a rule of law against the application of an
exceptions clause to a particular type of breach. But short of this it must be a question of
contractual intention whether a particular breach is covered or not and the courts are
entitled to insist, as they do, that the more radical the breach the clearer must the
language be if it is to be covered."
Teare J. then stated that despite this, a strained construction should not be placed on exclusion
clauses where the words were clearly written.
In Swiss Bank v Brink's Mat 58 Bingham J. held at paragraph 93 that the words "under no liability
whatsoever howsoever arising" were susceptible of one meaning only. However, he went on to
find that despite this wide wording the words were not intended to apply where there was a
wilful default.
In the recent case of In Motortrak v. FCA Australia Pty Ltd 59the High Court considered an
exclusion clause that was similar to that in Sub-Clause 17.6. The Contract was wrongfully
rescinded by Employer. The Employer thereafter failed to pay the Supplier and the Supplier
claimed that this failure was itself a repudiatory breach of contract. The Supplier therefore
terminated the Contract and claimed, amongst other things, loss of profit against the Employer.
The Employer argued that it had no liability for such losses because of the exclusion clause. The
Supplier argued that the exclusion clause only applied where loss of profits arose in connection
with the performance of the Contract and not where the Employer simply refused to perform the
Contract. The Supplier argued that the Employer’s interpretation of the exclusion clause would
result in a breach of the Employer’s obligations having no contractual remedy. Moulder J.
56
Ibid at [99]; see also The Cap Palos [1921] P. 458. at p. 471-2
57
[1967] 1 AC 361 at p. 432
58
[1986] 2 Lloyd's Rep.79
59
[2018] EWHC 990 (Comm)

rejected the Supplier’s argument and therefore rejected the Supplier’s claim for loss of profits.
His lordship stated:
129. “…although Motortrak on the defendant's construction, would be left without a

claim for loss of profits, the clause does not preclude a claim for wasted costs arising out
of the repudiation of the contract. It is a feature of Motortrak business that the revenue to
be earned from this particular contract was largely, if not wholly, profits but there is no
evidence that this was part of the factual matrix against which this agreement was
concluded. Accordingly (adopting the approach of Carr J in Fujitsu) it cannot be said
that FCAA's construction would deprive the contract of all contractual force.
130. The court has to balance the indications given by the literal interpretation of the
words used and the provisions of the contract against the factual background and the
implications of the rival constructions. In my view in this case there is nothing in the
factual background or the contract as a whole to override the language used in sub-
clause 9.5. The commercial consequences, whilst adverse to Motortrak are not in my
view such as to have the effect that the court can find that the objective meaning of the
language of subclause 9.5 is other than as it appears on its face. It is a clear exclusion in
the context of a clause which taken as a whole appears to have been drafted with some
precision from the perspective of Motortrak and in relation to subclause 9.5, to the
mutual benefit of both parties. As stated in Wood the court has to be alive to the
possibility that one side may have agreed to something which in hindsight did not serve
his interest.”
Loss of Profit
Under Sub-Clause 17.6 both direct and indirect loss of profit claims are excluded from liability.
However, the Sub-Clause then provides exceptions to the exclusion clause; these are that the loss
occurs under Sub-Clauses 16.4 or 17.1. Therefore, following a termination by the Contractor,
the Contractor is entitled to claim loss of profit. The Contract does not provide the Employer
with a similar exception in the event that it terminates the Contract under Sub-Clause 15.
Fraud, Deliberate Default and Reckless Misconduct
Fraud
There is no definition of “fraud” within the FIDIC contract. Fraud may encompass many
different types of action, both criminal and civil. Under the criminal law in England, for
example, fraud is committed under the Fraud Act 2006 where there is a fraudulent
representation; a failure to disclose information when there is a legal duty to do so; or fraud by

abuse of position. In each case a party’s conduct must be dishonest and his/her intention must be
to make a gain; or cause a loss or the risk of a loss to another.
There is no single cause of action for civil, or commercial, fraud. What may loosely be defined
as ‘fraud’ is a set of heads of claim at common law and in equity. Each of these claims will have
their own distinct elements which need to be pleaded and proved. Fentem and Walker provide
some examples of ‘fraud’, which include: “claims in fraudulent misrepresentation or deceit, the
economic torts of conspiracy and inducing breach of contract, bribery, certain breaches of
fiduciary duty and claims founded on secondary liability for breach of trust in dishonest
assistance and knowing receipt, as well as claims for wrongful or fraudulent trading and for
transactions defrauding creditors made in the context of the Insolvency Act 1986.” 60
‘Fraud’ will be defined by the substantive law of the contract. Under some laws, where fraud is
proven, a party may be entitled to punitive damages. The laws of the USA, India and the
Philippines allow awards of punitive damages. Under English law a claim for punitive or
exemplary damages is limited to a few cases and will not be successful for a breach of contract. 61
The laws of France, Germany, Japan, Korea, Taiwan and Switzerland do not permit
claims for punitive damages. There is then the question of whether a DAB or an
arbitrator is entitled to award punitive damages – see, for example, Garrity v. Lyle
Stuart, Inc (353 N.E. 2nd 793 (N.Y. 1976)). 62 This again raises jurisdictional issues.
Deliberate Default
The phrase ‘deliberate default’ has now been considered by the English courts on a number of
occasions. In Astra Zeneca UK Ltd v Albermarle International Corp and Another, 63 the court
had to consider whether or not the stoppage of a shipment was a deliberate breach of contract.
Flaux J. found that the person involved had a mistaken view of the terms of the supply agreement
and was therefore not entitled to act in the way that he did. He was in breach of contract.
However, the judge went on to find that it was not a deliberate breach of contract because the
individual was acting on the advice of US attorneys and had wrongly believed that he was
entitled to do as he was doing.
In De Beers UK Limited v Atos Origin IT Services 64 the court held that deliberate default means
“a default that is deliberate, in the sense that the person committing the relevant act knew that it
60
http://www.guildhallchambers.co.uk/files/Civil_Fraud_Back_to_basics_RossFentem&LucyWalker_
November_2012.pdf
61
Final Award in Case 6216 (2002) ICC International Court of Arbitration Bulletin Vol. 1. No. 2 at 58
62
See further Werner J., Punitive and Exemplary Damages in International Arbitration (2006) Dossier of
the ICC Institute of World Business Law: Evaluation of Damages in International Arbitration at page
101
63
[2001] EWHC 1574 (Comm)
64
[2010] EWHC (TCC) at [206]

was a default (i.e. in this case a breach of contract).” This has been recently confirmed by the
High Court in Mutual Energy Ltd vs Starr Underwriting Agents Ltd & Anor 65where Coulson J,
as he then was, reviewed the authorities on the meaning of the phrase deliberate default. Coulson
J held that:
“There is plenty of authority to the effect that the use of the word 'deliberate', in the context
of a 'breach' or 'default', means an intentional act; in other words, a breach or default
which the relevant party knew at the time that it committed the relevant act was a breach
or default. …
[Counsel] expressly accepted that the "deliberate…breach" referred to in the proviso

would require, not only a breach of contract or warranty on the part of MEL, but a
breach which MEL knew, at the time of the relevant act or omission, was a breach of the
term or warranty. Only then would the Insurers be entitled to avoid for deliberate breach.
…I find (for the same reasons) that a 'deliberate misrepresentation' must also involve the
knowledge that what is being said or not said is a misrepresentation (and therefore a
breach of duty).”
Reckless Misconduct
There is a difference between “wilful misconduct” and “reckless misconduct”. Willfulness

means that a party intended to cause harm. Recklessness means the person knew or should have
known that his action was likely to cause harm. Under English law “wilful misconduct” will
include “reckless misconduct” 66. However, it does not follow that the words “reckless
misconduct” are broad enough to cover intent.
.
In PK Airfinance SARL & Anor v Alpstream AG & Ors 67 the court examined the phrase wilful
misconduct. The court stated that this would include recklessness and would occur where a party
was “indifferent to whether their actions were right or wrong and as to whether loss would
result.” This has been often described as closing one’s eyes to an obvious risk (R v Parker 68) or
not caring what the results of one’s carelessness would be (Forder v Great Western Railway
Co) 69. In De Beers UK Limited v Atos Origin IT Services 70 the court expressed its opinion of
recklessness in similar terms and stated that a party would be reckless where it acted “not caring
whether or not he commits a breach of duty.” 71
65
[2016] EWHC 590 (TCC) at [28-29]
66
National Semiconductors (UK) Ltd v UPS Ltd [1996] 2 Lloyd's Law Rep. 212
67
[2015] EWCA Civ 1318
68
(1976) 63 CAS 211
69
[1905] 2 KB 532
70
[2010] EWHC (TCC) at [206]
71
See also National Semiconductors (UK) Ltd v UPS Ltd [1996] 2 Lloyd's Law Rep. 212 at 214 and the Court of

In Standard Chartered Bank v Pakistan National Shipping Corp & Ors 72the court considered that
where a party raised either intentional or reckless misconduct, as well as negligence, this might
give rise to the defence of contributory negligence at common law.
Written by Liz Slattery and Nathalie Matharu-Khan

Clause 17.6 written by Andrew Tweeddale
Edited by Andrew Tweeddale
Appeal in Lacey's Footwear (Wholesale) Ltd. v Bowler International Freight Ltd [1997] 2 Lloyd's Law Rep. 369 at
374 per Beldam LJ
72
[2000] EWCA Civ 230

Clause 19
Summary
Clause 19 deals with two distinct events: (1) Force Majeure; and (2) release from
performance under the law. Force Majeure is often narrowly defined under the
laws of many countries; however, within the FIDIC 1999 forms of contract it has a
much broader meaning. The terminology used by FIDIC has therefore sometimes
been criticized as being misleading.
Origin of clause
The phrase ‘force majeure’ is new to FIDIC 1999. In the FIDIC 4th edition there was
reference to Special Risks at clause 65 which then cross-referred to Employer Risks at
clause 20.4.
Cross-references
• Sub-Clause 1.1.6.4 Definitions – Force majeure;

• Sub-Clause 14.2 Advance Payment;
• Sub-Clause 15.5 Employer’s Entitlement to Termination;
• Sub-Clause 16.3 Cessation of Work and Removal of Contractor’s
Equipment; and
• Sub-Clause 16.4 Payment of Termination.
Clause 19.1 Definition of Force Majeure
The term “Force Majeure” was not used in the previous editions of the FIDIC contracts.
Similar circumstances were treated as Employer’s Risks and Special Risks and the
contractual consequences were not identical to the current edition. The use of the term
“Force Majeure” is not essential and is a little misleading. What is Force Majeure for the
purposes of Clause 19 is only what is set out in Clause 19 itself.
In order for an event to meet the definition of Force Majeure it must be an exceptional
event or circumstance. Thus an event or circumstance, which otherwise meets the
requirements of Sub-Clause 19.1, may not be Force Majeure if it is not exceptional. On
the other hand something which is not an event but which exists even perhaps for a long
1

time– i.e. is a circumstance - may give rise to Force Majeure. Particularly in this sense
Force Majeure as defined in the Contract is not the same as Force Majeure under those
legal systems which recognise the concept as part of the underlying law. These systems
define Force Majeure merely as an event – the concept of it being possibly a
circumstance is not part of the normal concept of Force Majeure. Furthermore the
traditional definitions require unforseeability – a requirement which is absent from Sub-
Clause 19.1.
For example the definition under the Quebec Civil Code (Article 1470) is as follows:
“Force Majeure is an unforeseeable and irresistible event, including external

causes with the same characteristics.”
Under German Law the German Supreme Court has described Force Majeure (Höhere
Gewalt) as
“an extraordinary event which affects the business from the outside, which is
unforeseeable, which cannot be prevented even by applying the utmost care
without endangering the economic success of the enterprise, and which also has
not to be taken into account and to be put-up with by the Contractor due to its
frequent occurrence.” 1
However the FIDIC definition is very close to that provided under “Principles of
International Contracts” published in 1994 by the International Institute for the
Unification of private law (UNIDROIT) (Article 7.1.7)
Non performance by a party is excused if that party proves that the non-
performance was due to an impediment beyond its control and that it could not
reasonably be expected to have taken the impediment into account at the time of
the conclusion of the contract or to have avoided or overcome it or its
consequences.
The term circumstance gives rise to some interesting issues. It reflects part of the
meaning of impediment under the UNIDROIT article quoted above. Under previous
FIDIC contracts, the list of Employer’s risks did not include anything which might have
been regarded as a circumstance rather than an event. A circumstance is a state of affairs.
Thus for example physical conditions would in many cases be a circumstance rather than
an event so, although they are also dealt with under Sub-Clause 4.12 (Unforeseeable
Physical Conditions), they may also be a circumstance under Sub-Clause 19.1 which may
1
BGH S-FZ 2.413, p.18; BGHZ 7, p.338, 339
2

give rise to the right to claim for Force Majeure if the other conditions under the Clause
can be fulfilled.
This opens the possibility that an event about which a Contractor is excluded from
claiming for under Sub-Clause 4.12 might give rise to claim under Sub-Clause 19.1 (or
indeed as will be discussed below under Sub-Clause 19.7). The most obvious example is
climatic conditions which are not claimable at all under Sub-Clause 4.12. As is explained
in the discussion under Sub-Clause 4.12 climatic conditions does not mean weather but
the overall conditions imposed by the climate at the site of the Works. If one described
the climatic conditions in a particular country one might say that there is a hot sunny
season which runs from February to October and then a rainy season from November to
January. This says nothing about what the weather might be on a particular day. It
would be possible for it to rain in April without this being a difference in climate.
However, if contrary to the normal expectations of the climate in this country the entire
month of April turned out to be rainy and this disrupted the Works one could say that in
this particular year the climatic conditions had changed. That would be an exceptional
event or circumstance and might well be capable of being considered Force Majeure. On
the other hand this unforeseeable change to the climate would not be claimable under
Sub-Clause 4.12.
If a Contractor unexpectedly encounters rock this might also be a circumstance beyond

his control. If the rock was unforeseeable a claim would be best made under Sub-Clause
4.12 because the Contractor has a right to an extension of time and Costs and in some
circumstances profit. However if the presence of rock was foreseeable a claim under
Sub-Clause 4.12 would not succeed and the right under Sub-Clause 19.1 to an extension
of time on the basis that the presence of the rock was an exceptional circumstance outside
the Contractor’s control is far better than the alternative of no compensation at all.
It is of course often possible to argue that one of the events which, in normal
circumstances, might be considered Force Majeure does not give rise to Force Majeure
because it is not exceptional. For example between April 2003 and July 2008, 444
people described as “contractors” were killed by bombs or firearms in Iraq
(http://icasualties.org/oif/Contractors.aspx). No doubt the same events also caused
damage to the contractor’s equipment and quite possibly affected the carrying on of the
works. However with such a volume of casualties it becomes difficult to argue that
bombing or fire-arms incidents can be treated as Force Majeure in this environment.
They are far from exceptional. Similar arguments may be made with regard to out breaks
of the Ebola virus, especially where outbreaks have previously occurred within a
particular country. 2
2
In 2015 Morocco refused to host the Africa Cup of Nations claiming that the outbreak of the Ebola virus
across parts of Africa was a “force majeure” event which threatened public health in Morocco. Morocco
3

There is also no test of foreseeability under Sub-Clause 19.1. Force Majeure is claimable
even it is not Unforeseeable. However a condition will not give rise to an entitlement
under Sub-Clause 4.12 if it is not Unforeseeable as defined in Sub-Clause 1.1.6.8:
“not reasonably foreseeable and against which adequate preventive precautions

could not reasonably be taken by an experienced contractor by the date for
submission of the Tender.”
The experienced contractor is expected to have foresight and take reasonable preventive
precautions and cannot make a claim under Sub-Clause 4.12 if he has not done so.
Under Sub-Clause 19.1, however, the exceptional event or circumstance need only be
something “which such Party could not reasonably have provided against before
entering into the Contract.”
This is only a part of the foreseeability test under Sub-Clauses 1.1.6.8 and 4.12. It is
approximately the same as against which adequate preventive precautions could not
reasonably be taken but allows an event to be treated as Force Majeure when it could
have been foreseen but was not. If the Contractor did not actually foresee the event or
circumstance – though he should have under the definition in Sub-Clause 1.1.6.8 – he
could not have taken any precautions and it is therefore possible that the Force Majeure
provision might apply even though he ought to have foreseen the event or circumstance.
Once the event or circumstance passes the exceptionality test it must then pass the further
four tests set out in Sub-Clause 19.1. (There is a further requirement under Sub-Clause
19.2 that notice be given before any event or circumstance be treated as Force Majeure
and this will be dealt with below).
These four tests are not alternatives – in other words all must be satisfied before an event
or circumstance will be treated as Force Majeure.
The four tests are as follows:
(a) the event or circumstance must be “beyond a Party’s control.”
It should be noted that the Sub-Clause does not say beyond the Party’s control and it may
be arguable that an event which might have been controllable by the other Party is not to
were concerned that supporters from countries where the Ebola virus existed could bring the virus into
Morocco. The Confederation of African Football fined Morocco $9.1 million holding that this was not a
force majeure event.
4

be treated as Force Majeure. It would be a strange interpretation of the Sub-Clause to
conclude that if an event was within the control of the other Party it would not be treated
as Force Majeure for the benefit of the Party affected, but the interpretation is
nevertheless a possible one and in one circumstance is expressly recognised in test (d).
Test (d) excludes events which are not substantially attributable to the other Party, so it is
already recognised that, although an event may be outside the control of the Party
claiming, it will not be treated as Force Majeure if the other Party has caused the event.
Test (d) and the meaning of “attributable” will be further explained below. However test
(b) goes on to refer to the event not being one which “such party” could have provided
against – which tends to suggest that the intention of the drafting is that “a Party” really
means “the Party”.
Whether or not something is beyond a Party’s control will be a matter of fact in the
particular circumstances. However “beyond control” refers to the event or circumstance,
not to its consequences. Even though you can put up an umbrella when it starts to rain
and prevent yourself getting wet, the rain-storm itself is beyond your control. Unlike the
later tests, the Party is only likely to fail the test of “beyond control” when the event or
circumstance is one with which it has some connection.
(b) Which such Party could not reasonably have provided against before entering into
the Contract.
Clearly a Party could not be reasonably expected to provide against something happening
unless it could anticipate it. However, as noted above, this is not the same test as that for
foreseeability under Sub-Clause 1.1.6.8. It follows that if, in fact, the Party did not
foresee the event or circumstance before entering into the Contract it will meet this test
even though, with a bit more foresight it ought to have foreseen it. Even though it may
have foreseen the exceptional event or circumstance it is still possible that the event or
circumstance could constitute force majeure, so long as it could not reasonably be
provided against before entering the Contract. Thus an event or circumstance which
occurs after the entering of the Contract may be an event of Force Majeure even if it was
one which the party could have easily provided against (always assuming that by the time
it occurred it was beyond that Party’s control and could not be reasonably avoided or
overcome).
(c) Which, having arisen, such Party could not reasonably have avoided or overcome.
There are two tests here – the exceptional event or circumstance must not have been
capable or being avoided or overcome. It is difficult to see how an event or circumstance
itself can be avoided or overcome. By definition it must have already occurred for the
5

tests to be considered so it will be too late to avoid or overcome it. What must be meant
is that the effects of the event or circumstance cannot be avoided or overcome. In this
context avoid must mean the finding of a way to continue the Works and not be affected
by the exceptional event or circumstance. Overcome must mean the taking of measures
which eliminate the effects of the exceptional event or circumstance. It may not be
possible entirely to avoid or overcome the effects but only to avoid or overcome them in
part. In that case only that part of the effect that could not be avoided or overcome would
be treated as Force Majeure.
An example might be where a flood on site has destroyed a partly completed section of
the Works. The Contractor may be able to avoid or overcome the delay by accelerating
work elsewhere on the site during the clean-up and by later accelerating work on the
damaged area. The effect of the event or circumstance can be avoided or overcome,
though nothing could have been done about the event itself. Whether the event will be
treated as Force Majeure will depend on whether the amount of work necessary to avoid
or overcome the effect is reasonable. This obligation may be compared to one of using
‘reasonable endeavours’ to avoid loss. A party who is required to act under (c) “is not
required to sacrifice its own commercial interests” – see Yewbelle Ltd v London Green
Developments Ltd & Anor 3 approving the first instance statement of Lewison J.
It is clear that measures to avoid or overcome the effects of the Force Majeure must be
capable of being entirely effective in order for the event not to be treated as Force
Majeure. If this were not the case Sub-Clause 19.3 (Duty to Minimise Delay) would not
be necessary.
(d) Which is not substantially attributable to the other Party.
This is an important and often overlooked qualification, particularly significant where the
other Party is, for example a State Ministry. It is possible that some instances of what
would normally be called Force Majeure will not be Force Majeure if attributable to the
other Party. To take one example, a Contractor, in contract with a State would not be
able to treat the outbreak of war as Force Majeure if the war had been started by the State
party – an exception which the State party will be highly motivated to invoke! Similarly
action by the Contractor which prevents the Employer or Engineer having access to the
Site or using its equipment could not be treated by the Employer as Force Majeure.
Having set out the four above tests, the Sub-Clause goes on to list what Force Majeure
may be so long as the tests are satisfied. This is an odd provision because, while the list
is stated not to be exclusive (“may include but is not limited to”) it incorporates some
3
[2007] EWCA Civ 475
6

exceptions to the definition. Thus the list does not make any particular event or
circumstance Force Majeure but it does set out the only two examples of what cannot be
Force Majeure even though all other tests have been met. Thus under item (iii) riots,
commotions, disorders, 4 strikes and lockouts which may otherwise constitute Force
Majeure will not so constitute it if they involve the Contractor’s Employees and under
item (iv) munitions of war, explosive materials, ionising radiation or contamination by
radio-activity are Force Majeure (despite the fact that only the last can be described as an
event or circumstance) unless they are attributable to the Contractor’s use of such
materials. The consequence is that anything at all may be Force Majeure except these
two, contractor-caused types of events or circumstances.
The issue of a force majeure event caused by a Contractor’s ex-employees was recently
considered in the case of Rumdel Cape and Ors v South African National Roads Agency
Soc Ltd 5. In this case the Contractor asserted that the works had stopped because the
labour force which it was required to use was militant, unproductive and prone to acts of
violence and intimidation with high levels of absenteeism and sick leave. The labour
force was dismissed by the Contractor which resulted in riots and the death of a security
guard. The Contractor argued that this was a force majeure event. The court held that the
force majeure provisions of the contract did not apply because the labour force was
employed by one of the parties. The court thereafter held that the Contractor had failed to
prove that it was either impossible or unlawful for it to fulfil its contractual obligations
and therefore there was no question of the provisions of Clause 19.7 being applicable.
Although the list in Sub-Clause 19.1 is described there as being of events or

circumstances, item (iv) lists three materials and one potential event or circumstance.
Item (iv) refers to munitions of war, explosive materials and ionising radiation each of
which might, if misused, cause an event or circumstance but none of which are such an
event or circumstance. It is not clear whether an event or circumstance arising from the
misuse of one of these items will therefore be treated as a listed Force Majeure or a Force
Majeure under the general definition. This has significant effects when the Contractor’s
rights to compensation are considered, because, while any Force Majeure can give an
entitlement to an extension of time under Sub-Clause 19.4, only listed events can give
rise to a right to Cost (see discussion under Sub-Clause 19.4).
4
See Partial and Final Awards in Case 11499 and the narrative to Clause 17 where the meaning of
‘disorder’ is discussed.
5
(7312/2014) [2014] ZAKZDHC 68
7

Sub-Clause 19.2 Notice of Force Majeure.
Despite its title, this Sub-Clause is far more than a notice provision because it sets out not
only the requirement for a notice but also the circumstances in which such a notice can be
given. If such circumstances do not exist no notice can be given and without such notice
no event of Force Majeure has any contractual effect.
The notice may not be given unless the Party giving the notice is or will be prevented
from performing any of its obligations under the Contract. This brief statement makes it
clear that a Party has no right to claim Force Majeure unless, at the time the notice is
given, it is, or it will in future be, prevented from performing its obligations. Thus an
event which might in some circumstances constitute Force Majeure but which, in the
particular case, merely makes it more difficult for the Party to perform its obligations
cannot constitute Force Majeure. This makes it absolutely clear that this provision is not
a general risk-shifting provision. It merely excuses performance of obligations which a
Party cannot perform because of the extraordinary event or circumstance.
The term obligations is not defined in the Contract but must have a very wide meaning.
It is, for example, an obligation on the part of the Contractor (under Sub-Clause 8.3) to
proceed in accordance with the Programme. Similarly it is an obligation (under Sub-
Clause 8.2) for the Contractor to complete the whole of the Works within the Time for
Completion If Force Majeure prevents him from doing so he can give notice under Sub-
Clause 19.2.
The Notice has to set out the event or circumstance and specify the obligation the
performance of which is, or will be, prevented. This is therefore not the same sort of
notice as has to be given under Sub-Clause 20.1 – which in the first instance requires
merely a description of the event or circumstance giving rise to the claim but not the
claim itself.
The Notice must be given within 14 days after the Party became aware, or should have
become aware, of the relevant event or circumstance. This contrasts with the 28 day
period applying under Sub-Clause 20.1 for other claims under the Contract.
Unlike Sub-Clause 20.1, Sub-Clause 19.2 does not expressly provide that when no claim
is made within the prescribed period the claim will be barred. However, as will be
explained below, Sub-Clause 19.4 read with Sub-Clause 19.2 has this effect – the result
of the two Sub-Clauses read together is that an event which might otherwise constitute
Force Majeure will not be Force Majeure unless the notice procedure is correctly
followed.

In any event, although a claim for Force Majeure must be commenced with a notice
under Sub-Clause 19.2, it will be seen below that Sub-Clause 19.4 also requires a notice
to be given under Sub-Clause 20.1. Since the notice of claim under Sub-Clause 20.1 will
be ineffective unless the notice under Sub-Clause 19.2 has already been given and since
the Sub-Clause 19.2 notice is required to contain more detail than the Sub-Clause 20.1
notice, it would seem that the Contractor will meet his obligations under Sub-Clause 20.1
by giving the Sub-Clause 19.2 notice, though for absolute security, the Contractor would
be wise to give timely notices under both Clauses.
Sub-Clause 19.2 finishes by stating that Force Majeure cannot be used to excuse a failure
by either Party to make payments to the other Party.
Sub-Clause 19.3 Duty to Minimise Delay
This Sub-Clause restates what is already an obligation on the part of all contractual
parties – to use reasonable endeavours to minimise delay in performance. Interestingly,
however, it imposes no equivalent obligation to mitigate any other losses or
consequences resulting from Force Majeure. In accordance with general legal principles,
such other claims are probably subject to a mitigation requirement. However in view of
the failure in this Sub-Clause to state this expressly there may be an argument that there
is no obligation to mitigate anything other than delay.
The Sub-Clause also obliges a Party affected by Force Majeure to give notice to the other
Party when it ceases to be affected by Force Majeure. A failure to give such notice of
cessation is not subject to any express sanction. If the effect of the Force Majeure is to
prevent the Party affected from completing the Works by the Time for Completion it will
be arguable that there is no reason to give a notice of cessation until the Works are
actually completed (at which point the giving of such notice will not have any purpose).
Cumulative Requirements for Force Majeure Claims
As can be seen from the above provisions, a Party wishing to claim Force Majeure must
satisfy a total of 7 tests before its claim can be considered. Each one of the following
questions must be answered in the affirmative:
Is the event or circumstance Yes No

1 Beyond a Party’s Control?
2 One which such Party could not reasonably have provided against
before entering the Contract?
3 One which, having arisen, such Party could not reasonably have
avoided or overcome?
9

4 One which is not substantially attributable to the other Party?
5 Will the Party be prevented from performing any of its obligations
under the Contract?
6 Has Notice been given setting out both (i) the event or circumstance
and (ii) specifying the obligation the performance of which is or
will be prevented?
7 Has the party used reasonable endeavours to minimise delay?
If any one of these questions is answered “no” a claim for Force Majeure cannot be
sustained.
Sub-Clause 19.4 Consequences of Force Majeure
Although Sub-Clauses 19.1 to 19.3 apply both to the Employer and the Contractor, Sub-
Clause 19.4 applies only to the Contractor. This is logical because Sub-Clause 19.4 gives
rights to claim extensions of time and Cost. The Employer’s rights are more limited – it
will not be in breach if prevented from performing its obligations as a result of Force
Majeure and it may gain a right to terminate under Sub-Clause 19.6.
The opening words of the Sub-Clause make it clear that unless notice has been given
under Sub-Clause 19.2 the Contractor will have no right to claim an extension of time or
payment of Costs. This is clear because the Clause states that it is only Force Majeure of
which notice has been given under Sub-Clause 19.2 which can give rise to any such
entitlement. Thus the giving of notice under Sub-Clause 19.2 is a condition precedent to
any right of recovery or extension of time.
Having given a notice under Clause 19.2 the Contractor is obliged to follow the notice
procedure under Sub-Clause 20.1 and may be entitled to an extension of the Time for
Completion and, in limited circumstances, to Cost.
Cost is not available for natural catastrophes such as earthquake, hurricane, typhoon or
volcanic activity. War, hostilities, invasion or acts of foreign enemies give rise to an
entitlement whether they occur in the country in which the Works are being carried out or
not, but Force Majeure which falls within the other examples given in Sub-Clause 19.1
only entitles the Contractor to Cost if the events or circumstances occur in the country in
which the Works are being carried out. Events or circumstances not listed in Sub-Clause
19.1, which may nevertheless fall within the definition of Force Majeure, can never give
the Contractor an entitlement to Cost but may give an entitlement to an extension of time.
This means that the wording of the descriptions of the events or circumstances in Sub-
10

Clause 19.1 takes on a particularly strong significance and the strange wording of Sub-
clause 19.1 (iv) may have an effect on the Contractor’s entitlement.
As already noted above, although the list in Sub-Clause 19.1 is described there as being
of events or circumstances, item (iv) lists three materials and one potential event or
circumstance. It refers to munitions of war, explosive materials and ionising radiation
each of which might, if misused, cause an event or circumstance but none of which are
such an event or circumstance. It is not clear whether an event or circumstance arising
from the misuse of one of these items will therefore be treated as a listed Force Majeure
or a Force Majeure under the general definition. This has significant effects when the
Contractor’s rights to compensation are considered because, while any Force Majeure can
give an entitlement under Sub-Clause 19.4 to an extension of time, only listed events can
give rise to a right to Cost. It is therefore arguable that explosions and the adverse effects
of radiation are not events giving rise to the right to Cost.
The Contractor is obliged to proceed in accordance with Sub-Clause 20.1, giving notice
within 28 days and then, subsequently, within 42 days providing particulars. Since the
notice of claim will be ineffective unless the notice under Sub-Clause 19.2 has already
been given and since the Clause 19.2 notice is required to contain more detail than the
Sub-Clause 20.1 notice it would seem that the Contractor will meet his obligations under
Sub-Clause 20.1 by giving the Clause 19.2 notice, though for absolute security, the
Contractor would be wise to give timely notices under both Sub-Clauses.
Sub-Clause 19.5 Force Majeure Affecting Subcontractor
Where a Subcontractor is entitled to relief from force majeure on terms broader than
those in FIDIC 1999, such additional or broader force majeure events or circumstances
shall not excuse the Contractor’s non-performance. The Contractor should therefore
ensure, if possible, that any Subcontract is back-to-back with the main contract conditions
in relation to relief from Force Majeure events.
Sub-Clause 19.6 Optional Termination, Payment and Release
In two circumstances Force Majeure may entitle either the Contractor or the Employer to
terminate the Contract. The test in each case is subtly different.
The first circumstance arises if the execution of substantially all the Works in progress is
prevented for a continuous period of 84 days by reason of Force Majeure of which notice
has been given. The requirement here is that the period of substantial prevention is
continuous but there is no requirement that the same Force Majeure need have caused the
11

entire period of substantial prevention. Thus two overlapping periods may give rise to
the right to terminate.
The second circumstance arises if the execution of substantially all the Works in progress
is prevented for multiple periods which total more than 140 days due to the same Force
Majeure of which notice has been given. Thus this right to terminate will arise only if the
same event or circumstance has caused all the periods of non-execution.
If, for example, the Works are regularly interrupted by general strikes, it is therefore
unlikely that the second circumstance would come into effect – each strike being a
different Force Majeure. However the right to terminate under the second circumstance
may depend on how the Force Majeure is described. For example if a separate notice is
given each time another strike breaks out, this would not allow the period to accumulate.
However if, for example, the local union movement had declared a campaign of regular
stoppages in support of a long-running campaign for higher wages and the Force Majeure
were to be described as “national union work stoppage campaign for higher wages”, the
same Force Majeure would be arguably at fault for the entire series of interruptions.
The notice of termination takes effect 7 days after it is given. There seems to be no
requirement that the period of substantial prevention still be underway when the notice is
given or when it takes effect. It is thus arguable that once one of the periods has expired
either Party has the right to terminate at any time.
Upon termination the Contractor is required to proceed in accordance with Sub-Clause

16.3 by ceasing any work which is not necessary for protection of property or for safety
reasons, hand over Contractor’s Documents and Plant, materials and other work for
which it has already been paid and remove its other Goods from the Site and leave the
site itself. This means that, with two important exceptions, the consequences of
termination for Force Majeure, whether by the Employer or by the Contractor, are the
same as if the Contractor had exercised its right to terminate for cause under Sub-Clause
16.2. The exceptions can be seen from a reading of Sub-Clause 16.4 which provides that
where the Contractor terminates for cause it is entitled to the return of its Performance
Security and to damages for loss of profit. It is difficult to see why the Contractor should
not be entitled to the return of the Performance Security if the contract is terminated for
Force Majeure but there is nothing either in Sub-Clause 4.2 or in the standard form of
guarantee to provide for this. The lack of obligation to compensate for loss of profit is,
however, consistent with the concept that Force Majeure is a shared risk.
The payment on termination is to be assessed by the Engineer. Although the word

“determine” is used there is no reference to Sub-Clause 3.5 and it would seem therefore
that the Engineer is not required to follow the process set out in Sub-Clause 3.5. This
12

may have some effects upon the process. Under Sub-Clause 3.5 the Engineer is required
to consult with both Parties before reaching his determination. This obligation does not
apply where Sub-Clause 3.5 is not applicable. An Engineer’s Determination under Sub-
Clause 3.5 is binding upon the Parties until revised under Clause 20, but in the absence of
a cross-reference the determination on Force Majeure payment will not have any binding
effect. The FIDIC guide suggests that an Engineer’s Determination in relation to Sub-
Clause 19.6 is to be made under Sub-Clause 3.5 but there is no basis for this suggestion
in the Contract itself. 6
The principles for calculation of the payment are clearly set out in the Clause. They are
the same as when the Contractor exercises its right under Clause 16 to terminate for cause
but with the important exception that the Contractor is not entitled to receive any
compensation for loss of profit.
Responsibility for Care of the Works During a Period of Force Majeure
Clause 19 does not deal with responsibility for care of the works during a period in which
they cannot be continued due to Force Majeure and it is therefore necessary to consider
the general obligations of the Contractor to care for the works while they remain
suspended because of a major Force Majeure.
Sub-Clause 17.2 gives the Contractor responsibility for the care of the Works during this
period but Sub-Clause 17.3 provides some exceptions to this responsibility. These
exceptions cover some but not all of the events or circumstances covered by Force
Majeure. The general category of Force Majeure is not covered – if the Force Majeure is
an exceptional event or circumstance of a type not listed in Sub-Clause 17.3, the
Contractor will retain responsibility for care of the Works even though he may be entitled
to an extension of time and/or Cost and may eventually have the right to terminate.
Where the risk is listed in Sub-Clause 17.3 the Contractor will be entitled to payment for
Cost and profit in remedying any damage caused.
There are therefore some anomalies which can be seen from the table below:
Event or Circumstance Employer’s Force Care of the Works Compensation

Risk Majeure Responsibility in case of
Force Majeure
Extraordinary event or No May be if Contractor’s risk both for EOT only
circumstance not meets all tests cost and time.
specifically listed of Force
6
This is something which ought to be dealt with by amendment to the Contract prior to tender.
13

Force Majeure
Majeure
War, hostilities, invasion, Yes Yes Employer pays including EOT and Cost
act of foreign enemies profit, and grants EOT
Rebellion, terrorism, Yes Yes Employer pays including EOT and Cost
revolution, insurrection, profit, and grants EOT
military or usurped power
or civil war within the
Country
Rebellion, terrorism, No Yes Contractor’s risk both for EOT only
revolution, insurrection, cost and time.
military or usurped power
or civil war outside the
Country
Riot, commotion or Yes Yes Employer pays including EOT and cost
disorder within the profit, and grants EOT
Country by persons other
than the Contractor’s
Personnel and other
employees of the
Contractor and
Subcontractors
Riot, commotion or No Yes Contractor’s risk both for EOT only
disorder outside the cost and time.
Country by persons other
than the Contractor’s
Personnel and other
employees of the
Contractor and
Subcontractors
Strike or lockout inside No Yes Contractor’s risk both for EOT and cost
the Country by persons cost and time.
other than by the
Contractor’s Personnel
and other employees of the
Contractor and
Subcontractors
Strike or lockout outside No Yes Contractor’s risk both for EOT only
the Country by persons cost and time.
other than by the
Contractor’s Personnel
and other employees of the
Contractor and
Subcontractors
Strike or lockout by the No May be if Contractor’s risk both for EOT if all tests
Contractor’s Personnel meets all tests cost and time. of Force
and other employees of the of Force Majeure met.
14

Force Majeure
Contractor and Majeure
Subcontractors
Munitions of war, Yes Yes Employer pays including EOT and Cost
explosive materials, profit, and grants EOT
ionising radiation or
contamination by radio-
activity, within the
Country except as may be
attributable to the
Contractor’s use of such
munitions, explosives,
radiation or radio-activity
Munitions of war, No Yes Contractor’s risk both for EOT only
explosive materials, cost and time.
ionising radiation or
contamination by radio-
activity, outside the
Country except as may be
attributable to the
Contractor’s use of such
munitions, explosives,
radiation or radio-activity
Munitions of war, No May be if Contractor’s risk both for EOT if all tests
explosive materials, meets all tests cost and time. of Force
ionising radiation or of Force Majeure met.
contamination by radio- Majeure
activity
Pressure waves caused by Yes May be if Employer pays including EOT if all tests
aircraft or other aerial meets all tests profit, and grants EOT of Force
devices travelling at sonic of Force Majeure met.
or supersonic speeds Majeure
Use or occupation by the Yes No Employer pays including No EOT or
Employer of any part of profit, and grants EOT Costs
the Permanent Works
except as may be specified
in the Contract
Design of any part of the Yes No Employer pays including No EOT or
Works by the Employer’s profit, and grants EOT Costs
personnel or by others for
whom the Employer is
responsible
Any operation of the Yes Yes Employer pays including EOT and Cost
forces of nature which is profit, and grants EOT
Unforeseeable or against
which an experienced
Contractor could not
15

Force Majeure
reasonably have been
expected to have taken
adequate preventative
measures
Foreseeable operations of No EOT if all Contractor’s risk both for EOT and Cost
the forces of nature which tests of Force cost and time.
the Contractor could not Majeure met.
reasonably have provided
for before entering into the
Contract
If the Force Majeure event causes damage to the Works, the Contractor must therefore
give two notices – one under Sub-Clause 17.4 to claim costs and time for remedying the
damage and one under Sub-Clause 19.2 in order to get the right to compensation for
Force Majeure to the extent that it is not related to repairing damage.
Sub-Clause 19.7 Release from Performance under the Law
This Sub-Clause does far more than the heading suggests.
As can be seen from the opening words - Notwithstanding any other provisions of this
Clause – Sub-Clause 19.7 can be read on its own without reference to the rest of Clause
19. If any event or circumstance falling within the provisions of this Sub-Clause makes it
impossible for either or both Parties to fulfil their contractual obligations, either Party has
the right to be released from its contractual obligations.
Similarly if there is a provision of the law governing the Contract which entitles the
Parties to be released from further performance of the Contract either Party has the right
to be released from its contractual obligations.
Both Parties will then be released from further performance of their obligations under the
Contract and compensation is based on the same principles as when the Contract is
terminated for Force Majeure.
It is not clear whether the expression “discharge from further performance of obligations”
is intended to have the same meaning as the expression “terminate the Contract” as
appears in Clauses 15, 16 and 19.6. On the face of it, it would seem to be a narrower
expression. The concept of termination of the Contract implies that both Parties will be
released from their obligations and will also lose any rights they may have under the
16

Contract. This is dealt with in more detail in the discussion of Clauses 15 and 16.
Discharge from further performance implies that the Party obtaining the discharge still
retains all its rights but none of its obligations. In contrast to Sub-Clause 19.6 no
provision is made for the Contractor to proceed in accordance with Sub-Clause 16.3
(Cessation of Work and removal of Contractor’s Equipment). The Contractor has no
further obligations but is not obliged to leave the Site and is not required to hand over
Documents etc.
The Sub-Clause applies to all events and circumstances outside the control of the Parties.
Thus an event which would, under Sub-Clause 19.1, fall outside the definition of Force
Majeure because:
• The Party could reasonably have provided for it before entering the Contract
• The Party could reasonably have avoided or overcome it
• It is substantially attributable to the other Party
• Involves riot commotion disorder, strike or lockout by the Contractor’s Personnel
• Involves damage caused by munitions of war, explosive materials, ionising
radiation or contamination by radio-activity attributable to the Contractor’s use of
such materials
may be covered by Sub-Clause 19.7. There are clearly events or circumstances which
fall under one or more of these exceptions to Force Majeure which are still within the
control of the Parties but there will be many which are not.
Further, Sub-Clause 19.7 applies even though the following would rule out a claim on the
basis of Force Majeure:
• Failure to give Notice under Clauses 19.2 or 20.1

• An event which makes it impossible or unlawful for one Party to make a payment
to the other. (Excluded from Force majeure by Clause 19.2)
Although the Contractor is obliged under Sub-Clause 1.13 to comply with applicable
Laws (see discussion under Sub-Clause 1.13), Sub-Clause 1.13 says nothing about what
should happen if the Contractor is prevented from doing something which it would
otherwise be obliged to do because it is or has become illegal. Presumably the Engineer
could order a Variation under Clause 13 or the Contractor could simply not perform that
element of the Contract. However, nothing is explicitly explained. Sub-Clause 19.7 is
thus the only Clause in the Contract which deals specifically with the consequences of
impossibility or illegality; although provisions such as Sub-Clause 4.12 (Unforeseeable
Physical Conditions) provide some relief to the Contractor when unforeseeable
difficulties are encountered, including those which may make the carrying out of the
17

Works impossible. Previous editions of FIDIC and many other standard contracts also
contain another provision which deals with the consequences of impossibility or
illegality.
Clause 13.1 of the 4th Edition of the FIDIC Contract was typical in providing:
13.1 Work to be in Accordance with Contract
Unless it is legally or physically impossible, the Contractor shall execute and

complete the Works and remedy any defects therein in strict accordance with the
Contract to the satisfaction of the Engineer.
The consequence of legal and physical impossibility there was to absolve the Contractor
from executing the impossible or illegal activity. Such discussion as there has been about
the meaning of clauses like this centres on what might be meant by “physically
impossible” and, for example considers whether something which might be possible by
the application of extraordinary resources should be treated as being in reality physically
impossible. The conclusion is that where the problem can only be dealt with by measures
outside the range of the practicable and reasonable 7 they will be treated as impossible.
This test would be relevant to considering what might be impossible in terms of Sub-
Clause 19.7. Since the above English law test was formulated in the context of a contract
which only excused the Contractor from the consequences of physical impossibility and
not all impossibility, as does Sub-Clause 19.7, it is all the more likely that commercial or
financial impossibility in the sense that the carrying out of the contract has become
beyond the range of the practical and the reasonable will be covered by Clause 19.7
The cases based on the earlier forms of contract also deal with the contractual remedies
available – for example whether the impossibility can be overcome by a variation order
or whether the Contractor is entitled to find another way to complete the Works without
having to carry out the impossible element. However these cases are irrelevant under a
contract like this one which does not relieve the Parties from doing the impossible while
continuing to work under the Contract. This contract allows only the extreme remedy of
release from the Contract.
However under the law of frustration (dealt with in the next paragraph) English law
excuses a party from performance of a contract where its performance has become
impossible even where the contract makes no specific provision to this effect. Thus under
the English law, a Party to the present contract which considers one of its obligations to
be impossible will either have to consider giving notice to release itself from performance
7
Turriff Ltd v Welsh National Water (1994) 1 Const Law yearbook 122, 133
18

under the Contract in accordance with Clause 19.7, or making a claim on the basis of the
law of frustration. English law does not allow a Party to escape from an impossible
contract if the impossibility existed when the contract was entered into. It is only if a
later event creates the impossibility that the party can escape. However the impossibility
foreseen under Clause 19.7 can be an impossibility which existed from the beginning of
the Contract, whereas frustration can only occur as a result of something which happens
after the Contract is underway.
The law of frustration is explained in an English case 8 which says that frustration
“Occurs whenever the law recognises that without the default of either party a
contractual obligation has become incapable of being performed because the
circumstances in which performance is called for would render it a thing
radically different from that which was undertaken by the contract.”
English common law, as codified in the Law Reform (Frustrated Contracts) Act, makes it
difficult for a party to succeed in a plea of frustration. In Davis Contractors v Fareham 9 ,
the English House of Lords held that a contract was not frustrated by a severe shortage of
labour; the Court of Appeal also refused relief in Wates v GLC 10 when the contractor
complained that runaway inflation had fundamentally altered the economics of the
contract. It took a catastrophic landslip which buried the site, swept away a twelve storey
block of flats and killed a number of people to persuade the Privy Council in Wong Lai
Ying v Chinachem Investment Co. Ltd 11 that a contract had been frustrated.
If a contract is held to be frustrated, the result, broadly speaking, is that the contractor is
to be paid for the work done prior to the frustrating event but otherwise both parties are
discharged from further performance. In civil law jurisdictions, the doctrine of force
majeure takes an altogether more relaxed approach to relieving the parties of their
obligations under the contract and it is this more relaxed approach that has been adopted
in the current clause.
Other legal systems have special rules relating to impossibility which, as does the rule
under English law, run parallel with Sub-Clause 19.7. They may also refine the meaning
of impossibility in the way the English law has, so that it includes something which is
commercially highly impracticable though not absolutely impossible. They may also set
8
Davis Contractors v Fareham UDC 2 All ER 145,160 HL per Lord Radcliffe
9
UDC (1956) AC 696
10
(1983) 25 BLR 9
11
(1979) 13 BLR 81
19

out specific remedies to enable the Party affected to substitute something it is capable of
doing for what it finds impossible.
In summary it can therefore be said that, in contrast to previous editions of FIDIC,

Contractors are not excused by the Contract from performing the impossible or the illegal
while the Contract continues, though they may sometimes gain relief under Sub-Clause
4.12 (Unforeseeable Physical Conditions) or be excused from performing by the
underlying law (including the law of frustration of contracts). Under this contract they
are given only one specific remedy – the right to give a notice which gives them an
immediate release from further performance under the Contract.
The following are some examples of illegality or impossibility.
Illegality would include an injunction or a change in the local legislation which prevented
the Contractor working at all or otherwise prevented the project from proceeding. In this
context, see Sub-Clause 1.13 (Compliance with Laws) and Sub-Clause 13.7 (Adjustments
for Changes in Legislation) which deals with local legislation causing changes to the cost
or duration of the works. Compliance with Sub-Clause 1.13 could in extreme
circumstances give rise to a situation where the Works could not continue legally and
Sub-Clause 13.7 only deals with the situation where the change in the law increases the
cost or time necessary to perform the Works – it does not give the Engineer any authority
to relieve the Contractor of his obligations to abide by the changed legislation.
Illegality would also include the situation where one Party or the other was precluded
from continuing its contractual relationship with the other as a result of UN or other
economic sanctions.
There is a spectrum of impossibility: at one extreme, there is something akin to

frustration whereby circumstances beyond the control of either party prevent further
performance such as the permanent flooding of the site due to some natural phenomenon.
In the middle of the spectrum there would be projects which are physically impossible to
build: for example, ground conditions might render the bridging of a river physically
impossible so that the project would have to be aborted in favour of a tunnel. At the other
end of the spectrum, a part of the particular design may be physically impossible to build.
For example, it may be impossible to fit the specified reinforcement within a column of
the size required. It is submitted that all these types of physical impossibility can meet
the requirements of Sub-Clause 19.7 In the last example, the Engineer could forestall
impossibility by issuing a variation order. The Employer might also be able to argue that
the impossibility was not outside the control of the Contractor – the Contractor should
have seen the problem when it made its bid and insisted on an alternative solution.
20

Physical impossibility could also include circumstances where the site was too small for
the works designed or where under Sub-Clause 4.12 (Unforeseeable Physical Conditions)
circumstances were encountered that were so severe as to prevent the completion of the
works. However Sub-Clause 19.7 does not cover circumstances where the completion of
the works is simply more difficult or expensive than anticipated; nor circumstances where
methods or machinery which the Contractor did not allow for in his tender are found to
be necessary. This situation is to be contrasted with the circumstances where the relevant
method or machinery is specified in the contract with the result that the Contractor would
be entitled to a variation if the relevant method or machinery proved physically
impossible. The remedy would again be in the Engineer’s hands under Sub-Clause 13.1
(Variations). Once the variation order is made the carrying out of the Works would no
longer be impossible. It would however be arguable that this problem was not outside the
control of the Contractor (and therefore not within Sub-Clause 19.7) – the Contractor had
the opportunity when it made its bid to raise an objection but did not.
It is, however, a possible argument in response to a Contractor’s notice under Sub-Clause

19.7 that nothing which is capable of being changed by a variation order is impossible.
If the Engineer's design is incapable of being built, for example, because structural
elements as designed would be incapable of withstanding the loads to be imposed upon
them by other elements of the works, this could amount to impossibility. The Contractor
would be entitled to seek and obtain instructions from the Engineer which would amount
to variations under Sub-Clause 13.1 (Variations). This situation is to be contrasted with a
case such as Sharpe v San Paulo Railway (1873) 12 where a Contractor undertook to
construct a railway for a lump sum. When it turned out that the quantities stated in the
contract were substantially underestimated, it was held that, in the absence of fraud, the
contractor had taken that risk when tendering a lump sum.
One type of impossibility which is not excluded under Sub-Clause 19.7 is financial
impossibility. Sub-Clause 19.2 expressly excludes inability to make payments as a form
of Force Majeure, but Clause 19.7 expressly overrides Clause 19.2 in that it applies
“notwithstanding any other provision of this Clause.” Thus if, as a result of changed
conditions which do not give it the right to an increase in the contract sum, the Contractor
finds that the costs of continuing the contract are so far above the price it has agreed to
perform for that it is unable to raise enough finance to continue, the Sub-Clause is
possibly wide enough for this to be treated as a form of impossibility and to allow the
Contractor to give notice and release itself from performance. The same might apply to
the Employer who finds that, as a result for example of Unforeseeable Physical
Conditions it is bound to pay the Contractor such large sums to continue the works, it
12
8 Ch. App. 597
21

cannot meet its payment obligations, although in this case the Employer will first have to
consider whether, by ordering a variation under Sub-Clause 13.1, it may be possible to
omit enough Work to make the project affordable.
Sub-Clause 19.7 applies where it is impossible or unlawful for either or both Parties to
fulfil its or their contractual obligations. This expression covers a wide spectrum. A
relatively small problem might make it impossible for the Contractor to complete within
the Time for Completion - a clear failure to fulfill its contractual obligations. A design
problem in a corner of the site may make it impossible to complete the Works in
accordance with the Contract. The unexpected discovery of rock may make it impossible
to complete on time. This means that a relatively small impossibility or illegality may
open the door to the operation of the provision.
George Rosenberg – Consultant and

Andrew Tweeddale - Director
22

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Clause 1

Sub-Clause 1.1 Definitions

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“Letter of Acceptance” – the Letter of Acceptance will only be construed as an acceptance if it

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- Sub-Clause 8.1 [Commencement of Work] – unless otherwise stated in the Particular

Sub-Clause 1.1.2 Parties and Persons

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“Contractor’s Representative” – is only found in the definition of Contractor’s Personnel

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“Subcontractor” – is any person named in the Contract as a subcontractor or any person

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Sub-Clause 1.1.3 Dates, Tests, Periods and Completion

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Sub-Clause 1.1.4 Money and Payment

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“Statement” - refers expressly to a statement submitted by the Contractor as part of an

Sub-Clause 1.1.5 Works and Goods

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Sub-Clause 1.1.6 Other Definitions

“Contractor’s Documents” – refers to calculations, computer programs and other software,

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Sub-Clause 1.2 Interpretation

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Entire Agreement Clause

Non Reliance Clause

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Sub-Clause 1.3 Communications

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13 [2014] EWHC 1028 (TCC) (16 April 2014)

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Sub-Clause 1.4 Law and Language

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Sub-Clause 1.5 Priority of Documents

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"... if detailed semantic and syntactical analysis of words in a commercial contract is

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Sub-Clause 1.6 Contract Agreement

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Sub-Clause 1.7 Assignment

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Assignment by Operation of Law

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An Assignment is Subject to Equities.

Assignments without Consent

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Sub-Clause 1.8 Care and Supply of Documents

روعه Fidic Red Book 1999 Clauses Risks - CORBETT&CO

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روعه Fidic Red Book 1999 Clauses Risks - CORBETT&CO