558 Journal of World Energy Law and Business, 2014, Vol. 7, No.

Use of FIDIC forms in the oil and gas construction

sector and possible amendments to the Yellow and
Silver Books

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Fabio Solimene*

The International Federation of Consulting Engineers (FIDIC) forms of construction

contracts are widely used in oil and gas transactions as they are considered to give the
right balance to the interests of all parties and to have a degree of complexity in line
with such transactions. Yet the standardization of the relevant content may represent a
serious setback and force the parties to engage in exhausting negotiations aimed at
tailoring the relevant content to the actual interests of the contracting parties.
This article aims at providing a general overview of FIDIC construction contracts
and their use in relation to the construction of oil and gas facilities, suggesting some
possible amendments that contractors may seek in order to render the agreement more
adherent to their needs.
The article will only focus on the Conditions of Contract for Plant & Design-Build for
Electrical & Mech. Plant & for Building & Engineering Works Designed by the Contractor
(the ‘Yellow Book’) and the Conditions of Contract for Engineering, Procurement and
Construction (EPC) Turnkey Projects (the ‘Silver Book’),1 both included in the collec-
tion of contracts published by FIDIC in 1999 (the ‘Rainbow Suite’2).

1. FIDIC and use of standard form construction contracts

The acronym FIDIC stands for International Federation of Consulting Engineers. The
organization, established in Lausanne, Switzerland, one hundred years ago3 is now globally
widespread, including members from 97 countries. FIDIC’s scope4 is the promotion and

* Legal Advisor at Saipem S.p.A. (ENI Group); Email: fabiosolimene@gmail.com.

1
Other books include: (i) Design-Build and Turnkey Conditions of Contract for Design-Build and Turnkey, ie the Orange Book
(First Edn 1995). (ii) Conditions of Contract for Construction for Building and Engineering Works designed by the Employer,
ie the Red Book (First Edn 1999). (iii) The Short Form of Contract, ie the Green Book (First Edn 1999). (iv) Client/Consultant
Model Services Agreement ie the White Book (First Edn 1999). (v) Form of Contract for Dredging and Reclamation Works, ie
Blue-Green Book (First Edn 2006) (vi) Conditions of Contract for Design, Build and Operate Projects, ie the Gold Book (First
Edn 2008).
2
David Savage, The top 10 things you need to know about FIDIC (5www.charlesrussell.co.uk4 accessed 16 October 2014, June
2012).
3
FIDIC was founded by Belgium, France and Switzerland on 22 July 1913 as Fédération Internationale des Ingénieurs Conseils.
Today FIDIC is an international organization which can boast partnerships with major entities such as the World Bank and the
United Nations. See 5www.fidic.org4 accessed 16 October 2014.
4
FIDIC’s website reports that the organization has the following objectives: (i) ‘Be the recognised international authority on
issues relating to consulting engineering best practice. (ii) Actively promote high standards of ethics and integrity among all
stakeholders involved in the development of infrastructure worldwide. (iii) Maintain and enhance FIDIC’s representation of the
consulting engineering industry worldwide.(iv) Enhance the image of consulting engineering. (v) Promote and assist the

ß The Author 2014. Published by Oxford University Press on behalf of the AIPN. All rights reserved.
doi:10.1093/jwelb/jwu035 Advance Access publication 4 November 2014
Fabio Solimene  Use of FIDIC forms in the oil and gas construction sector 559

implementation of ‘the consulting engineering industry’s strategic goals on behalf of its

Member Associations and to disseminate information and resources of interest to its
members’5 in compliance with its founding principles, ie quality, integrity and sustainabil-
ity. In order to accomplish this, FIDIC is engaged in the publication of ‘international

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standard forms of contracts for works and for clients, consultants, sub-consultants, joint
ventures and representatives, together with related materials such as standard pre-qualifica-
tion forms’.6 Such forms have become more and more utilized in construction transactions
which has allowed FIDIC to gain a prominent position in the industry’s landscape, as
evidenced by its latest economic achievements.7
In general, parties to construction agreements opt for standard forms for a number of
reasons, such as the fact that they are clear from the outset as to the allocation of work-
related risks between employers and contractors,8 with particular regard to those factors
that are impossible to foresee from day one and may affect the parties’ interests at a later
stage (eg in case of oil and gas related projects, unforeseeable changes in laws, geologic or
marine conditions where the pipeline or rig is to be located, prices of the materials and
equipment necessary to carry out the works, etc.). Standard forms are also said to con-
tribute to leveraging the parties’ contractual position by allowing them to negotiate from a
common starting point despite being from a different geographical and/or social position.
In line with the above, FIDIC forms are also traditionally aimed at achieving a balanced
sharing of risks9 and allow a certain degree of predictability of contract-related risks.10
From a contractor’s standpoint this may undoubtedly help to evaluate the project’s
threats and reflect them into the tender price.11

2. Proposed amendments in favour of contractors

FIDIC’s standard contracts are widely used for the construction of oil and gas sector
facilities. In one way, the detailed content and complexity of such forms reflect the

worldwide development of viable consulting engineering industries. (vi)Promote and enhance the leading position of FIDIC’s
Forms of Contract. (vii) Improve and develop FIDIC’s training and publishing activities. (viii) To promote and encourage the
development of Young Professionals in the Consulting Engineering Industry.’
5
See 5www.fidic.org4 accessed 16 October 2014.
6
See 5www.fidic.org4, where it is also stated that ‘FIDIC also publishes business practice documents such as policy statements,
position papers, guidelines, training manuals and training resource kits in the areas of management systems (quality manage-
ment, risk management, business integrity management, environment management, sustainability) and business processes
(consultant selection, quality based selection, tendering, procurement, insurance, liability, technology transfer, capacity
building)’.
7
According to FIDIC’s 2012/2013 Annual Report: ‘The FIDIC accounts for the year to December 2012 show an operating
surplus of CHF 74,552 compared to a breakeven budget. Income streams improved, particularly in the area of document sales
and training events. As a result, reserve funds increased 4% to CHF 1,830, 211.’ See 2012/2013 Annual Report available at www.
fidic.org.
8
David Savage, The use of Standardised Construction Contracts The Benefits to Employers and Contractors in an Uncertain
Economy, (5www.charlesrussell.co.uk4 accessed 16 October 2014, February 2010).
9
Abdullah Murtaja, Investigation of FIDIC Clauses Dealing with Construction Project Performance (The Islamic University Of
Gaza 2007).
10
See Daud Khalaf, New Developments in FIDIC Model Contracts (Engineering Conference in Bahrain 2002).
11
Corinna Osinski, Delivering Infrastructure: International Best Practice-FIDIC Contracts: A Contractor View (5www.scl.org.uk4
accessed 16 October 2014 2002).
560 Journal of World Energy Law and Business, 2014, Vol. 7, No. 6

intricacy of such transactions and are therefore welcomed. However, as already said,
standardization inevitably affects versatility and capability of such documents to adapt
to all possible scenarios and parties’ needs. Hence, a number of clauses included in such
forms are often subject to amendments aimed at rendering them more adherent to the

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parties’ expectations and actual desires.
This paragraph gives a non-exhaustive list of clauses which contractors often seek to
amend during their exhausting negotiations with employers along with the relevant terms
usually sought. FIDIC’s Silver and Yellow Books will be taken into consideration.12
The suggested amendments will be analysed following the numeric order of the rele-
vant clauses.
Sub-Clause 1.10: the management of contractor’s IPR
Sub-Clause 1.10 (Employer’s Use of Contractor’s Documents) of FIDIC Silver and Yellow
Books states that:

As between the Parties, the Contractor shall retain the copyright and other intellec-
tual property rights in the Contractor’s Documents and other design documents
made by (or on behalf of) the Contractor. The Contractor shall be deemed (by
signing the Contract) to give to the Employer a non-terminable transferable non-
exclusive royalty-free licence to copy, use and communicate the Contractor’s
Documents, including making and using modifications of them. This licence shall:
(a) apply throughout the actual or intended working life (whichever is longer) of the
relevant parts of the Works; (b) entitle any 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, adjust-
ing, repairing and demolishing the Works, and; (c) in the case of Contractor’s
Documents which are in the form of computer programs and other software,
permit their use on any computer on the Site and other places as envisaged by the
Contract, including replacements of any computers supplied by the Contractor. The
Contractor’s Documents and other design documents made by (or on behalf of) the
Contractor shall not, without the Contractor’s consent, be used, copied or commu-
nicated to a third Party by (or on behalf of) the Employer for purposes other than
those permitted under this Sub-Clause.

In the oil and gas sector intellectual property rights (IPRs) represent an important asset
to leader contractors. This is why Sub-Clause 1.10 may create friction between contrac-
tors and employers who, in relation to this aspect, usually have diametrically opposed
interests. Indeed, while contractors tend to seek protection of their IPRs from free or
illegal use by third parties, employers aim at restricting such rights in order to reduce as
much as possible any limits after the construction of the oil and gas facility. For this
reason, contractors should seek to amend the clause under analysis in a way that avoids

12
Nick Henchie, Amending FIDIC Contracts — A Dozen Key Issues (Portfolio Media Inc,5www.law360.com41 November 2011).
Fabio Solimene  Use of FIDIC forms in the oil and gas construction sector 561

that employers re-use the acquired IPRs in future projects without having to pay any
compensation. Such prevention of free re-use shall clearly indicate the restricted rights
and specifically regulate the right of utilization and copying of a contractor’s documents
and software.13

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Sub-Clause 4.1: the fit for purpose obligation implications
According to Sub-Clause 4.1 of the analysed FIDIC Books: ‘When completed, the Works
shall be fit for the purposes for which the Works are intended as defined in the Contract.’
The reason why employers seek to include such a provision in construction contracts is
that otherwise the fit for purpose test will be based on the standards generally expected
from a competent professional in the sector14 and the burden of proof would be on the
employer claiming the unfitness of the works. More specifically, in order to have its
position upheld by the deciding entity, an employer will need to prove the level of
skill and care expected from a contractor in the implementation of the specific works
(which, in case of oil and gas agreements, is particularly high) and the contractor’s failure
to comply with such a standard. From the above it is clear that the inclusion of a fit for
purpose clause represents a great advantage for employers.15
It can be noted that in the oil and gas sector facilities may have multiple purposes (eg
in case of construction of a floating production storage and offloading unit) which
renders such clauses much more structured and ‘tricky’.
Of course a fit for purpose clause has meaning only where the contract in which it is
included clearly describes the specific purposes of the works to be carried out by the
contractor. If not, the intended purposes will usually be identified judicially based on the
contract’s wording and facts. This is not the case for FIDIC forms which strictly tie fitness
to the purposes expressly set out in the contract. However, also where a fit for purpose
clause is not included in the contract, the use of specific wording—eg the specification of
the scope of the contract combined with the assertion that the employer relies on the
skills and judgement of the contractor in order to achieve such a scope—may imply the
existence of a fit for purpose obligation.
Fit for purpose clauses may also have a downside for contractors in that the obligation
they give rise to may not be covered by a contractor’s professional indemnity insurance
which usually only covers cases of contractor’s negligence, ie failure to use reasonable skill
and care. Cases of non-negligent errors are extremely rare.16 However, since fit for

13
ibid.
14
For example, in English law. See Sarah Thomas, Contractual Chestnuts: Fitness for Purpose (Practical Law 2009).
15
However, ‘An employer may prefer an ‘‘open-ended’’ clause, under which the contractor may still have to meet wider purposes
of the building or plant, even though those purposes are not necessarily spelt out in the contract’s performance specification or
formal ‘‘employer’s requirements’’’. See Thomas, ibid. However, in some cases employers may try to mystify the wording by
removing explicit references to fitness for purpose from their contracts and amending clause 4.1 with the following wording:
‘When completed, the Works shall comply in all respects with the requirements of the Employer as defined in the Contract. The
advantage of using this amended wording, from an employer’s point of view, is that it has the same power and effect of a fitness
for purpose clause, without the stark (and easily identifiable and word-searched) term ‘‘fitness for purpose’’.’ Edward Davies,
Reasonable Skill and Care vs Fitness for Purpose (Practical Law 2008).
16
See Davies, ibid, in which the author reports an example of non-negligent error in which ‘an engineer specifies design solution
X because all the professional journals recommend it. But unbeknown to the engineering profession there is a serious problem
with design solution X. However, this problem only comes to light years later’.
562 Journal of World Energy Law and Business, 2014, Vol. 7, No. 6

purpose clauses exempt employers from having to prove negligence, even when contrac-
tors make negligent mistakes employers may prefer to claim a non-negligent mistake or
not to qualify the nature of the mistake. Such lack of a clear allegation of negligence
means that contractors may be forced to sue their insurers in order to prove their own
negligence17 to obtain the relevant indemnity.

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Considering the above, contractors should seek to amend Sub-Clause 4.1 in order to avoid
undertaking a fit for purpose obligation. An alternative would be to try to extend their
policies or to counterbalance the risk by limiting their overall liability under the contract.
Unforeseeable difficulties under Sub-Clause 4.12 of the Silver Book
Sub-Clause 4.12 (Unforeseeable Difficulties) of the Silver Book states that: ‘Except as
otherwise stated in the Contract (a) the Contractor shall be deemed to have obtained all
necessary information as to risks, contingencies and other circumstances which may
influence or affect the Works; (b) by signing the Contract, the Contractor accepts total
responsibility for having foreseen all difficulties and costs of successfully completing the
Works; and (c) the Contract Price shall not be adjusted to take account of any unforeseen
difficulties or costs.’
It is clear that, by accepting such a clause as it is a contractor would undertake a risky
obligation. This also in consideration of the fact that oil and gas facilities are usually
located in places (eg. developing countries, open seas and—in general—offshore sites)
which present a high level of uncertainly as to possible perils to which such facilities will
be subject. Hence, it would be advisable to negotiate amendments for—at list—obtaining
a sharing of the risks between employer and contractor.
Reducing contractor’s responsibility for design under Sub-Clause 5.1
Clause 5.1 (General Design Obligations) of the FIDIC books considered in this article states
that: ‘The Contractor shall carry out, and be responsible for, the design of the Works.
Design shall be prepared by qualified designers who are engineers or other professionals
who comply with the criteria (if any) stated in the Employer’s Requirements. (. . .).’
There is a difference between the two books18 in that, while under the Yellow Book
contractors are not responsible for any error, fault or other defects found in the em-
ployers’ requirements to the extent that ‘an experienced contractor exercising due care’
would not have discovered the error, fault or defect before submitting its tender, accord-
ing to the Silver Book, contractors are supposed to have scrutinized the employers’
requirements and are responsible for the relevant accuracy (including design criteria
and calculations), except for the matters identified in Sub-paragraphs (a)– (d) of
Sub-Clause 5.12.19 Hence, while according to the Silver Book, contractors undertake

17
The case Wimpey v Poole (1984) 2 Ll LR 499 represents a case in which somebody tried to prove his own negligence.
18
See Frederic Gillion, Use and Misuse of FIDIC Forms of Contract in Central and Eastern Europe: The Worrying Trend of Silver
Book Provisions in Public Works Contracts (Fenwick Elliot 2012).
19
ie ‘(a) portions, data and information which are stated in the Contract as being immutable or the responsibility of the
Employer, (b) definitions of intended purposes of the Works of any parts thereof, (c) criteria for the testing and performance
of the completed Works, and (d) portions, data and information which cannot be verified by the Contractor except as
otherwise stated in the Contract’.
Fabio Solimene  Use of FIDIC forms in the oil and gas construction sector 563

an absolute responsibility as to any mistakes employers may have made in drafting the
mentioned requirements, under the Yellow Book, contractors may still try to prove that
such mistakes are such that even when exercising due care, an experienced contractor
would not have been able to discover them.

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Both clauses are in favour of employers so that contractors may want to amend them in
order to reduce risks. A contractor’s tendency to maintain such a clause intact usually
increases with their ability to verify the employers’ requirements at tender stage. It is clear
that when the tender terms are particularly short contractors are more reluctant to accept
such an obligation. Should employers be firm on their decision to keep such a provision
as it is, contractors may seek to increase the contract’s price accordingly.20
Penalties for time delays and under-performance
According to Sub-Clause 8.7 of both FIDIC books:

If the Contractor fails to comply with Sub-Clause 8.2 [Time for Completion]21, the
Contractor shall subject to Sub-Clause 2.5 [Employer’s Claims]22 pay delay damages
to the Employer for this default. These delay damages shall be the sum stated in the
Appendix to Tender, which shall be paid for every day which shall elapse between the
relevant Time for Completion and the date stated in the Taking-Over Certificate.
However, the total amount due under this Sub-Clause shall not exceed the maximum
amount of delay damages (if any) stated in the Appendix to Tender. These delay
damages shall be the only damages due from the Contractor for such default, other
than in the event of termination under Sub-Clause 15.2 [Termination by Employer]23
prior to completion of the Works. (. . .).

20
See Al Tamimi & Company, Risk in EPC Contracts (2014).
21
8.2 Time for Completion: ‘The Contractor shall complete the whole of the Works, and each Section (if any), within the Time
for Completion for the Works or Section (as the case may be), 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 [Taking Over of the Works and Sections]’.
22
2.5 Employer’s Claims: ‘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. However, notice is not required for payments due under
Sub-Clause 4.19 [Electricity, Water and Gas], under Sub-Clause 4.20 [Employers Equipment and Free-Issue Material], or
for other services requested by the Contractor. The notice shall be given as soon as practicable after the Employer became aware
of the event or circumstances giving rise to the claim. (. . .).’
23
15.2 Termination by Employer: ‘The Employer shall be entitled to terminate the Contract if the Contractor: (a) fails to comply
with Sub-Clause 4.2 [Performance Security] or with a notice under Sub-Clause 15.1 [Notice to Correct], (b) abandons the
Works or otherwise plainly demonstrates the intention not to continue performance of his obligations under the Contract, (c)
without reasonable excuse fails: to proceed with the Works in accordance with Clause 8 [Commencement, Delays and
Suspension], or (ii) to comply with a notice issued under Sub-Clause 7.5 [Rejection] or Sub-Clause 7.6 [Remedial Work],
within 28 days after receiving it, (d) subcontracts the whole of the Works or assigns the Contract without the required
agreement, (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, or (f) gives
or offers to give (directly or indirectly) to any person any bribe, gift, gratuity, commission or other thing of value, as an
inducement or reward: (i) for doing or forbearing to do any action in relation to the Contract, or (ii) for showing or forbearing
to show favour or disfavour to any person in relation to the Contract, or if any of the Contractor’s Personnel, agents or
Subcontractors gives or offers to give (directly or indirectly) to any person any such inducement or reward as is described in
this sub-paragraph (f). However, lawful inducements and rewards to Contractor’s Personnel shall not entitle termination.
(. . .)’.
564 Journal of World Energy Law and Business, 2014, Vol. 7, No. 6

Therefore, while damages are recognized in case contractors fail to comply with the time
schedule, there does not appear to be provision providing for delay damages in relation to each
section of the works, despite the fact that damages may be different in relation to the various
sections. Moreover, the rate of delay damages—provided in the Appendix of the Yellow Book

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and in the Particular Conditions of the Silver Book—are set on a per-day basis and a provision
sets the maximum amount of delay damages. It is therefore of paramount importance that the
Appendix and Particular Conditions are not left blank when drafting the agreement.
In addition, there is no provision regulating performance-related liquidated damages. In
this regard it can be noted that including liquidated damages clauses in construction con-
tracts may represent an advantage for contractors in that they fix the amount of their liability
in case of under-performance which allows such risk to be transfused in the bid price. Of
course, in this case, the contract shall clearly define the levels of performance required.
Finally, in accordance with FIDIC Guidance for the Preparation of Particular
Conditions, contractors may wish to include a provision aimed at including an incentive
for early completion where they are confident that the works may be completed before
the deadline provided in the contract.24
Consequences for failure to pass tests on completion under Sub-Clause 9.4
According to clause 9.4 (Failure to Pass Tests on Completion), x 1, of the considered books

If the Works, or a Section, fail to pass the Tests on Completion repeated under
Sub-Clause 9.325 [Retesting], the Engineer shall be entitled to: (a) order further
repetition of Tests on Completion 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 or Section (as the case may be), in which event the Employer shall have the
same remedies as are provided in sub-paragraph (c) of Sub-Clause 11.426 [Failure to
Remedy Defects]; or (c) issue a Taking-Over Certificate, if the Employer so requests.

Letter (b) above presents may create some uncertainty in relation to the sentence ‘if the
failure deprives the Employer of substantially the whole benefit of the Works or Section’

24
Brian W Totterdill, FIDIC Users’ Guide: A Practical Guide to the 1999 Red and Yellow Books (Thomas Telford Publishing 2006).
25
9.3 Retesting: ‘If the Works, or a Section, fail to pass the Tests on Completion, Sub-Clause 7.5 [Rejection] shall apply, and the
Engineer or the Contractor may require the failed Tests, and Tests on Completion on any related work, to be repeated under
the same terms and conditions.’
26
11.4 Failure to Remedy Defects: ‘If the Contractor fails to remedy any defect or damage within a reasonable time, a date may be
fixed by (or on behalf of) the Employer, on or by which the defect or damage is to be remedied. The Contractor shall be given
reasonable notice of this date. If the Contractor fails to remedy the defect or damage by this notified date and this remedial
work was to be executed at the cost of the Contractor under Sub-Clause 11.2 [Cost of Remedying Defects], the Employer may
(at his option): (a) carry out the work himself or by others, in a reasonable manner and at the Contractor’s cost, but the
Contractor shall have no responsibility for this work; and the Contractor shall subject to Sub-Clause 2.5 Employer’s Claims]
pay to the Employer the costs reasonably incurred by the Employer in remedying the defect or damage; (b) require the Engineer
to agree or determine a reasonable reduction in the Contract Price in accordance with Sub-Clause 3.5 [Determinations]; or c) if
the defect or damage deprives the Employer of substantially the whole benefit of the Works or any major part of the Works,
terminate the Contract as a whole, or in respect of such major part which cannot be put to the intended use. Without prejudice
to any other rights, under the Contract or otherwise, the Employer shall then be entitled to recover all sums paid for the Works
or for such part (as the case may be), plus financing costs and the cost of dismantling the same, clearing the Site and returning
Plant and Materials to the Contractor.’
Fabio Solimene  Use of FIDIC forms in the oil and gas construction sector 565

due to the generality of the relevant wording and the important consequences which may
arise should this scenario materialize, ie the right of the employer to terminate the con-
tract or reject the works (ie to repudiate the contract).
Contractors may want to obtain the deletion of this provision altogether or—at least—

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specify what the ‘benefit of the Works or Section’ is and when the employer may be
considered substantially deprived of it. Should the contract not contain such specification,
the contractor’s failure will be assessed applying the tests provided by the law. In particular,
according to English common law,27 in order for a breach to be repudiatory, ie sufficiently
serious to entitle the party not in breach to terminate the contract and claim damages, it is
necessary that the breach goes ‘to the root of the contract’ and/or deprives the innocent party
‘of substantially the whole benefit which it was the intention of the parties as expressed in
the contract that he should obtain’.28 More specifically, the test to be applied is set out, inter
alia, in the case Telford Homes (Creekside) Limited v Ampurius Nu Homes Holdings
Limited29 where it has been held that, when assessing whether a breach is repudiatory
judges should look at the following aspects: (i) the benefit the injured party was intended
to obtain from the performance of the contract, (ii) the effect of the breach on the injured
party,30 (iii) the seriousness and character of the breach as at the date of the purported
termination of the contract as opposed to the date of the alleged breach itself, taking into
account any steps taken by the party in breach to remedy the breach and the likelihood of
future events in the light of objective facts as at the date of the purported termination.31 It
has to be noted that the parties to a contract should be cautious in repudiating agreements
for breach as, should judges find that the breach was not repudiatory, the claiming party
may commit a repudiatory breach itself and be subject to a claim in damages.32
Variations: amending Sub-Clause 13.1
According to Sub-Clause 13.1 (Right to Vary) of FIDIC Yellow and Silver Books

Variations may be initiated by the Engineer at any time prior to issuing the
Taking-Over Certificate for the Works, either by an instruction or by a request for

27
Angela Fouracre, Without Further Delay: Court of Appeal Guidance on Assessing Repudiatory Breach of Contract in Telford Homes
(5www.bristows.com4 accessed 16 October 2014, July 2013).
28
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.
29
Court of Appeal’s recent judgment in Telford Homes (Creekside) Limited v Ampurius Nu Homes Holdings Limited ([2013]
EWCA Civ 577).
30
Including: (i) the loss has it caused, (ii) the part of benefit already received by the injured party, (iii) the possibility that the
injured party is adequately compensated by an award of damages, (iv) the likelihood that the breach is to be repeated,
(v) the chances that the party in breach may resume compliance with his obligations, (vi) and the impact that the breach
had on the value of future performance of outstanding obligations to be performed by the party in breach.
31
Walker Morris, Repudiatory Breach – the Consequences of Getting it Wrong (5www.walkermorris.co.uk4 accessed 16 October
2014, 2010).
32
See, for example, the case of Seadrill Management Services Ltd v Oao Gazprom [2009] EWHC 1530 (Comm) in which Seadrill,
which owned and managed a drilling rig, hired it to Gazprom. However, but during preloading, damage was caused to the rig
due to the negligence of Seadrill’s rig master. As a consequence Gazprom terminated the contract for alleged repudiatory breach
by Seadrill which, in turn claimed that Gazprom ‘s purported termination was itself repudiatory. Seadrill’s position was upheld
by the High Court which sustained that the breach had not deprived Gazprom of substantially the whole benefit of the contract
as no time limits on the commencement, duration or completion of the hire were set.
566 Journal of World Energy Law and Business, 2014, Vol. 7, No. 6

the Contractor to submit a proposal. A Variation shall not comprise the omission of
any work which is to be carried out by others. The Contractor shall execute and be
bound by each Variation, unless the Contractor promptly gives notice to the Engineer
stating (with supporting particulars) that (i) the Contractor cannot readily obtain the

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Goods required for the Variation, (ii) it will reduce the safety or suitability of the
Works, or (iii) it will have an adverse impact on the achievement of the Schedule of
Guarantees. (. . .).

This clause is likely to trigger long negotiations33 as employers will seek to delete the
sentence ‘a Variation shall not comprise the omission of any work which is to be carried
out by others’, in order to allow the replacement of the contractors in relation to single
activities that third parties are available to perform at a lower price. Contractors should
be aware that accepting such an amendment presents some risks, as: (i) usually contrac-
tors calculate and agree a lump-sum price which takes into account all EPC risks, (ii) it
would be unfair to compare prices for individual elements of the contract with the lump-
sum price agreed between the parties, (iii) lenders may not appreciate the amendment as
it would determine a certain degree of uncertainty as to the consideration and, ultimately,
as to the chances of repayment of the borrowed amount.
In cases where employers insist on keeping this clause, contractors may try to insert a
mechanism thereby compensating the loss of profit following de-scoping of the contract.
Sub-Clause 13.1 may give rise to hard negotiations also with reference to paragraph 2
where it states the contractors’ right to object to the variations proposed by employers in case
such variations ‘will have an adverse impact on the achievement of the Schedule of
Guarantees’. Employers may want to amend the wording stating that contractors are expected
not to merely object to the variation but actively to try to find a solution which would result in
the Schedule of Guarantees being achieved and the variation being implemented.
A last remark relates to the wording ‘Upon receiving this notice (i.e. the notice of
rejection), the Engineer shall cancel, confirm or vary the instruction’. It is not clear why a
contractor who has lawfully objected to an instruction to a variation should eventually
confirm such instruction. This wording may be acceptable only in case, following the
confirmation, the contractor avoids any responsibility and/or liability in relation to any
activity performed in order to comply with the confirmed variation. This assumption
would be implied in case the contract is subject to English law. However, it may be worth
amending the wording accordingly anyway.
Sub-Clause 17.6 and the limitation of liability provision
According to Sub-Clause 17.6 (Limitation of Liability) of FIDIC’s Yellow and Silver
Books:

Neither Party shall be liable to the other Party for loss of use of any Works, loss of
profit, loss of any contract or for any indirect or consequential loss or damage which

33
Jatinder Garcha, Amending Clause 13.1 of FIDIC – Protracted Negotiations (Lexology).
Fabio Solimene  Use of FIDIC forms in the oil and gas construction sector 567

may be suffered by the other Party in connection with the Contract, other than under
Sub-Clause 16.4 [Payment on Termination]34 and Sub-Clause 17.1 [Indemnities]35.
The total liability of the Contractor to the Employer, under or in connection with the
Contract other than under Sub-Clause 4.19 [Electricity, Water and Gas]36, Sub-Clause
4.20 [Employers Equipment and Free-Issue Material]37, Sub-Clause 17.1

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[Indemnities] and Sub-Clause 17.5 [Intellectual and Industrial Property Rights]38,

34
16.4 Payment on Termination: ‘After a notice of termination under Sub-Clause 16.2 [Termination by Contractor] has taken
effect, the Employer shall promptly: (a) return the Performance Security to the Contractor, (b) pay the Contractor in accord-
ance 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.’
35
17.1 Indemnities: ‘The Contractor shall indemnify and hold harmless the Employer, the Employer’s Personnel, and their
respective agents, against and from all claims, damages, losses and expenses (including legal fees and expenses) in respect
of: (a) bodily injury, sickness, disease or death, of any person whatsoever arising out of or in the course of or by reason of the
design, execution and completion of the Works and the remedying of any defects, unless 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 (b) damage to or
loss of any property, real or personal (other than the Works), to the extent that such damage or loss: arises out of or in the
course of or by reason of the design, execution and completion of the Works and the remedying of any defects, and (ii) is
attributable to any negligence, wilful act or breach of the Contract by the Contractor, the Contractor’s Personnel, their
respective agents, or anyone directly or indirectly employed by any of them. 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]’.
36
4.19 Electricity, Water and Gas: ‘The Contractor shall, except as stated below, be responsible for the provision of all power,
water and other services he may require. The Contractor shall be entitled to use for the purposes of the Works such supplies of
electricity, water, gas and other services as may be available on the Site and of which details and prices are given in the
Employer’s Requirements. The Contractor shall, at his risk and cost, provide any apparatus necessary for his use of these
services and for measuring the quantities consumed. The quantities consumed and the amounts due (at these prices) for such
services shall be agreed or determined by the Engineer in accordance with Sub-Clause 2.5 [Employer’s Claims] and Sub-Clause
3.5 [Determinations]. The Contractor shall pay these amounts to the Employer.’
37
4.20 Employers Equipment and Free-Issue Material: ‘The Employer shall make the Employers Equipment (if any) available for
the use of the Contractor in the execution of the Works in accordance with the details, arrangements and prices stated in the
Employer’s Requirements. Unless otherwise stated in the Employer’s Requirements: (a) the Employer shall be responsible for
the Employers Equipment, except that (b) the Contractor shall be responsible for each item of Employers Equipment whilst any
of the Contractor’s Personnel is operating it, driving it, directing it or in possession or control of it. The appropriate quantities
and the amounts due (at such stated prices) for the use of Employer’s Equipment shall be agreed or determined by the Engineer
in accordance with Sub-Clause 2.5 [Employer’s Claims] and Sub-Clause 3.5 [Determinations]. The Contractor shall pay these
amounts to the Employer. The Employer shall supply, free of charge, the ‘‘free-issue materials’’ (if any) in accordance with the
details stated in the Employer’s Requirements. 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. 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.’
38
17.5 Intellectual and Industrial Property Rights: ‘In this Sub-Clause, ‘‘infringement’’ means an infringement (or alleged
infringement) of any patent, registered design, copyright, trade mark, trade name, trade secret or other intellectual or industrial
property right relating to the Works; and ‘‘claim’’ means a claim (or proceedings pursuing a claim) alleging an infringement.
Whenever a Party does not give notice to the other Party of any claim within 28 days of receiving the claim, the first Party shall
be deemed to have waived any right to indemnity under this Sub-Clause. The Employer shall indemnify and hold the
Contractor harmless against and from any claim alleging an infringement which is or was: (a) an unavoidable result of the
Contractor’s compliance with the Employer’s Requirements, or. (i) for a purpose other than that indicated by, or reasonably to
be inferred from, the Contract, or (ii) in conjunction with any thing not supplied by the Contractor, unless such use was
disclosed to the Contractor prior to the Base Date or is stated in the Contract. (b) a result of any Works being used by the
Employer: The Contractor shall indemnify and hold the Employer harmless against and from any other claim which arises out
of or in relation to (i) the Contractor’s design, manufacture, construction or execution of the Works, (ii) the use of
Contractor’s Equipment, or (iii) the proper use of the Works. If a Party is entitled to be indemnified under this
Sub-Clause, the indemnifying Party may (at its cost) conduct negotiations for the settlement of the claim, and any litigation
or arbitration which may arise from it. The other Party shall, at the request and cost of the indemnifying Party, assist in
568 Journal of World Energy Law and Business, 2014, Vol. 7, No. 6

shall not exceed the sum stated in the Particular Conditions or (if a sum is not so
stated) the Accepted Contract Amount. This Sub-Clause shall not limit liability in any
case of fraud, deliberate default or reckless misconduct by the defaulting Party.

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A contractor’s aims should be to reduce their percentage of liability at least up to the
contract price and to exclude all indirect and consequential loss.
It has to be noted that liability may not be easy to prove and damages claims may be
against public policy. Contractors’ indemnity insurance policies must always be aligned
with the contract in order to avoid that some categories of damages are excluded from
compensation.
Managing the consequences of force majeure in Clause 19.1
According to Sub-Clause 19.1 (Definition of Force Majeure) of the two FIDIC books,
Force Majeure is defined as ‘an exceptional event or circumstance: (a) which is beyond a
Party’s control, (b) which such Party could not reasonably have provided against before
entering into the Contract, (c) which, having arisen, such Party could not reasonably have
avoided or overcome, and (d) which is not substantially attributable to the other Party.
Force Majeure may include, but is not limited to, exceptional events or circumstances of
the kind listed below39, so long as conditions (a) to (d) above are satisfied (. . .)’.
Such a non-exclusive list of qualifying events should be enough to avoid issues of
validity vagueness.40 However, it would be advisable to specify those events which will
not constitute force majeure.
It should be noted that for Clause 19.1 to apply, the force majeure event shall prevent a
party from performing its obligations under the Contract. Should an alternative be
possible the affected party will only be able to rely on the common law concept of
frustration (if the contract is subject to English law). This may prove extremely difficult
where an alternative is practicable but extremely inconvenient so that the parties may
agree to amend the provision accordingly.
The contract should also describe how notice of the force majeure event is to be given,
and regulate the consequences of the relevant non-compliance, specifying whether this
has mandatory or directory effect.41
It has also been observed that Sub-Clause 19.1 may give rise to a risk of potential
overlap and/or contradiction with the definition of force majeure contained in the civil

contesting the claim. This other Party (and its Personnel) shall not make any admission which might be prejudicial to the
indemnifying Party, unless the indemnifying Party failed to take over the conduct of any negotiations, litigation or arbitration
upon being requested to do so by such other Party.’
39
Namely ‘(i) war, hostilities (whether war be declared or not), invasion, act of foreign enemies, (ii) rebellion, terrorism,
revolution, insurrection, military or usurped power, or civil war, (iii) riot, commotion, disorder, strike or lockout by persons
other than the Contractor’s Personnel and other employees of the Contractor and Subcontractors, (iv) munitions of war,
explosive Materials, ionising radiation or contamination by radio-activity, except as may be attributable to the Contractor’s use
of such munitions, explosives, radiation or radio-activity, and (v) natural catastrophes such as earthquake, hurricane, typhoon
or volcanic activity’.
40
Indeed, in British Electrical and Associated Industries (Cardiff) Ltd v Patley Pressing Ltd (1953) 1 WLR 280 it was held that a
clause referring to ‘the usual force majeure events’ may be void for uncertainty.
41
See Peter Godwin and others, Force Majeure Clauses: FIDIC, ENAA and Drafting Bespoke Clauses (Herbert Smith 2012).
Fabio Solimene  Use of FIDIC forms in the oil and gas construction sector 569

codes of civil law jurisdictions42 so that a preliminary assessment is done when civil law
applies.
Clause 20 claims under the FIDIC’s system

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. According to Clause 20 of the Books under analysis,

Disputes shall be adjudicated by a Dispute Adjudication Board (DAB) in accordance

with Sub-Clause 20.4 [Obtaining Dispute Adjudication Board’s Decision] (. . .).
Unless settled amicably, any dispute in respect of which the DAB’s decision (if
any) has not become final and binding shall be finally settled by international arbi-
tration43. Unless otherwise agreed by both Parties: (. . .) the dispute shall be finally
settled under the Rules of Arbitration of the International Chamber of Commerce.

The Parties may want to agree how disputes are to be managed and the rules to be
applied to the DAB’s activities. In particular, it may be convenient to have the DAB
already active from a very early stage, ie since the presentation of the design by the
contractor to the employer. In this way, any disputes arising from errors or omissions
in the design may be rectified from the outset. The parties could also agree on the
number of members forming the DAB and the relevant qualifications (eg experience in
the oil and gas construction sector), taking into consideration that, while on the one
side a DAB of three members may be more efficient and impartial, opting for a single
member would save costs.
In addition, when the project is split into a number of contracts (which is frequent
in oil and gas projects) to be executed simultaneously and covered by a same
DAB, an equitable arrangement as to the DAB’s fees may be a good option for
saving costs.
. Sub-Clause 20.1(Contractor’s Claims) states that:

If the Contractor considers himself to be entitled to any extension of the Time for
Completion and/or any additional payment, under any Clause of these Conditions or
otherwise in connection with the Contract, the Contractor shall give notice to the
Employer, describing the event or circumstance giving rise to the claim. The notice
shall 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. If the

42
‘Incorporating a clause such as Clause 19 into a contract not only duplicates what is usually provided for in the civil code of a
civil law jurisdiction, but also enlarges the scope of the meaning and application of force majeure. This could result in the
Parties getting into a muddle and a contradictory situation.’ Nael Bunni - FIDIC’s New Suite of Contracts - Clauses 17 to 19
(FIDIC). See also Jeremy Glover, Force Majeure, Under Common Law and the Civil Codes– The FIDIC Form and NEC Contract
Compared (Fenwick Elliott LLP, Mondaq 2006).
43
Sub-Clause 20.7 should not be interpreted as implying that a failure to comply with a binding decision cannot be referred to
arbitration directly. See Adam Heine, Arranging and Paying DRB/DAB Members: Advantages and Disadvantages of the FIDIC
1999 Model Solutions (The Dispute Resolution Board Foundation – Forum - Volume 11, Issue 3 August 2007).
570 Journal of World Energy Law and Business, 2014, Vol. 7, No. 6

Contractor fails to give notice of a claim within such period of 28 days, the Time for
Completion shall not be extended, the Contractor shall not be entitled to additional
payment, and the Employer shall be discharged from all liability in connection with
the claim (. . .).

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This clause represents an absolute time bar for contractors as it entitles employers to
reject any request for extensions of time and/or additional payments made once the
28-day term has expired.44 Due to the complexity of oil and gas construction works,
contractors may easily find themselves not to be in a position to comply with the time
limit provided in this clause. As a first step when facing such a provision, contractors
should try to establish whether the 28-day term is sufficient for serving a notice of
claim in relation to the specific circumstances. In general, a number of factors may
delay the decision to serve a notice of claim, such as: (i) the potential impact of a claim
on the commercial relation with the employer, or (ii) doubts as to the actual respon-
sibility in relation to the circumstances giving rise to the claim, or (iii) the natural
tendency of resident engineers and technical personnel on site to minimize or conceal
the event or circumstance in order to avoid responsibilities.45 The above are only some
of the reasons why a 28-day term may not be sufficient and should not be accepted.
As a last remark, it has to be noted that common law and civil law courts have
a different attitude towards clauses setting specific time limits in the exercise of rights
in that: (i) while civil law courts tend to consider as invalid contractual provisions
setting terms which render the exercise of a right excessively difficult for one party,46
(ii) common law systems—eg English common law—provide that, when the contract
clearly sets the timescale within which the notice must be served and provides that in
cases where such deadline is not complied with, the party in breach will lose its right to
the relevant claim, the timescale is to be deemed mandatory.47 However, in the absence
of a clear court decision as to the congruity of the 28-day term and considering that
Sub-Clause 20.1 clearly states the term and the relevant consequences for not com-
pliance, there is an increased tendency by contractors using FIDIC forms to extend the
mentioned.

44
See also Nicholas Gould, Time and Money: Time Bar Clauses (5 October 2007, The FIDIC Contracts Conference 2007).
45
See Mauro Rubino-Sammartano, FIDIC’s clause 20.1 – a civil law view (Construction Law International Volume 4 No 1 March
2009).
46
As reported in Mauro Rubino-Sammartano, FIDIC’s clause 20.1 – a civil law view (n 47): In Italy, ‘Sec. 2965, Civil Code
provides that ‘‘A contractual provision which provides for a time period after which a right is foreclosed and which makes it
excessively difficult for a party to exercise its right, is null and void’’. (. . .) ‘‘Under article 2254 x 1 of the Civil Code provides
that ‘The time period for limitation may be reduced or lengthened by agreement of the parties. Such period may not be reduced
to less than one year or extended beyond ten years’. As a result of this, prima facie FIDIC clause 20.1 now seems to be
inconsistent with public order provisions of French contract law’’. (. . .) The German Court of Appeal, Düsseldorf (OLG
Dusseldorf, NJWRR 1997, p784) has held that a contractual term which forfeited a claim of a contractor who did not present its
time sheets within one week, was invalid. The same reasoning might be applied to clause 20.1’. See also Bruck, Sherman in
Roquette, Otto, Vertragsbuch Privates Baurecht (Munich 2005). However this may not always be the case of Clause 20.1.
47
See Bremer Handels GmbH v Vanden Avenne Izegem PVBA [1978] 2 Lloyd’s Rep 109, HL. As observed in Gould (n 44): ‘In other
words, it must be possible to identify precisely the trigger point for the notice period and then secondly for the clause to have
clearly set out the right that has been lost once the time period has expired’. Therefore, unless such a requirement is present,
‘timescales in construction contracts are not mandatory, but directory’. See also Tenloc v Errill Properties (1987) 39 BLR 30, CA,
C Croom Johnson LJ.
Fabio Solimene  Use of FIDIC forms in the oil and gas construction sector 571

Finally, the provision under analysis may risk creating uncertainty in relation to the
moment triggering the 28-day period when such a moment coincides with the one in
which the contractor ‘should have become aware of the event or circumstance giving
rise to the claim’. In other words, it may be difficult for contractors (or for employers)

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to identify the precise moment of ‘should have become aware’, as it may be the
moment at which the event or circumstance has occurred or has begun to produce
effects that are intelligible to the contractor, etc. A specification in this regard would
also be advisable.

3. Conclusion
While it is undoubtable that FIDIC forms represent a thorough starting point for the
drafting of construction contracts in relation to oil and gas pipelines, rigs or any other
heavy projects, they also present a number of provisions which should be carefully con-
sidered by contractors for the important consequences they may arise at a later stage.
This article has sought to highlight which amendments may be used by contractors in
order to avoid having to bear excessive risks but the list is not to be considered
exhaustive.48
As a closing remark, it can be said that the parties should strive for an agreement which
satisfies them both in terms of a balance between risks for contractors and reasonable
flexibility for employers, so to allow the former to balance compensation with the under-
taken level of risk and the latter to adapt the contractual covenants to the changes in the
factual situation which the project may face during its lifetime. Such a balance will
certainly benefit the entire project and positively affect the contractual relationship be-
tween the parties.

48
It would also be advisable to refer to the guides published by FIDIC which give explanations of the forms’ clauses and help the
parties to understand the rationale behind each of them.