Script Module 1

Kanzlei Dr.
Hök, Stieglmeier & Kollegen 1
FIDIC Training Module 1
Lecturer: Dr. Götz-Sebastian Hök,

Kanzlei Dr. Hök, Stieglmeier & Kollegen,
Berlin
Kanzlei Dr. Hök, Stieglmeier & Kollegen 2
I. Legal character of FIDIC rules

FIDIC Conditions as a part of the lex mercatoria
General Conditions/Standard Terms
“Main Rouge” Rule/Art. 2.1.20 Unidroit Principles
II. Relationship between FIDIC Conditions and Public Procurement Law
FIDIC based public procurement
Priority of national procurement law and principles
Interfaces between pre-contractual obligations and tender information
Reliance on tender information
III. Relationship between FIDIC Conditions and legal systems
Priority of national law
Supplementation of FIDIC Conditions
Incoherency with national law/mandatory national law
Conceptual differences between FIDIC Conditions and civil law systems
IV. Alteration of FIDIC Conditions
Guiding Principles of FIDIC Conditions: Definitions, Sections, Claims
Preparing tender documents-The FIDIC Contracts Guide-Guidance for the
Preparation of Particular Conditions
Recommendations
Pitfalls and Issues
V. Main Particularities of FDIC Conditions as compared with national law,
e.g. French and German Law
Pre-tender obligations
Role and tasks of the “Engineer”
Claim-Management
Reception of the Works and Defects Liability
Decennial Liability
Termination
VI. Interpretation of FIDIC Conditions
National law as a means of interpreting and supplementing FIDIC Conditions
Unidroit Principles as a means of interpreting and supplementing FIDIC
Conditions
Common Law approach of FIDIC
Ruling Language/Linguistic Discrepancies
Discrepancies and ambiguities
Contra proferentum Rule
VII. Case Law and Judgments
Relevant Case Law
National Jugdments
Arbitration Awards
Substantial Case law
Procedural Case law
VIII. Dispute Resolution
Claim Management
Disputes and Dispute Adjudication: Constitution of a DAB, DAB-Procedure
Arbitration: ICC and other Arbitration Rules, ICSID, Seat of Arbitration
I. Legal character of FIDIC rules

FIDIC Conditions as a part of the lex mercatoria
General Conditions/Standard Terms
“Main Rouge” Rule/Art. 2.1.20 Unidroit Principles
The use of FIDIC standard forms of contract is quite common throughout the
whole world. But what does it mean “to use FIDIC” as sometimes quoted in
international practice?
FIDIC standard forms of contract have been issued by the International

Federation of Consulting Engineers which has its headquarters in Geneva,
Switzerland. FIDIC represents globally the consulting engineering industry. As
such, the Federation promotes the business interest of firms supplying
technology-based intellectual services for the built and natural environment.
FIDIC is thus a private organisation not having any legislative powers
whatsoever. By consequence the use of FIDIC standard forms of contract does
not mean that the parties to such a contract escape from any state law. As a rule
any FIDIC contract will be governed by national laws or a national jurisdiction. In
other words, FIDIC standard forms of contract are nothing else than general
trade terms which become treated as such.
However, FIDIC standard forms of construction contracts have existed for over
50 years and are widely used within the construction industry. FIDIC forms have
acquired a good reputation and are well known as balanced forms of contract. As
stated by Prof. Molineaux “their dissemination has already developed a degree of
commonality or construction lex mercatoria” (Molineaux, Moving Toward a Lex
Mercatoria - A Lex Constructionis, 14 J. Int‘l Arb. 1997, No. 1, at 55 et seq.).
Therefore the question arises whether FIDIC standard forms of contract may be
qualified to set out a particular form of lex mercatoria. The expression lex
mercatoria originally covered a body of rules and principles laid down by
merchants themselves to regulate their dealings. It consisted of usages and
customs common to merchants and traders in the medieval Europe, including
England. It responded to a need for a quick and effective jurisdiction
administered by specialised tribunals within a trade community and was based
on commercial practice only. Today there is a trend to suppose that international
commercial law owes some of its fundamental principles to the medieval lex
mercatoria. It is not uncommon today that arbitral courts will refer to
internationally recognised customs, usage and good practice instead of referring
to applicable state law which may be difficult to find and to verify.
On the other hand FIDIC standard forms of contract contain very detailed
stipulations for the execution of design and works concerning construction
projects. Thus, even though quite a lot of FIDIC clauses mirror international
practice and standards the FIDIC forms establish nothing more than a special
contractual relationship if and when the parties to the contract refer to it. It is
submitted that it can not be supposed that the parties to a construction contract
may expect their agreement to be governed by FIDIC unless they have expressly
agreed to it. Firstly FIDIC provides different forms of contract, such as the Red
Book (a remeasurement form under which the works are designed by the
employer) and the Yellow Book (a lump sum form under which the contractor
owes the duty to design the works). Secondly, all FIDIC forms of contract contain
guidelines and recommendations for the alteration of the General Conditions for
special purposes. Thirdly FIDIC Conditions leave open some very important
answers to critical questions such as to limitation of claims and the post
contractual defects liability. Fourthly all FIDIC forms of contract refer to choice of
law clause and FIDIC recommends the parties to choose the applicable law in
advance. Fifthly the FIDIC Contract Committee tries obviously to mirror and
reflect international good practice but it also responds to special needs of parts of
the industry as can be shown by referring to the FIDIC Silver Book.
Thus, even though the parties to any construction contract wish to escape from
any national law by agreeing to a special FIDIC contract form reference to a gap-
filling legal framework would be necessary. If the laws of the countries to which
the contract has any connections allows so, this could be a non-state body of law
such as the Unidroit Principles of International Commercial Contracts. But if not,
national law remains fully applicable.
If a construction contract incorporates a FIDIC form of contract it is therefore

subject to the applicable law how to qualify and characterise the concerned FIDIC
form of contract. According to German law it is free from any doubt that FIDIC
conditions are standard business terms (compare sect. 305 ph. 1 German Civil
Code) because they consist of pre-established clauses for a multitude of
contracts which one party to the contract (usually the employer) presents to the
other party (usually the contractor) upon the entering into the contract. It is in
so far irrelevant whether the provisions appear as a separate part of a contract
or are included in the contractual document itself, how extensive they are, what
script is used for them, or what form the contract takes. The contractual terms
will not constitute standard business terms only if they have been individually
negotiated between the parties, . It results from this qualification that the FIDIC
terms are invalid if, contrary to the requirement of good faith, they place the
contractual partner of its user at an unreasonable disadvantage (compare sect.
307 ph. 1 German Civil Code). This principle of “main rouge” is a particular
feature of German law and has not been adopted by most of the other existing
states. By consequence under most other jurisdictions the FIDIC standard
clauses will be binding at law without any possibility for judicial control. Whether
the principle of contra proferentum is applicable will depend on the applicable law
and the merits of the case. Under common law it seems that the principle will not
apply because the FIDIC always makes participating in the drafting process most
of the interested groups and associations, such as the IBA, the EIC, the ICC etc.
It can thus be summarised that a party who accepts the other party´s standard
terms is according to the principle of pacta sunt servanda bound by them
irrespective of whether or not it actually knows their content in detail or fully
understands their implications. However, since the Unidroit Principles have been
published a more sophisticated international approach exists. Art. 2.1.20 of the
Principles lays down an important exception to the rule of pacta sunt servanda.
The article states that, notwithstanding the acceptance of any standard terms as
a whole, the adhering party will not become bound by those terms which by
virtue of their content, language or presentation are of such character that it
could not reasonably have expected them. The guiding spirit of the article is the
desire to avoid any party which uses standard terms taking undue advantage of
its bargaining power. Especially on the international level this article may have
big influence on the validity of standard contract terms. What will be a surprising
clause will depend on the special circumstances. But as the article also covers
the language factor it plays an important role in so far as the adhering party may
not be familiar with the legal meaning of a concerned standard clause. If a
standard clause is drafted in a foreign language it can not be excluded that some
of its terms, although fairly clear in themselves, will turn out to be surprising for
the adhering party who could not reasonably have fully expected all of their
implications. As FIDIC Conditions originate more or less form anglo-saxon
surroundings some of the used terms and clauses may not be fully understood by
a non native English speaker. But as they are globally discussed, trained and
often used the original FIDIC clauses should not be surprising at all.
II. Relationship between FIDIC Conditions and Public Procurement Law

FIDIC based public procurement
Priority of national procurement law and principles
Interfaces between pre-contractual obligations and tender information
Reliance on tender information
1. FIDIC based public procurement
FIDIC forms of contract are envisaged for use whether the user is a private
person or company or whether a public authority or similar is concerned. Thus
they make no difference whatsoever between private works and public works.
However, whether a public authority (individual states, state controlled
companies and enterprises which operate in special sectors) is allowed to use
FIDIC standard forms in order to award public works is a question which has to
be answered by the applicable local and national laws. Most of the western
European countries provide special conditions for public works, such as the CCAG
in France or the VOB/B in Germany. By contrast most of the eastern European
countries did not have the time and facilities to develop their proper conditions
for the procurement of public works. They have frequently preferred to adopt
FIDIC conditions, a process which has been strongly influenced by the fact that
the EU and the World Bank recommend it for projects financed by them.
2. Priority of national procurement law and principles
It is free from any doubt that national procurement law and principles overrule
FIDIC Conditions. But usually national standard trade terms for public works do
not have a legal status although it is compulsory for the public authorities to use
them. For example in France public procurement law is codified in the Code des
marches Publics, which consists of a set of measures of a legislative or regulatory
origin, relating to contracts issued to meet the needs of municipal authorities and
other public bodies. Additionally a set of documents of a regulatory origin,
containing contractual provisions of a legal and financial nature, applicable to all
contracts covering services of a similar nature or in the same business sector
exists. Actually there are four types of CCAG document:
 Works CCAG,
 Industrial contracts CCAG (CCAG/MI),
 Intellectual service contracts CCAG (CCAG/PI),
 Routine supplies and services CCAG (CCAG/FCS).
Notwithstanding their regulatory origin the provisions of the CCAG apply only to
a contract for public works if the employer refers to them (Hôpital
psychothérapique de Rozès-Saint Lizier, Conseil d´État, 26.07.1985, Dr.adm.
1985 n° 473; Société dásurances La Nantaise et lÁngevine reunites, Conseil

d´État, 27.03.1998, RFDA 1998, 732). Thus in principle it will be possible to
replace the CCAG by FIDIC conditions subject to a further control by the
competent French controlling authority.
In principle the tender documents shall furnish all information necessary for a
prospective bidder to prepare a bid for the goods and works to be provided. The
basis for bid evaluation and selection of the best evaluated bid shall be clearly
outlined in the tender documents. If necessary, the public authority shall provide
reasonable access to the project site for visits by prospective bidders. For works
or complex supply and installation contracts, particularly for those requiring
refurbishing existing works or equipment, a pre-tender meeting may be arranged
whereby potential bidders may meet with the Buyer representatives to seek
clarifications. Minutes of the meeting shall be provided to all prospective bidders.
Any additional information, clarification, correction of errors or modifications of
tender documents shall be sent to each recipient of the original tender
documents in sufficient time before the deadline for receipt of bids to enable
bidders to take appropriate actions. If necessary, the deadline for submission
shall be extended. In particular when a FIDIC design & build contract shall be
awarded this procedure must strictly be followed in order to ensure that the
bidders may comply with the pre-tender obligations concerning site visits, site
surveys and the obligation to scrutinise the employer´s requirements which are
provided by FIDIC standard forms.
According to public policy of freedom of contract, the parties to a contract have

the autonomy to reach whatever bargain they want. Thus, in principle, the
parties are free to determine any law as the proper law of their contract even
though there may be no other connection between the substance of the
obligations and the law so selected. However, such clauses could be used as a
device to evade the application of internationally mandatory provisions of law
within a relevant jurisdiction. Consequently, most states will not honour choice of
law clauses unless they are considered to have been included on a bona fide
basis.
Art. 2 of Turkish law n° 4735 provides however:
This Law shall apply to contracts made as a result of tendering processes

carried out by public entities and institutions subject to the Public
Procurement Law in accordance with the provisions of the said Law.
The provision seems to contain the implied rule that Turkish public sector bodies
can award contracts for public works and services, which are governed by
Turkish law. By consequence subject to Turkish law no choice of law clause can
be incorporated in the contract, which refers to a law other than that of Turkey.
Whether Art. 2 of Turkish law n° 4735 is mandatory irrespective of the law
otherwise applicable to the contract is a question which must remain open for
discussion by Turkish lawyers.
However it is far from the truth to say that there is a general rule according to
which states are not allowed to choose the applicable law of a contract, which
they like to conclude.
According to 42 paragraph 1 of the Convention on the Settlement of

Investment Disputes between States and Nationals of other States
(ICSID) the Tribunal shall decide a dispute in accordance with such rules of law
as may be agreed by the parties. In the absence of such agreement, the
Tribunal shall apply the law of the Contracting State, which is party to the
dispute (including its rules on the conflict of laws) and such rules of international
law as may be applicable. Also, the International Court of Justice has decided in
the same way in 1929. After having confirmed the principle of freedom of
contract and the admissibility of a choice of law clause, it applied a presumption
in favour of the law of the contracting state in the event of failure to choose the
applicable law (International Court of Justice, decision n° 14 and 15 from 12 July
1929, C.P.J.I. A series n° 20-21).
Thus in principle contracting public sector bodies and individual states are
allowed to submit themselves under a law different from that of their own
jurisdiction (see Chaillé de Néré, Les difficultés déxécution du contrat en droit
international privé, Paris 2003, note 102, 103). However it depends on national
legislation to which extent public sector bodies and states are bound to their
proper legislation and whether their law is mandatory or not irrespective of the
law otherwise applicable to the contract.
In Iran, for example the Law on Attraction and Protection of Foreign Investment
allows investors to provide for a foreign arbitration and choice of law clause. The
Procurement Regulation of the Swiss District Uri (see Art. 12) from 15 February
2006 provides, that generally contracts are governed by the law of the place
where the public body is situated. However, this rule is not mandatory and the
parties may derogate from it. Generally spoken it has to be verified on a case by
case basis whether a state and public bodies are allowed to submit themselves to
a foreign law and accordingly to an arbitration clause.
Example: According to Art. 2060 French Civil Code “one may not enter into
arbitration agreements in matters of status and capacity of the persons, in those
relating to divorce and judicial separation or on controversies concerning public
bodies and institutions and more generally in all matters in which public policy is
concerned”.
French courts have subsequently held that this is a strict rule and that public
bodies are not allowed to submit themselves to arbitration. That position has
been recalled in the Eurodisneyland case (CE Ass Avis 6 March 1986, EDCE 1987
n° 38). However, this prohibition concerns only cases without foreign elements.
The French Supreme Court has held that the particularities of international
commerce justify that French public bodies submit themselves to arbitration in
international affairs (see Nammour, Droit et Pratique de lÁrbitrage, note 116).
French tender documents thus frequently contain the following clause:
ARTICLE 14 – DROIT APPLICABLE ET LITIGES

Le présent marché est soumis au droit français.
Le titulaire et la personne publique s’efforcent de régler à l’amiable tous
les différends qui peuvent intervenir lors de l’exécution du présent marché.
Dans le cas ou un accord amiable ne peut intervenir, le litige, pour lequel
le droit français seul est applicable, est porté devant le Tribunal
Administratif [de Nice].
This contract is governed by French law.

The contractor and the public body attempt to settle all disputes which
may arise during the performance of the contract. In the event that an
amicable settlement can not be reached, the dispute, to which French law
only is applicable, shall be referred to the Administration Court of [Nice].
However, if and when the applicable law comprises rules which are mandatory
they have to be applied and respected by the parties. Hence under Turkish law
the information listed below shall be included:
 Title, specification, category and quantity of work; description of work in

procurement of services.
 Name and address of the contracting authority.
 Name or business title and notification address of the contractor.
 Information on and obligations of subcontractors, if any.
 Price, category and duration of contract.
 Terms and place of payment; amount and place of advance payment, if
any.
 Method of payment of price difference, if any, for contractual works.
 Statement of cost items that are to be included in the contract price from
among transportation, insurance, taxes, duties and charges payable.
 Statement of the parties that are to pay for taxes, duties, and charges
payable and other contractual expenditure.
 Terms and conditions concerning such auxiliary services as installation,
commissioning, training, repair-maintenance, and spare parts.
 Amount of performance bond and conditions for its return.
 Guarantee periods, where any is required, and any conditions pertaining to
such guarantee.
 The place of performance, and procedure and conditions of delivery and
receipt.
 Penalties applicable in case of delays.
 Force majeure and conditions for time extensions, mutual obligations in
case of increases and decreases in contractual works.
 Conditions pertaining to control, inspection and acceptance procedures.
 For procurement of works, conditions pertaining to insurance coverage of
works and worksite as well as inspection of works and responsibility for
construction.
 Conditions pertaining to amendments to contract.
 Conditions pertaining to termination of contract.
 Contractor’s liability for the staff to be employed for the contractual works.
 Declaration that all documents included in the tender documents are
appendices to the contract
 Resolution of disputes.
Additionally the parties shall use type contracts which have been published in the
Official Gazette in order to assure uniformity in implementation of this Law in
connection with procurement of goods, services, and works. For procurements of
goods and services (not for works), the contracts customarily prepared by
tenderers may be used, provided that they are not contrary to the provisions of
type contracts and that the Authority approves them.
3. Interfaces between pre-contractual obligations and tender

information
Buildings and civil engineering works must be located on land, whether already
existing or not. There is a narrow correlation between both. The quality of the
ground, the sub-surface conditions, the site surroundings and the climate are
pre-existing basic conditions of each construction project which must be known,
evaluated and considered. However, it is difficult to determine subsurface ground
conditions even with a preliminary site investigation. Nevertheless, such
conditions must be included in the bid price. The question arises as to who is the
party responsible for providing this basic information.
The tender documents usually contain merely sufficient but not excessive
information. The policy of employers is that over-supply of information can cloud
the employer´s primary messages. Employers would not like to lead bidders to a
particular project option and unnecessarily restrict their incentive for innovation,
although the employer must be clear about his requirements and any constraints
that he imposes. By contrast it is common knowledge that the more information
provided (within reasonable boundaries) to enable bidders to assess risk, the
more the bidders are able to quantify and accurately price that risk. But in fact
employers usually refrain from providing complete or even exhausting
information and this for different reasons. The most important reason is that
they do not like to assume the risk of wrongful information. Secondly employers
do not like to bear the cost for site investigations.
Thus most internationally used standard forms, such as FIDIC, expect the
tenderer to gather and evaluate information before submission of the tender.
According to Sub-clause 4.10 FIDIC the contractor is deemed to have inspected
and examined the site and its surroundings. Although FIDIC imposes on the
employer to make available all relevant data in the employer´s possession of
sub-surface and hydrological conditions at the site, including environmental
aspects, the information included into the tender documents remain quite often
meagre. By contrast, the contractor is responsible for interpreting all such data.
It follows from this that the employer is only obliged to provide full information
to the extent to which he is already in possession of data. He is not responsible
for gathering information and making this data available if it has not been in the
employer’s possession. It is up to the contractor to complete the required and
needed information and data. He is the one to fill in any gaps and ensure he has
a complete picture of what the project will entail.
On the other hand, even though the contractor may be held responsible for
making site investigations, the aspect of available time to do so, may be of the
essence. If and when the employer expects the tenderer to submit his offer in a
short delay of time, he will be unable to carry out site investigations or to do so
properly. In this event the term of unforeseeability will protect the contractor
against those conditions which would not have been foreseeable for an
experienced contractor.
4. Reliance on tender information
The tender documents can provide pre-contractual obligations of the contractor

which he will accept to be bound to, when he submits a tender. Besides the
tender documents may contain information and data which must be taken into
consideration and which will become priced by the contractor. Thus the
contractor will probably be under the anticipated duty to identify
 to which extent he is obliged to start and carry out site investigations

 to which extent the information and data provided by the employer are
reliable
 to which extent any necessary data and information will be additionally
required and who is in charge of gathering and providing it or in other
words, which party bears the risk that their proper assumptions were
wrong.
4.1 Obligation to carry out investigations
Whether the contractor is under an obligation to carry out inspections, site

surveys and site investigations prior to tender is a matter of law. According to
ICE and FIDIC standard forms of contract the contractor is deemed to have
inspected and examined the site. This must be read as an obligation to do so,
which comes in force when the contract becomes binding with retrospective
effect. If no such contract clauses can be identified, it depends on the applicable
law to decide upon the allocation of risk which is inherent to the situation where
a contract becomes executed without any information about the site conditions
being available.
Example: A case was brought before the German Supreme Court, where the local
building authority required submission of a soil expertise during the course of the
works. The contractor obtained the expertise and sued the employer for payment
of the expenditure. The courts of first instance dismissed the claim. The Supreme
court held, that according to Sect. 645 BGB and the therein inherent risk
allocation rule, the employer had to bear the cost (BGH IBR 2006, 606), because
he is the one who has to provide everything which is necessary for the
performance of the works, including all legal requirements (BGH IBR 2005, 215).
Thus under German law it can be presumed that the employer has to provide a
ground investigation report, if necessary. If he fails to do so, the contractor can
rely on the normal ground conditions (Court of Appeal Schleswig IBR 1995, 375 –
Englert).
4.2 Reliability
Example: A builder is contracted to construct a railway. The contractor had only

two weeks in which to tender for the works. The price was agreed on the
strength of inaccurate information provided by the railway company about the
extent of rock. There was a larger rock surface than the contractors were lead to
believe and the work was more costly as a result. This was innocent
misrepresentation as the company’s engineer had altered the notes through
honest mistake (Boyd & Forrest v Glasgow & South Western Railway Co 1912 SC
(HL) 93).
If and when the employer is in possession of data and he makes it available to

the contractor the question arises as to whether he can rely on such information
or data. The answer to this question is quite important as it deals with the issue
of the additional cost and/or cost caused by differing site conditions.
Unfortunately the courts have given different answers subject to their

jurisdiction.
Under German law the contractor may rely on site on data and subsoil expertises
obtained from the employer together with the tender documents (Court of Appeal
Munich IBR 1997, 104; Court of Appeal Berlin IBR 2006, 190). However a
specialised contractor must carefully read and scrutinise a subsoil report made
by an expert and have a look at the incompleteness and/or obvious errors found
within the report. In default he can not rely on the expertise (Court of Appeal
Cologne, 19 July 2006 - 11 U 139/05, IBR 2007, 420- Bolz), because there is a
duty to advise the employer.
English courts seem to have a different approach. In Co-Operative Insurance

Society Ltd. v Henry Boot Scotland Ltd & Ors HHJ Seymour, QC stated that “the
nature of a ground investigation report is such that it is unlikely, …, that parties
to a contract would wish to incorporate it into a contract between them. All it can
show is what was the result of particular soil investigations. If parties did in fact
seek to incorporate a ground investigation report into a contract between them,
difficulties could arise as to what was the effect in law of so doing (Co-Operative
Insurance Society Ltd. v. Henry Boot Scotland Ltd & Ors [2002] EWHC 1270
(TCC) (01 July 2002), at n° 49). Judge Seymour accepted that the references to
the ground investigation report in the tender drawings were simply included to
identify for whichever contractor undertook the works a source of potentially
relevant information about ground conditions at the property. Whatever courts
have been decided in so far, the question remains, whether it is allowed to rely
on site investigation reports and other date obtained from the employer for other
reasons. But this only half the truth.
French law does not provide a clear and explicit pattern of risk allocation. The
courts make their decisions on a case by case basis. The employer is under an
obligation to provide everything which is necessary for the completion of the
works. In particular he is obliged to inform the contractor about the soil
conditions (Cour de Cassation, 3rd chamber, 5 June 1984, JCP G 1984, IV, 261).
In some cases employers have been held liable for non disclosure of facts and
errors in the tender documents, for example;
 in the event that he did not reveal or disclose the groundwater level (Cour
de Cassation, 3rd chamber, 16 July 1987, n° 86-11.273)
 in the event that he did not take care in order find a solution for an error
in the design (Cour de Cassation, 3rd chamber, 21 February 1990, n° 88-
15.616)
 in the event of errors in the employer´s documents (Cour de Cassation, 3rd
chamber, 5 April 1995, RDI, 551)
On the other hand the contractor owes a duty to advise the employer. The duty
embodies the obligation to inform the employer about all risk concerning specific
materials, methods of work or the risk which is inherent to the site (see Court of
Appeal Versailles, 4th chamber, 26 November 2005, n° 04-4299, RJDA 2006, n°
769). The duty becomes mitigated
 with regard to facts and circumstances which are obvious, such as changes
to the requirements or legal requirements (duty to obtain a construction
permit prior to commencement of the works);
 if the employer conceals certain facts (non existence of site survey maps)
In any case the contractor is under a duty of care. If he perceives that there is
no architect or engineer involved on behalf of the employer, he must substitute
that absence through his advice (Cour de Cassation, 3rd chamber, 6 January
1994, D. 1994 IR 28). If he considers that this task is beyond his ability and
competence he must ask the employer to obtain the services of an architect or
an engineer. Thus the contractor will be in breach of contract if he accepts a task
which is beyond his skills (Cour de cassation, 3rd chamber, 15 December 1993,
RD imm. 1994, 251).
It is settled by the English decisions in Hedley Byrne & Co. Ltd. v. Heller &
Partners Ltd. (1964) AC 465 and Mutual Life & Citizens' Assurance Co. Ltd. v.
Evatt (1968) 122 CLR 556 (High Court) and (1970) 122 CLR 628; (1971) AC 793
(in the Judicial Committee) that a person can be liable for financial loss resulting
from a negligent misstatement of fact or opinion, although the mis-
statement was honestly made, and there was no fiduciary or contractual
relationship between the parties. Lord Reid and Lord Morris have stated in the
Privy Council case [1971] AC at page 812: "... When an inquirer consults a
business man in the course of his business and makes it plain to him that he is
seeking considered advice and intends to act on it in a particular way ... his
action in giving advice ... (gives rise to) ... a legal obligation to take such care as
is reasonable in the whole circumstances". However the question here is, to
which extent the contractor may rely on site data.
In order to come to a result, the steps mentioned below should be followed:

Firstly it must be noted that if a Contract gives no indications of the subsurface
conditions at the work site,
 then according to common law the risk for all unknown or unanticipated
subsurface conditions remains with the contractor (see Spirit Leveling
Contractors v. United States, 19 Cl. Ct. 84, 95 (1989); Thorn v. The Mayor
and Commonality of London [1886]). Thus additional cost and/or time
caused by so called “differing site conditions” are borne by the contractor.
 then according to civil law (German law) the risk for all “defects of the
site”, also referred to as ground risk (Baugrundrisiko) remains with the
employer (including all site conditions which differ from the indications in
the tender documents). Thus additional cost and/or time caused by so
called “differing site conditions” are borne by the employer.
Secondly the contractor can rely on the tender data if he has scrutinised the data
with care (see Court of Appeal Berlin IBR 2006, 190 and above). If and to the
extent that an experienced contractor exercising due care would have discovered
any error, fault or other defect when examining them or the site before
submitting the tender, he should not be allowed to rely on them.
Thirdly it has to be verified whether the specifications themselves provide

information to which the contractor is bound. In this regard, the extent to which
the contractor shall rely on the information must be determined. If the
Contractor was left with the discretion to determine the means to achieve the
result, he is not really bound by the specifications and he should therefore not
understand such kind of specifications as representations of the employer.
However, whenever the specifications dictate an ultimate result that a contractor
must achieve, especially by means of design specifications, which set forth in
detail the materials that a contractor must use and the manner in which the
contractor was to employ the materials under the contract, he can rely on it.
According to English law site investigation reports may still be relevant to a claim
for unforeseen ground conditions. Most contract forms, those of FIDIC included,
refer to site condition clauses such as “...which could not... reasonably have been
foreseen by an experienced contractor...”. Thus the question arises, whether a
claim is excluded only if an experienced contractor could have foreseen that the
conditions or obstruction must occur, or is it sufficient that there was a
possibility, however remote, that the conditions might occur? The mere fact that
some risk of meeting the conditions was foreseeable can hardly be enough, since
an experienced contractor will know that anything can happen, particularly in
work.
FIDIC has obviously decided that only those risks which an experienced
contractor could reasonably be expected to foresee at the time of the tender
(base date) should be priced by the contractor. Thus in principle the question is
not, whether a risk could be foreseen, but whether it could be expected from an
experienced contractor to have taken reasonable precaution in its price for the
occurrence of such an event or circumstance. Accordingly the risk allocated to
the employer by sub-clause 4.12 is the one of additional cost and time caused by
physical conditions which a reasonable contractor could not reasonably have
been expected to foresee and therefore price.
Additionally it seems to be essential to define the time at which the question of

foreseeability is to be judged. Additional data (on sub-surface or hydrological
conditions at the Site) can become available on or after the tender submission
date. Thereafter it might well be possible to foresee (based upon such additional
data) something which was unforeseeable before the tender submission date
(based upon the data available at the Base Date). FIDIC refers to the to date of
submission of the tender.
But if an investigation report has been incorporated, it usually adds little to the
contractor´s protection, because a typical ground investigation report consists of
factual statements which are highly specific to the particular probes or tests that
have been carried out, and any interpretation that may be offered will be no
more than a statement of opinion (Uff, Construction Law (9th Edition), 272). Thus
it rests on the contractor to scrutinise the data and to anticipate those
circumstances which can reasonably expected to occur.
But what happens if performance becomes impracticable due to differing site

conditions?
Although subject to common law contracts usually are not frustrated by the work
proving more difficult or costly than could be anticipated, in any degree, unless
the difficulty arises from some change of circumstance or supervening event (see
Uff, Construction law, (9th Edition), 200), US courts treat impracticability of
performance as a type of constructive change to the contract, because a
commercially impracticable contract imposes substantial unforeseen costs on the
contractor, the contractor is entitled to an equitable adjustment (Raytheon Co. v.

White, 305 F.3d 1354, 1367 (Fed. Cir. 2002) (quoting Restatement (Second) of
Contracts '261 cmt. d (1981)). They have held that "[w]hen the government
provides a contractor with defective specifications, the government is deemed to
have breached the implied warranty that satisfactory contract performance will
result from adherence to the specifications, and the contractor is entitled to
recover all of the costs proximately flowing from the breach„ (Essex Electro
Eng'rs, Inc. v. Danzig, 224 F.3d 1283, 1289 (Fed. Cir. 2000) (citing United
States v. Spearin, 248 U.S. 132, 136 (1918)). English courts tend however to be
more conservative. In the case of Thorn v. London Corporation the contract was
not frustrated, because the contractor was held to have taken the risk as to the
method of construction and remained therefore liable to carry out the work by
whatever means were necessary, and this at no extra cost (Thorn v. London
Corporation (1876) 1 App.Cas. 120).
By contrast Sect. 313 (German) BGB provides that, if circumstances upon which
a contract was based have materially changed after the conclusion of the
contract and if the parties would not have concluded the contract or would have
done so upon different terms if they had foreseen that change, adaptation of the
contract may be claimed in so far as, having regard to all the circumstances of
the specific case, in particular the contractual or statutory allocation of risk, it
cannot reasonably be expected that a party should continue to be bound by the
contract in its unaltered form. A contractor may also be discharged of his
obligation if, after the conclusion of the contract, its performance became
commercially impossible, which is the case when performance requires
expenditure which, having regard to the subject matter of the obligation and the
principle of good faith, is manifestly disproportionate to the employer´s interest
in performance (Sect. 275 paragraph 2 BGB). However, Sect. 275 BGB is rarely
applied and should only be applied in exceptional cases.
According to French law contracts are binding and the parties to the contract
must perform their respective obligations even if this proves to be more difficult
or costly than could be anticipated. Art. 1134 Civil Code reads as follows:
Agreements, when legally formed, are the law of those who have
established them; they can only be rescinded by their mutual consent or
for the reasons authorised by the law; they must be carried out in good
faith."
However, if the economic equilibrium of the contract is seriously affected by an

unforeseen change of circumstances, unrelated to the activity of the contracting
public authority, the doctrine of 'imprévision` applies. The doctrine was
formulated and developed by the Conseil d'Etat and expounded for the first time
in the famous case of Gaz de Bordeaux (Conseil dÉtat, March 30, 1916, 1916
S.III 17, Concl. Chardenet,note Hauriou). It applies to all types of administrative
contracts. French civil law rejects the theory of imprévision at both doctrinal and
case law levels with regard to the binding character of contracts and in order to
guarantee the security of legal transactions (see the decision « Canal de
Craponne » from 6 March 1876). The Cour de Cassation has held that under no
circumstances is a court allowed to take into consideration time as a
circumstance in order to modify a contract and to replace the clauses of a
contract, which have been deliberately accepted by the parties, by those which
seem to be appropriate or equitable. Thus the Court has forbidden the judges to
review a contract. The only excuse for non-performance is force majeure. For its
application the change in circumstances must be (1) unforeseeable, (2)
insuperable making the performance of the contract impossible, and not merely
onerous, (3) external in origin (not attributable to the defendant). According to
the doctrine of force majeure the Courts are allowed to terminate the contract,
but not to modify it. By consequence the civil law counterpart whose obligation
becomes burdensome has to bear the burden alone, whereas, by the effect of an
indemnity, the State's contracting partner is to some extent released from the
burden resulting from an upheaval in the balance of the contract.
It is not clear whether CL. 4.12 FIDIC Conditions strictly excludes all legal
remedies which are given by the proper law of the contract. But in most cases
the conditions under which the contractor can rely on legal remedies are similar
to those under Cl. 4.12.
4.3 Risk allocation
The last issue mentioned above seems to be an underestimated one, although

quite often the information and data obtained by proper investigations and
through the employer are not exhaustive, even though the contractor is probably
not under an express obligation to gather more information by his own efforts.
The reason for this is that the contractor’s pre-contractual obligations are not
defined as they should have been. Thus a gap between the available information
and the information which is considered necessary remains open. This leads then
to the question of which party bears the risk of incomplete site data. As to this
issue I would like to identify the following questions:
 Is there a general duty of the contractor to find all necessary information?

 If not, which party bears the risk that the information remains incomplete?
 To which extent can the contractor rely on information provided by the
employer?
It can hardly be argued that there is a general pre-contractual duty at law to

make site investigations. On the other hand the law does provide rules for the
allocation of the risk which arises from wrongful assumptions as to the site
conditions. However, the results are different subject to the applicable law:
In Thorn v. The Mayor and Commonality of London [1886], the English House of
Lords held that contracting parties should be aware of and properly investigate
the extent and circumstances of the promises they make, and that responsibility
for difficulties in performance is the responsibility of the party who had promised
to achieve the work. In Bottoms v. Mayor of York [1892], Bottoms agreed to
construct sewers. Neither party investigated the premises prior to the contract,
being tendered for and awarded. Bottoms submitted his tender on his
assumption of the ground conditions. The ground conditions turned out to be
marshy and thus were not what Bottoms expected, making it difficult to
construct the sewers as he had planned. Bottoms had to add poling boards and
moulds at great expense to complete the works. He claimed an additional
payment stating that the additions were a variation. Bottoms abandoned the
work, when the engineer rejected his claim and brought a claim in court. The
court (confirmed by the Court of Appeal) held twofold:
 that there was no common mistake resulting in a variation and

 that there was no express warranty as to the nature of the site
By consequence the claim was dismissed. Thus in fact English courts will consider
that a contractor who tenders without any information given to him as to what
the soil was and who did not carry out any investigations at all by himself would
have tendered carelessly. The law does not help such a careless contractor.
Under German law the result will not be the same. According to Sect. 645 BGB it
is common understanding that the ground must be fit for the works which have
to be carried out according to the contract (see and compare Erman/Schwenker,
BGB (11th Edition), Sect. 645 note 2; Staudinger/Peters, BGB, Sect. 645 note
12). Thus a contractor can rely on his assumptions of the ground conditions, to
the extent that they have been properly built up in accordance with the contract.
No efforts and attempts to carry out investigations by the contractor himself are
required. It can be summarised that German law does not require from the
contractor to overcome all the difficulties which he may encounter on or at the
site, and thus deviates from the English tradition that the contractor is bound to
complete the work for the stated price, however difficult or expensive the work
may prove to be.
But care must be taken when scrutinising the contract at tender stage, because
the contractor may therein find information which enables him to rely on pre-
tender information. In England frequently reference is often made to SMM7.
SMM7 states that information regarding site conditions shall be shown either on
location drawings or on further drawings which accompany the bills of quantities
or stated as assumed:
 The ground water level and the date when it was established, defined as
the pre-contract water level
 The ground water level is to be re-established at the time each excavation
is carried out and is defined as the post contract water level
 Ground levels subject to periodic changes due to tidal or similar effects are
so described giving the mean high and low water levels
 Details of trial pits or boreholes including their location
 Features retained
 Live over or underground services indication location
 Pile sizes and layout
Additionally information about the ground conditions themselves shall be given.

In such a case of reference to SMM7 the contractor may be held to have a claim
against the employer, should the site conditions not be as assumed, because the
use of SMM7 seem to oblige the employer to provide the contractor with
information in his possession about potentially difficult site conditions (see Parris,
The Standard Form of Building Contract: JCT 80, (3nd Edition) 2002, at page 306;
Chappell/Powell-Smith/Sims, Building Contract Claims (4th Edition, at page 85; C.
Bryant & Son Ltd. V. Birmingham Hospital Saturday Fund [1938] 1 All ER 503).
German public bodies will have to prepare their tender documents according to
Sect. 9 VOB/A. According to Sect. 9 VOB/A the scope of works has to be
described in a clear and exhaustive manner, so that all bidders are able to
securely calculate their price without any prior considerable efforts. Sect. 9
VOB/A contains a certain number of definitions and explanations as to the
content of Bills of Quantities and Requirements. To the extent which is
reasonable, the contractor must carefully scrutinise the documents. Tender

documents which do not comply with Sect. 9 VOB/A have to be promptly
contested during the course of the tendering process. A contractor who fails to
do so, cannot rely on the tender documents (BGH, IBR 1996, 488; IBR 1997,
180). However, it is settled that the contractor can rely on the representations
made by the employer prior to the award of a public works contract and again, if
the employer fails to provide data, the contractor can rely on the “normal soil
conditions” (OLG Schleswig, Urteil vom 05.08.1993 - 11 U 197/89, IBR 1995,
375- Englert).
In summary: It is beyond doubt that it is critical to get information about the site
conditions. But it is also critical to know according to which standards the
information had been prepared, because the quality of a site investigation is
dependent on the accuracy and accessibility of the key information and the
methods by which they have been obtained.
4.4 Extra works in the case of misrepresentation
Rather unusually, the work which has to be carried out in accordance with a
construction contract is not defined in exhaustive detail. In principle the
contractor has to achieve a given result, which is defined by the contract. Any
work which is included in the contract price has to be carried out, although the
contractor may not have thought at the time of entering in the contract that it
would eventually be necessary for the completion of the contract.
Example: In Sharpe v. San Paulo Railway the contractor had undertaken to lay a
railway line from terminus to terminus. During the course of the works, the
contractor found that the employer’s design was quite inadequate and had to be
replaced by another. As a result and upon instruction of the engineer the
contractor carried out two million cubic yards of excavation work in excess of the
quantities of work set out in a bill of quantity, which was part of the contract. It
was held that the works were not in “any sense of the words extra works”
(Sharpe v. San Paulo Railway (1873) L.R. 8 Ch.App. 597).
A radically different question is whether the contractor is entitled to additional

payment because of false, inaccurate and misleading representations of the
employer or on behalf of the employer.
In Morrison Knudson International Co. v. Commonwealth of Australia (1980) 13

BLR 114 the contractor alleged that the basic information provided to him at pre-
tender stage as to the soil and its contents at the site was false, inaccurate and
misleading and that the clays at the site, contrary to the information contained
large quantities of cobbles. Barwick CJ condluded, that:
The basic information in the site document appears to have been the result
of much technical effort on the part of a department of the defendant. It
was information which the plaintiffs had neither the time nor the
opportunity to obtain for themselves. It might even be doubted whether
they could be expected to obtain it by their own efforts as … a tenderer.
But it was indispensable information if a judgment were to be formed as to
the extent of the work to be done … (Morrison Knudson International Co.
v. Commonwealth of Australia (1980) 13 BLR 114, at 121).
In another case Ogden hired barges for dumping clay in the North Sea. The issue
was whether there was liability for a misrepresentation of the barge weight
capacity which was crucial in determining the cost and time of the work to be
done. It was held that the owners of a sea-going barge must take reasonable
care to answer correctly a question put by a prospective hirer as to the
deadweight capacity of the barge (Howard Marine & Dredging Co. Ltd. v. Ogden
& Sons (Excavations) Ltd. (1978) QB 574 = (1978) BLR 34).
III. Relationship between FIDIC Conditions and legal systems

Priority of national law
Supplementation of FIDIC Conditions
Incoherency with national law/mandatory national law
Conceptual differences between FIDIC Conditions and civil law systems
FIDIC itself contends that the law governing the contract must be stated (FIDIC
Contract´s Guide, 60). In addition the FIDIC Contract´s Guide reads as follows:
“The law typically will affect the interpretation of these conditions, such that
some provisions have different consequences in different jurisdictions”. The
governing law must be stated because otherwise the governing law must be
determined according to the applicable conflicts of law rules. Notwithstanding
any discussions concerning the existence of a lex mercatoria no contract may
become effective and binding without being embedded in a governing law. Thus
national law has priority over all FIDIC Conditions to the extent that it is
compulsory. Any non compulsory law however may be derogated. Whether a
statutory provision or rule arsing from case law is compulsory depends on the
governing law itself. The techniques by which the compulsory nature of a legal
rule can be determined vary from country to country.
If for example German law is the governing law the Civil Code may indicate
expressly or implicitly whether one of its provisions is compulsory or not.
According to sect. 639 German Civil Code the contractor may not rely on an
agreement by which the customer's rights in respect of a defect are excluded or
restricted to the extent he fraudulently concealed the defect or if he has
guaranteed the nature of the work. In addition sect. 648a ph. 7 German Civil
Code concerning the building craftsmen´s security any agreement deviating from
the provisions of paragraphs (1) to (5) of it is ineffective. According to French
law the provisions with regard to subcontracts and the decennial liability are
compulsory.
Sometimes even compulsory law which is part of the governing law of the
contract may be overruled by the law of the so called lex fori. It is a general
principle of the conflict of laws that the courts of a country will not apply any
foreign law if and in so far as its application would lead to results contrary to the
fundamental principles of public policy of the lex fori (Dicey & Morris, Conflict of
laws, note 32-227). The courts of all countries insist on applying to a case
otherwise governed by foreign law those principles of their own law which, in
their own view, express basic ideas of public policy (Dicey & Morris, Conflict of
laws, note 32-227). As Judge Cardozo put it, the courts will not refuse to enforce
or recognise a foreign right unless it would violate some fundamental principle of
justice, some prevalent conception of good morals, some deep-rooted tradition of
common law (compare Loucks v. Standard Oil Corp. 224 N.Y. 99, 111). Thus
public policy or the so called ordre public should rarely apply. Additionally
considerations of public policy can never be exhaustively defined, but they should
be approached with extreme caution. ... It has to be shown that there is some
element of illegality or that the enforcement of the award would be clearly
injurious to the public good or, possibly, that enforcement would be wholly
offensive to the ordinary reasonable and fully informed member of the public on
whose behalf the powers of the State are exercised."(Deutsche Schachtbau-und
Tiefbohrgesellschaft mbh v. Ras Al Khaimah National Oil Company [1987] 2
Lloyd's Rep. 246 at 254). It could be argued that the extent to which public
policy applies is extremely narrow if the parties have agreed to refer any
disputes to arbitration. But arbitration practitioners know, violation of public
policy (or ordre public) of the enforcing State can be a ground for refusing
recognition/enforcement of foreign arbitration awards. This principle is enshrined
in Article V.2 of the New York Convention and Article 36 of the UNCITRAL Model
Law. The public policy exception to enforcement is an acknowledgement of the
right of the State and its courts to exercise ultimate control over the arbitral
process. Hence under FIDIC contracts public policy arguments should be ignored.
Apart from any provisions of the contract and its governing law the contractor is
also obliged to comply with the applicable laws of the country in which the site is
situated. This obligation may lead into difficult discussions and considerations if
any conflicts between contract and its governing law and the local applicable laws
arise, in particular where contract law and building regulations are not clearly
separated from each other and promulgated in the same law as it is the case for
example in Vietnam.
The governing law may also provide complementary provisions which will govern
the contract although this is not expressly intended by the parties to it. To the
extent that complementary provisions are not compulsory and the parties to the
contract do not intend to be bound by them they must exclude them either
expressly or implicitly. If they don´t do so the governing law will be applicable as
a whole and thus supplement the contract. As FIDIC conditions do not cover all
legal questions concerning the execution of the contract this is even a necessary
function of the governing law. Examples for the need of complementary
provisions are the post contract liability as to defects and the prescription or
limitation of claims. FIDIC recognises this and recommends for example to
review clause 11, in particular sub-clause 11.10 in relation of the period of
liability under the applicable law.
In the event of incoherency between FIDIC conditions and national laws the
latter will prevail. By consequence it is not possible to escape from the strong
French decennial liability which has been adopted by numerous individual states
such as Algeria, Angola, Brazil, Chile, Egypt, Portugal, Romania, Tunisia and the
United Arab Emirates.
When using FIDIC Conditions conceptual differences must be respected in

translating and understanding the FIDIC Conditions. Every contract is drafted
from the point of view of a lawyer (or engineer etc.) of one particular culture,
carrying with it an appreciable amount of legal traditions, substantial and
procedural law etc. For example, if contracts are drafted by Common Law
lawyers there is a need to respect what they are thinking. It is of crucial
importance to have regard to what is intended in the particular text, and to
reflect this with the translation. A theoretical examination of the differences
between common law and civil law contracts will not be carried out. Needless to
say, an illustration of these differences pertaining to different fundamental
concepts and terminology within the scope of FIDIC contracts is required. There
a lot of examples to be given with regard to this issue. One of it is the basic
understanding of remedies for breach of contract. In practice I encountered the
problem that civil law lawyers and engineers understood clause 11 of the FIDIC
Books as a final and comprehensive clause as to defects liability notwithstanding
the fact that sub-clause 11.10 does not release the parties from any unfulfilled
obligations arising form the contract and its governing law. It is true that clause
11 deals with the obligation to remedy defects. By contrast it is not true that
clause 11 contains a final and comprehensive regulation. The obligation of the
contractor to remedy any defect during the so called defects notification period is
rather an additional obligation than a final stipulation with regard to defects
liability period. The spirit of the clause is that the contractor should make good
any defect until the expiry of the defects notification period as a part of its
general obligation to complete the works, because under common law the normal
remedy for breach of contract is the entitlement to damages only. No one can be
forced to carry out specific performance. Hence discharge of the obligation to
make goods defects will only happen at the moment when the engineer issues
the so called Performance Certificate. From this moment on any remaining legal
defects liability provided by the governing law will apply. Thus for example the
French decennial liability will come in place at the day of the issuing of the
Performance Certificate.
IV. Alteration of FIDIC Conditions

Guiding Principles of FIDIC Conditions: Definitions, Sections, Claims
Preparing tender documents-The FIDIC Contracts Guide-Guidance for the
Preparation of Particular Conditions
Recommendations
Pitfalls and Issues
1. Guiding Principles
FIDIC strongly recommends that tender documents should be prepared by

suitable qualified engineers who are familiar with the technical aspects of the
required works and that a review by suitably qualified lawyers is advisable.
Consideration must be given to the technical requirements, the suitable
procurement method and the governing law. All FIDIC Books contain the warning
advice that modifications to the FIDIC Conditions may be required in some legal
jurisdictions. FIDIC also alerts that the FIDIC Conditions do not contain any
limitation on the duration of legal liability (FIDIC Contract´s Guide, 203).
The guiding principles as to the drafting of Particular Conditions should be such

which are mentioned in the FIDIC Books, in particular in the Notes for the
Preparation of Tender Documents. From the point of view of a lawyer some pre-
considerations must be given to the governing law. The governing contract law
should be stated in the contract. However some legal questions which may arise
will not directly be governed by the applicable contract law. Accidents on site will
be governed by the lex loci commissi. Procedural questions and questions
concerning the decisive private international law will be governed by the lex fori.
It is therefore critical to fix the seat of arbitration. This will help to ensure that
most of the questions as to the applicable law will be ascertainable in advance.
The governing contract law itself covers all questions as to the validity of the
contract, interpretation of the contract, available remedies for breach of contract
and limitation periods.
2. Preparing tender documents-The FIDIC Contracts Guide-Guidance for

the Preparation of Particular Conditions
The FIDIC Contract´s Guide and the Notes on the Preparation of tender
Documents will give considerable assistance and help to the parties to draft
Particular Conditions where appropriate. However care has to be taken when
doing so. The FIDIC Conditions contain a considerable number of definitions.
Defined words, terms and expressions always begin with a capital letter when
used in the General Conditions and the complementary documents. It is crucial
to always have in mind the definitions and to use them carefully. When for
example using the word “works” the draftsmen should take into consideration
that “Works” means a different and defined thing. Furthermore all FIDIC
Conditions contain a lot of cross references, which should be taken in mind. It
makes a great difference whether an additional claim of the employer has to be
notified according to clause 2.5 or not. Only by reference to clause 2.5 it is
ensured that the employer is not allowed to withhold payments out of the
certification procedure which is ruled by the Conditions. Finally in particular non
native English speakers should carefully check the legal meaning of any word
which becomes inserted in the contract, if the ruling language is English. Under
all circumstances it should be checked whether the used expression is suitable
for the particular circumstances.
Any amendments to the contract should first be examined as to whether they are
necessary or not. It happens quite often that the parties add milestone clauses to
the contract, which are not suitable at all. FIDIC has chosen a proper approach
as to milestones in order to ensure that time extension can be determined and
allocated. The FIDIC approach consists in the offer to the parties to agree to
sections of work. Sections (see the definition in sub-clause 1.1.5.6 Silver Book)
are dealt separately as to time and taking over. Thus by agreeing sections
milestones become unnecessary.
On the other hand the parties to the contract must ensure that they respond to
all requirements of the General Conditions to specify details. Some clauses of the
general Conditions only apply if particulars have been additionally agreed. For
example sub-clause 13.6 only applies if a Daywork schedule is included in the
contract. Sub-clause 14.2 only becomes effective if the amount of the advance
payment is stated in the Particular Conditions.
As already mentioned all of the FIDIC Books contain a Guide on the Preparation
of Particular Conditions. This guide already comprises sample clauses for the
proper alteration of the contract. If appropriate the parties can for example
easily change the FIDIC Red Book from a remeasurement contract into a lump
sum contract. The Guide gives clear wording and guidance to the parties to do
so.
3. Recommendations
It is strongly recommended to recognise and take into consideration that sub-

clause 1.5 rules the priority of the contract documents. Hence it is critical to
insert additional clauses in the appropriate document in order to avoid
ambiguities and discrepancies which may be solved in disfavour of the party who
is interested in the clause.
FIDIC recommends the use of the original English version of the FIDIC Books.
This seems to be wise because any translation of the books is to some extent
already an interpretation of the contract. The literal meaning of any word or
expression may be translated correctly. But whether the translator was able to
understand the correct legal meaning of the original wording and whether he was
able to find a similar translation remains open, in particular if one of the parties
of the contract does not practise English at all. In order to grasp the true
meaning of the text (we understood this to be the meaning which the drafter of
the conditions intended), one must not only have a deep intrinsic knowledge of
the subject matter pertaining to the conditions but also of the legal system
behind them. Whilst the available translations of the FIDIC Books have usually
been made with due skill and care small discrepancies and ambiguous
expressions can never be fully prevented. The extent to which translations may
lead to different results in law can easily be verified when comparing court
decisions from different states based on CISG or on European Regulations or
Directives.
Any changes or additional clauses should be included in the Particular Conditions.

It is common and good practice to establish a schedule which refers to the
General Conditions and contains any changes or additions on a clause by clause
basis. This makes it easy and less time consuming to check each change and
addition with regard to each original clause. If a clause shall become deleted the
draftsman should just enter the word “deleted” in the schedule.
4. Pitfalls and issues
The Particular Conditions are prepared for the particular project and should
include any changes or additional clauses which the parties have decided to
include for adaptation of the local and project requirements.
One of the main pitfalls consists in ignoring the local requirements. If for
example a local license is necessary for the supervision of the works
commencement of the works will depend on the notification of a licensed person
to the local authority. Delay and disruption are likely to be incurred. FIDIC
defines that a day means a calendar day. The contractor should therefore
undertake any necessary investigations in order to establish all national holidays
and religious celebrations which will prevent him from proceeding with the works.
Additional cost may arise from local restrictions to import goods or to export
currencies. The contractor should always be aware of the fact that public
authorities usually are bound to their approved budgets which sometimes even
become used for purposes other than the payment of works. Thus any claims for
additional payment may become needless because the employer´s funds are
already spent. Great care should therefore be taken not to accept a contract for
public works if it is already foreseeable that the accepted contract amount will be
grossly exceeded.
It has happened that the parties to a contract could not agree on the applicable
law, because both parties refused to accept the law of the other one. They finally
agreed to apply a so called neutral law, in this case Swiss law. Neither party was
familiar with it. Both parties had ignored it during contract negotiations. Thus
disputes were likely to arise and arose quite soon after the contract became
effective.
In any case translations should be checked. It has happened that although a

translation was more or less authentic it deviated from the English version at a
critical point. By consequence when a dispute arose from the contract and the
parties wanted to refer it to dispute adjudication the English version provided
that the adjudicator should be nominated from the FIDIC President´s list whilst
the translation referred to the President of a national engineer´s association. As
both languages had been chosen to apply simultaneously two different chairmen
of the DAB became appointed.
A further critical issue is the ruling language and the communication language. In
a worst case scenario the parties agree to use English as ruling contract
language, but allow daily communication in Chinese, which is the language of the
financing institution, and Portuguese, which is the language of the country where
the works have to be performed. By consequence instructions become issued in
Chinese whilst the contractor practises only English. If a third language, for
example Portuguese, is used in arbitration because the place of arbitration is
Luanda in Angola any English and Portuguese communication and the English
contact must be translated in the Portuguese language. It is obvious that such a
result should be avoided.
The contractor should check the nominated engineer before submitting his
tender. If for example the employer nominates a single natural person it may
happen that this person is an employee of the employer or simply a functionary
or public servant.
Pay-when-paid clauses are usually not welcome, and sometimes are even illegal,
as is the case under English law. However they are quite useful and many
contractors will try to have pay-when-paid clauses in their sub-contracts. The
World Bank recently incorporated a clause in its Red Book harmonised version
leading to the result that the contractor may refuse to accept a nominated sub-
contractor if the sub-contract does not contain a pay-when-paid-clause. On the
other hand contractors should be aware of the fact that the engineer will survey
the payment of nominated sub-contractors. If the contractor fails to produce
evidence of payments which have become due to the sub-contractor in
accordance with payment certificates the employer may be entitled to pay direct
to the subcontractor.
V. Main Particularities of FIDIC Conditions as compared with national

law, e.g. French and German Law
Pre-tender obligations
Risk allocation
Role and tasks of the “Engineer”
Claim-Management
Reception of the Works and Defects Liability
Decennial Liability
Termination
1. Pre-Tender obligations
At pre-tender stage no contract exists. Thus the nature of the legal relationship
between the parties generally depends on the applicable law. In practice at pre-
tender stage the first contacts and communications between the parties of the
later contract will happen. Usually it is critical to exchange as much information

as possible concerning the future project. Sometimes this may lead to
confidentiality problems because the transfer of information may include
sensitive information and thus result in a considerable transfer of knowledge.
Sometimes feasibility studies and other preparation works are necessary and
won’t become payable without the conclusion of any pre-contract. It is therefore
quite common to enter in a letter of memorandum or similar (Heads of
Agreement, Letter of Intent) in order to protect the information exchanged. Such
kind of agreement is generally subject to contract and thus not binding unless
stipulated otherwise. The words ‘subject to a contract’ are normally used in order
to ensure that a binding contract does not accidentally come into existence
during negotiations.
1.2 Pre-tender stages
Which kind of pre-tender stages can be isolated from each other depend on the
procurement method which is used to manage the project. Under a traditional
contract, where the design is made by or o behalf of the employer any feasibility
studies, soil investigations and the design of the works will be prepared in more
detail than under a design & build contract. If a design & build contract is used,
the initial phase is that during which the employer’s requirements are prepared.
All steps which will be necessary for the preparation of the Employer´s
Requirements will be completed at the tender stage, because the Employer’s
Requirements are a necessary element of the tender documentation. The
contractor who likes to participate at a bidding procedure or to enter in direct
negotiations with the employer will then start to prepare his so called proposal
which usually comprises a preliminary design for inclusion in the tender. Thus the
contractor will be obliged to prepare an outline design or proposal taking in
account the employer’s requirements without any counter obligation from the
part of the employer. Thus if no contract will eventually be concluded, the
contractor will not be paid for this work. It is therefore understandable that the
contractor will be reluctant to incur excessive tendering costs if the likelihood of
success seems low. Final design for the works will only be produced after the
contract has been set in force.
Chart: Design Stages (Yellow Book)
Start Conceptual Design in order to define the Works

Clauses Less than 10 % of the design input
1.1.1.5
1.1.1.7
Employer establishes
Requirements
Pre-
tender
Cl.
Scrutiny of 1.5
Requirements may
help
Tender Preliminary design
Stage
Cl. 5.1
Contractor to prepare the

Proposal
Scrunity of Requirements Variation
Com-
Final design
pletion
Cl. 5.2
Contractor prepares
Contractor´s Documents
Approval Review if required Rejection

by Employer´s
Requirements
Completion of the Works
Cost and Time for errors in Requirements

only if experienced Contractor would not
Cl. 5.6 have discovered it earlier, Cl. 1.9
Contractor prepares as-

build Documents etc.
1.3 Information transfer and research

The pre-contractual transfer of know-how and information is critical for the

successful completion of the whole operation. The extent to which such kind of
information is necessary depends however not only from the project and its
specification but also from the applicable law. By submitting their tenders,
tenderers are usually deemed to know all relevant laws, acts and regulations that
may in any way affect or govern the operations and activities covered by the
tender and the resulting contract.
Usually the bidder is expected to examine all instructions, forms, terms, and
specifications in the bidding documents. Failure to furnish all information or
documentation required by the bidding documents may result in the rejection of
the bid. A prospective bidder may require any clarification of the bidding
documents. The employer shall respond in writing to any request for clarification.
The bidder will normally be advised to visit and examine the site of works and its
surroundings and obtain for himself on his own responsibility all information that
may be necessary for preparing the bid and entering into a contract for
construction of the works. The costs of visiting the site will usually be at the
bidder’s own expense.
The quality of the answers may vary, depending on the contract type which will
be used. Thus it’s conceivable that the employer will not give a satisfactory
answer. If for example the bidder requires additional information as to the
“values for the jacket friction and the point bearing pressure contained in the
geological report” in order to enable him to calculate the pile lengths, the answer
may be that the geological report as included in the bidding documents with
additional information is indicative only and is intended solely to assist the
potential tenderers in preparing their tenders and that the bidder should comply
with the contract provisions, thus performing geological surveys and submitting
geological reports as stated therein. The simple reason for this answer was that
the announced contract was a design & build contract under which the contractor
carries out the design and the necessary soil investigations.
For a building or civil engineering contract, soil and sub-soil information is

usually needed. Thus a site investigation is usually necessary, which typically
includes boreholes and other sub-surface investigations. As to such kind of
information great care has to be taken, because unlike in Germany and some
other civil law countries at common law the risk of so called unforeseen site
conditions is usually borne by the contractor. Failure to comply with the pre-
tender or pre-contract obligation to investigate and survey the site may lead to a
considerable pricing risk, if and when common law is the proper law of the
contract. Standard forms which originate from common law countries thus
normally comprise detailed provisions on the allocation of the soil risk. Ad hoc
contracts often do not have any specific provisions, leaving the contractor at full
risk. Thus the contractor should make the contract with the attempt to minimise
the risk as much as possible. Usually a clause will be adopted which defines the
term unforeseeable as anything that could not reasonably been foreseen at
tender stage by an experienced contractor. The contract should also provide any
necessary additional work due to soil obstructions and unforeseen physical
conditions
The report on site investigation, that the employer has usually commissioned to
progress basic feasibility studies and initial outline design will be issued to (or
otherwise made available for use by) the tenderers, preferably in its original
form, in order to inform the tenderers about the soil conditions. Most employers
will consider it to be unwise for them to take responsibility for the report by
including it within the Tender Dossier. Thus such reports are often part of the
"information documents" made available to the tenderers. Usually any tender
enquiry documentation includes exclusion clauses stating that the employer
accepts no responsibility for the accuracy of such investigation reports. It is also
common and good practise from the point of view of an employer for the
documentation to include the advice to the tenderers to carry out their own site
survey and investigations.
It is common use (see Cl. 4.10 FIDIC Red Book, Cl. 5.1 MF/1) to adopt a contract
clause according to which the contractor, to the extent which was practicable
(taking account of cost and time), shall be deemed to have obtained all
necessary information as to risks, contingencies and other circumstances
(including for example health and safety regulations) which may influence or
affect the tender or works. A complementary clause may be added according to
which the contractor shall also be deemed to have inspected and examined the
site, its surroundings, the above data and other available information, and to
have been satisfied before submitting the tender as to all relevant matters,
including (without limitation):
 the form and nature of the site, including sub-surface conditions,

 the hydrological and climatic conditions,
 the extent and nature of the work and goods necessary for the execution
and completion of the works and the remedying of any defects,
 the laws, procedures and labour practices of the country where the site is
situated, and
 the contractor’s requirements for access, accommodation, facilities,
personnel, power, transport, water and other services
It is thus extremely important that the bidder surveys the site, its location and
surroundings thoroughly before submitting the tender. Particular attention should
be given to the ascertainment of local labour law, material specifications, plant
and equipment requirements, conditions on employment including collective
wage agreements, tax and royalty legislation, port unloading facilities and
capacities, customs clearance procedures and finally transportation and logistics.
It is also essential to gather information about local business customs and
religious rites, which sometimes may overrule legal framework and international
customs. Last but not least it is critical to obtain information about local
requirements to buy national, which may considerably affect pricing.
Chart: Communications according to Cl. 1.3 FIDIC Red Book
Start A communication
is to be made
The Contract requires A communication is

approvals, certificates, in a written form, Cl.
consents, determinations, 1.3
notices and requests, Cl. 1.3
Writing is in the If no such language is

language of the stated, the language for
communication communication shall be
language which is the one in which the
stated in the Appendix Contract (or most of it) is
to Tender, Cl. 1.4 written, Cl. 1.4
A communication has effect if it A communication has

is delivered by hand (against effect if it is delivered,
receipt), sent by mail or sent or transmitted to
courier, or transmitted using the address for the
any of the agreed systems of recipient’s
electronic transmission as communications as
stated in the Appendix to stated in the Appendix
Tender, Cl. 1.3 lit. a) to Tender, Cl. 1.3 lit. b)
Is the Is the
communication communication
a certificate? a notification?
The Engineer issues the Notices are issued to the

certificates to the concerned concerned party or the
party with a copy to the Engineer with a copy to the
other party other party or the Engineer
2. Risk allocation
FIDIC Conditions are globally known as fair contract conditions holding a balance
between the employer and the contractor. Whilst civil law construction contracts
are usually strongly influenced by the concerned applicable law (Germany: sect.
631 et seq. German Civil Code, France: art. 1797 et seq. French Civil Code,
Poland: art. 647 et seq. Polish Civil Code) no such supplemental statutory
regulations exist as a matter of course in common law countries. Hence, risk
allocation policies which are implied in the Civil Codes have much influence on
construction contracts in civil law countries whereas in common law countries
risk allocation policies have to be developed by lawyers and legal practitioners.
The predominant risk allocation approach in common law countries can be
summarised as follows (compare Smith, Risk identification and Allocation: Saving
money by Improving Contracts and Contracting Practices, [1995] ICLR 40;
Megens, Construction Risk and Project Finance – Risk Allocation as Viewed by
Contractors and Financiers, [1997] ICLR 4):
 Risk should be assigned on the party best able to evaluate, control,

manage, bear and reduce the cost of, and benefit from the assumption of
that risk
 It is economically beneficial to transfer allocated risks to insurances
 Many risks are best shared
 Every risk has an associated and unavoidable cost which must be assumed
somewhere in the process
The famous Sir Latham report defines a number of criteria, whose compliance
presupposes the existence of a fair and balanced contract.
– Fair dealing for all concerned – a team effort

– Wholly related documents, whether for the appointment of
consultants, contractors, sub-contractors or suppliers
• compare sub-clause 1.5 FIDIC
– Easily comprehensive language backed by guidance notes
• compare FIDIC Contracts Guide
– Mechanisms to allow allocation of risk to be adjusted
• Claims, Termination Clauses etc., Variations
– Fair payment provisions to agreed procedures and a realistic
timescale
• compare clause 14 FIDIC
– Fair and rapid resolution of disputes, albeit subject for arbitration
• compare Cl. 20 mit DAB und Arbitration
– see summary at Cox/Clamp, Which contract?, 11
Risk allocation criteria and results from risk allocation considerations must not be
similar in each country. For example in Germany the courts, based on sect. 645
German Civil Code, permanently hold that risks relating to unforeseeable site
obstructions and physical conditions are in principle allocated to the employer
who is best able to know these risks. By contrast, English courts usually tend to
allocate this risk to the contractor, who is best able to control this risk. FIDIC
Conditions have adopted this English approach. Thus although the FIDIC forms of
contract are considered to be balanced the risk allocation policy is different from
German law and therefore not welcome in Germany.
It follows from this that FIDIC users should prudently familiarise themselves with
FIDIC’s risk allocation policy, which is based on common law ideas, when using
FIDIC Books in combination with civil law. It should not be taken for granted that
well balanced means that in particular risk allocation by FIDIC is synonymous
with legal risk allocation policies in civil law countries.
3. Role and tasks of the “Engineer”
In the Red Book and the Yellow Book, as well as in the Dredging and Reclamation
Form and the new Design, Build & Operate Form, a third party to the contract is
provided. Clauses 3 of these forms, which are almost identical, deal with the
powers and obligations of the so-called Engineer or Employer´s Representative
(DBO Form). The Engineer (or Employer´s Representative referred to in the DBO
Form) does not feature in the Silver Book where Clause 3 deals with the
Employer´s Administration. However, the Employer’s Representative introduced
by the Silver Book and the Green Book must be fair and reasonable as well.
Start Engineer is Engineer shall carry

appointed out the duties
according to assigned to him by
clause 3 the contract
To approve Variations delay claims
To check Works
Taking-
over
To certify Payments, Cl. 14, of
sub-contractors, Cl. 5.2
Perfor-
mance
To examinate
Works
To inspect
To instruct Variations
To request Proposals
To test Works
To consent Sub-contractors,
Cl. 4.4
To reject Tests Programme Proposals

The Engineer (or Employer´s Representative) is a very powerful person which is

also referred to as a decision-maker, function which requires a certain degree of
impartiality and fairness from him. His role is best explained in the decision
Sutcliffe v. Thackrath as follows:
The building owner and the contractor make their contract on the
understanding that in all such matters the Engineer will act in a fair and
unbiased manner and it must therefore be implicit in the owner´s contract
with the Engineer that he shall not only exercise due care and skill but also
reach such decisions fairly, holding balance between his client and the
contractor (Sutcliffe v. Thackrath [1974] A.C. 727).
The Engineer, although not being allowed to amend the contract, has powers to
instruct variations.
FIDIC
Red Book
Yellow Book
Dredging Form
Contractor Employer
FIDIC
White
Book
Requirement of
harmonisation
Engineer
4. Claim-Management
As it has been confirmed by Judge Sanders in Attorney General for the Falkland
Islands v Gordon Forbes Construction (Falklands) Limited, Falkland Islands
Supreme Court 14 March 2003, FIDIC contracts are aimed at the early resolution
of any queries at the time when the claim arises, with the likelihood that plant,
manpower and witnesses are still on site. Thus claims have to be prosecuted in a
detailed procedure provided by FIDIC contracts.
To the extent that a third party to the contract has been nominated to determine
claims, the parties of the contract shall notify any claims they consider to be
entitled to the engineer. He is then in charge of firstly approving or disapproving
any claim and to determine it, if necessary. He shall do this with regard to all
circumstances, which means that he will have to take into consideration all facts
- reported in the monthly reports

- reported in contemporary records
- reported in labour reports
- stated in the claim notification
- stated in the claim notification
- obtained at side visits and inspections
- reported in early warning notifications concerning probable future events
which may effect progress of the works and the contract price
- reported in the programme
In order to ensure that the parties and the engineer may find reasonable and
skilful decisions, FIDIC contracts provide a sophisticated system for
communications and documentation of relevant facts, events and circumstances.
This system and the resulting duties as to documentation and reporting have to
be recognised and respected at all times, because Judge Sanders also concluded
in the Falkland case that it would be perverse if a contractor who had failed to
comply with the terms of the contract should then be allowed to produce non-
contemporary records to support a claim, particularly as these could not properly
be investigated by the employer at a later date. The rights of the employer to
inspect the records at the time the claim arose were fundamental to the FIDIC
procedure. Failure to comply with the reporting duties leads to the foreclosure of
claims.
Once having approved or disapproved a claim the engineer shall attempt to

reach an amicable settlement. If he fails to reach an agreement he is obliged and
entitled to determine the claim. Any agreement or determination must be
notified to the parties.
Any determination issued by the engineer will be binding on the parties until
revised by DAB or arbitration.
As a rule claims related to extension of time and/ of additional payment under

any clause of the contract or otherwise in connection with the contract must be
notified within a delay of 28 days. Beware that sub-clause 19.2 provides a
shorter period of 14 days in the event of Force Majeure circumstances.
Contractor must provide to Employer's Engineer written notice of claim for

additional payment and time extension within 28 days after occurrence of event
giving rise to claim (Sub-Clause 20.1). If Contractor fails to comply with this
notice requirement, its entitlement to payment shall be lapsed.
Chart: Claims & Actions of the Contractor (FIDIC Red Book)

Start A possible Claim Event
has been identified
Which List of events, Cl.

kind of 8.4, 1.9, 4.12,
event? 19.1 etc. to be
established
E instructs a Variation or
List of other substantial change in
actions to be the quantity of an item of
established work included in the
Contract (Cl. 8.4)
The Contractor encounters

exceptional adverse climatic
conditions (Cl. 8.4)
Notification of a
claim (Cl. 20.1)
Record keeping
Cl. 20.1 The Contractor encounters
unforeseeable shortages in
To send a fully the availability of personnel
detailed claim or Goods (Cl. 4.8)
To renew the
claim with
continuing effect The Contractor encounters
physical conditions which
are Unforeseeable (Cl. 4.12)
Proposal (Value
Engineering)
Determination Drawings or instructions are

Cl. 3.5, 20.1 not issued to the Contractor
within a particular time (Cl.
1.9) etc.
Finish
5. Reception of the Works and Defects Liability
Except if the works fail to pass the tests the engineer shall issue the taking-over
certificate on request of the contractor, when the works have been completed in
accordance with the contract. Once the taking-over certificate has been issued
responsibility for care of the works passes to the employer (sub-clause 17.2).
However, only the issue of the Performance Certificate shall be deemed to
constitute acceptance of the works. By consequence and with regard to sub-
clause 11.10 any legal defects liability will only start after the issue of the
Performance Certificate. This will be the case after expiration of the so-called
defects notification period, during which the contractor is obliged to remedy any
defect, whether attributable to him or not. This complementary obligation is due
to the fact that under common law specific performance is the exception rather
than the rule. Thus only after having remedied any defects during the defects
notification period acceptance of the works will happen and the contractor will be
discharged from the obligation to complete the works.
Chart: Overview Completion and Acceptance FIDIC Red

Book
Start Notice of commencement Date,
Cl. 8.1
Notice that Inspection Instruction

work is ready,
Cl. 7.3
Valuation
Notice that Testing on If failure

tests can be Completion, Cl. then
carried out, Cl. 9 Retesting
9.1
Notice for Issuance of

Taking-Over, Taking-Over- Meaning
Cl. 10.1 Certificate, Cl.
10.1
Rejection, Cl. Care for the

10.1 works is
transferred, Cl.
17.2
Expiry of Issuance of Start of Defects

defects Performance Notification
notification Certificate, Cl. Period, C. 1.1.3.7
period 11.9
Statement at
Meaning Completion, Cl.
Performance is
completed 14.10
Start of legal Each party remains Certification of

liability liable for fulfilment of first half of
any obligation which retention monies,
remains unperformed Cl. 14.9
Limitation
Final Payment & No relief from any

Finish Second half retention responsibility, Cl.
monies becomes due 3.1 lit. c)
6. Decennial Liability
FIDIC Books do not at all regulate post contract liability issues. By consequence
after issuing the Performance Certificate all questions as to defects liability are
exclusively governed by the applicable contract law, the proper law of the
contract. Any provisions of the governing law concerning defect liability must
therefore be respected, including limitation rules. In some countries, inspired by
French legislation, the so called post contract liability comprises a very strict
form of liability for structural works and structural design. French law provides a
strict liability for structural elements over a period of ten years. Contractors,
architects and engineers must provide insurance cover for the whole period. The
legal wording of the French decennial liability reads as follows:
Art. 1792 Civil Code

Any builder of a work is liable as of right, towards the building owner or
purchaser, for damages, even resulting from a defect of the ground, which
imperil the strength of the building or which, affecting it in one of its
constituent parts or one of its elements of equipment, render it unsuitable
for its purposes.
Such liability does not take place where the builder proves that the
damages were occasioned by an extraneous event.
Additionally Art. 2270 French Civil Code provides:
Any natural or juridical person who may be liable under Articles 1792 to
1792-4 of this Code is discharged from the liabilities and warranties by
which they are weighed down in application of Articles 1792 to 1792-2,
after ten years from the approval of the works or, in application of Article
1792-3, on the expiry of the period referred to in this Article.
All countries which have adopted French legislation such as Belgium and
Luxemburg have similar statutory regulations. However structural sustainability
is a very important requirement not only in France, Belgium and Luxemburg.
Therefore quite a lot of other countries have adopted French decennial liability
regulations, such as Algeria, Angola, Chile, Egypt, Morocco, Portugal, Rumania,
Spain, Tunisia, United Arab Emirates, among others. It seems that all these
regulations belong to public policy and are compulsory.
It is basic to clear up decennial liability legislation for two main reasons. Firstly
compulsory insurance may be required. The premiums for decennial liability
insurance are usually very high. In addition to the premiums the costs for the so
called control by an authorised consultant company have to be awarded.
Secondly decennial liability may last very long, sometimes during the whole life
of the construction, and it is nearly impossible to escape from it. Especially in
those countries where earthquakes are frequent decennial liability comprises a
considerable risk for the insurer and the contractor.
VI. Interpretation of FIDIC Conditions
National law as a means of interpretation and supplementing FIDIC Conditions

Unidroit Principles as a means of interpretation and supplementing FIDIC
Conditions
Common Law approach of FIDIC
Ruling Language/Linguistic Discrepancies

Discrepancies and ambiguities
Contra proferentum Rule
1. National law as means of interpretation
When getting more familiar with the FIDIC Conditions sometimes issues will
arise. As a rule any rules of interpretation for the construction of a contract have
to be taken out of the governing contract law. Additional rules may be implied in
the contract. However interpretation of contracts is first of all a legal technique
guided and restricted by applicable laws. Lawyers of all jurisdictions will be
educated how to construe legal provisions and contractual stipulations. It
depends first on their education and second on the available legal framework
how they attempt to understand what is meant by a specific contract clause.
The legal meaning of any word is usually predetermined by statutory provisions

and case law. Additionally the interpreter will look at common practice and
understanding. Usually he will start to understand the literal meaning of any
word. Then he will probably try to investigate the intentions of the parties by
relying on background information, contractual behaviour, side letters, pre-
contractual communications etc. Finally he will try to give the word the meaning
which makes sense in the business context and under the concerned
circumstances and facts. Sometimes he will have to decide whether to give the
word a sense which will keep it legal or valid; sometimes he will probably decide
that the wording has to be understood as illegal. Which priority he will give to the
different ways and which of the interpretation means will be predominant
depends on the legal background.
A German contract will have to be interpreted according to the requirements of

good faith, taking common usage into consideration (sect. 157 German Civil
Code). When interpreting a declaration of intent, the true intention is to be
sought irrespective of the literal meaning of the declaration (Sect. 133 German
Civil Code). Nevertheless any contract interpretation requires first the
ascertaining of the literal meaning. The common use of the word is predominant.
Secondly the surrounding circumstances have to be put into consideration.
Increasingly German courts rely on objective criteria in their assessment of offer
and acceptance in different social, private, and professional contexts. The
existing fields of interest and the contractual aims pursued by the parties have to
be considered. Any declaration of will must be understood in its objective sense,
will say that the interpreter shall ascertain the objective meaning of the
declaration from the point of view of an objective recipient in a similar situation.
Thus, not the particular intention of the person who declares something has
priority but the objective sense of the declaration in the context of the
surrounding circumstances which are known by the recipient.
Under English law a written document is interpreted as the sole declaration of the
parties´ intention and it is from the words used that the intention must be
discovered (Uff, Construction Law, 243). Although exterior evidence may be
admitted to show the meaning of technical terms or to establish a special trade
usage different from the literal meaning of the used word and although exterior
evidence may be exceptionally admitted to take in consideration surrounding
circumstances, the predominant rule is still that the intention is to be inferred
from the words themselves. As a general rule a written agreement stands alone
as a solitary expression of the parties’ intentions (the “Parol Evidence Rule”). The
parties’ intentions must be ascertained from it, “according to the ordinary
grammatical meaning of the words used therein” (Lovell & Christmas Ltd v Wall
(1911) 104 LT85). Thus the previous negotiations of the parties remain excluded
from interpretation (Uff, Construction law, 245). However the meaning, which a
document would convey to a reasonable man, is not the same thing as the
meaning of its words (ICS v. West Bromwich Building Society [1998] 1 WLR
896). In case of doubt the natural and ordinary meaning of the word prevails
(ICS v. West Bromwich Building Society [1998] 1 WLR 896).
In international business problems arise from the differences of legal cultures

and systems and the fact that language is usually a part of this culture. Thus a
contract which has been drafted in English reflects the English legal culture by
using its words. Understanding a common law contract thus means that the
recipient must try to understand English law because quite a lot of clauses mirror
English practice and legal culture.
As FIDIC Conditions predominantly originate from common law they must

notwithstanding the applicable law be read in this context. At a next step the
reader may try to understand the contract in his own legal context.
2. Unidroit Principles as a means of interpretation
Sometimes Unidroit Principles may be a useful means of interpretation. Because

of its comparative approach Unidroit Principles usually comply with all kind of
applicable laws and legal systems. In particular in arbitration Unidroit Principles
are already frequently used as supplemental rules and source of interpretation.
According to Art. 4.1 Unidroit Principles a contract shall be interpreted according

to the common intention of the parties. If such an intention cannot be
established, the contract shall be interpreted according to the meaning that
reasonable persons of the same kind as the parties would give to it in the same
circumstances. The statements and other conduct of a party shall be interpreted
according to that party’s intention if the other party knew or could not have been
unaware of that intention. If the preceding rule of interpretation is not applicable,
such statements and other conduct shall be interpreted according to the meaning
that a reasonable person of the same kind as the other party would give to it in
the same circumstances. Interpretation shall be done with regard to all the
circumstances, including
(a) preliminary negotiations between the parties;

(b) practices which the parties have established between themselves;
(c) the conduct of the parties subsequent to the conclusion of the contract;
(d) the nature and purpose of the contract;
(e) the meaning commonly given to terms and expressions in the trade
concerned;
(f) usages.
Of particular interest for international contracts is art. 4.7 Unidroit Principles. It

happens quite often that although the contract is drafted and signed in English
the parties agree to a different ruling language which is commonly the
employer’s native language . In such an event discrepancies between the
drafting language and the ruling language may appear and the conflict between
both must be solved. Art. 4.7 Unidroit Principles provides that where a contract is
drawn up in two or more language versions which are equally authoritative there
is, in case of discrepancy between the versions, a preference for the
interpretation according to a version in which the contract was originally drawn
up.
3. Discrepancies and Ambiguities
Apart from definitions FIDIC forms do not contain many interpretation rules.
However those which exist should not be ignored. Subject to sub-clause 1.5 the
Engineer shall issue any necessary clarification or instruction, if an ambiguity or
discrepancy is found in the (contract) documents. First of all sub-clause 1.5 gives
the engineer the opportunity to issue an instruction that a requirement of a lower
priority document shall be obeyed. Any such instruction will lead into a variation
process. But the concerned sub-clause has a much broader scope than this. In
fact sub-clause 1.5 contains a general power of interpretation in the event of
ambiguity or discrepancy in the documents. In case of any doubt it is strongly
recommended to address any questions to the engineer who will be obliged to
issue any clarification or instruction.
Admittedly, the engineer shall not replace the intention of the parties by his
understanding. His power of interpretation is based on and limited by the
contract. He will therefore be obliged to obey to three predominant
interpretations rules: (1) the documents forming the contract are mutually
explanatory of one another; (2) For the purposes of interpretation, the priority of
the documents shall be in accordance as mentioned in sub-clause 1.5; (3)
defined words shall have the meaning stated in the contract. The latter is critical
in order to avoid disputes. Thus parts of the works should not be confused with
sections. A section is a defined part of the Works (see sub-clause 1.1.5.6). The
Employer´s Requirements are those defined in sub-clause 1.1.1.5 Yellow Book.
Force Majeure events are only those mentioned and defined in sub-clause 19.1.
Finally sub-clause 1.2 contains some further interpretation guidelines to which
reference is made.
4. Contra Proferentum Rule
As already shown there are usually clearly identifiable steps in the interpretation
of contracts. If the common intention of the parties has been identified any
remaining ambiguities arising from the applied wording must be settled. At the
very end of the interpretation process the judge may apply legal provisions far
removed from the parties’ ex ante common will, such as the contra proferentum
rule. According to Art. 4.6 Unidroit Principles the contra proferentum rule applies
in the way that if contract terms supplied by one party are unclear, an
interpretation against that party is preferred. Sect. 305 b German Civil Code
reads quite similar as follows: In case of doubt, standard business terms are
interpreted against the user.
All over the world the law strives for, and promotes, certainty in agreements.
The purpose of the contra proferentum rule is to prevent the use of unintelligible
terms. Application of the rules leads to the result, that unintelligible provisions
are strictly construed against the person relying on them. In this sense, the
principle contra proferentum is a penalty default rule: faced with an unintelligible
term, the doubt is resolved against the supplier of the unclear term. The rule is
applied by the Courts to all kind of clauses including exclusion, indemnity and
other similar clauses i.e. liquidated damages clauses (Miller v. LCC (1934) 50
T.L.R. 479; Peak Construction (Liverpool) Ltd v. McKinney Foundations Ltd
(1970) 1 B.L.R. 111).
VII. Case Law and Judgments

Relevant Case Law
National Judgments
Arbitration Awards
Substantial Case law
Procedural Case law
As a consequence of the fact that most FIDIC based contracts contain a clause in
favour of arbitration, relevant case law is sparse. Arbitration usually is
confidential and arbitration awards will not be published. Only if national law
prohibits arbitration, for example if the employer is a public authority, case law
may become apparent. Thus for example some Turkish court decisions exist
dealing with FIDIC contracts, because in former times Turkish law did not allow
to agree arbitration for public works contracts.
Some arbitration awards have become published by the ICC and in the Clunet.
Usually they concern procedural issues and not issues concerning substantial
law.
8. Dispute Resolution
Claim Management
Disputes and Dispute Adjudication: Constitution of a DAB, DAB-Procedure
Arbitration: ICC and other Arbitration Rules, ICSID, Seat of Arbitration
8.1 Claim Management
Contractual claims arise where contractors consider that they are entitled to
additional payments over and above those which are already included in the
accepted contract amount or to extension of the already agreed time for
completion.
Such kind of monetary claims are part of the contract price and therefore
anticipated costs. However the entitlement to additional payment is usually put
under the condition that a formal claim becomes presented within the delays
provided by the contract. But despite this fact the parties have already agreed to
additional payments at the date of the conclusion of the contract. Thus claims
are nothing more than the crystallisation of an anticipated, not yet specified, part
of the contract price.
In principle the agreed time for completion is open for extension claims, because
nobody can anticipate what will happen during the whole course of the works. To
the extent that the contract provides claims for time extension the parties have
agreed in advance the possibility of extending time for completion. If an event
occurs which entitles the contractor to submit a claim for time extension, his
claim crystallises anticipated but not yet identified and specified additional time
for completion.
In this sense claims are nothing more than a legal feature or mode by which the
parties to a contract attempt to crystallise the final contract price and time for
completion. However they have to be presented under the procedural rules
provided by the contract, which makes it sometimes difficult to pursue the claim.
The reason why claims have to be presented in a special way lies in the word
crystallisation. Crystallisation means that the parties have to show the claim, to
make it obvious that a claim exists. This does not yet explain why claims are
quite often time barred. The reason for this lies in the necessity to bring evidence
and the need of the employer to make the necessary financial arrangements.
Thus claim management is nothing arbitrary or superfluous. It is the process
within which claims must be crystallised.
Claim identification and initiation followed by claim preparation, submission and

negotiation are critical issues, in particular because parties to a contract must
usually comply with claim procedures and delays. In a construction contract of
any complexity, the conditions are the hub or engine room of a contractual wheel
or vessel comprising a myriad of documents and contractual provisions. The
conditions give life to, and allow to be focused and co-ordinated, the contract
documents and the obligations that those documents give rise to1. Claims may
arise at all times until completion of the works and even later. Handling of claims
may require management, technical and economic skills and experiences during
the whole contract period. However academic research2 has shown that:
 claims management is still performed in an ad hoc manner;

 contractors' management information systems are ill designed to support
claims;
 the products of basic good management practice, such as diaries,
timesheets, and programmes, often are inadequate in content even if
available; and
 some aspects of claims are impossible to quantify with precision even with
the best information available at reasonable cost.
It is thus fundamental to establish an effective and continuous claim

management for the site, which must be enabled to identify, initiate, prepare,
submit and negotiate claims of all kind and matter. Researching and preparing
claims is a complex process based on information which must be collected,
managed and if necessary shared with others. It is strongly recommended to
start preparing claims registers and collating relevant information, documents,
data and facts from day one of the project, which means from the day of the
date of receipt of the tender invitation, because claim relevant events may even
arise before the submission date which are no more relevant for the tender but
which may affect cost and time for completion.
However, claim management is more than merely collating facts. All relevant
information must be scrutinised, assessed, evaluated and technically checked.
Relevant information may influence not only the progress and sequence of the
works but also cost and profit. All decisions must be taken on a daily basis, which
means that the programme and calculation have to be updated in a timely
1
Joinery Plus Ltd v. Laing Ltd (15 January 2003)
2
Vidogah/Ndekugri, Improving the management of claims on construction contracts: consultant's
perspective, Construction Management and Economics, Volume 16, Issue 3 May 1998 , pages 363 -
372
manner. This requires that all information obtained by the contract manager
must be checked very quickly and reliably. At the end of this process a report on
each event must be established which, if necessary will be also the document
based on which a claim must be submitted to the other party. This process may
involve engineers, technical experts, designers, lawyers, architects and quantity
surveyors reviewing the facts as described above. This means to form a
management team and develop a systematic approach to the management
issues in order to ensure that the team will be capable of building up a picture of
the claim event supported by records, reports, expertises, measurements and
calculations. The claim justification data developed from this process will
substantiate the claim and assist the contractor, engineer and the employer in
their efforts to understand and decide on the cause, effect and quantum of the
claim.
Note the following aspects of this typical wording in FIDIC Books3:
 "the Contractor shall give notice...": which is obligatory, but a failure to

notify may be due to him not having suffered delay and not having
incurred Cost.
 "the Contractor ... shall be entitled ...": which is not stated as being
subject to anyone's opinion.
 "Subject to Sub-Clause 20.1 ...": the second and the final paragraphs of
which may affect the Contractor's entitlements.
 "An extension .... if completion is... delayed ...": so it should be calculated
by reference to the delay in completion. Sub-Clause l0.1 (i) defines the
extent of work to be completed within the Time for Completion, which
must include the matters described in sub-paragraphs (a) and (b) of Sub-
Clause 8.2 but may exclude minor outstanding work and defects which will
not substantially affect use for the intended purpose, as permitted in Sub-
Clause 10. 1 (a).
 "Payment of any such Cost...": which is the Cost attributable to the event
or circumstance, excluding Costs which are not attributable thereto.
 "Plus reasonable profit ...": this phrase is included in Sub-Clauses which
relate to failure by (or on behalf of) the Employer, and not to other risks.
Beware that claims exist either under the conditions of the contract or
alternatively are based at law. There is no such thing as an extra-contractual
claim. The Engineer, Supervisor or certifier has no power to grant “ex gratia”
payments. Despite this, this type of claim is sometimes used and useful to draw
the attention of the employer and/or the engineer to the fact that additional
payment are required without any contractual background. Although this may be
a waste of time, because the Engineer is not allowed to grant payments without
any relevant claim basis, it introduces a bargaining factor for use in future
negotiations concerning payment. Moreover it may at times be wise to grant an
ex gratia payment in order to avoid time-consuming disputes and to support a
contractor who otherwise may fail to complete the works for economical reasons.
Ex gratia payments may be done without admission of liability.
First Step
3
See Booen: http://www1.fidic.org/resources/contracts/booen_k.asp
 Gather and identify all contractual, legal and management requirements as

to the documentation and necessary evidence of claims, such as
o Reporting requirements
o Communication requirements
o Record filing requirements
o Early warning proceedings
o Evidence rules
o Programming requirements
o Assessment standards
o Notification requirements and delays
Second step
 Thoroughly study the whole contract documentation in order to identify all

possible claims and its conditions
 Gather carefully all complementary legal claims and its conditions
 Extract and record from documentation the data relevant to each claim
situation
Third step
 Establish an early warning system as to facts which may adversely affect

the work, increase the Contract Price or delay the execution of the works
 Beware that usually claims must be notified after the contractor should
have become aware of it
 Review on a daily basis actual progress compared with the programme
Fourth step
 Establish a claim relevance check system, ensuring that all incoming data,
information, documents, instructions, drawings, etc. will be checked as to
their claim relevance (claim warning system)
 Establish internal communication system and ensure that all members of
the claim management team become involved, including decision makers
 Establish a review system for claim relevant information, data, instructions
etc. ensuring that the influence on time, cost and profit will be carefully
and reliably estimated and that all necessary steps will be initiated to
overcome the situation by other means than a claim. This will probably
include technical and economic considerations and efforts to reduce the
claim relevance of the given event or circumstance.
Fifth step
 Ensure that identified claims will be carefully managed and reported from
the day of the date of receipt of the relevant information and the any
notification delay will be surveyed from now on
 Keep contemporary records
 Prepare cost analysis, including but not limited to a comparison of actual
working hours against hours included in tender in relation to total project,
identification of overtime hours, identification of plant, equipment,
overhead and direct costs compared against tender estimates and
determine cause of delay and related extra costs
 Review critical path and analyse changes on the critical path and the
impact of the claim relevant information on the critical path, identify
concurrent delay
 Determine and assess risk allocation and related responsibility and liability
for delay and/or extra cost
 Prepare calculations including
o a comparison of delay damages and acceleration cost
o an analysis of costs of disruption
o determination of costs of all changes
o determination of costs caused by prolongation of time for
completion, including overheads, liquidated damages etc.
o determination of loss of interest on capital used due to delay,
disruption, additional work, late payment, etc.
o determination of eventual design costs
 Prepare claim documents, including but not limited to
o Contract documents, Particular and General Conditions, Proposals,
Requirements
o Specifications
o Drawings
o Relevant communications
o Photographs
o Schedules
o Previous Dispute Adjudication Board decisions
o Previous claim determinations and instructions
o Previous Claim settlements
o Bills of Quantities
o Calculations
o Cost analysis
Sixth step
 Notify the claim according to the requirements of the contract with

summary of the claim containing a brief description of the factual basis of
the claim and the amount sought, make sure that the claim can be
identified and distinguished from parallel and previous claims
 Update the programme
 Substantiate the claim according to the requirements of the contract with
quantum calculation, entitlement analysis, a chronology of events and
communication presented in a table format indicating
o when the event or circumstance giving rise to the claim became
aware or should have become aware
o when the claim work was reported
o when the claim work was started
o when the claim work was completed
o working hours
o which material has been used
o which personnel has been used
Seventh step
 Wait for approval or disapproval of the claim

 Start negotiations with endeavour to reach agreement
 Wait for claim determination
 Analyse claim determination as to the impact on time, cost and profit

 Restart event assessment and claim analysis, if necessary
 Update Programme
 Keep delays for letter of dissatisfaction or notice of intention to start
Dispute Adjudication under control if necessary
Eighth step
 Prepare eventual Dispute Adjudication

 Start Dispute Adjudication
Beware the comments given in McAlpine Humberberoak v. McDermott ((1992)

58 BLR 1):
 Theoretical calculation, formulae, and rules of thumb do not provide proof

of anything
 Hypothetical assumptions and calculations might be satisfactory for
preliminary issues of principle, but hard facts, visible and proved, are
needed to substantiate claims for reimbursement, and
 Whether measured in time or money, damage must be proved by hard
evidence
8.2 Disputes and Dispute Adjudication
It is reasonable to solve any differences and disputes by amicable settlement,

because disputes are time consuming and expensive. Most international contract
forms therefore provide stipulations by which the parties to it attempt to avoid
disputes. Some of it even require endeavours to reach an amicable settlement
before any difference or dispute can be referred to either courts or arbitration. As
both court and arbitration proceedings are expensive and time consuming the
business community has developed so called alternative dispute resolution (ADR)
proceedings, which are either used exclusively or as compulsory interim
proceedings, thus baring the referral to courts or arbitration until the preliminary
proceedings have come to an end.
ADR
Since about 25 years a quite sophisticated system of alternative dispute

resolution has been developed which covers all kind of mediation, dispute
reviewing and dispute adjudication.
Mediation is really a “new kid on the block” and has become more popular only
in the last couple of decades. It is in truth not really a procedure by which a
dispute becomes settled. Mediation aims to lead the parties to an amicable
settlement of their difference or dispute. The role of a mediator is different from
that of a judge or arbitrator. He tries to give the necessary support for an
amicable settlement without any procedural background and restrictions. The
parties share relevant information and meet in both confidential discussions with
the mediator and face to face with each other as appropriate. According to the
CEDR (Centre for Effective Dispute Resolution) definition mediation is a flexible
process conducted confidentially in which a neutral person actively assists parties
in working towards a negotiated agreement of a dispute or difference, with the
parties in ultimate control of the decision to settle and the terms of resolution.
Key features of mediation are:
 Mediation is voluntary, but refusal to mediate can give rise to cost

sanctions.
 Courts actively encourage parties to consider mediation.
 Mediation is confidential and 'without prejudice' (nothing said in the
mediation is –subject to evidence legislation of the lex fori- admissible as
evidence in legal proceedings).
 The mediator facilitates the process but the parties are responsible for the
outcome.
 Any settlement reached is binding once put into writing and signed by the
parties subject to the governing law: According to German law a
settlement by means of which the parties’ dispute or uncertainty about a
legal relationship is eliminated is ineffective if the set of facts used as a
basis according to the contract’s contents does not correspond to reality
and the dispute or uncertainty would not have occurred if the facts had
been known.
Mediation is presumed to have a number of advantages over litigation and

arbitration proceedings:
 Information share - Relevant information is shared by each party and

the mediator, before the mediation.
 Quick - most mediations are arranged within a few weeks (and can be
arranged even more quickly) and the formal mediation session usually
lasts for one or two days only.
 Cost effective - compared with litigation processes, mediation is a less
expensive route to resolving disputes.
 Gives parties control over the process and the outcome.
 Mediation can run alongside litigation or you may prefer to put the
litigation process 'on hold' while you mediate.
 Mediation can maintain business relationships far more effectively
than litigation.
 A wide variety of settlement options can be achieved in mediation
over and above monetary settlements.
 Informal and flexible - the process to suit our clients' needs.
This is the reason why for example the FIDIC White Book recommends CEDR
mediation procedures for the settlement of disputes arising from a consultant
contract. CEDR, founded as a non-profit organisation in 1990 with the support of
The Confederation of British Industry (CBI) and a number of British businesses
and law firms, to encourage the development and use of Alternative Dispute
Resolution (ADR) and mediation in commercial disputes, is a London-based
mediation and alternative dispute resolution body. CEDR Mediator Training Skills
is widely thought to be the best in the world.
Dispute Review Boards (DRBs) are very appropriate means for solving
disputes in the course of the project development. Dispute review consists in a
procedure wherein the dispute reviewer takes no decision but gives his opinion
on the merits of the case. Usually he issues a non-binding recommendation,
which the parties may use in order to come to an amicable settlement based on
a clear legal position. Dispute review evolved from the former role of the
engineer as decision-maker in the first instance under various standard forms of

construction contracts. For example, earlier editions of the FIDIC contracts
provided that disputes were to be determined in the first instance by the
engineer under the contract. The engineer’s decision was binding upon the
parties until it was reversed by arbitration. Some think that dispute review is the
superior way of resolving-and even avoiding-disputes. Meanwhile arbitral
institutions have endorsed such procedures. For example, the American
Arbitration Association (AAA) and the International Chamber of Commerce (ICC)
have each issued procedural rules for dispute review boards. Dispute review
boards can comprise a single person or a panel of three or five members. It is
wise to keep the number of members to an odd number, so that it is possible to
achieve a split or majority decision where the panel cannot reach unanimity. The
members of a Review Board are (or should be) independent of the parties and
are expected to be able and experienced to take the initiative in investigating
and ascertaining the facts and law related to the dispute. Quite often Dispute
review board members are required to possess expertise and skills in the type of
project/industry in question.
Dispute Adjudication is the most recent form of alternative dispute resolution

but likely to be the most successful and satisfactory one at the same time. Unlike
dispute review dispute adjudication leads to a decision of the adjudicator on the
merits of the case which becomes temporarily binding until revised by either an
arbitral or a state court. Due to its success in some jurisdictions as in England
and Wales, some jurisdictions of Australia and New Zeeland and in Singapore
dispute adjudication legislation have been set in force. Usually dispute
adjudication starts by a notice of reference to dispute adjudication, which intends
to warn the adverse party of the intention to start dispute adjudication and which
is a precondition for the appointment of the adjudicator, if necessary (will say if
the parties did not agree to a permanent adjudicator during the whole phase of
contract execution). At second stage the referral to adjudication follows,
containing a written statement by which the claimant substantiates the merits of
the case and defines its demand. The adjudicator will hear the case and allow the
defending party to answer to the complaint. Depending on the adjudication
agreement of the parties he may obtain evidence, require expert advice and visit
the site. Once having heard the parties the adjudicator will take a decision which
he shall notify to the parties. The decision usually becomes binding temporarily
until revised by subsequent arbitration or court proceedings. The adjudicator´s
decision is neither an arbitral award capable of enforcement under the New York
Convention, nor does it have the status of a court judgment. Instead, the
decision is binding only as a matter of contract between the parties. Failure to
comply with a temporarily binding adjudication decision constitutes breach of
contract and the appropriate method of enforcing an adjudicator´s decision is by
way of an action for breach of contract. Depending on the applicable law the
winning party may obtain a summary judgement or similar in order to enforce
the adjudication decision.
Examples for dispute adjudication clauses can be found in FIDIC Conditions, NEC
forms of contract and MF/1 forms as well. It is today quite common to agree to
dispute adjudication and parts of the industry even consider lack of a dispute
adjudication clause to constitute a deal breaker.
Chart: Reference to DAB according to FIDIC
Start Either Party in writing and

may refer the with copies to the
dispute to the other Party and the
DAB Engineer
Such reference The DAB shall adopt

shall state that procedures suitable to the
it is given dispute, avoiding unnecessary
under Cl. 20.4 delay or expense.
Further requirements may stem Communications be-

from the fact that the DAB is tween the DAB, the
empowered to establish the Employer or the Con-
procedure to be applied in deciding tractor shall be copied
a dispute (Cl. 8 Procedural Rules) to the other Party.
The Parties shall The DAB shall act fairly and impartially
make available all as between the Employer and the
documents and Contractor, giving each of them a
additional reasonable opportunity of putting his
information case and responding to the other's case.
The DAB may conduct The DAB comes to a

hearings and adopt an decision
inquisitorial procedure
8.3 Arbitration
At one time arbitration was seen as the only alternative to the court system.
Accordingly for a long period of time arbitration was the only means to escape
from court proceedings. It has become a common method of dispute settlement
and usually national legislation accepts clauses by which the parties of a contract
derogate court proceedings in favour of arbitration. If the parties of a contract
have agreed to arbitration the national courts usually lack jurisdiction. By

consequence a national court will reject any complaint brought before it.
If any dispute or difference arises, the parties have to refer it to the agreed
arbitration. Arbitration does not mean that there is a worldwide accepted
international arbitral court providing a number of arbitral judges waiting for
work. Referring to arbitration usually means that the parties agree to an
arbitration procedure according to a named procedure such as the ICC procedure
rules or the UNCITRAL procedure rules. This set of rules provides all necessary
regulations as to the nomination of the arbitrators and the proceedings itself.
Most often national law provides complementary provisions as to arbitration
which must be taken into consideration by the arbitrators. In the event of a
conflict of laws the arbitrator will apply the national rules of the so called lex fori,
which means that the law of the country will apply in which the arbitrator has to
do its work.
Arbitration proceedings can be very formal and as adversarial as any court

proceeding. Although the parties are free to enter in an amicable settlement of
the dispute, arbitration normally leads to an arbitral award thus settling the
dispute which has been brought before it. Any arbitral award is usually not
directly enforceable but may be declared enforceable by national courts on
application by the party who obtained the award. If the award has its origin in
another country than that where the award must be enforced it depends on the
law of the enforcing state whether the foreign award can be enforced at court.
Since 1958 the New York Convention on Arbitration ensures that foreign arbitral
awards coming from a member state of it will be enforced. The Convention
applies to the recognition and enforcement of arbitral awards made in the
territory of a state other than the state where the recognition and enforcement
of such awards are sought, and arising out of differences between persons,
whether physical or legal. It shall also apply to arbitral awards not considered as
domestic awards in the State where their recognition and enforcement are
sought. It is therefore critical to verify at tender stage whether the seat of
arbitration is located in a state who is member of the New York Convention and
whether any party of the contract is domiciled in a country who adheres to the
Convention as well.
A valid arbitration clause presupposes an agreement of both parties of the

contract. According to art. II of the New York Convention an agreement in
writing is required, under which the parties undertake to submit to arbitration all
or any differences which have arisen or which may arise between them in respect
of a defined legal relationship, whether contractual or not, concerning a subject
matter capable of settlement by arbitration. The term "agreement in writing"
includes an arbitral clause in a contact or an arbitration agreement, signed by
the parties or contained in an exchange of letters or telegrams. Recognition and
enforcement of any arbitral award may be refused, at the request of the party
against whom it is invoked, if that party furnishes to the competent authority
where the recognition and enforcement is sought, proof that, said agreement is
not valid under the law to which the parties have subjected it or, failing any
indication thereon, under the law of the country where the award was made.
According to French law (compare art. 1442, 1443 Code of Civil Procedure) an
arbitration clause is an agreement by which the parties to a contract undertake
to submit to arbitration the disputes which may arise in relation to that contract.
An arbitration clause is void unless it is set forth in writing in the main

agreement or in a document to which that agreement refers. Subject to the
same penalty, the arbitration clause must either appoint the arbitrator or
arbitrators or provide for a mechanism for their appointment.
Additional issues which may be regulated by the arbitration agreement are the
following:
(a) the appointing authority shall be [ for example the Malta Arbitration Centre];
(b) the place of arbitration shall be [for example Malta];
(c) the language(s) to be used in the proceedings shall be [for Example English];
(d) the applicable substantive law shall be [for example the law of England and
Wales];
(e) the arbitrator shall decide ex aequo et bono.
Ex aequo et bono (Latin for "according to the right and good") or (from equity
and conscience) or more commonly (in justice and good faith) is a legal term of
art. In the context of arbitration, it refers to the power of the arbitrator to
dispense with consideration of the law and consider solely what he considers to
be fair and equitable in the case at hand. Subject to article 33 of the United
Nations Commission on International Trade Law's Arbitration Rules (1976) the
arbitrators shall consider only the applicable law, unless the arbitral agreement
allows the arbitrators to consider ex aequo et bono, or amiable compositeur,
instead. This rule is also expressed in many national and sub-national arbitration
laws, for example sect. 22 of the Commercial Arbitration Act 1984 (NSW), which
reads as follows: “If the parties to an arbitration agreement so agree in writing,
the arbitrator or umpire may determine any question that arises for
determination in the course of proceedings under the agreement by reference to
considerations of general justice and fairness”. Arbitration is not meant to be
“arbitrary”. Although the decision may be made by a neutral in the role of
“Amiable Compositor”, it is not in isolation or “ad hoc”, it is mandated under the
terms of the arbitration agreement and the applicable procedural rules, which
respect the values and agreements of the participants.
The approach to arbitration ex aequo et bono is different from country to

country. Whilst according to Art. 1460 French Code of Civil Procedure “the
arbitrators shall determine the arbitral procedure without being bound to follow
the rules established for the courts, unless the parties have provided otherwise in
the arbitration agreement”, sect. 22 of the Commercial Arbitration Act 1984
(NSW) reads: “Unless otherwise agreed in writing by the parties to the
arbitration agreement, any question that arises for determination in the course of
proceedings under the agreement shall be determined according to law.
Arbitration ex aequo et bono is only allowed upon express agreement to the
contrary.
Most of the international standard contract forms recommend arbitration based

on the ICC Rules of Arbitration. ICC arbitration is respected worldwide. It is
supervised by the ICC Court and administered by the Court's Secretariat. The
Court was created in 1923 and tracks the progress of each case and reviews the
awards in order to facilitate their enforcement ever since. ICC arbitrations are
conducted under the Rules of Arbitration of the International Chamber of
Commerce, the current version of which came into force on 1 January 1998.
According the ICC Rules of Arbitration first a Request for Arbitration becomes
registered on the day it reaches the Secretariat of the International Court of

Arbitration at ICC Headquarters. A copy of the Request is communicated to the
Respondent by the Secretariat. The Respondent's Answer, including any counter-
claim, is to be submitted within 30 days. If the parties fail to nominate the
arbitrator or arbitrators the court shall appoint them. When the place of
arbitration has not been agreed, it is fixed by the Court, normally in a "neutral"
country, that is, neither the Claimant's nor the Respondent's country. The parties
of the dispute should know that this is a critical point because the place of
arbitration usually has prejudice over a number of legal aspects, such as the
applicable procedure law and the applicable private international law. It is
therefore strongly recommended to agree the place of arbitration in advance and
to take into consideration the effects arising from this decision.
Once the Arbitral Tribunal has been constituted and the fee advance requested at
this stage has been paid, the Secretariat transmits a copy of the file to each
member of the Arbitral Tribunal, which have become appointed meanwhile. From
that time on, the parties are requested to correspond directly with the Arbitral
Tribunal (while sending copies of their correspondence and submissions to the
Secretariat and to the other parties). Then the procedure enters into a critical
phase. Before the actual merits of the case can be addressed, the Arbitral
Tribunal must first draw up the Terms of Reference. The terms of reference
specify the merits of the case and comprise a central document in any ICC
arbitration that sets out the rival positions of the parties and their disputes. It is
prepared by the tribunal and signed by the parties. It is only at this stage that
the arbitration commences and that the tribunal begins seeking to establish the
facts of the case by all appropriate means. According to Article 19 of the ICC
rules no party shall make new claims or counterclaims that fall outside the terms
of reference without authorization by the tribunal. By consequence the finalized
terms of reference define the tribunal’s jurisdiction. Therefore, the disputing
parties need to do considerable work at an early stage to ensure that the terms
of reference fully reflect their separate positions. Great diligence and care is
required in doing so in order not to preclude any defences. Additionally the
Terms of Reference contain particulars concerning the applicable procedural rules
and any other provisions required to make the Award enforceable at law.
Therefore, it is critical to verify carefully the Terms of reference before signing
them. Once the Terms of Reference have been signed they become binding and
effective. After the closing of the proceedings, the Arbitral Tribunal draws up a
draft Award which is submitted to the Court's scrutiny. Once approved by the
Court, the Award is signed by the arbitrators and then notified to the parties.
Notwithstanding the globally recognised reputation of the ICC arbitration it may

be appropriate to choose different Rules of Arbitration. Usually arbitration
legislation does not provide for any specific procedure or contains no
comprehensive rules. Choosing the right form of arbitration is crucial, because it
will ultimately tie the parties to a particular procedure. It is therefore critical to
check up the relevant Arbitration Rules before signing any arbitration clause.
Arbitration can be obtained from various institutions all over the world. Apart
from the ICC Rules of Arbitration other leading arbitration rules are among
others those of LCIA (The London Court of International Arbitration), ICSID, AAA
(American Arbitration Association), UNCITRAL, Vienna Centre, DIS (Deutsches
Institution für Schiedsgerichtsbarkeit), The Arbitration Institute of the Stockholm
Chamber of Commerce (SCC Institute), the Swiss Chambers of Commerce and
SIAC. The Singapore International Arbitration Centre (SIAC) has recently
published a new set of Arbitration Rules (“New Rules”) which came into effect on
1 July 2007. The Arbitration Institute of the Stockholm Chamber of Commerce
(SCC Institute) has emerged as one of the leading arbitration institutions in the
world.
Summary
Choosing the right form of dispute resolution is quite a critical aspect when
preparing international contracts. Jurisdiction of a court or arbitral court strongly
influences questions of applicable law. Procedural law including regulations as to
evidence and service of documents can have big influence of the result of any
dispute. Time consuming proceedings should be avoided but the advantages of
quality of dispute resolution should not be underestimated. It is thus a
tremendous task to find the best solution for each contract. There is a broad
freedom of choice and a widespread offer of all forms of dispute resolution. It can
be presumed that recommendations as to the form of dispute resolution and
clauses concerning jurisdiction issues which can be found in international
standard forms are well considered and usually suitable for the disputes arising
during the execution of the contract. However it is worth to check up different
forms of dispute resolutions and the advantages and disadvantages of any place
of jurisdiction. Common pitfalls are:
 The choice of a forum in a country which does not adhere to any

multilateral or bilateral convention on recognition and enforcement of
foreign court decisions or arbitral awards
 The choice of a forum in a country which restricts choice-of-law-clauses
 Accepting exclusive jurisdiction of a court, if the lex fori of the court
provides a single language for the pleadings, which is different from the
ruling contract language. In such a case all contract documents,
communications, plans etc. must be translated in the court language,
which produces considerable interpretation risk.
 Accepting jurisdiction of a court without deep knowledge of its procedural
usages and rules
 Accepting a place of jurisdiction whose legislation requires to obtain
special visas for lawyers and witnesses

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Kanzlei Dr.

Hök, Stieglmeier & Kollegen 1

FIDIC Training Module 1

Lecturer: Dr. Götz-Sebastian Hök,

I. Legal character of FIDIC rules

I. Legal character of FIDIC rules

FIDIC standard forms of contract have been issued by the International

If a construction contract incorporates a FIDIC form of contract it is therefore

II. Relationship between FIDIC Conditions and Public Procurement Law

1. FIDIC based public procurement

2. Priority of national procurement law and principles

1985 n° 473; Société d´asurances La Nantaise et l´Angevine reunites, Conseil

According to public policy of freedom of contract, the parties to a contract have

Art. 2 of Turkish law n° 4735 provides however:

This Law shall apply to contracts made as a result of tendering processes

According to 42 paragraph 1 of the Convention on the Settlement of

French tender documents thus frequently contain the following clause:

ARTICLE 14 – DROIT APPLICABLE ET LITIGES

This contract is governed by French law.

 Title, specification, category and quantity of work; description of work in

3. Interfaces between pre-contractual obligations and tender

4. Reliance on tender information

The tender documents can provide pre-contractual obligations of the contractor

 to which extent he is obliged to start and carry out site investigations

4.1 Obligation to carry out investigations

Whether the contractor is under an obligation to carry out inspections, site

Example: A builder is contracted to construct a railway. The contractor had only

If and when the employer is in possession of data and he makes it available to

Unfortunately the courts have given different answers subject to their

English courts seem to have a different approach. In Co-Operative Insurance

In order to come to a result, the steps mentioned below should be followed:

Thirdly it has to be verified whether the specifications themselves provide

Additionally it seems to be essential to define the time at which the question of

But what happens if performance becomes impracticable due to differing site

contractor, the contractor is entitled to an equitable adjustment (Raytheon Co. v.

However, if the economic equilibrium of the contract is seriously affected by an

4.3 Risk allocation

The last issue mentioned above seems to be an underestimated one, although

 Is there a general duty of the contractor to find all necessary information?

It can hardly be argued that there is a general pre-contractual duty at law to

 that there was no common mistake resulting in a variation and

 that there was no express warranty as to the nature of the site

Additionally information about the ground conditions themselves shall be given.

reasonable, the contractor must carefully scrutinise the documents. Tender

4.4 Extra works in the case of misrepresentation

A radically different question is whether the contractor is entitled to additional

In Morrison Knudson International Co. v. Commonwealth of Australia (1980) 13

III. Relationship between FIDIC Conditions and legal systems

When using FIDIC Conditions conceptual differences must be respected in

IV. Alteration of FIDIC Conditions

FIDIC strongly recommends that tender documents should be prepared by

The guiding principles as to the drafting of Particular Conditions should be such

2. Preparing tender documents-The FIDIC Contracts Guide-Guidance for

It is strongly recommended to recognise and take into consideration that sub-

Any changes or additional clauses should be included in the Particular Conditions.

4. Pitfalls and issues

In any case translations should be checked. It has happened that although a

V. Main Particularities of FIDIC Conditions as compared with national

later contract will happen. Usually it is critical to exchange as much information