The FIDIC Pink Book and public procurement legislation, Zambia

Bwalya Lumbwe
Lusaka, Zambia

Introduction

The Public Procurement Act No 8 of 2020 (the Act) regulates all public procurement in Zambia through the Zambia Public Procurement Authority (Authority). The Act has to be read in conjunction with delegated or subordinate legislation in the form the Public Procurement Regulations, 2022 (Regulations). The Act mandates all public procurement entities (Employers) to use standard contracts approved by the Attorney-General and issued by the Authority.^[1]

The FIDIC Harmonised Edition of the Conditions of Contract for Construction (the ‘Pink Book’) 2005 version is the approved standard contract for use in international construction works in Zambia.^[2] Although the Pink Book is published for use by the Multilateral Development Banks (MDBs) on projects funded by them, it has been adopted for use on public works by the Authority in Zambia. The Pink Book is part of the FIDIC contract forms which includes the Red Book used for building and engineering works designed by the Employer, on which the Pink Book is based, the Yellow Book for plant design & build and the Silver Book for EPC/turnkey projects.

The Act, with the Regulations, however, implies terms into the Pink Book significantly altering some specific terms and adding to others, resulting in cumbersome contract administration.

The basis of implied terms in the Pink Book

Zambia is a common law country. It is a well-known common law principle that legislation will imply mandatory terms within a contract and may change terms of a contract.^[3]

The Pink Book, as used by the Authority, departs from the normal practice of stating the governing law in the contract data and states at Sub-Clause 1.4 that ‘The Contract shall be governed by the laws of the Republic of Zambia’. The laws of the Republic of Zambia include, inter alia, the Act.

Baker, Ellis et al, in their book, FIDIC Contracts: Law and Practice state that the governing law ‘[…] may imply terms into the contract additional to the express terms.’^[4] An extension to this statement is that where a term has been implied into a contract by statute or legislation, but conflicts with the provisions in a contract, the resultant effect is that the incompatible contract term is displaced or altered by the statutory provisions. The Act does not contain any provision allowing parties to contract out of its provisions as is possible in some other statutes.^[5] Accordingly, the terms of the Act are implied terms in Pink Book contracts subject to Zambian law.

Furthermore, the provision under Sub-Clause 3.1 of the Pink Book requires the Employer to ‘appoint the Engineer who shall carry out the duties assigned to him in the Contract’,^[6] with ‘Contract’ defined under Sub-Clause 1.1.1.1 as:

‘[…] the Contract Agreement, the Letter of Acceptance, the Letter of Tender, these Conditions, the Specification, the Drawings, the Schedules, and the further documents (if any) which are listed in the Contract Agreement or in the Letter of Acceptance.’ ^[7]

The reference to ‘these Conditions’ refers to the Pink Book 2005, including Sub-Clause 1.4 (Governing Law) provision, which is part of the conditions.

By these provisions the governing law is therefore part of the contract, and the Engineer is obligated to administer the contract taking into account the implied terms under the Act, including its Regulations as well as other legislation which is not a subject of this article.

Contract management provisions

The Act requires that for every contract awarded, a Contract Manager be appointed.^[8] In terms of the Pink Book, the Contract Manager is the equivalent to the Engineer.^[9] The duties of the Contract Manager spelt out in the Act^[10] are:

‘(a) managing the obligations of the procuring entity (the Employer) specified in the contract; and

(b) ensuring that the supplier [ie, the Contractor under the Pink Book] performs the contract in accordance with the terms and conditions specified in the contract.’

Regulation 214 (Contract management responsibilities) expands on the duties of the Contract Manager. A number of the duties imposed are standard duties that an Engineer undertakes regularly. However, there are some additional duties which may have an impact on contract administration.

The Regulation states that a contract manager shall be responsible for, inter alia:

‘[…]

(b) ensuring that the supplier [ie, the Contractor] submits all required documentation;

(c) ensuring that the procuring entity [ie, the Employer] meets all its payment and other obligations on time and in accordance with the contract;

[…]

(e) preparing any required contract variations or change orders and obtaining all required approvals before the issue;

[…]’

With regard to (b), it is assumed that the reference to documentation is documentation required for contract administration. It is however impossible for the Engineer to force a Contractor to submit documentation, as this is not under the Engineer’s control. The Engineer can only effect this within the terms of the contract by applying sanctions for failure to provide required documentation, to the extent allowed under the contract.

As for (c), the payment and other Employer obligations under the terms of the contract are not within the Engineer’s authority. Although this an implied term, it is in reality an unworkable term implied into the Contract, as ensuring that the procurement entity meets its payment and other obligations is not within the sphere of control of the Engineer. This is difficult regardless of whether the Engineer is internally or externally procured; however, an Engineer within the procurement entity will undoubtedly find it easier to perform this function because of close proximity.

The provision under (e) requires the Engineer to obtain all required approvals before issuing variations. However, as explained below, the Engineer is limited to preparing a draft or recommending a variation to the Employer. Thereafter the Employer’s internal system takes over with the Employer’s Controlling Officer or CEO tasked with obtaining approval from the Treasury and Attorney-General. As for provision (c), the Engineer within the procurement entity may find it easier to fulfil this function only because of close proximity.

The Engineer therefore has no control beyond preparing any required contract variations and is not responsible for obtaining approvals. There is consequently a conflict between provisions. Regardless the Engineer cannot be expected to impose itself into the internal procurement entity’s systems even when they are part of the procurement entity.

Variation and amendments

Section 77 [Amendment or variation of contract] of the Act provides that:

‘(1) An amendment or variation to a contract shall not be effected without the approval of the Treasury and the legal advice of the Attorney-General.

(2) Subject to subsection (1), a proposed amendment or variation to a contract shall not be submitted to the Attorney-General without prior written authorisation of the appropriate approvals authority.

(3) An approvals authority may approve an amendment or variation proposed under subsection (2).

(4) The cumulative value of contract variation and amendment shall not result in an increment of the total contract price by more than 25 per cent of the original contract price as prescribed, except that where the variation results in an increment exceeding 25 per cent, the contract shall be cancelled and the procurement re-tendered.

An ‘approvals authority’ is ‘the body or individual with authority to grant prior authorisation of the stages in the procurement process specified in accordance with section 34’ of the Act [Procurement authorisation and levels of authority].

With regard to paragraph (3) above, it should be noted that this is an interim or prior approval step before final approval by the Treasury and Attorney-General (paragraph (1)). The procedure under the Regulations below at 217(3) [Contract amendment] clarifies this point.

Paragraph (4) provides that ‘the cumulative value of contract variations and amendments shall not result in an increment of the total contract price by more than 25 per cent of the original contract price’. Where this is exceeded, the contract will automatically be cancelled and retendered. The completion stage of the contract does not seem to matter for this to take effect.

The obvious consequence of such action will be for the contractor to claim damages, as the reason(s) for reaching the threshold cannot be ascribed to the contractor but to the Engineer and the Employer.

It not clear as to whether the contractor affected by the cancellation or termination will be permitted to tender for the balance of the works. It will of course be sensible to negotiate with such a contractor as retendering may be quite expensive, but no such procedure is mentioned.

A question to be asked is what happens to the Engineer’s contract administration agreement with the Employer? Does it survive the cancellation? And what if the cause of reaching the threshold is directly attributable to the Engineer or designer? There are no answers to these questions in the Act, and no known court rulings on these issues.

Contract amendment procedure

Regulation 217 [Contract amendment] states:

‘(1) A Procurement Unit and contract manager shall, where any change to the terms and conditions of a contract is required, prepare a written amendment to the contract.

(2) An amendment to a contract referred to in sub-regulation (1) shall be valid when signed by authorised representatives of both the procuring entity and the supplier.

(3) A Procurement Unit shall obtain the prior authorisation of the approvals authority, for any contract amendment.

(4) A controlling officer or chief executive officer shall obtain the approval of the Treasury^[11] and legal advice of the Attorney-General^[12] before effecting any contract amendment.’

The general principles of contract law permit parties to amend a contract as they see fit. The Act, however, removes authority from the parties as it concerns contracts entered into by public procurement entities, and gives it to the Treasury and Attorney-General. Therefore, the provision that an amendment to a contract referred to in sub-regulation (2) shall be valid when signed by authorised representatives of both the procuring entity and the supplier is only a necessary interim process required for further submission to the other authorities. The final authority is the Treasury and the Attorney-General.

Extension of time and variations

The Pink Book provides for the Engineer to make all determinations of the extension of the time for completion under Sub-Clause 8.4. By implication, an extension of the time for completion is a change to the terms and conditions of a contract, subject to Regulation 217, described above. However, the procedure for contract variations under Regulation 218 [Contract variation] also contains references to extension of time as it states that:

‘(1) A contract may, where appropriate, in order to facilitate adaptations to unanticipated events or changes in requirements, permit –

(a) the contract manager, supervising engineer or other designated official to recommend variations to the statement of requirements for goods, works or services, the price or the completion date of the contract; or

(b) defined compensation events to justify variations in the price or completion date of the contract.

[…]

(3) A variation to a contract shall only be valid when signed by authorised representatives of both the procuring entity and the supplier.

(4) A Procurement Unit shall obtain the prior authorisation of the approvals authority for any contract variation.

(5) A controlling officer or chief executive officer shall obtain the approval of the Treasury and legal advice of the Attorney-General before effecting any contract variation.

(6) The cumulative value of contract variations and amendments shall not result in an increment of the total contract price by more than 25 per cent of the original contract price.’^[13]

Under the Pink Book, the term ‘variation’ is assigned a specific meaning to cover changes to the works,^[14] in line with its general use in the construction industry. Generally, the term variation as used in the construction industry has no association with the time for completion, although a variation may lead to an extension to the time for completion or completion date of the contract.

With reference to the validity of the variation under paragraph (3) of Regulation 218, when signed by authorised representatives of both the procuring entity and the supplier, this is not final authority but an interim necessary step. It is designed to ensure that parties to the contract are on board and the issue is not being driven by one party.

Regulation 218(6) must be read in conjunction with Section 77(4) of the Act, discussed above, which provides the action to be taken if the threshold is reached, that is, termination of contract followed by re-tender.

Under the terms of the Pink Book, authority to issue variations is vested in the Engineer. Sub-Clause 13.1 provides that: ‘Variations may be initiated by the Engineer at any time prior to issuing the Taking over certificate for the works, either by an instruction or by a request for the contractor to submit a proposal. The contractor shall execute and be bound by each variation […]’.

The sum total of the provisions in the Act and Regulations, is that the Engineer does not have authority to make a final determination with respect to an extension of time or to issue a variation. The Act and Regulations effectively override the contract provisions and put the process into the hands of the procurement unit and the approvals authority with the final authority lying with the Treasury and Attorney-General. ^[15]

Certification

Regulation 216 [Acceptance of goods, works and services] states:

‘A contract manager shall, prior to accepting goods, works or services or signing any interim or completion certificate, goods received notes or similar documents, ensure that –

(a) the correct quantity or inputs of goods, works or services have been received;

(b) the goods, works or services meet the specifications and technical standards defined in the contract;

(c) the goods, works or services have been delivered or completed on time, or that any delay has been noted;

(d) all required deliverables have been submitted; and

(e) all required manuals or documentation have been received.’^[16]

This is to be read in conjunction with Section 78 of the Act which provides:

‘(1) A person shall not process final payment of a contract sum where a defects liability certificate or certificate of final completion has not been issued.

(2) The issuance of a defects liability certificate or certificate of final completion is prima facie evidence of the completion of works in accordance with the set standards.

(3) A person who contravenes subsection (1) or (2) commits an offence and is liable, on conviction, to a fine not exceeding five hundred thousand penalty units or to imprisonment for a term not exceeding five years, or to both.’

The above should, however, be contrasted with Sub-Clause 14.6 [Interim Payment Certification] under the Pink Book, which provides that: ‘The Engineer may in any Payment Certificate make any correction or modification that should properly be made to any previous Payment Certificate. A Payment Certificate shall not be deemed to indicate the Engineer’s acceptance, approval, consent or satisfaction.’

In other words, the Contract permits corrections in subsequent certificates for unacceptable works and other adjustments. The issuance by the Engineer of a payment certificate/interim payment certificate defined under Sub-Clauses 1.1.4.7/9 being the equivalent of an interim certificate for progress payment under the Regulations does not mean that the work is to the Engineer’s satisfaction.

However, the language of Regulation 216 leaves no doubt that the issuance of an interim payment certificate is conclusive evidence that:

(a) the correct quantity works have been received;

(b) the works meet the specifications and technical standards defined in the contract;

(c) the works have been delivered or completed on time, or that any delay has been noted;

(d) all required deliverables have been submitted; and

(e) all required manuals or documentation have been received.

Therefore, the Act through its Regulations implies into the contract an impossible provision changing the nature of interim payment certificates as envisaged in the contract from interim to conclusive evidence that the work has met the standards etc. It is simply never possible at many interim certification stages to conclusively meet the listed criteria in the Regulations.

Offences for non-compliance

Sections 78 and 104–109 of the Act make it an offence to fail to comply with the Act and prescribe sanctions for such offences.^[17] The offences affect office holders^[18] who are public officials, constitutional office holders, judges or judicial officers and others^[19] as well as bidders^[20] and suppliers.^[21] Suppliers include the Engineer who supplies services to the Employer and who under the Act is referred to as the procurement entity (as will be seen later).

Section 104 of the Act, unlike the other provisions with specific offences, is well worth noting as it is a catch-all provision which states that:

‘(1) A person participating in public procurement of goods, works or services shall –

(a) abide by the obligations under this Act, the contract and other instruments applicable to the person’s conduct and activities related to public procurement; and

(b) not commit or abet corrupt, fraudulent, collusive or coercive practices.’^[22]

The term ‘A person’ under sub-section (1) above refers to a legal person and includes the Engineer.

The sanction for offences under the Act is a fine of 500,000 penalty units^[23] and/or a prison sentence of up to a maximum of five years.^[24] Additionally, compensation can be ordered by a court to ‘compensate a procuring entity for any damage or loss suffered by the procuring entity, if the damage or loss resulted from an offence committed by the person.’^[25]

Conclusion

There are complications in the application or implementation of implied legislative provisions as they are either difficult or impossible to comply with, vary established construction industry practice, or alter established legal interpretation or principles. In addition, some terms in the standard conditions of contract conflict with the provisions in the procurement legislation. As a result of this the Engineer must be alert in order to avoid compromising their position by a failure to adhere to the implied terms.

The erosion of the Engineer’s powers to issue variations and extensions of time is a significant departure from the norm with the result that contract administration will be cumbersome and onerous to the detriment of the works. The likely result will be delays and extra costs to the contractor resulting in claims and disputes.

The escalation under the Act for variations and amendments to be authorised by the Treasury and Attorney-General is likely to lead to delays in implementation, resulting in claims.