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FIDIC – Construction Law International – March 2023
FIDIC Questionnaire – Turkey
Ceyda Sıla Çetinkaya, Ege Buket and Yavuz İskit
Esin Attorney Partnership
1. What is your jurisdiction?
The Republic of Turkey (Türkiye).
2. Are the FIDIC forms of contract used for projects constructed in your jurisdiction? If yes, which of the FIDIC forms are used, and for what types of projects?
Application of FIDIC in Turkey
Turkey became a member of FIDIC in 1987 through the Union of Turkish Consulting Engineers and Architects (UTCEA). Throughout the years, the use of FIDIC forms of contract became more common in internationally financed, large infrastructure and construction projects in Turkey. For instance, some of the largest international projects, namely, the Marmaray Tunnel Project, the Baku-Tbilisi-Ceyhan Pipeline Project and the Istanbul-Ankara Highway Project were carried out under FIDIC forms of contract.
On the other hand, in terms of locally financed projects, the contract form included in the annexes of the Regulation on the Execution of Construction Works Tenders, which is prepared by the Public Procurement Authority, in line with the provisions of Turkish Public Procurement Law No 4734 (the ‘Public Procurement Law’), is preferred instead of FIDIC.1 That said, Article 3 of the Public Procurement Law foresees certain exceptions, including where foreign financing is provided in accordance with international treaties that foresee specific procurement methods, and the use of FIDIC forms of contract is more common for these procurements.
With regard to the private sector, although there are exceptions, FIDIC forms of contract are not widely used in purely domestic projects in Turkey, where international financing is generally not required, and parties usually choose to apply the above-mentioned national standard contract form.
Which FIDIC form is used for what type of projects?
The most common FIDIC contract forms in Turkey are, respectively, the Silver Book, Yellow Book, Red Book and Gold Book. Which FIDIC contract form is preferred depends on the nature of the project, the employer’s familiarity with FIDIC, the size of the project’s budget and the technical specifications. In addition, 1999 versions of FIDIC forms of contract are the most commonly used ones, rather than the new versions.
The Silver Book is used for engineering, procurement and construction (EPC)/turnkey projects, and it is suitable for use on process, power and private infrastructure works where the contractor is to take on full responsibility for the design and execution of a project. Accordingly, in Turkey, the Silver Book is used in complex and innovative construction projects which do not fall under the scope of the employer’s area of expertise and experience.2 In this respect, the Silver Book is preferred by the parties to decrease the risk carried by the employer, and to provide more security to the employer in terms of constructions’ technicalities, timing and financing.
The Yellow Book is used in design and build projects where the construction, installation and design of the project are undertaken by the contractor. Compared to the Silver Book, the Yellow Book is preferred in projects that involve more risk sharing between the employer and contractor. The Yellow Book’s application in Turkey is also recommended for works where the technicalities of the work are not important for the employer, but where efficiency and product quality become much more important when the investment enters the operational phase, and where the employer wants to give its opinion on, and approval for, the design details. Thus, projects regarding the construction of pumping stations, water and waste treatment plants, industrial plants and flue gas filtration are typical projects where the Yellow Book is used.
The Red Book is applied to projects where the design is undertaken by the employer itself or by a contractor appointed by the employer, and therefore the construction risks belong to the employer. Accordingly, the Red Book is mostly preferred in projects where the employer is familiar and experienced with the work and the technical aspects thereof. In this context, the Red Book is applied to construction projects for roads, bridges and buildings where simple civil engineering works are predominant. In Turkey, these projects are usually small-scale, domestically financed works where the parties prefer to apply the standard contract forms issued by the Turkish Government instead of FIDIC forms.
In rare cases, the Gold Book – which is intended to accommodate the needs of a project with long-term operation – is also used in projects in Turkey; however, its application is rather narrow compared to the other FIDIC forms of contract.
3. Do FIDIC produce their forms of contract in the language of your jurisdiction? If no, what language do you use?
Although FIDIC does not provide Turkish versions of the FIDIC forms of contract, the UTCEA has prepared official Turkish translations of all FIDIC contract forms included in the 1999 edition and a translation of the 2017 Red Book is currently being prepared. Accordingly, in Turkey, parties can incorporate the official Turkish translation of FIDIC into their contracts, or can conclude the contract in English. That said, in Turkey, the majority of the FIDIC contracts are concluded in English or in a dual language format including an English version. It is very rare to encounter a FIDIC contract that is solely in Turkish.
With regard to the contracts’ language, it is worth noting that the Law No 805 on the Mandatory Use of the Turkish Language in Commercial Enterprises (‘Law No 805’) provides that all Turkish companies are required to conduct their business transactions, conclude their contracts and keep their correspondences, records and books within Turkey in Turkish.
Requirements for foreign companies to use the Turkish language are limited and Article 2 of Law No 805 does not set forth a requirement for agreements to be signed in Turkish for foreign companies. Nevertheless, in some conflicting and rare decisions, the Court of Cassation of the Republic of Turkey (‘Court of Cassation’) has adopted an approach that mandates that Law No 805, Article 2 also requires foreign companies to execute their agreements with Turkish companies in the Turkish language.3
Failing to fulfil these requirements results in the failing party being unable to rely on the respective contract or the relevant provisions in its favour. For example, in one of its decisions, the Court of Cassation refused to enforce an arbitration clause drafted in English between a Turkish party and a foreign party based on Article 2 of the Law No 805, stating that a party cannot rely on the arbitration clause drafted in a foreign language.4 The contract in question was a distribution agreement executed between a Swiss producer and a Turkish distributor in English only and governed by Swiss law.
A very risk averse approach would be to have documents and agreements written in dual column format (which is common practice in Turkey), one in a foreign language and one in Turkish, ideally with the Turkish version prevailing.
4. Are any amendments required in order for the FIDIC Conditions of Contract to be operative in your jurisdiction? If yes, what amendments are required?
FIDIC forms of contract are generally considered to be in compliance with Turkey’s domestic legislation. Therefore, in principle, there are no specific provisions that need to be amended in order for the contract to become operative in Turkey, but a case specific analysis is recommended, and certain amendments may be needed in specific cases. In any case, if a provision of the contract contradicts a mandatory rule under Turkish law, then the latter shall override the contractual provision.5 As such, no requirement is mandatory, per se, to the text of the FIDIC forms of contract. That said, it should be noted that there are certain issues elaborated under Question 10 below, which do not affect the validity of the contract but have implications that differ from the provisions of FIDIC forms of contract and parties should, therefore, be cognisant of these issues.
5. Are any amendments common in your jurisdiction, albeit not required in order for the FIDIC Conditions of Contract to be operative in your jurisdiction? If yes, what (non-essential) amendments are common in your jurisdiction?
Yes, certain amendments to FIDIC forms of contract are common in Turkey, even if not mandatory. These amendments are usually made to accommodate the specific needs of the employer or the project. The most common amendments are as follows.
- Delay damages: One of the most commonly encountered amendments is to the delay damages provisions (Sub-Clause 8.8). Delay damages as provided under FIDIC forms of contract can qualify as either a ‘contractual penalty’ or ‘liquidated damages’ two legal concepts that differ in their legal nature and implications under Turkish law.6 Liquidated damages serve as an agreed pre-determination of damages meant to ease the employer’s burden in proving its loss, while a penalty clause may provide for damages exceeding the actual loss and serves to pressure the contractor to properly perform its obligations. A contractual penalty is also independent of the defaulting party’s fault, whereas liquidated damages require the employer to prove the contractor’s fault.7 Therefore, it is common practice in Turkey for contracting parties to amend the delay damages provision to clarify whether it constitutes a contractual penalty or liquidated damages provision. It is equally common to amend the limitation of liability under FIDIC forms of contract to include indirect and consequential loss, both of which are common concepts under Turkish law.
- Notice periods: It is common in Turkey for parties to amend the various notice requirements and periods provided under the FIDIC forms of contract.
- Variation and price difference: The price difference is one of the most commonly amended provisions. The conditions and calculation formula for the price difference are often amended or, in certain cases, the calculation of the price difference is expressly excluded from the contract.
- Dispute resolution: Parties often amend the dispute resolution mechanism provided under FIDIC forms of contract to exclude dispute boards or amicable settlement periods.
- Force majeure: The scope of what constitutes a force majeure event is often amended under the specific contract.
- Payment terms: Payment terms are almost always amended to suit the specific needs and timeline of the project. These amendments may include the calculation method of the payments as well as frequency and timing thereof.
- Insurance: Another common amendment is to the insurance provisions, whereby the type and limits of insurance may be altered to suit the specific needs of the project.
6. Does your jurisdiction treat Sub-Clause 20.2.1 of the 2017 suite of FIDIC contracts as a condition precedent to Employer and Contractor claims?
FIDIC forms of contract foresee a multi-tier dispute resolution mechanism, beginning with the dispute board to amicable settlement then to arbitration as the final and binding dispute resolution forum. In that sense, engineers no longer serve the function of a step in the dispute resolution mechanism. Instead, the employer and contractor apply to the engineer, as the first step, for their claims before a dispute arises. As such, Sub-Clause 20.2.1 governs claims by the contractor or the employer, regardless of whether they are monetary or temporal in nature.
Under Turkish law, construction contracts are considered ‘work contracts’ and are regulated under the Turkish Code of Obligations (TCO), which does not stipulate a specific requirement or procedure for the contractor or the employer to raise their claims. In other words, Turkish law leaves this issue to the agreement of the parties under the principle of contractual freedom enshrined under Article 26 of the TCO.8
Under Turkish law, as a natural consequence of contractual freedom, if the contractual provisions stipulate a condition precedent, which is the case for Sub-Clause 20.2.1 of the 2017 suite of FIDIC contracts, then the stipulated procedure constitutes a condition precedent.
Sub-Clause 20.2.1 does constitute a condition precedent for the purposes of Turkish law, which has been confirmed by the Court of Cassation9 (although some commentators consider the time limit provided under Sub-Clause 20.2.1 to be invalid under Turkish law). Please refer to our explanations under Question 9 below for a summary of the Court of Cassation’s decision.
7. Are dispute boards used as an interim dispute resolution mechanism in your jurisdiction? If yes, how are dispute board decisions enforced in your jurisdiction?
Use of dispute boards in Turkey
Turkish law does not prevent the use of a dispute board. Therefore, there is no legal obstacle against using dispute boards.
Dispute boards under FIDIC forms of contract can either be standing dispute boards, which is the case for FIDIC Red Book or ad hoc dispute boards, which is the case for the Silver Book and Yellow Book. Both types of dispute boards are available under Turkish law and are used in Turkey.
In practice, dispute boards are commonly used in Turkey for FIDIC forms of contract where arbitration is chosen as the ultimate dispute resolution mechanism.
Enforcement of dispute board decisions in Turkey
Parties may willingly comply with the decisions of the dispute board and perform their duties thereunder. However, if a party does not willingly comply with the decision of the dispute board, such decisions cannot be directly put to execution in Turkey.10
As a rule, only Turkish court judgments and certain documents (such as local arbitral awards) that have been attributed the quality of a court judgment under Article 38 of Execution and Bankruptcy Law No 2004 and certain other codes can be directly put to execution in Turkey. Dispute board decisions do not fall under either of these categories, as they are not Turkish court judgments nor have they been attributed the quality of a court judgment by law.
In light of the above, the main option available to a party whose opposing party refuses to willingly comply with the decision of a dispute board is to resort to arbitration as provided in the multi-tier dispute resolution mechanism under FIDIC forms of contract. The arbitral award can then be enforced in Turkey. Depending on whether the seat of arbitration is outside of Turkey, the enforcement procedure will differ. Local arbitral awards can be directly put to execution in Turkey as if they are a Turkish court judgment, whereas foreign arbitral awards need to be enforced in Turkey before they can be put to execution.
On a separate note, in Turkey, the creditor may first file execution proceedings and then refer to arbitration or litigation upon the debtor’s objection thereto. In other words, the parties can initiate execution proceedings without a dispute board decision or an arbitral award.
8. Is arbitration used as the final stage for dispute resolution for construction projects in your jurisdiction? If yes, what types of arbitration (ICC, LCIA, AAA, UNCITRAL, bespoke, etc) are used for construction projects? And what seats?
Use of arbitration as dispute resolution mechanism for construction projects
Yes, under Turkish law, construction contracts are ‘work contracts’ meaning that they consist of the performance of a work, which is arbitrable under Turkish law. That said, disputes concerning rights in rem on immovable property in Turkey are not arbitrable. Accordingly, if, for example, a contractor is compensated with ownership of a portion of the land on which it is performing the construction or the construction contract otherwise transfers ownership of immovable property in Turkey, disputes arising from the ownership right to the immovable property will not be arbitrable. As such, construction disputes are usually arbitrable and arbitration is not only used but is increasingly becoming the preferred method of resolving complex construction disputes involving foreign counterparties in Turkey.
Institution and seat preference
The International Chamber of Commerce, London Court of International Arbitration and Istanbul Arbitration Centre (ISTAC) are the most commonly preferred arbitral institutions for arbitration of construction disputes in Turkey. In fact, in 2017, the Implementation Regulation for Construction Tenders was amended to include ISTAC as the default choice of arbitration institution for public procurement contracts.11 Ad hoc arbitration is generally not preferred due to the lack of secretarial services in ad hoc arbitration.
The choice of seat depends on the specifics of each project, such as the nationality of the parties and where the parties have assets. That said, in our experience, Geneva and London are two commonly preferred arbitral seats.
9. Are there any notable local court decisions interpreting FIDIC contracts? If so, please provide a short summary.
There are few Turkish court decisions that have interpreted FIDIC contracts. Among these, there is one notable example regarding the procedure for extension of time, which we would like to share.12 The dispute arose out of a FIDIC form of contract signed in 1994 for the construction of 588 residences. Clause 44 of the contract regulated the procedure applicable for extension of time requests. The contractor was required to notify the engineer of its request within 28 days along with the documents evidencing the necessity for the extension of time, with a copy of the request also sent to the employer. The contractor had failed to make its request in accordance with the procedure stipulated under the contract, and the extension of time request was rejected by the engineer.
The Court of Cassation held that FIDIC forms of contract foresee strict rules for extension of time requests for the purposes of ensuring consistent practice on an international level. The Court of Cassation further emphasised that it is essential for extension of time requests to be made in a timely manner and accompanied with the necessary evidence in order to prevent unjust outcomes. The Court of Cassation then evaluated the case before it and ruled that the engineer was justified in refusing the extension of time request considering that the contractor had failed to make its extension of time request in due time and to document it.
10. Is there anything else specific to your jurisdiction and relevant to the use of FIDIC on projects being constructed in your jurisdiction that you would like to share?
Termination of a public procurement contract by the contractor
As explained at Question 2 above, FIDIC forms of contract are mainly used in public procurement projects in Turkey. Contracts signed as a result of public procurement are mainly regulated by the Public Procurement Law No 4734 and Public Procurement Contracts Law No 4735. Neither of these codes nor their secondary legislation provide for a termination right to the contractor due to the employer’s breach of its obligations under the public procurement contract. Certain scholarly views have interpreted this absence as an indication that the contractor cannot terminate a public procurement contract. On the other hand, there are also views that a contractor can terminate a public procurement contract in accordance with the general provisions of the TCO, which apply in the absence of an express provision in the public procurement legislation.
FIDIC Red Book Sub-Clause 16.2 extensively regulates the reasons and conditions for the contractor’s termination. Therefore, although it is not crystal clear, parties should be aware that depending on the view taken by the dispute resolution authority, Sub-Clause 16.2 may be found in contradiction with the public procurement legislation and, therefore, invalid (although such invalidity does not render the contract invalid as a whole).
In principle, the parties are free to determine the amount of a contractual penalty, which the delay damages provision under Sub-Clause 8.8 may constitute as explained above under Question 5. According to Article 182 of the TCO, Turkish courts can readjust excessive penalty amounts ex officio. That said, in practice, courts hold a high threshold to adjust contractual penalty amounts determined under contracts where both parties are merchants and are therefore expected to act as prudent merchants and carefully consider the consequences of contracts they execute.
Defect liability period
FIDIC forms of contract include a defect notification period but do not set a liability period for defects. As such, the relevant provisions of the governing law shall apply. If Turkish law is selected as the governing law, the parties must be aware of the liability periods set for defects in construction contracts. According to Article 478 of the TCO, Turkish law foresees a five-year liability period for defects for the contractor, starting from the date of delivery. If the contractor has caused the defect intentionally or by gross negligence, the liability period is 20 years from the date of delivery.13
Principle of good faith
Under Turkish law, as opposed to common law systems, the parties to a contract have a general obligation to carry out their obligations in accordance with the principle of good faith enshrined under Article 2 of the Turkish Civil Code. In terms of construction contracts, the principle of good faith is often used in the context of determining whether the performance is defective or whether a certain notification period is enough (especially when no express period has been set in the contract).
General terms and conditions
Under Turkish law, contract terms previously and unilaterally prepared by one party (without being negotiated) with the purpose of using them for several similar contracts and submitted to the other party for signing are considered general terms and conditions. If any provision of the general terms is contrary to the interests of the other party, the party who unilaterally drafted the contract is required to provide clear information to the other party regarding the existence of any such clause or provision, provide the other party with the opportunity to read, learn and understand the content of any such provision prior to or at the signing of the contract and, ideally, provide an opportunity to negotiate the provision. The validity of any such provision depends on the acceptance of the other party. Without such acceptance, any such clause or provision will be deemed not to have been written (ie, not to have been incorporated into the relevant contract). That said, contractors in FIDIC contracts are merchants, who are subject to the obligation to act as a prudent merchant in all their commercial activities. This obligation encompasses the need to carefully consider the content of any contract before executing it. As such, under Turkish law, contractors will not be able to claim that provisions of the FIDIC contract constitute general terms and conditions, save for exceptional cases and depending on the specific conditions thereof.
1 See the annexes in this link for the Turkish version of the standard contract form at www.mevzuat.gov.tr/mevzuat?MevzuatNo=12916&MevzuatTur=7&MevzuatTertip=5, accessed 22 January 2023.
2 The Marmaray Tunnel Project used the Silver Book, as it was considered to be an unconventional project in Turkey. The Baku-Tbilisi-Ceyhan Pipeline Project also used the silver book.
3 11th Civil Chamber of the Court of Cassation, File No 2012/4088, Decision No 2013/3972 dated 4 March 2013. 11th Civil Chamber of the Court of Cassation; File No 2016/5836, Decision No 2017/4720 dated 26 September 2017; 11th Civil Chamber of the Court of Cassation; File No 2014/1385, Decision No 2014/3815 dated 28 February 2014.
4 11th Civil Chamber of the Court of Cassation; File No 2016/5836, Decision No 2017/4720 dated 26 September 2017.
5 Nuray Ekşi, İnşaat Hukuku ve Uygulaması (Construction Law and Practice), 2017, pp 187–188.
6 Numan Tekinoğlu, İnşaat Sözleşmelerinde Cezai Şart ve Götürü Tazminat (Penalty Clause and Liquidated Damages in Construction Contracts), 2017, p 179.
7 Ibid, pp 180–181.
8 Eda Şahin Şengül, FIDIC Kırmızı Kitap Kapsamında İnşaat Sözleşmelerinde Süre Uzatımı (Extension of Time in Construction Contracts within the Context of FIDIC Red Book), 2022, pp 155–156.
9 15th Civil Chamber of the Court of Cassation, File No 2000/4429, Decision No 2001/1032 dated 26 February 2001.
10 Note 5 above, pp 206–208.
11 Article 2 of Regulation Amending the Implementation Regulation for Construction Tenders dated 30 December 2017.
12 15th Civil Chamber of the Court of Cassation, File No p 2000/4429, Decision No p 2001/1032 dated 26 February 2001.
13 Zafer Kahraman, 6098 Sayılı Türk Borçlar Kanunu Hükümleriyle Karşılaştırmalı Olarak 1999 FIDIC Kırmızı Kitap Kurallarının Kabul Edildiği İnşaat Sözleşmelerinde İşin Kabulü ve Yüklenicinin Ayıptan Doğan Sorumluluğu (Acceptance and the Contractor’s Liability from Defects in Construction Contracts for which 1999 FIDIC Red Book Rules Have Been Adopted in Comparison with the Provisions of the Turkish Code of Obligations No 6098), 2014, p 2562.
About the authors
Ceyda Sıla Çetinkaya is an associate at Esin Attorney Partnership, mainly focusing on resolving complex M&A, EMI and investor-State disputes through arbitration, and can be reached at firstname.lastname@example.org.
Ege Buket is an associate at Esin Attorney Partnership, mainly focusing on resolving disputes arising from commercial contracts and EMI projects, and can be reached at email@example.com.
Yavuz İskit is an associate at Esin Attorney Partnership, mainly focusing on international arbitration and court litigation, and can be reached at firstname.lastname@example.org.
FIDIC’s amendments Issue No 3 (1 January 2023)
FIDIC started off the new year with a third set of Amendments to the FIDIC 2017 suite of model forms (also known as the ‘FIDIC Second Editions’), affecting the Red, Yellow and Silver Books. Set out below is a brief outline of the content of these Amendments, with a focus primarily on the substantive changes.
In December 2018, FIDIC published Errata1 to each of the FIDIC Second Editions. They identified around 25 ‘significant errata’ to be corrected, not including minor typographical errors and layout irregularities. This was followed by a second round of amendments in the form of a memorandum published in June 2019, which corrected a further three layout irregularities.2 Subsequently, FIDIC reviewed the text of the FIDIC Second Editions, having regard to comments and queries raised by users and commentators, with the aim of clarifying the original intent of the FIDIC Contracts Committee. The outcome of this review was a set of three ‘Amendments No 3’ – one for each of the model forms. They were published in November 2022 and became effective for procurement purposes on 1 January 2023.
Simultaneously, FIDIC published reprints of the FIDIC Second Editions, which incorporates the three successive amendments noted above.
The substantive amendments
There are six areas where substantive amendments are apparent – four of which concern claim/dispute-related definitions, and two involving substantive matters.
FIDIC has altered the scope of a ‘Dispute’ in several respects. Sources indicate that the dual aims of these changes are to clarify what distinguishes a ‘Claim’ from a matter to be agreed or determined; and to establish the primacy of the determination of the Engineer/Employer’s Representative and the Notice of Dissatisfaction (NOD) as the only instruments by which a ‘Dispute’ may be created (or ‘crystalised’ to use the popular term) (subject to three exceptions, as explained below).
As regards the conceptual distinctions, by virtue of the relevant amendments, the ‘matter to be agreed or determined by the Engineer is now defined by reference to sub-paragraph (a) of Sub-Clause 3.7 (in the case of the FIDIC Red and Yellow Books) and of Sub-Clause 3.5 (in the case of the FIDIC Silver Book).
In addition, the amendment has expanded the role of the Engineer/Employer’s Representative and the NOD by requiring that the Claim or matter must have been the subject of a determination and a relevant NOD before it may correctly be regarded as a ‘Dispute’. While the original text of Sub-Clause 1.1.29 (FIDIC Red and Yellow Books) and Sub-Clause 1.1.26 (FIDIC Silver Book) defines ‘Dispute’ as any situation where a ‘claim’ is made by one Party against the other, the claim is then rejected, and the claiming Party does not acquiesce to such rejection,3 the amendment clarifies that the Claim or a Party’s assertion(s) in respect of a matter (as the case may be) must be the subject of a formal determination and a NOD. It is no longer sufficient that the first Party has not indicated acquiescence with the determination by some other means.
However, there may be a deemed Dispute in the following instances:
1. In the case of:
(i) the FIDIC Red and Yellow Books, the Engineer has failed to issue a Payment Certificate, or the Contractor does not receive any amount due under a Payment Certificate within the required time;
(ii) the FIDIC Silver Book, there is a non-payment as referred to under sub-paragraph (b) of Sub-Clause 16.2.1 [Notice];
2. the Contractor does not receive financing charges due under Sub-Clause 14.8; or
3. a Party has given Notice of intention to terminate, and the other Party does not agree the first Party is so entitled.
FIDIC explains that it has introduced the third exception above to make clear that the Dispute Avoidance and Adjudication Board (DAAB) is competent to determine whether a termination was valid.
It is perhaps noteworthy that the three exceptions from the requirements for a formal determination and a NOD do not include a situation in which a Party might wish to enliven the enforceable powers of the DAAB to grant provisional relief without a determination and NOD, for instance where there has been a call on the Performance Security.
FIDIC’s amendments to Sub-Clause 1.1.29/1.1.26 have also had the effect of removing a ‘claim’ from the definition of a ‘Dispute’ attracting the DAAB’s jurisdiction. While the definition of a ‘Claim’ remains broad, the ‘claim’ – not an explicitly defined term under either the original or revised versions – appears to have undergone some change. Whereas under the original versions, it was either a ‘Claim’ or a ‘matter to be determined’,4 it is now any claim that may be made against a third party, say, under the Performance Security, or an insurance policy5 and is subject to the more general Sub-Clause 1.3 notification procedure as opposed to Sub-Clause 20.1.
Matter to be determined
FIDIC also considered that greater clarity was needed as to the meaning of ‘a matter to be determined by the [Engineer/Employer’s Representative] under the Conditions, or otherwise’, which is now defined by reference to Sub-Clause 3.7/3.5. In turn, Sub-Clause 3.7/3.5 has received a makeover to include a list of specified matters (which varies between the Red, Yellow and Silver Books). Thus, these amendments in turn clarify the difference between (1) a ‘Claim’; and (2) ‘a matter to be determined by the [Engineer/Employer’s Representative] under the Conditions, or otherwise’, and they distinguish both from a ‘claim’ of which neither Party is a direct recipient. It may be said that these ‘amendments’ only make clearer (and perhaps under some systems of law, codify) those various matters that the Engineer (or Employer’s Representative as the case may be) is empowered to agree or determine and which might become a ‘Dispute’ requiring the assistance of the DAAB. This should assist Parties with the proper discharge of their administrative obligations.
As readers will know, the original FIDIC Second Editions swapped the moniker ‘Force Majeure’ for ‘Exceptional Events’ as used in the FIDIC First Editions. The Amendments No 3 have now clarified that an Exceptional Event must indeed be exceptional, in addition to the four elements found at Sub-Clause 18.1, namely, something that:
- is beyond a Party’s control;
- the Party could not reasonably have provided against before entering into the Contract;
- having arisen, such Party could not reasonably have avoided or overcome; and
- is not substantially attributable to the other Party.
This perhaps begs the question, ‘exceptional to what?’. Moreover, one might also consider whether a superadded requirement of exceptionality was necessary in view of the combined nature of four distinctly enumerated elements.
In addition, FIDIC has sought to clarify the relationship between Sub-Clauses 17.2 and 18.4. Whereas it was previously unclear how the relief available to the Contractor under Sub-Clause 17.2 interacted with that available under Sub-Clause 18.4, FIDIC has now amended the third paragraph of Sub-Clause 17.2 to state that the Contractor’s obligation to rectify the loss and/or damage and subsequent entitlement to a Variation is without prejudice to any rights it may have to an extension of time (EOT) and/or Cost under Sub-Clause 18.4.
FIDIC Yellow Book – Error in the terms of reference and errors, etc in the Employer’s Requirements
Sub-Clause 4.7 of the FIDIC Yellow Book obliges the Contractor to (inter alia) set out the Works in relation to the items of reference under Sub-Clause 2.5, verify the accuracy of all the items before they are used for the Works and to give a Notice to the Engineer describing any errors. Similarly, Sub-Clause 1.9 of the FIDIC Yellow Book obliges the Contractor to give a Notice to the Engineer within a certain period of any error, fault or defect that the Contractor finds as a result of its scrutiny under Sub-Clause 5.1.
While in the original versions of the FIDIC Yellow Book, the Contractor is entitled to a Variation where such an error is discovered, FIDIC has recognised that such errors may not, in fact, require a Variation, yet may still cause the Contractor to suffer delay and/or incur Cost – for instance, because the Engineer/Employer’s Representative instructs the Contractor to suspend the execution of a part of the Works while the error (etc) is being investigated.
Accordingly, amendments have been made to the second paragraph of Sub-Clause 4.7.3 and the fourth paragraph of Sub-Clause 1.9 of the FIDIC Yellow Book to reflect that the Contractor is entitled to EOT and/or payment of Cost Plus Profit in such a scenario.
FIDIC has sought to address two possible scenarios in the practice of constituting a DAAB. The first involves a failure by the Parties to agree the terms of the DAAB Agreement with an agreed appointee. The original wording of Sub-Clause 21.2 does not explicitly cater for this scenario. The amendment provides that in such circumstances (as well as the original conditions set out in Sub-Clause 21.2, subparagraphs (a) to (d)), unless otherwise agreed, either or both Parties may apply to the President of FIDIC or a person appointed by the President (whereas previously it was ‘the appointing entity or official named in the Contract Data’) for a suitable appointment of the member(s) of the DAAB or the replacement thereof; or to set the terms of the appointment, including the amounts of the monthly fee and the daily fee for each member or replacement – in both cases ‘after due consultation with both Parties and after consulting the prospective member(s) or replacement’.
The second scenario concerns the constituency from which the prospective member(s) or replacement may be drawn.
In this regard, FIDIC has sought also to address the perceived lack of clarity of the source for these appointments6 by adding a second paragraph to Sub-Clause 21.2 that states as follows:
‘Selection of the member(s) or replacement to be so appointed shall not be limited to those persons named in the list in the Contract Data or, in the case of sub-paragraph (d) above, to the member(s) or replacement agreed by the Parties.’
Although it might be thought that this diminishes party autonomy by taking the choice out of the hands of the Parties, who have agreed a list of proposed members of the DAAB, FIDIC appears to be seeking to strike a balance between the competing interests of economy and party autonomy – one that recognises the value of the certification standards applied to the members of the FIDIC President’s List of Approved Dispute Adjudicators.
DAAB Member’s disclosure-relation period and prior disclosure
Clause 4 of the Appendix [General Conditions of DAAB Agreement] sets out positive requirements and prohibitions on a DAAB Member’s state of affairs and past or future actions. One such prohibition is on the Member’s employment as a consultant or otherwise by one of the parties or their personnel for a certain period prior to signature of the DAAB Agreement. In the original version of the FIDIC Second Editions, that period was ten years. FIDIC has since taken the opportunity to review the limits of this prohibition. In this regard, it has duly noted the published guidance of the IBA7 concerning the significance of prior services by an arbitrator for one of the parties or other involvement in the case,8 or relationship with counsel in the arbitration, within a preceding period of (only) three years;9 or an arbitrator being a former judge who has heard a significant case involving one of the parties or its affiliates.10 FIDIC has also recognised the role that prior disclosure might play in avoiding any real or perceived ‘imbalance within’11 the DAAB. Accordingly, Sub-Clause 4.1, paragraph (c) has been amended to reduce the ‘relation period’ for prior employment from ten years to five years and to create an exception to the prohibition where the circumstances of prior employment were disclosed prior to the parties’ signature of the DAAB Agreement (or where they are deemed to have done so). FIDIC’s concern for due access to an adequate body of available DAAB Members is evident here.
In addition to the substantive changes noted above, FIDIC has also clarified the following five aspects of the FIDIC Second Editions:
- performance security ‘Guaranteed Amount’ adjustments;
- constructive taking-over;
- partial certification of the content of an application for final certification deemed an IPC;
- preparation and award writing included in the daily fee; and
- the use of the internet.
Amendments No 3 became ‘effective’ (ie, for use in procurement documentation) on 1 January 2023, and FIDIC recommends that all new users of the FIDIC conditions take due note of the content. Licensing organisations and institutions are also advised to reflect on the amendments and take the necessary steps to update their documentation. Going forward, parties that are considering draft contracts that reference the FIDIC Second Editions ought to check whether they are expressly incorporating by reference the original or revised versions thereof.
1 FIDIC refers to these as Amendments Issue No 1 – December 2018.
2 FIDIC refers to these as Amendments Issue No 2 – June 2019.
3 See paras 638–643 of Chapter 8 of Brown N A, FIDIC 2017: A Definitive Guide to Claims and Disputes, 2021, ICE Publishing.
4 See Sub-Clauses 1.1.29 of both FIDIC Red and Yellow Books.
5 See ‘The FIDIC 2017 Contracts Guide’, at p 7.
6 But see Brown, note 3 above, at .
7 See ‘IBA Guidelines on Conflicts of Interest in International Arbitration’ (Adopted by resolution of the IBA Council on Thursday 23 October 2014).
8 Ibid, para 3.1.
9 Ibid, para 3.3.
10 Ibid, para 3.4.5.
11 Adopting the expression employed by the IBA, ibid. at para 6.
About the authors
Nicholas Brown is a Partner at Pinsent Masons LLP in London and can be contacted at Nicholas.Brown@pinsentmasons.com.
Kerry Higgins is a Solicitor for Pinsent Masons LLP in London and can be contacted at Kerry.Higgins@pinsentmasons.com.