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DO FIDIC RULE APPLY IN CONSTRUCTION CONTRACTS IN UAE?

October 2019 - Real Estate & Property. Legal Developments by Al Rowaad Advocates & Legal Consultants.

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Since a very long time, FIDIC (The International Federation of Consulting Engineers) is commonly used a standard for international construction and engineering contracts and is very frequently used in UAE. It mainly governs the construction works within the country and in GCC. 

FIDIC has a different category known as Rainbow suite for varied projects or contracts. The suite includes Res book for building and engineering works, a yellow book for design-build, a silver book for EPC contracts and the green book for short projects which was released in 1999.

Almost post two decades, FIDIC committee has released the second edition of three principal contracts that are Red, Yellow and Silver book. The amendments in these contracts are the recent topics of construction industry. The Construction Lawyers in Dubai have written this article to enlighten the readers about a few notable changes in the FIDIC current edition. The rationale behind the rigorous amendment in the rainbow suit is to meet the demands of the users and the industry, considering the rapid change in the technology.

Significant Changes

One can witness considerable revisions in the yellow, silver and red book. The extensive nature of these contracts is due to detailed provisions regarding contract administrations rather than just superficial change. One should carefully read each clause of the concerned book considering the length of the provision it may invite unnecessary misinterpretations. Some of the notable changes in the FIDIC rules are outlined below:

1.      Notice

A clear heading stating “Notice” and the subject for issuing such notice shall be highlighted, whenever a party issues a notice, concerning the new amendment. The intention behind this amendment is to reduce the disputes in relation to notices issued by parties where parties argue about the recommendations in the progress report is considered as notice of a claim.

2.      Disputes

In consonance with the predecessor of the rainbow suite to appoint Dispute Adjudication Board (DAB). The functions DAB starts from the beginning of the contract until the completion of the project. The Board is required to visit the site throughout the term of the agreement to ensure smooth functioning of the project. As the name suggests, DAB is appointed to resolve or avoid disputes between the parties. Even though appointment DAB can prevent parties from strenuous disputes, it is still considered as a costly affair to have DAB on board. However, under the new amendment, appointing Dab is a preliminary requirement for parties which earlier they were happy to disavow.

3.      Duties of Engineers

A pivotal role was played by engineers in the old Rainbow suite, and the same position has been maintained in the new suite with some additional responsibilities. FIDIC update is almost 50% more of its predecessor with one significant aim to achieve more structured and clear procedures to avoid uncertainty. Coming back to the duties of the engineer, below are several new duties under the new Yellow book:

·         The engineer will continue to act as an employer, and according to the new amendment, Engineer is not required to permission from the employer prior to making a determination;

·         There is a new role of Engineer’s representative, who must be present at the site throughout the project period;

·         Engineer under the term “Agreement” is obligated to encourage the terms of the agreement. They may further, if required, provide consultation to parties in this regards;

·         Should the engineer fails to make a determination in the relevant period, the matter will be referred to DAB;

·         Engineer is a neutral party and should not be biased.

A great emphasis can be witnessed from the wordings of the new contract on the duties of engineers that is to prevent the claims from becoming disputes leading towards harmony between the parties.

Warnings

Another consequential feature of the rainbow suite is the authority given to DAB to issue advance warnings or prior notice of a potential issue. This feature is to with a view to amicably settle the matters between the parties and with a hope that parties will work in harmony to resolve the dispute rather than escalating it to something serious.

The gold book allows the parties to inform an other party in advance regarding any unforeseen circumstances which can have an unpropitious impact on the project.

5.      Force Majeure Provisions

Gold Book manifests a collaborative and risk-sharing approach and bearing the same approach in mind; the new yellow book includes a provision stating “exceptional risks” or “risk allocation”. The definition of exceptional risks is similar to the definition of force majeure clause. However, it also sets out the risks the contractor or the employer may have to bear in future. A detailed description of such risks can be observed from the new amendment.

6.      The procedure for filing claim

Interestingly, a new step has been taken by FIDIC to divide the claims procedure from that of disputes. The intention of the FIDIC committee was to separate the contractual processes of seeking a claim from the procedures regarding filing a dispute. Through this, parties will be less ingrained towards their position and will be more likely to resolve the dispute. However, we still have to see if the concerned approach will practically fit in such conflict.

One more significant change can be seen in clause 20 where the claims procedure s now applied to both the employer and the contractor. It is clear that now a similar procedure will be followed for employer’s claims, leading towards a balanced approach and mutually-benefitted relationship. It is further implied from Clause 20 that numerous additional obligation regarding contract obligations have been imposed on the party filing a claim.

Conclusion

It is indeed very early to have conclusive remarks on the FIDIC update as the position of new amendments are yet to be justified through a practical approach. However, a significant emphasis on the dispute avoidance mechanism is perhaps the most conspicuous change in the rainbow suite.

Introduction of friendly settlement procedure is clearly to safeguard the interest of parties and offer them employer-friendly business relationship.