Introduction to Construction

Contracts
2023/ 2024

Dr. Sandra Matarneh

Week 1
What do lawyers mean by a contract?

Simply, they mean a legally binding agreement.

This answer is, of course, not enough. It needs to be established

what makes an agreement legally binding and even what we mean
by agreement.
Knowing what the offer is, and what the acceptance is, is essential if there is a dispute over the
terms of the contract.

So, what is an offer?

It might be helpful to think of an offer in terms of a promise, ie a statement that unequivocally
expresses that person’s willingness to be bound.

Therefore, an offer is an expression to enter into a contract on the terms offered with the intention
it will be legally binding when accepted.

The party making the offer is known as the offeror. An offer can be either oral or written and it
must be a genuine offer and not ‘an invitation to treat’. Invitations to treat include auctions, shop
and window displays, advertisements, tenders and the likes.
Acceptance must be unconditional and correspond to the strict terms of the offer.

Acceptance also must be communicated and is only valid if it is communicated by a person

with the authority to do so.

The offeree is responsible for ensuring that acceptance is communicated to the offeror. As a general
rule, communication means that the offeror has received the acceptance and is aware of it. Silence
will therefore not constitute acceptance.
Consideration means something which is of some value in the eyes of the law. It is the price
for which the promise of the other is bought.

Subject to certain exceptions, all contractual promises must be supported by some consideration.
The consideration must be of sufficient value, often money on one side in return for goods and
services on the other.

This means that it must have some legal worth. However, consideration need not involve money but
must have some economic value.
If all the elements of the contract are there, offer, acceptance and consideration, the contract will
still not be enforceable if the parties did not intend to be bound.

So, to be legally binding, the parties must have the legal capacity and requisite intention to enter
into a contract.

Finally, a company should only make contracts within its powers or capacity, as set out in its
constitution. Suppose the directors, or the officers of a company, enter an agreement with
another person or business and that agreement is beyond the list of business tasks set
under the company's constitution. In that case, the contract will be invalid if the other party,
in bad faith, has knowingly taken advantage of the company.
Legal subject matter

Consent
Contracts are usually preceded by negotiations where many things are said, statements
made verbally or even written down; however, these do not all necessarily become terms of
the contract. It is important to be able to distinguish between the actual contractual terms
and other statements.

The courts differentiate between:

• A mere statement of opinion or a puff with no legal significance and no contractual remedy if the
statement is untrue. This is generally intended to draw attention to a particular product or service
to encourage sales. Often these are boastful statements made in advertising. They are too vague to
constitute a statement of fact. If a puff is broken or is false, there is no liability.
• A representation, often referred to as a ‘mere representation’, is an inducement to encourage the
other party to enter into the contract. This does not form part of the contract however,
representations do have some legal significance. If a representation is false, there may be remedies
available under a claim for misrepresentation.

• A term which is part of the contract. Expression of the parties’ willingness to abide by particular
contractual obligations. A breach of a term will allow the innocent party to sue for breach of
contract.

The distinction between representations and terms is therefore important. We need to distinguish
between those pre-contractual statements which have become part of the contract and those which
have not, because the remedies available to the innocent party depend on whether the statement
was a false representation or an actual term of the contract.
On the other hand, a term in a contract can be express or implied. Express terms are those terms that
the parties expressly agree to include in the contract. They may do that in writing or verbally.

However, you may also have terms implied into a contract. These are terms which have not been
expressly stated by the parties, but they nevertheless form part of the contract. These terms may be
implied in a number of ways, by statute, courts or custom, ie trade usage.
Incorporation refers to when an express term has become part of a contract. All terms must
be successfully incorporated to have any legal effect.
There are three main ways in which a term may be incorporated into a contract:

By signature
There is a general rule that a term is incorporated if it is contained in a written contract
signed by the other party.

By reasonable notice
A clause will be incorporated only if it is on a document that might reasonably be considered
to contain contractual terms. A party subject to the clause must be made sufficiently aware of its
existence before or at the time the contract was formed. What is reasonable is a question of
objective fact
By a consistent previous course of dealing

An exception to the general rule that there must be sufficient notice of the existence of an exclusion
clause arises if parties have dealt regularly and consistently (namely on the same terms and
conditions) with each other over a sufficient period of time – in those circumstances then a term
may be incorporated in this way. This exception to the rule will only apply if the previous course of
dealing has been consistent.
Generally, there is a notion that if it is not in the contract it was not intended to be included.

However, there are some circumstances that a court will imply a term into a contract. In particular,
courts may imply a term to give ‘business efficacy’ to the contract, and the courts’ aim is to work
out what the parties intended by their agreement.

They are often implied to fill gaps in a contract where the court is satisfied that the parties must
have intended to include such a term had they thought about it. This is not a redrafting exercise
for the courts. Courts are not permitted to imply a term merely because it would improve the
contract, or make it fairer, or because one considers the parties would have agreed it if it had been
suggested to them. Courts consider what a reasonable person would have understood the parties’
intentions to be, given the background knowledge reasonably available to the parties at the time
they entered the contract.
Terms will not be implied simply because it is just and reasonable in the circumstances but only
where it is a matter of strict necessity. Proposed term must meet the following conditions:

1. It must be necessary to give business efficacy to the contract. Therefore, no term will be implied
if the contract is effective without it. This is called, the business efficacy test, ie without the
term, the contract would lack commercial or practical coherence.
2. It must be so obvious that "it goes without saying" so that, if an 'officious bystander' were to
have suggested it at the time of the contract, the parties would have replied: 'Oh, of course!'
3. It must be capable of clear expression.
4. It must not contradict any express term of the contract.

It is worth noticing that the first and second conditions are alternatives. Only one needs to
be satisfied.
The court may also imply a term into a contract as a matter of law, irrespective of the parties’
wishes or intentions, that a particular term is needed to make this type of contract work. A general
rule is laid down for all similar contracts.

In the case of Liverpool City Council v Irwin [1977] ac 239, the council had built a tower
block. The tenants rented individual flats, but the contracts were silent on who was to be
responsible for stairwells, walkways, rubbish chutes etc. Someone has to be, so it was held
in this case that it was the council’s responsibility.
In the case of Multiplex Constructions UC Ltd v Cleveland Bridge UK Ltd [2006] EWHC 1341 (TCC), a
construction subcontract did not include a term that the subcontractor will execute the works so as to meet
the contractor's programme.

It is the subcontractor's obligation to finish by the completion date and it is up to the subcontractor to
organise their work as they see fit. If the subcontractor feels that they can leave all the work to the last
month and complete on time then, despite the concern of the anxiously watching contractor, they may do
so. If the contractor wants to impose some other obligation, there needs to be an express term.

How about the site conditions? Does the employer have to ensure that the site is free from rubbish and
debris so that the works can proceed? The case of Allridge (Builders) Ltd v Grandactual Ltd [1996] 55 Con
LR 51, shows that the answer is no.
How about the right to extend the time for completion of later phases where an earlier phase was delayed,
and an extension was granted? The case of Porter v Tottenham U.D.C [1915], 1 K.B. 776 shows that the
answer is no again.

You might think, for example, that a builder of a school should have uninterrupted possession of and access
to the site; however, the answer is no unless there is an express term in the contract for that.

To top it all, in a contract for construction to a given specification, the contractor does not have to warrant
that the works will be fit for purpose upon completion – although you would want that in the contract.

The bottom line is that you do not want to be in a position where you are trying to rely on implied terms
unless they are expressly implied by statute and nothing in the express contract cuts against them.
An exemption clause is a term in a contract that seeks to either limit or exclude a party’s liability to the
other.

This occurs when one party attempts to cut down the scope of their contractual duties or regulate the other
party's right to remedies for a possible breach of contract. Exclusion clauses seek to exclude all of a party’s
liability while limitation clauses allow the party to be liable but limit how much that party would have to pay.

In other cases liability can only be excluded if it is fair and reasonable to do so. For example, provision in a
contract excluding liability for death or personal injury caused by negligence
will be void.
Reflect on the essential requirements of legally binding documents then discuss the legal position of
the following:

• Letter of intent
• Invitation to tender
• Contractor’s tender
• Estimate / quotation
Depending on the nature of the mistake, a contract might be void or voidable. Contracts will be void if
the mistake is fundamental. For example if a shipment of goods has been destroyed prior to sale but
neither party is aware and continue to enter a contract for their purchase, then the contract will be
void for mistake.

However, in the case of W Higgins Ltd v Northampton Corporation [1927] 1 Ch 128, Higgins contracted
with the local authority to erect 58 houses. Higgins completed the tender incorrectly. The result was
that Higgins thought he was tendering for the erection of the houses at £1670 a pair, when in fact it
was £1613 because of the way in which Higgins had made up the bills. Higgins was bound by his
mistake and could not claim to have the contract set aside or rectified.

A representation is a statement relating to a contract made by one party that does not become a
contract term. If it induces a party to enter into a contract and is untrue, it can render the contract
voidable. To be a misrepresentation, it must be a statement of fact, not of opinion, eg the difference
between saying: the car is four years old, or, I think the car is about four years old.
An essential characteristic of law is that parties enter into a contract voluntarily. As such, a party who
has been coerced into entering into a contract may be liable to avoid the contract's obligations by
reliance on duress. Although, much will depend on the sort of pressure that has been applied on the
claimant. Duress includes threats to property and economic duress, eg threats to someone's financial
well-being.

Contracts that contravene the law are generally void, and no action may be brought upon them, such
as acts prohibited by statute, or a building that does not adhere to the Building Regulations. It is
important to note that only where the contract involves a breach of the law is it void. If a legal contract
is performed in an illegal manner, this will not be the case.

In the case of Townsend v Cinema News [1959] 1 WLR, building work was designed so as to comply
with the law but was carried out in contravention of a building byelaw. It was held that the contractor
could recover payment for the work since there was no fundamental illegality. In such circumstances
the building owner will usually be entitled to set off a counterclaim for any work necessary to make the
original work comply with statutory requirements.
Frustration occurs when circumstances that are not the fault of either party to a contract make it
impossible to continue with the contract. As a result, the contract comes to an end without either party
being considered to be in breach. However, the parties must be certain that a frustration event has
occurred so as not to be in breach of contract.

It is very uncommon for construction contracts to be frustrated because frustration should mean
fundamental change to parties’ obligations.

In Davis Contractors Ltd v Fareham UDC [1956] UKHL 3, the builders agreed to build 78 houses in
eight months for Fareham council at a fixed fee. The completion date was delayed as a result of bad
weather and lack of builders. It took 22 months to finish the work and cost the builders £17,000 more
than they originally budgeted for. The builders claimed that the contract had been frustrated and
should be set aside with some arrangements for remedy. The court held that the contract was not
frustrated because the test for frustration is whether the change of circumstances had made the
performance of the contract radically different from the obligation that they initially undertook.
In the case of Davis, the risk of shortage of resources and bad weather was just one of the risks that
were inherent in this type of contract and the builder should have addressed the risk up front and
protected himself by inserting an express term in the contract to cover this situation or by taking out
insurance. For the contract to have been frustrated, performance must become impossible, illegal or
fundamentally different through no fault of the parties. Where frustrated, a contract is discharged and
it provides a lawful excuse for the breach.

In July 1914, Dick, Kerr & Co agreed to build a reservoir in six years for the Metropolitan Water Board
(London). The contract said that Dick, Kerr & Co should apply to the engineer for an extension of time
in the event of delay ‘whatsoever and howsoever occasioned’. Two years later on 21 February 1916,
due to the war, the Ministry of Munitions ordered Dick, Kerr & Co to stop work and sell their plant. The
Metropolitan Water Board subsequently sued Dick Kerr to complete the reservoir. The House of Lords
held that the contract was frustrated, because the delay clause was intended to cover temporary
difficulties, and not such fundamental changes in the contract’s nature.
Damages are a common law remedy for breach of contract. If a breach can be established, there is no
question whether the innocent party is entitled to damages. Instead, the question is about how much
they are entitled to recover.

Damages financially compensate the innocent party for loss, ie damage that they have suffered as a
result of a breach of contract. The starting point and the first concept to be clear, is that the purpose of
damages at common law is to cover the claimant’s “expectation loss”, ie the claimant is compensated
for their expectation loss.

What does that mean? The compensation aims to put the claimant in the position it would have been
in if the contract was performed properly, ie in accordance with its terms. Normally, that would be the
difference in value between what they got after the breach and what they would have got if the
contract was performed properly. But it may equally be the cost of cure, ie how much is it going to cost
the claimant to make good this contract?
Sometimes it is impossible or very difficult for the expectation loss to be calculated, eg it is difficult to
work out the amount of profit the claimant would have made, to calculate the claimant losses or the
cost of cure. This is when the courts award reliance loss instead of expectation loss. Reliance damages
are intended to put the injured party in the position they would have been in had the contract never
been made in the first place.

It is also important to note that damages are not there to punish the defendant, however
unfair it feels they have benefitted from this loss, as in the case of Surrey County Council v
Bredero Homes Ltd [1992] 3 All E.R. 305.Bredero homes is a developer and they had a contract with
the Council. Under the terms of
the contract, the developer was limited to the number of properties it could build on the
land. They breached this term by building more properties than permitted and they made
huge financial profits by doing so. Because the Council could not prove any loss as a result of
the breach, only nominal damages were awarded and the developer was able to continue to
make those profits.
A claimant cannot necessarily recover all losses they might have suffered because the law has placed
certain limits on the right to recovery. A loss may genuinely have arisen as a result of a breach, but
that does not necessarily mean that the claimant can recover damages for that loss.

There are limits placed on the right of recovery of damages. The main two limits on a claimant’s right
of recovery are causation and remoteness.

Causation means that the right of recovery of damages depends on establishing a causal link between
the breach and the loss or damage. It makes sense that the defendant should not be obliged to pay
damages to compensate the claimant for a loss that was not caused by the defendant’s breach.

Secondly, remoteness means that any losses which are too remote from the consequences of the
breach will not be recoverable. A breach could start a snowball effect in terms of the damage and
losses that follow. However, only those losses that were foreseeable can be recovered.
Balfour Beatty Construction (Scotland) Ltd v Scottish Power Plc (1995) 71 BLR 20 is an example of a
case concerning the degree of foresight required for damages to be recovered for a breach of contract.
Balfour Beatty was the main contractor for the construction of part of the Edinburgh bypass. They
needed to build a concrete production plant because they needed a continuous production of concrete
for the project. During the construction, the electricity supply was interrupted which caused a break in
the continuous pouring of the concrete. This meant that part of the construction project had to be
demolished and re-built.

Balfour Beatty tried to recover the cost of the demolition and the cost of rebuilding from Scottish
Power, the electricity company. The House of Lords held that those losses were too remote and could
not be recovered.

There was nothing to suggest that the defendants (the electricity company) were aware of the need for
concrete to be poured continuously in order to fulfil the project requirements. That level of foresight
was not satisfied and therefore the losses were not foreseeable.
Another limit on the claimant’s ability to recover damages is their duty to mitigate their loss. This duty
means that they must take reasonable steps to minimise their losses, and not deliberately increase the
loss unreasonably. If the claimant refuses or fails to mitigate their losses, they will be unable to
recover the part of the loss that is attributable to that failure.
The construction industry often informally refer to the liquidated ascertained damages (LAD) clauses as
penalty clauses however, damages for breach of contract should be compensatory, not punitive.
Penalties used to be anything except a genuine pre-estimate of likely loss. However, a recent case law
concerning the validity of penalty clauses in the contract has amended this position.

In the Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67, the Court of Appeal, referred
to ‘the new approach’ to determine whether a clause was a penalty. The distinction between genuine
pre-estimate of likely loss and penalty was too rigid. Another relevant consideration was whether the
clause was extravagant or unreasonable.

The sums payable were in the region of millions or tens of millions of dollars, and sums in that order
were not proportionate to the likely effect of a breach of the restrictive covenants. Ultimately, the Court
of Appeal held that the clauses were not legitimate liquidated damages clauses. The predominant
purpose was to act as a deterrent, and they were viewed as a penalty and thus were unenforceable.
Consequently, Makdessi did not have to sell his shares, however Cavendish appealed to the Supreme
Court.
Unliquidated damages are those assessed by the court when the parties have not entered into any
agreement “upfront” about the level of damages. The courts have to make their own assessment about
the appropriate level of damages when the contract does not contain a liquidated damages clause or
when the liquidated damages clause has been rendered unenforceable because it fails to comply with
the rules governing such clauses. Unliquidated damages are harder to enforce because the aggrieved
party must prove what loss the breach causes and quantify it, and there may be disputes about
remoteness and mitigation of loss.

The claimants, Mr Hadley and another, owned a mill. A crankshaft, which was essential for the
operation of the mill, broke and needed to be replaced using the original as a template. The claimants
engaged the defendants, Baxendale and Ors, a firm of carriers, to transport the broken part to
engineers in Greenwich where a replacement would be made, but the defendants failed to do this
within the timeframe specified thus delaying the arrival of the new part and causing the mill to stand
inoperative.
The claimants sought damages to compensate for the losses sustained whilst the mill was idle. The
court accepted the defendant’s submission that the loss was too remote and should not be recoverable.

It would have been an entirely different position if the defendants had been made aware that the mill
would be inoperable without the part, but they were not aware that this was the only crankshaft that
the claimant possessed.

The decision in Hadley v Baxendale was that the loss of profits could not be regarded as normal loss
because the loss was not an inevitable consequence of the delay. It was normal practice for mill
owners to keep a spare crankshaft in their store which would have prevented any loss from occurring.
To recover the extra loss, they should have told the defendant that it was their only crankshaft and
thus the increased importance of getting it delivered on time. Furthermore, the claimants could not
recover their loss of profits as special loss because the defendants had no actual knowledge that any
delay on transporting the crankshaft to the manufacturers would have such a significant effect on the
operation of the mill.
Week 2
Common Construction Contract Forms

• Two of the most commonly used international construction contracts are NEC and FIDIC.

• FIDIC is a French language acronym for Fédération Internationale Des Ingénieurs-

Conseils, which means the international federation of consulting engineers. It was
started in 1913 by the trio of France, Belgium and Switzerland. The United Kingdom
joined the Federation in 1949.

• The New Engineering Contract (NEC), or NEC Engineering and Construction Contract, is
a formalised system created by the UK Institution of Civil Engineers that guides the
drafting of documents on civil engineering, construction and maintenance projects for
the purpose of obtaining tenders, awarding and administering contracts.
Act on behalf of the Employer Act on behalf of the Employer
FIDIC vs NEC – Time

• Both contracts require the contractor to submit a program for the works to be
undertaken.

• Both contracts also require the employer to stay at starting date, completion date, access
date and any sectional completions.

• However, the NEC requires much higher level of detail containing key concepts such as
float and time risk allowance.

• The NEC uses an initial program as a tool for how variations, earned value management,
and progress of the project is assessed.
FIDIC vs NEC – Time

• FIDIC requires the contractor to submit an initial detailed time program and to update
this when the program becomes inconsistent with actual progress.

• Under the NEC, it is imperative that there is always an up-to-date accepted program in
place to ensure the contract runs smoothly as a key feature of addressing risks to
program extensions which called “early warning” which can be submitted either by the
project manager or the contractor as soon as one or the other becomes aware of any
event which could affect time, cost or quality of the work. These usually followed by a
risk mitigation meeting where parties will work collaboratively to mitigate risk.
FIDIC vs NEC – Cost

• Both NEC and FIDIC make provisions for the price payable to the contractor to be based on a bill
of quantities.
• NEC goes further with pricing methods by providing the option to choose how work is procured.
These include cost-based open book contracts such as cost reimbursable (option E), target cost
options (C &D) where profit and loss is shared between the employer and contractor, lump sum
(option A) and management contracting (option F).
• Variations under FIDIC are known as variations/claims and under NEC they are known as
compensation events.
• FIDIC deals with time and cost variation separately unlike the NEC where both time and cost are
grouped together under the compensation event.
• Both contracts have different conditions for what constitutes a variation order, however FIDIC
provides number of subjective tests to determine if evens are grounds for recompense on the
other hand NEC relies on more objective test.
• An example: FIDIC refers to exceptional adverse climate conditions which is subjective whereas
NEC uses a worse than 1 in 10 years approach to weather which is objective.
The ECSC is for projects which are relatively easy to manage,
comprise straightforward work and impose only low risks on
both the client and contractor. It uses a price list, with
payments simply made for completion of priced items, or for
quantities provided at the agreed rates, or for a combination of
both.
The NEC4 Framework Contract (FC) is intended for appointing one or more suppliers over a set term to carry
out work or to provide a service or goods on an 'as instructed' basis using NEC4 contracts.
NEC ECC Structure – Core Clauses

1. General
2. The Contractor’s main responsibilities
3. Time
4. Testing and defects
5. Payment
6. Compensation events
7. Title – this details entitlement to use plant and materials (for example, contractor
using client materials).
8. Liabilities and insurance known as Risks and insurance in NEC3
9. Termination
NEC ECC Key Players

1. Contracting Entities / Parties (CI. 11.2(11)):

• Employer
• Contractor

2. Participants (CI.14):
• Project Manager
• Supervisor

3. Others (CI. 11.2 (10)):

• Subcontractor (s)
• Adjudicator
• Others (anyone except the above)
The Project Manager

• Administers the contract (impartially)

• Generally, the Employer’s Agent
• Can delegate any responsibility
• Employer has no contractual right to challenge the actions or decisions of the Project
Manager
• The only person who can issue instruction changing the Works information
• Project Manager has a duty of impartiality
• Assessing the amount due
• Assessing compensation events
• Issuing the Termination Certificate
Key Project Manager Duties

• Early Warnings
Early warning process (Clause 16) – 4 stages
• Notify
• Risk reduction meeting (if required)
• Identify outcome / action plan
• Update risk register
Key Project Manager Duties

• Programme
Section 3 of the contract:
• Defines what should be included in the programme (CI.31)
• The process for updating the programme (CI.32)
• The process for accepting the programme at regular intervals

Completion Date can only be changed by Project Manager as a result of:

• Any one of the stated compensation events (CI. 63.3 (ECC4 63.5)), or
• Acceleration (CI.36)
• Acceptance of Defect (CI. 44.2)
Key Project Manager Duties

• Compensation events
Section 6 of the contract
• Defines what constitutes a valid change (CI. 60)
• The process for notifying (CI. 61), quoting (CI.62), assessing (CI.63/64), and
implementing (CI.65)

What is a Compensation Event?

Under a construction contract, the Client’s aim is for the project to be delivered on time
and on budget. However, circumstances may impact on the Contractor’s ability to meet
these core requirements. The NEC suite anticipates this by way of Compensation Events
(‘CEs’) which may entitle the Contractor to claim additional time and/or money in certain
circumstances.
Compensation Event

Twenty-one CEs are listed in Clause 60.1 of the NEC4 ECC; they are wide ranging and cover
many scenarios which could result in a change to the contract price or desired completion
date. Examples include:
• changes to the Scope instructed by the Project Manager (with some exceptions);
• access to the Site not being given to the Contractor by a specified date or failure of the Client
to provide something to the Contractor which is required for the works to progress;
• not fully following the contractual provisions with regards to defects;
• finding objects of value, historical or other interest at the Site;
• unexpected weather conditions; or
• early takeover of the Site or part of it by the Client.

There is also the option for the Client to add bespoke CEs if they have specific
circumstances that they wish to cater for which are not already covered in Clause 60.1.
NEC ECC- Compensation Events
Process/ Timescales
WK3
The History of FIDIC
 Evolution of FIDIC Contract Models
• At the first FIDIC conference held in Belgium, recommendations were issued to pay attention to the
documents that should be available in construction contracts.

• As a result of these recommendations, and in 1957, the first edition of a model contract was issued
containing the contractual conditions intended for application at the international level under the
title:

“Conditions of Contract for Civil Engineering Works”

which was known as the “Red Book”.

• This course was based on a contract template prepared in England by the

Institute of Consulting Engineers ( ICE)

 Evolution of FIDIC Contract Models
• The Red Book continued to be edited, the second edition in 1969, the third edition 1977, and the
fourth edition in 1987.

• FIDIC released in 1963

“Conditions of Contract for Electrical and Mechanical Works”

This was known as the “Yellow Book”, later, the second edition was published in 1980 and the third
edition in 1987.

• With the increase of use of (Systems Delivery) implementation systems such as Build / Design and
Turnkey, FIDIC issued new conditions for this type of implementation system in 1995, which it called:

“Conditions of Contract for Design, Build and Turnkey”

which was later known as the “Orange Book”.

 Evolution of FIDIC Contract Models
• The International Federation of Consulting Engineers formed a committee and named it the “Red Yellow Update
Committee”.

• This committee significantly developed contract models by simplifying its language, standardizing clause numbers, and
unifying conditions and instead of having general and special conditions, the general conditions were formulated to
become comprehensive of all conditions.

• One of the results of the work of this committee was a large and comprehensive change in the types and models of
contracts, which led to the issuance of a new edition of the contracts group, and given that the change was so
significant, this edition was issued as a first edition in 1999.

• The types of contract models were viewed according to who bears the risks and not according to the type of business.
Instead of dividing the contracts into contracts for civil works and others for mechanical and electrical works, they were
divided into contracts, where the Owner is the designer, contracts where the Contractor is the designer and “Turnkey”
contracts.
 Evolution of FIDIC Contract Models
The first edition of the new contract model, the 1999 edition, was published and called the FIDIC
Rainbow, which is as follows:

• Conditions of Contract for Construction for Building and Engineering Works. Designed by the
Employer (Red Book).

• Conditions of Contract for plant and Design- Build (Yellow Book).

• Conditions of Contract for EPC/Turnkey Projects (Silver Book).

• Short Form of Contract (Green Book).

In 2008, FIDIC issued contract terms for design / building / operation projects “Golden Book”.

“Conditions of Contract for Design, Build and Operate Projects ”

In 2017, the second edition of the three books, The Red Book, the Yellow Book, and the Silver Book,
were published with the same titles as the first 1999 edition.
Layout of the Contract
1. The Contract Agreement
2. The Letter of Acceptance
3. The Letter of Tender
4. Part II – the conditions of particular application
5. Part I – general conditions of contract
6. The Specification and Drawings (Red Book), The Employer’s
Requirements (Yellow Book), the Schedules (Red and Yellow Books)
7. Further documents listed in the Contract Agreement or in the Letter
of Acceptance
The Letter of Acceptance
Letter of Acceptance (LOA):A Letter of Acceptance is typically issued by the employer or client to
formally accept a contractor's tender or proposal for a construction project. It signifies the intention
of the client to proceed with the contractor's offer and enter into a formal contract agreement.

Letter of Acceptance: means the letter of formal acceptance of the Contractor's Letter of Tender. It
is issued and signed by the Employer and usually one to two pages long. It can contain annexed
memoranda comprising agreements between the Parties.
What is the purpose of Letter of Acceptance?
The purpose of the Letter of Acceptance is to confirm that the Employer accepts technical and
commercial part of the Contractor’s Letter of Tender, except the Contract Terms and Conditions.

While Parties are negotiating the Contract Terms and Conditions and before they sign Contract
Agreement, it is usually wise to start with Works execution in order not to waste precious time for
Works execution. To enable start of the Works before the Contract Agreement is signed, protecting
the rights of both, the Employer and the Contractor, the Employer should issue Letter of
Acceptance.
What is the purpose of Letter of Acceptance?
As per FIDIC General Conditions of the Contract, Letter of Acceptance can be signed instead of
Contract Agreement i.e. the Contract Agreement document does not have to exist. On the other
hand, if there is no such letter, the expression Letter of Acceptance means the Contract Agreement
and the date of issuing or receiving the Letter of Acceptance means the date of signing Contract
Agreement.

In certain jurisdictions, receipt of Letter of Acceptance represents start of the Contract between the
Parties. However, local legislation should be checked before this letter is signed and considered as
Contract Agreement.
The Letter of Tender
Letter of Tender means the document titled “letter of tender” or “letter of bid”, which was
completed by the Contractor and includes the signed offer to the Employer / OWNER for the Works.

FIDIC Red Book 2017: the letter of tender, signed by the Contractor, stating the Contractor’s offer to
the Employer for the execution of the Works.

FIDIC Red Book 1999: the document entitled letter of tender, which was completed by the
Contractor and includes the signed offer to the Employer for the Works.
The Importance of FIDIC Contracts
 The Importance of FIDIC Contracts

1. Standardizing legal transactions between countries.

2. The coherence and integration of the contract clauses.

3. Clarity of texts and simplification of the language in which the terms of the contract are written.

4. Extreme flexibility and adaptability of FIDIC contract models.

5. Continuous updating, treatment of new matters and accumulation of experiences.

6. The balance and equitable distribution of risks between the two contracting parties.

7. Accreditation of major international institutions for FIDIC contracts.

 A Tour of the FIDIC Contract (Red Book)

“Conditions of Contract for Construction”

FIDIC – Red Book
• Interim and final payments are certified
by the Engineer, typically determined by
measurement of the actual quantities of
the works and applying the rates and
prices in the BoQ or other schedules.
The Cover
Typical Sequence of Principal Events During Contracts for Construction
 1.5 Priority of Documents as for Red Book:
- Contract Agreement (if any),
- Letter of Acceptance,
- Letter of Tender, (it is a form to be filled by Contractor not the tender documents in
procurement phase)
- The particular conditions,
- General conditions,
- Specifications,
- Drawings,
- Schedule and any other documents forming the Contract like BOQ, time frame (Project
Program), Method of measurements, Questions and Answers durin procurement or any
ither document that Engineers feel it is important for Contract,
1.6 Contract Agreement:
The parties shall enter into Contract Agreement within 28day after the Contractor receives
LOA, Contract will be based on the particular condition or otherwise stated, Contractor
have to pay any cost of stamps and duties or any other cost as stated in the Country law
before signing Contract.

If Contractor has letter of tender and LOA so he has an undefective Contract if he does not
sign Contract Agreement,
 1.1.1.3 Letter of Acceptance(LOA)
• Binds parties to the Contract, it is a letter of formal acceptance signed by Employer and
send to Contractor regarding the letter of tender that have been sent to the Employer
regarding this project from Contractor, LOA should include any annexes memorandum
comprising the agreement and signed by both parties.
• 42days after LOA needs to have Commencement Date, in which Engineer shall notify
Contract 7 days in advance of the agreed date.
• 28days after LOA Contractor needs to submit:
- Performance Security,
- Project Program,
- Pays all taxes and fees based on Country law,
If Contractor prepared all the above item Employer can sign Contract Agreement and retain
back the tender security,
 1.1.1.9 Appendix to Tender:
This is part of the third section of red book, This form is inserted in the Particular
Condition in tendering phase and must be submitted with the letter of tender document of
the Contractor for the benefit of the Employer, this table has essential information about
the tender like:
• Time for Completion of Works,
• Performance Bond,
• Defect Notification Period,
• Delay Damages, and Maximum Delay Damages,
• Time to access of Site, working days,
• Advance payment, Payment and Currency and Profit).
• Contract language, communication, Engineer name, Contractor name and Address,
4.2 Performance Security:
Contractor have to submit PS with an amount mentioned in the Appendix to Tender under
particular conditions, it should be issued within 28days from LOA on the cost of the
Contractor to the benefit of the Employer.
Employer can make a claim to this security when:
- Contractor failure to extend original PS beyond the expiry date.
- Contractor failure to pay the Employer under sub-clause 2.5(Employer Claims) within
42days after agreement and determination.
- Contractor failure to remedy any default within 42 days of being notified.
- Employer termination of Contract under 15.2 (Termination by Employer)
4.2 Performance Security:
PS will be returned after 21days after issuing a Performance Certificate, Engineer needs to
have a copy of the Performance Security, Engineer has to notify Employer weather or not
the PS is in compliance with Contract and keeps track of the end date.
1.1.4.1 Accepted Contract Amount:

This is the agreed amount stated in the LOA if not it should be mentioned in the Contract
Agreement if not it is the sum of Contractor tender.
14.1 Contract Price:
Contract Price is the Accepted Contract Amount plus the adjustments for changes in
legislations under sub-clause 13.7 and under sub-clause 13.1 (Right to Vary),
Contractor has to:
- Contractor has to pay all taxes, duties and fees or any other expenses from his own cost
as determined by the Country law and the Contract Price is not affected by this unless
any change can be considered under sub-clause 13.7 (Adjustments for Changes in
Legislations),
- All quantities which may set out in BOQ or any schedule is not considered accurate and
need to be determined according to the actual amount executed in Site.
- The Engineer Shall determine and value each item of the Contract alone and make his
determination according to item sub-clause 3.5 (Determinations) and if there is a Lump-
Sum item the Contract, Contractor has to submit break down for it within 28days from
Commencement Date and Contract Price is determined at the end of the project.
FIDIC Comparison Between 1999-2017
FIDIC BOOK 2017 Changes of 1999
What’s New – FIDIC 2017
• More prescriptive
• 72% heavier – 558g to 962g
• 71% more pages – 62 pages to 106 pages
• Significantly more words – 30,400 words to 50,00 words
• Only 4% increase in the number of clauses and sub-clauses
FIDIC’S GOALS FOR 2017
• Increase clarity, transparency and certainty
• Reduce disputes
• Increase successful projects
• Increased emphasis on dispute avoidance
• More clarity and procedural requirements for claims
• Mandatory referral of disputes to the DAAB
WHAT REMAINS THE SAME?
• Risk sharing across the three forms of contract
• Colours of the “Books”
• Clause structure (with a few amendments and the split of 1999 Clause 20 (Claims) into
Clause 20 (Claims) and Clause 21 (Disputes)
MAIN CHANGES IN 2017
• Many more Notice requirements
• Employer and Contractor claims are both included under Clause 20 and have the same
(1999 were separate) procedural rules and time-bars (1999 not time bar for the
employer).
• Many “deeming” provisions have been added (if a party doesn't act within a certain
timeframe, they are deemed to have taken this action) (mainly for engineers)
• The other Party may give Notice if a deeming provision comes into force and the Party
disagrees with its outcome
MAIN CHANGES IN 2017
• E.g. The contractor is required to give a notice of claim within 28 days of the event, the
engineer is required to give a notice if he doesn’t consider that the notice has been
delivered being submitted within 28 days of the event.
• If the engineer doesn’t give that notice within 14 days, he has deemed to have accepted
the notice as valid.
• However, if the engineer doesn’t act, the employer now has the right to give a notice to
say “Mr Engineer you didn’t give a notice that the contracted notice was not submitted
with the time frame, here is a notice that gives our opinion that he was not submitted in
the time.
MAIN CHANGES IN 2017
New definitions:
• Notice (become clearly defined and must relate to the clause that require notice)
• Claim
• Dispute
• Cost Plus Profit (
• Notice of No-objection (No-objection = whatever it says)
• % Profit should be included in the Contract Data (or 5% if not stated)
SUB-CLAUSE 1.3 (NOTICES AND OTHER COMMUNICATIONS)

• A Notice shall be identified as a Notice

• A Notice shall include reference to the provision of the Contract under which it is
submitted
• A Notice shall have effect when it is received (not the date you sent it)
• Provisions for the format and delivery of Notices are similar to the 1999 Editions
THE ROLE OF THE ENGINEER
• In 1999 it was not clear whether the Engineer making a “fair determination” was still
acting on behalf of the Employer
• In 2017 Sub-Clauses 3.2 (Engineer’s Duties and Authority) and 3.7 (Agreement of
Determination) makes it clear that the Engineer remains the Employer’s agent, except
when making determinations, where he/she shall act neutrally
• The Engineer has many more time limits to perform obligations and for the issue
determinations
CLAIMS
• Employer and Contractor’s Claims are subject to the same procedure
• The Engineer is obliged to give a Notice if he/she considers that a Notice of Claim does
not comply with the 28-day period
• Sub-Clause 20.2.4 provides details of what shall be included in a “fully detailed claim”
• A fully detailed claim shall be submitted within 84 days of the event
• If the claimant fails to submit a “statement of the contractual and/or legal basis of the
claim” within 84 days, the Claim will be time-barred
• The Engineer is obliged to give a Notice if he/she considers that the above obligation has
not been complied with
CLAIMS
• The Engineer shall consult with the Parties and attempt to reach agreement on the Claim
within 42 days
• If no agreement is reached within 42 days, the Engineer shall make a fair determination
within a further 42 days
• If the Engineer failed to provide fair determination within 42 days, the he shall be
deemed to reject the claim and the Contractor can follow dispute procedure.
• Agreements and/or determinations shall be issued by Notice
DISPUTE ADJUDICATION
• Disputes now separated from Claims in FIDIC 2017
• The Dispute Adjudication Board (DAB) has become the Dispute Avoidance/Adjudication
Board (DAAB)
• Greater emphasis on dispute avoidance
• Standing DAABs now included for all three forms of contract
• Employer and Contractor have the right to terminate for failure to comply with a DAAB
decision
What is a ‘variation’?
In simple contractual terms it is an instructed change to the baseline (and agreed) scope of
work.

Subject to the contract wording, it should generally include time impact as well as money
impact.

1.1.86 “Variation” means any change to the Works, which is instructed as a variation
under Clause 13 [Variations and Adjustments]. (FIDIC red book 2017).
VARIATIONS
• Variation by Instruction: a notice to the Contractor by the Engineer in accordance with
Sub-Clause 3.3 (Instructions of the Engineer).

• Variation by Request for Proposal: a Notice to the Contractor by the Engineer.

• Variation in the context of Value Engineering: a written proposal to the Engineer by the
contractor in accordance with Sub-Clause 13.2 (Value Engineering).
METHODS FOR AN EMPLOYER TO INITIATE A
VARIATION (FIDIC 2017)
Sub-Clause 13.1 of all the FIDIC forms of contract, allows the employer to either:
• Instruct a Variation, or
• Request the Contractor to submit a proposal in respect of a Variation

Under Sub-Clause 13.1 of the Red and Pink Books:

The Contractor is expressly prohibited from making any Variation to the permanent works
unless the engineer has instructed or approved a Variation
• There is no similar restriction in the Yellow, Silver and Gold Books
VARIATIONS
Thus, it seems that contrary to Sub-Clause 1.1.6.9, a Variation is not only a change to the
Works instructed under Clause 13 but may also be instructed under Sub-Clause 3.3.

In Obrascon Huarte Lain SA v HM Attorney General for Gibraltar the Engineer issued a
document entitled draft fill guidelines, which gave directions about undertaking certain
works, which if implemented would have amounted to a Variation. The Contractor,
however, chose not to act upon the draft fill guidelines when removing contaminated
material from site and dealt with the contaminated material by another accepted method.
The Court of Appeal therefore stated: “Accordingly the issue of the draft fill guidelines did
not constitute a variation instruction.”
VARIATIONS
The Employer can argue that, under Sub-Clause 13.1, the Contractor is expressly forbidden
from carrying out a Variation unless there is a variation order. Whatever the Engineer may
have done, he did not issue a variation order as that was outside his authority.
The Contractor will argue that he acted in good faith by following an instruction which, at
the time, the Engineer clearly considered to be within his authority. Indeed, at the time the
Contractor may not have realised it was a variation.
An example of this is the following: In a road rehabilitation project a particular condition
forbad the Engineer from issuing a Variation Order without prior approval from the
Employer. The design of the project required the contractor to level the existing seriously
degraded pavement and then to place a well graded capping layer both over any exposed
sub-surface material and over any remaining original pavement. The design assumed that
the sub-surface material had
VARIATIONS
good bearing qualities. Once excavation started it began to become apparent that the
subsurface material was of very poor bearing quality and that it would be necessary to
replace much of the capping layer with a crushed rock material. Such material was already
specified for soft spots and the Engineer initially ordered greater quantities of the soft spot
material. Eventually this became the main material to be used in place of the capping
material for a large part of the road. In hind-sight it was clear that this amounted to a
variation, but at the time it merely appeared to be an instruction to use one item rather
than another to resolve what initially seemed to be an isolated problem. In reality there
was a Variation, but the Engineer had acted under Sub-Clause 3.3 without being aware of
this and had never sought or received the Employer’s permission.
Thus, the Employer was in a position to argue that the Contractor had been obliged not to
carry out the Engineer’s instruction and the Contractor wanted to argue that what was
originally merely an instruction became, because of the accumulation of such instructions,
a variation.
VARIATIONS
Sub-Clause 13.1 (a) to (f) provides for

a) Changes to the quantities…

b) Changes to the quality…
c) Changes to the levels, positions and/or dimensions...
d) Omission of any work…
e) Any additional work…necessary for the Permanent Works…
f) Changes to the sequence or timing of the…works
Valuation of variations
Sub-Clause 13.3 provides for a Contractor’s proposal to be requested prior to a variation
being instructed

Otherwise, Clause 12 sets out valuation principles

Good practice dictates…

▪ Contract rates for similar work
▪ Contract rates as a basis for dissimilar work
▪ Cost plus reasonable profit for quite different work
Variation Procedure
Sub-Clause 13.3 (Variation Procedure) FIDIC 1999, Red book

Sub-Clause 12 (Measurement and Evaluation) FIDIC 1999, Red book

Sub-Clause 8.3 (Programme) FIDIC 1999, Red book

Clause 8.4(a) allow Contractor to claim EOT for Variation according to Clause 13 Variations
Variation Procedure
Under the FIDIC 99 Red book there are clear provisions to allow EOT for Variations. Either
by directly allowing EOT under clause 8.4 or indirectly through deemed Variation clauses.
Contractor is not entitled for EOT under the unapproved/ unauthorized Variations except
when it is necessary to proceed with the Work.
For an example in a deep excavation there might be an unexpected water leak in the
middle of the night and there is no Engineer to instruct a Variation and Contractor had to
act immediately to protect and ensure the safety of the site and adjacent properties. In a
later stage engineer may refuse to instruct a Variation for this and Contractor may entitle
to Variation and EOT. Therefore, it is clear that FIDIC 99 Red book provides ample
opportunities for the Contractor to claim EOT for instructed Variations. It is Contractor’s
obligation to utilize these provisions and make sure the Work is completed on time.
PROCESS OF INSTRUCTING VARIATIONS (FIDIC
2017)
• The Employer is not entitled to instruct variations directly (except the Silver Book)
• Instead, the Employer must direct his instructions through the Contract Administrator
(i.e. the Engineer under the Red, Pink and Yellow books, and the Employer’s
representative under the Gold Book)
• If the Employer was to make a direct instruction, it would not be valid, and the
Contractor would not be bound to comply with it (except the Silver Book)
PROCESS OF INSTRUCTING VARIATIONS (FIDIC
2017)
• There is little guidance on how to instruct a Variation in any of the FIDIC forms of
contract
• Sub-Clause 13.3 merely states that each instruction to execute a Variation shall be issued
by the Contract Administrator to the Contractor, who shall acknowledge receipt
• Under Sub-Clause 3.3 of the Red and Pink Books, an instruction must be given in writing
whenever practicable
What if there is no EOT provision for Variation
in the Contract?
If an employer delays the contractor and the contract does not contain an effective
extension of time (EOT) mechanism to extend the completion date, then the contractor will
be entitled to a reasonable period of time to complete. This, in turn, will mean that there
is no fixed completion date and liquidated damages (LDs) will no longer be enforceable
because, it is said, time is at large.

Suggested reading:
https://corbett.co.uk/wp-content/uploads/Clause-13.pdf
https://corbett.co.uk/wp-content/uploads/Clause-13-Variations-and-Adjustments-final.pdf
Case Study 1: Schools Construction Project
The Engineer issued directives to the contractor requesting:
1. Replace isolated footings and adding new foundation retaining walls along the
southern-most east axis and lower foundation levels of the south-west footings at
Irhaba School.
2. Increase the depth of excavation for over half of School building foundation levels in
the norther & eastern sections of the building by approximately 0.70m to reach
suitable subgrade soil at Hettien School.

You are the Contractor, and you received these directives, how you will act in accordance
with FIDIC?

IRD-JSP-314-2011 (1).pdf
Case Study 1: Schools Construction Project
FIDIC 1999
▪ The Engineer instructed a variation to the Contractor under Sub-Clause 13.1 (Right to
Vary)
▪ The Contractor shall proceed with execution of the Variation (not delay any work whilst
awaiting a response)
▪ If the variation was not approved, then:
▪ Pursuant to Sub-Clause 8.4 (Extension of Time for Completion) under sub-paragraph (a)
and Sub-Clause 20.1 (Contractor’s Claims), the Contractor shall claim an EoT and the
associated incurred cost
▪ The Contractor shall submit a notice with 28 day with his intention to claim for EoT and
incurred cost with detailed particulars
Case Study 1: Schools Construction Project
FIDIC 2017
▪ The Engineer instructed a variation to the Contractor under Sub-Clause 13.3.1 (Variation
by Instruction)
▪ The Contractor shall proceed with execution of the Variation (not delay any work whilst
awaiting a response)
▪ The Contractor shall proceed with execution of the Variation and shall within 28 days of
receiving the Engineer’s instruction, submit to the Engineer detailed particulars
including:
a) a description of the varied work performed or to be performed, including details of the
resources and methods adopted or to be adopted by the Contractor;
Case Study 1: Schools Construction Project
FIDIC 2017
a) a programme for its execution and the Contractor’s proposal for any necessary
modifications (if any) to the Programme according to Sub-Clause 8.3 [Programme] and
to the Time for Completion; and
b) the Contractor’s proposal for adjustment to the Contract Price by valuing the Variation
in accordance with Clause 12 [Measurement and Valuation], with supporting
particulars (which shall include identification of any estimated quantities and, if the
Contractor incurs or will incur Cost as a result of any necessary modification to the
Time for Completion, shall show the additional payment (if any) to which the
Contractor considers that the Contractor is entitled).
Case Study 1: Schools Construction Project
FIDIC 2017
▪ The Engineer shall then proceed under Sub-Clause 3.7 [Agreement or Determination] to
agree or determine:
i. EOT, if any; and/or
ii. the adjustment to the Contract Price (including valuation of the Variation in
accordance with Clause 12 [Measurement and Valuation] using measured
quantities of the varied work)

▪ The Contractor shall be entitled to such EOT and/or adjustment to the Contract Price,
without any requirement to comply with Sub-Clause 20.2 [Claims For Payment and/or
EOT].
Case Study 2: Fit Out of Orange HQ Building
Following to the kickoff meeting with Mis. Abdali Boulevard Company (ABC), in the
presence of Employer, Employer Representative, Engineer and Contractor, namely in regard
to ABC newly imposed regulation not to conduct any duct fabrication at site, where such
restriction was neither communicated earlier nor defined as a restriction under Appendix 1
of Document no. SPC-000-PMC-03, in addition to the restriction raised in the same
meeting not to utilize the stairs, and the site is only accessed from the elevator, which shall
restrict the sizes of handled materials, where large sizes of ducts can't be handled in the
elevator (in case of fabricating them outside the site as per ABC regulation).

Contractor here-by reiterates his proposed alternative in the referenced meeting to

substitute the galvanized steel sheet ducts (specified under Contract Document) with Pre-
insulated Duct materials, which was also recommended by ABC, with Zero impact in the
overall accepted Contract price.

You are the Contractor, does FIDIC allow you to submit a proposed alternative in this case?
Case Study 2: Fit Out of Orange HQ Building
FIDIC 1999
• In accordance with Sub-Clause 13.2 (Value Engineering): The Contractor may, at any
time, submit to the Engineer a written proposal which (in the Contractor’s opinion) will,
if adopted, (i) accelerate completion, (ii) reduce the cost to the Employer of executing,
maintaining or operating the Works, (iii) improve the efficiency or value to the Employer
of the completed Works, or (iv) otherwise be of benefit to the Employer.

• The proposal shall be prepared at the cost of the Contractor and shall include the items
listed in Sub-Clause 13.3 [Variation Procedure].

MID.OHQ 2016 11 0004.pdf

Case Study 2: Fit Out of Orange HQ Building
FIDIC 2017
• In accordance with Sub-Clause 13.2 (Value Engineering): The Contractor may, at any
time, submit to the Engineer a written proposal which (in the Contractor’s opinion) will,
if adopted, (i) accelerate completion, (ii) reduce the cost to the Employer of executing,
maintaining or operating the Works, (iii) improve the efficiency or value to the Employer
of the completed Works, or (iv) otherwise be of benefit to the Employer.
• The proposal shall be prepared at the cost of the Contractor and shall include the items
listed in Sub-Clause 13.3.1 [Variation by Instruction].
• If the Engineer gives his/her consent to the proposal, with or without comments, the
Engineer shall then instruct a Variation. Thereafter, the Contractor shall submit any
further particulars that the Engineer may reasonably require, and the last paragraph of
Sub-Clause 13.3.1 [Variation by Instruction] shall apply which shall include consideration
by the Engineer of the sharing (if any) of the benefit, costs and/or delay between the
Parties stated in the Particular Conditions.
Case Study 3: School Building
The Contractor received a directive date 16 Oct 2011 when the Engineer instructed to
replace matt finish porcelain tiles with semi-polished finish. Moreover, the Engineer
delayed in approving the tiles color selection submittals.

You are the Contractor, what should you do?

Case Study 3: School Building
FIDIC 1999
The contractor is entitled for compensation for material costs associated with the change
in material In accordance with Sub-Clause 13.1(Right to Vary): 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 Engineer instructed to replace matt finish porcelain tiles with semi-polished finish
which goes under Sub-Clause 13.1 / (b) changes to the quality and other characteristics of
any item of work
If the Variation is given by instruction and is not approved, the Contractor will have to give
notice under Sub-Clause 20.1 [Contractor’s Claims] to be granted any appropriate
extension of time.
Case Study 3: School Building
The Contractor is entitled for EoT caused by the delays in receiving the Engineer’s approval
on tiles color selection submittals.
In accordance with Sub-Clause 1.9 (Delayed Drawings or Instructions): If the Contractor
suffers delay and/or incurs Cost as a result of a failure of the Engineer to issue the notified
drawing or instruction within a time which is reasonable and is specified in the notice with
supporting details, the Contractor shall give a further notice to the Engineer and shall be
entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:
(a) an extension of time for any such delay, if completion is or will be delayed, under Sub-
Clause 8.4 [Extension of Time for Completion], and
(b) payment of any such Cost plus profit, which shall be included in the Contract Price.
And in accordance with Sub-Clause 8.4 (Extension of Time for Completion) – The
Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to an
extension of the Time for Completion if (e) any delay, impediment or prevention caused by
or attributable to the Employer, the Employer’s Personnel, or the Employer’s other
contractors.
Think and reflect

Is it possible that instructions other than those included within the list in
the Sub-Clause 13.1 might be considered to constitute a Variation?
Think and reflect

What happens if the Contractor did not give formal notice but stated in
a formal letter that he intends to claim for time and additional costs
incurred but with no references to the clauses provided in the Contract?
The Employer – Right of Access to the Site
Case Study 4: Riyadh Women’s Hospital
Nesma Contractor awarded the contract of constructing a new women's hospital in Riyadh.
The hospital project is part of large development project where other contractors were
awarded other parts. Nesma scheduled to start the earthwork on 8 Dec. 2015. Due to the
existing of other on-going construction projects, Nesma were unable to start the
earthworks and send the Engineer a letter requesting that the other contract SBG to
transfer the construction material and clear the laydown area in order for them to start
work as scheduled.

SBG laydown area clearance was completed on (20th of March 2016) which results in a
delay duration of 103 days.

You are Nesma contractor, how you will deal with this delay?
Case Study 4: Riyadh Women’s Hospital
▪ In accordance with Sub-Clause 2.1 (Right of Access to the Site) states that The Employer
shall give the Contractor right of access to, and possession of, all parts of the Site within
the time (or times) stated in the Contract Data to enable the Contractor to proceed in
accordance with the programme submitted under Sub-Clause 8.3 [Programme].
▪ If the Contractor suffers delay and/or incurs Cost as a result of a failure by the Employer
to give any such right or possession within such time, the Contractor shall give notice to
the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:
a) an extension of time for any such delay, if completion is or will be delayed, under Sub-
Clause 8.4 [Extension of Time for Completion], and
(b) payment of any such Cost plus profit, which shall be included in the Contract Price.
▪ Accordingly, The Contractor shall give notice to the Employer and after receiving the
right of access and possession of all projects parts they should submit a claim of EoT and
any associated costs in accordance with Sub-Clauses 2.1, 8.3 and 20.1 with all substantial
documents of time impact analysis and delays evidences.
Unforeseen Conditions
• Common examples of unforeseen subsurface conditions include the unexpected
encountering of hard rock, flows of pressurised groundwater, or hazardous materials
requiring remediation. These difficulties can require changes in the construction
schedule, designs, materials and, in some extreme cases, can mean that completion of
the work in accordance with the original design is impossible.
• Construction contracts typically identify the scope of works, the time in which they are to
be performed and the price the contractor is to be paid for carrying them out. In the
absence of express provisions to the contrary, contractors are required by most legal
systems to carry out the agreed scope and bear the associated burdens of doing so.
• Under English law, for example, an employer does not impliedly warrant that the works
undertaken by the contractor are possible (legally or physically). The employer is entitled
to rely upon the contract and the expertise of the contractor to carry out the works, and
the contractor will generally not be entitled to be compensated (time and/or money) in
dealing with more difficult conditions than anticipated. In short, the courts assume that
the costs and risks of unforeseen difficulties are included in the contractor’s tender price.
Unforeseen Conditions

In the 1876 case of Thorn v London County Council, a contractor undertook to construct a
new Blackfriars Bridge in London. Cast iron caissons forming part of the permanent works
were to be used. However, the design of the caissons by the employer’s engineer was
found to be deficient, preventing the contractor from working in high tides. This required
the contractor to work at low tides only. The House of Lords (acting as England’s most
senior court, a role now performed by the Supreme Court) ruled that no warranty was
implied from the employer that the works could be done in any particular way, confirming
the principle that the contractor is expected to do everything necessary to complete the
works.
Unforeseen Conditions

In 1942, the Supreme Court of Canada applied this principle against a claimant contractor,
making the point that it could also benefit a contractor where conditions are more
favourable than anticipated. See The King v Paradis & Farley Inc:4

‘Expenses incurred for unforeseen difficulties must be considered as being included in the
amount of the tender, and the respondent has the legal obligation to execute the contract
for the price agreed upon, in the same way as would have been its indisputable right to
benefit, if the soil had been more favourable and easier than foreseen.’
Unforeseen Conditions

The 1942 decision was heavily dependent on contract language indicating that the
contractor was liable for any increase in costs of the proposed work.

The above principles of English and Canadian law are reflected in some civil law
jurisdictions, such as the United Arab Emirates (UAE). For example, Article 246 of the UAE
Civil Code provides that the contract shall not be restricted to an obligation upon the
contracting party to do that which is (expressly) contained in the contract but shall also
embrace that which is pertinent to it by virtue of the law, custom, and the nature of the
transaction. This provision is commonly taken to include unforeseen subsurface conditions
which remain the responsibility of the contractor unless expressed to the contrary in the
contract.
Unforeseen Conditions

Over the last several decades, a number of contracts have sought to share the risk of
encountering unforeseen subsurface conditions. The principal mechanism for doing this is
to compensate the contractor for subsurface conditions that are not foreseeable. Sub-
Clause 4.12 of the FIDIC Red Book 1999 edition, for example, entitles a contractor to claim
an extension of time for delay to completion and payment of cost for adverse physical
conditions that were not reasonably foreseeable by an experienced contractor, subject to
giving appropriately timed notices and meeting other criteria. However, a raft of English
law cases show that it remains difficult for contractors to satisfy the necessary
requirements, particularly the test of foreseeability.
Unforeseen Conditions
In Obrascon Huarte Laine SA v Her Majesty’s Attorney General for Gibraltar, a contractor
undertook to design and build a road around the perimeter of the Gibraltar airport. A desk
study gave bidders an indication as to the degree of soil contamination likely to be
encountered. When the contractor encountered unexpected contamination and stopped
work, the government terminated the contract due to lack of progress. The English Court
of Appeal upheld a rejection of the contractor’s claim, holding that ‘an experienced
contractor at tender stage would not simply limit itself to an analysis of the geotechnical
information contained in the pre-contract site investigation report and sampling exercise’.
Unforeseen Conditions
Likewise, in Van Oord UK Ltd and Others v Allseas UK Ltd, the contractor asserted various
claims for disruption and prolongation due to unexpected subsurface conditions on a gas
export pipeline project. The court held that an ‘experienced contractor’ must consider and
allow for the possibility that more adverse conditions may exist as ‘every experienced
contractor knows that ground investigations can only be 100% accurate in the precise
locations in which they are carried out. It is for an experienced contractor to fill in the gaps
and take an informed decision as to what the likely conditions would be overall’. Again, the
contractor was held liable for an unforeseen subsurface condition.

Two Canadian cases, Opron Construction and Golden Hill Ventures, are relevant as they
examine the employer’s role in respect of issues such as disclosure of information and
making a construction site available for inspection.
Assignment: Summarize the two cases
FIDIC – CASE 5: Infrastructure Works
The UK Technology and Construction Court has been awarded a substantial contract for
infrastructure works in Gibraltar carried out under the FIDIC Yellow Book 1999 edition.
▪ Some information was made available to the contractor at tender, including in particular,
an environmental statement, a site investigation report and a contaminated land desk
study.
▪ Contractor faced troubles related to the contaminated material at site which delayed the
project. Contractor claimed was unforeseeable and resulting in additional costs.
▪ The Engineer issued a notice to correct under Sub-Clause 15.1 “Notice to Correct” but
the contractor did not comply with.
▪ The Employer served a notice of termination which the contractor claimed was a
repudiation of the contract
Discuss your judgment regarding the case based on contract conditions , whether the
Employer was entitled to terminate the contract
FIDIC – CASE 5: Infrastructure Works
• The contractor claimed that he had encountered unforeseeable physical conditions and
was therefore entitled to claim an extension of time and costs under sun-clause 4.12 of
the Contract Conditions.
• Under this clause, the ground conditions that were reasonably foreseeable by an
experienced contractor at the date of submission of the tender must be considered.
• Some information was made available to the contractor at tender, including in particular,
an environmental statement, a site investigation report and a contaminated land desk
study. By sub-clause 4.10 the contractor was responsible for interpreting such data.
FIDIC – CASE 5: Infrastructure Works
▪ The court considered the content of the material provided and concluded that the
contractor had been told to allow for a substantial volume of contaminated material, but
had not considered this to be a real risk.
▪ The court said that the contractor should have carried out "some intelligent assessment
and analysis" of why the contamination was present and what the prospects were of
encountering more than had been revealed by the pre-contract site investigation.
▪ He should have been particularly alert to establishing what the site had previously been
used for. Had he done this, he would have anticipated substantial quantities of
contaminated material, (which were actually found) and would have made an
appropriate allowance within the tendered price for dealing with such material.

The contractor did not do so and the court rejected his claim under clause 4.12.
FIDIC – CASE 5: Infrastructure Works
▪ If the Contractor fails to carry out any obligation under the Contract, the Engineer may
be notice required the Contractor to make good the failure and to remedy it within a
specified reasonable time.

▪ According to Sub-Clause 15.2 [Termination by Employer], the Employer shall be entitled

to terminate the Contract if the Contractor:
a) Fails to comply with Sub-Clause 4.2 [Performance Security] or with a notice under Sub-
Clause 15.1 [Notice to Correct].
In this event, the Employer may, upon giving 14 days notice to the Contractor, terminate
the Contract and expel the Contractor from the Site.
What the Employer should do after Termination?
FIDIC – CASE 5: Infrastructure Works
• After a notice of termination under Sub-Clause 15.2 [Termination by Employer] has
taken effect, the Employer may:
a) Proceed in accordance with Sub-Clause 2.5 [ Employer’s Claims]
b) Withhold further payments to the Contractor until the completion and remedying of
any defects, damages for delay in completion (if any) and all other costs incurred by
the Employer have been established, and/or
c) Recover from the Contractor any losses and damages incurred by the Employer and
any extra costs of completing the Works, after allowing for any sum due to the
Contractor under Sub-Clause 15.3 [Valuation at the Date of Termination].
FIDIC – CASE 6: Public Construction
General Information:
▪ Demolition of existing jail;
▪ Construction of new administration building on site of the old jail, and renovation of
certain areas of an adjacent “elections” building;
▪ Removing and reconstructing the exterior skin and interior finishes of a second
building adjacent to the old jail and interconnecting these two buildings with the
existing “old courthouse”.
▪ Construction of site work, including a 3 area parking lot and a central court area.
FIDIC – CASE 6: Public Construction
Situation:
▪ Permit to demolish the existing jail was delayed and did not provide by O in timely
manner
▪ C to remedy the disruption of demolishing permit delay, requested a phasing strategy
to start the construction of the new administration building but the Engineer did not
provide the required drawings for phasing the project in timely manner.
▪ C changed the plan and started with site work construction of the parking lot and
found that there are tree not to be demolished were not indicated in the drawings.
FIDIC – CASE 6: Public Construction
Events:
▪ Commencement date is planned to be 12 April 2019
▪ C issued an RFI requesting phasing drawings to start constructing the new building on
23 April 2019 and highlighted the urgency of the same and requested to be
submitted before 10 May 2019.
▪ The Engineer submitted the requested drawings on 15 July 2019
▪ O provided the demolishing permit to C on 18 June 2019
▪ Design change instruction for parking lots to deal with exiting trees submitted on 23
August 2019

C’s Position:
▪ C could not commence any construction works until 18 June 2019 due to these
events
You are C, what should you do?
FIDIC – CASE 6: Public Construction
The Contractor would be entitled to an extension of time under the following
provisions:

▪ Sub-Clause 4.12 (Unforeseen Physical Conditions) which provides that an

extension of time shall be given ‘If the Contractor encounters adverse
physical conditions which he considers to have been Unforeseeable’.
✓The contractor does not have the right to claim unforeseeable physical
conditions against the existing undemolished trees as any experienced
should have carried out investigation related to the existing trees and would
have made an appropriate allowance within the risk analysis.
FIDIC – CASE 6: Public Construction
The Contractor would be entitled to an extension of time under the following
provisions:

▪ Sub-Clause 1.9 (Delayed Drawings or Instructions) The Contractor shall give

notice to the Engineer whenever the Works are likely to be delayed or
disrupted if any necessary drawing or instruction is not issued to the
Contractor within a particular time, which shall be reasonable.
✓The contractor is entitled for time extension and additional incurred cost to
be calculated from 10 May to 18 June 2019 (38 days). However, this delay will
be detailed in the main EoT claim to include all events.
FIDIC – CASE 6: Public Construction
▪ Sub-Clause 8.4 (Extension of Time for Completion) The Contractor shall be entitled
subject to Sub-Clause 20.1 [Contractor’s Claims] to an extension of the Time for
Completion if and to the extent that completion for the purposes of Sub-Clause 10.1
[Taking-Over of the Works and Sections] is or will be delayed by any of the following
causes:
a) a Variation (unless an adjustment to the Time for Completion has been
agreed under Sub-Clause 13.3 [Variation Procedure]) or other substantial
change in the quantity of an item of work included in the Contract,
b) a cause of delay giving an entitlement to extension of time under a Sub-
Clause of these Conditions,
c) (e) any delay, impediment or prevention caused by or attributable to the
Employer, the Employer’s Personnel, or the Employer’s other contractors.
✓ The contractor is entitled to an extension of time and any incurred costs due to
demolishing permit delay attributed to the employer to be calculated from 12 April to
18 June 2019 (66 days)
FIDIC – CASE 6: Public Construction
✓ The contractor should submit a proposal for additional time and cost after receiving
the new design and the Engineer instruction related to parking lots.
✓ Sub- Clause 20.1 (Contractor’s Claims) The notice shall be given as soon as
practicable, and not later than 28 days after the Contractor became aware, or
should have become aware, of the event or circumstance.
Force Majeure under FIDIC 1999 Red Book
What is the definition of Force Majeure?
Force Majeure is defined in sub-clause 19.1 of the 1999 Red Book as an exceptional event
or circumstance
(a) which is beyond a party’s control,
(b) which such party could not reasonably have provided against before entering into the
contract,
(c) which, having arisen, such party could not reasonably have avoided or overcome, and
(d) which is not substantially attributable to the other party.

Sub-Clause 19.1 further provides a non-exhaustive list of exceptional events or

circumstances which may fall under the definition of Force Majeure if the above conditions
are met.
Force Majeure under FIDIC 1999 Red Book
Is there a notification requirement?

Yes, the party who seeks to rely on Force Majeure must notify the other party within 14
days after it became aware or should have become aware of the relevant event or
circumstance (sub-clause 19.2).

The notice should set out (i) the event or circumstance which prevents the party from
performing its obligation/s; and (ii) specify the obligation which is or will be prevented
from being performed.

The party affected by Force Majeure should also notify the other party when it stops to be
affected by the Force Majeure.
Force Majeure under FIDIC 1999 Red Book
What are the consequences of Force Majeure?

A contractor may claim extension of time when completion is or will be delayed by Force
Majeure (sub-clause 19.4). However, the contractor should also use reasonable
endeavours to minimise any such delay (sub-clause 19.3) – the 1999 Red Book does not set
out the mitigation measures that the contractor should take, such measures being
determined on the facts of a given case.

Further, in respect of certain events of Force Majeure that are listed in sub-clause 19.1, the
contractor may claim costs incurred as a result of such Force Majeure.
Force Majeure under FIDIC 1999 Red Book
Can the contract be terminated as a result of Force Majeure?

Yes, sub-clause 19.6 provides that a party may terminate the contract where the Force
Majeure prevents the execution of substantially all the works in progress:

– for a continuous period of 84 days; or

– for multiple periods which amount to more than 140 days.

Additional reading
• https://corbett.co.uk/wp-content/uploads/Clause-19.pdf
 How to Terminate the Contract by the Contractor under the
1999 FIDIC Red Book
Termination of a Contract is a serious step to take for the Contractor.
Various circumstances, such as;

➤ A prolonged suspension,

➤ Employer’s insolvency or compounding with creditors, may lead to termination.

Execution of the termination procedure properly has a significant importance.

If the Contractor understands and executes the termination procedure properly, the
potential losses and the damages will be minimized.
 How to Terminate the Contract by the Contractor under the
1999 FIDIC Red Book
• Additionally, the unnecessary results just like claims, disputes and litigation will be
avoided. However, the Contractors are mostly unaware of their rights, responsibilities
and the risks they are exposed to regarding termination.

• Frequently, they do not clearly know which circumstances will entitle them to terminate
the Contract. As a consequence of those, they fail to submit the required Notice in the
required timescale.

• They encounter problems while determining the “date of termination”.

• Furthermore, they ignore the tasks which they have to fulfill after termination.
 How to Terminate the Contract by the Contractor under the
1999 FIDIC Red Book
The Grounds of Termination
• Clause 16.2 [Termination by Contractor] defines and describes the termination related
events and circumstances.
• The Contractor is to be entitled to terminate the contract if;
• (a) The Contractor does not receive the reasonable evidence within 42 days after giving
Notice under Sub-Clause 16.1 [Contractor’s Entitlement to Suspend Work] in respect of a
failure to comply with Sub-Clause 2.4 [Employer’s Financial Arrangements].
• (b) The Engineer fails, within 56 days after receiving a Statement and supporting
documents, to issue the relevant Payment Certificate,
• (c) The Contractor does not receive the amount due under an Interim Payment
Certificate within 42 days after the expiry of the time stated in Sub-Clause 14.7
[Payment] within which payment is to be made (except for deductions in accordance
with Sub-Clause 2.5 [Employer’s Claims]).
 How to Terminate the Contract by the Contractor under the
1999 FIDIC Red Book
The Grounds of Termination

• (d) The Employer substantially fails to perform his obligations under the Contract.
• (e) The Employer fails to comply with Sub-Clause 1.6 [Contract Agreement] or Sub-Clause
1.7 [Assignment].
• (f) A prolonged suspension affects the whole of the Works as described in Sub-Clause
8.11 [Prolonged Suspension], or
• (g) The Employer becomes bankrupt or insolvent, goes into liquidation, has a receiving or
administration order made against him, compounds with his creditors, or carries on
business under a receiver, trustee or manager for the benefit of his creditors, or if any act
is done or event occurs which (under applicable Laws) has a similar effect to any of these
acts or events.
 How to Terminate the Contract by the Contractor under the
1999 FIDIC Red Book
Notice of Termination

• If any of the events or circumstances defined under Sub-Clause 16.2 [Termination by

Contractor] apply;

➤ The Contractor may give 14 days’ notice to the Employer to terminate the Contract.

• Despite that, where sub-paragraphs (f) and (g) apply, the Contractor may by notice
terminate the Contract immediately.
 How to Terminate the Contract by the Contractor under the
1999 FIDIC Red Book
After Termination

• When the Notice of Termination under Sub-Clause 16.2 [Termination by Contractor]

comes into force, the Contractor is to;
(a) Continue the work only which is instructed by the Engineer for the protection of life or
property or safety.
(b) Hand over plant, materials and other work that the Contractor has received payment
for,
(c) Leave the Site.
 How to Terminate the Contract by the Contractor under the
1999 FIDIC Red Book
Payment Procedure

• Sub-Clause 16.4 defines and describes the “Payment Procedure”. After the Notice of
Termination comes into force, the Employer is to;

➤ Return the Performance Security.

➤ Pay in accordance with Sub-Clause 19.6 [Optional Termination, Payment and Release].

➤ Pay the amount of any loss of profit or other loss or damage that is related with the
Termination.
 How to Terminate the Contract by the Employer under the
2017 FIDIC Red Book
Clause No. 15: Termination by Employer
The Employer may terminate the contract for two reasons.
▪ For Contractor’s Default
▪ For Employer’s Convenience

This clause has seven sub- clauses the detail of which is given in below mentioned table.
 How to Terminate the Contract by the Employer under the
2017 FIDIC Red Book
Clause No. 15: Termination by Employer

15.1 Notice to Correct

15.2 Termination for Contractor’s Default
15.3 Valuation after Termination for Contractor’s Default
15.4 Payment after Termination for Contractor’s Default
15.5 Termination for Employer’s Convenience
15.6 Valuation after Termination for Employer’s Convenience
15.7 Payment after Termination for Employer’s Convenience
 How to Terminate the Contract by the Employer under the
2017 FIDIC Red Book
Sub- Clause 15.1, Notice to Correct
This clause provides an opportunity to the contractor to remedy any failure of his
obligation within a stipulated time. Under this clause, the Engineer may give a notice to the
Contractor to make good a failure within a specified time, in case the Contractor fails to
carry out any obligation under the contract. This notice is called the ‘Notice to Correct’ and
it comprises of the following
▪ Details of Contractor’s failure;
▪ Sub- clause or provision under which the Contractor has the obligation;
▪ Time within which the Contractor has to remedy the failure.
After receiving the ‘Notice to Correct’, the Contractor shall quickly respond to the Engineer
with details of measures he will take to remedy the failure.
The time specified in the Notice to Correct shall not imply any extension of the Time for
Completion.
 How to Terminate the Contract by the Employer under the
2017 FIDIC Red Book
Sub- Clause 15.2, Termination for Contractor’s Default
This sub- clause is further divided into four parts. 15.2.1, ‘Notice’, 15.2.2, ‘Termination’,
15.2.3, ‘After Termination’ and 15.2.4, ‘Completion of the Works’.

15.2.1 Notice
Under this sub- clause, the Employer may give a Notice to Contractor of the Employer’s
intention to terminate the Contract (or in the case of sub-paragraph (f), (g) or (h) below a
Notice of termination) for the reasons mentioned below.
(a) If the Contractor fails to comply with either a Notice to Correct, a binding agreement or
a decision of the DAAB.
(b) Abandons the work or demonstrates an intention not to comply with any obligation
(c) Fails to comply with Clause 8 [Commencement, Delays and Suspension] or with Sub-
clause 8.2 [Time for Completion].
 How to Terminate the Contract by the Employer under the
2017 FIDIC Red Book
15.2.1 Notice
(d) Fails to comply with a Notice of rejection given by the Engineer under Sub-Clause 7.5
[Defects and Rejection] or an Engineer’s instruction under Sub-Clause 7.6 [Remedial Work],
within 28 days after receiving it;
(e) Fails to comply with Sub-Clause 4.2 [Performance Security];
(f) Subcontracts the work in breach of Sub- Clause 5.1 [Subcontractors], or assign the
contract without the required assignment under Sub- Clause 1.7 [Assignment];
(g) Becomes bankrupt or insolvent;

If a contractor is a JV, then it will be a cause of termination if any of the above matters
apply to a member of JV unless the other members confirm that in accordance with Sub-
Clause 1.14(a) [Joint and Several Liability], such member’s obligation shall be fulfilled under
the contract.
 How to Terminate the Contract by the Employer under the
2017 FIDIC Red Book
(h) If the Contractor is found to be engaged in corrupt, fraudulent, collusive or coercive
practice at any time in relation to the contract.
The failures under the point (b) to (h) comes under material breach of the Contractor’s
obligations under the contract.

15.2.2 Termination
If the Contractor does not remedy the matter described in sub- clause 15.2.1, within 14
days of receiving the notice, the Employer may by giving a second Notice to the Contractor
immediately terminate the Contract.
The date of termination shall be the date the Contractor receives the second notice
however in case of sub- paragraphs (f), (g) or (h) above, the date of termination shall be
the date the Contractor receives this notice.
 How to Terminate the Contract by the Employer under the
2017 FIDIC Red Book
15.2.3 After Termination
After termination of the contract as per sub- clause 15.2.2, the Contractor shall comply
with any reasonable instruction included in a Notice given by the Employer under this sub-
clause, deliver to the Engineer, any goods required by the Employer, all Contractor’s
documents & all other design documents (if any) and leave the site. If the Contractor does
not leave the site, the Employer shall have the right to expel the Contractor from the Site.

15.2.4 Completion of the Works

After termination, the Employer may complete the work.
After completion of the work, the Employer shall give notice to Contractor that the
Contractor’s equipment and temporary works will be released. Any amount due to the
Employer from the Contractor’s side may be recovered by selling those items and the
balance payment shall be returned to the Contractor.
 How to Terminate the Contract by the Employer under the
2017 FIDIC Red Book

15.3 Valuation after Termination for Contractor’s Default

After termination, the Engineer shall proceed under Sub- Clause 3.7.3 [Agreement or
Determination] to agree or determine the value of the Permanent Works, Goods and
Contractor’s Documents, and any other sums due to the Contractor for work executed in
accordance with the contract.
 How to Terminate the Contract by the Employer under the
2017 FIDIC Red Book
15.4 Payment after Termination for Contractor’s Default
The Employer may withhold the payment of the Contractor until the following costs, losses
and damages are established:
The Employer shall be entitled subject to Sub-Clause 20.2 [Claims For Payment and/or EOT]
to payment by the Contractor of:
▪ The additional costs of execution of the work and all other costs incurred by the
Employer
▪ Any losses and damages suffered by the Employer
▪ Delay damages
 How to Terminate the Contract by the Employer under the
2017 FIDIC Red Book
15.5 Termination for Employer’s Convenience
Under this clause, the Employer may terminate the contract for his convenience by giving a
notice to the Contractor.

After giving a notice to the Contractor under this clause, the Employer have no right to use
the Contractor’s documents, equipment, temporary works, etc. The Employer shall
immediately return the performance security to the Contractor.

Termination under this Sub-Clause shall take effect 28 days after the later of the dates on
which the Contractor receives this Notice or the Employer returns the Performance
Security.
 How to Terminate the Contract by the Employer under the
2017 FIDIC Red Book
15.6 Valuation after Termination for Employer’s Convenience

After termination under sub- clause 15.5, the Contractor shall, submit details regarding
▪ The value of work done (please refer Sub- Clause 18.5 and 14.13 also)
▪ The amount of any loss or profit and damages suffered by the Contractor due to this
termination.

The Engineer shall then proceed under Sub-Clause 3.7 [Agreement or Determination] to
agree or determine the matters described in points a) and b) above.

The Engineer shall issue a Payment Certificate for the amount so agreed or determined,
without the need for the Contractor to submit a Statement.
 How to Terminate the Contract by the Employer under the
2017 FIDIC Red Book
15.7 Payment after Termination for Employer’s Convenience

The Employer shall pay the Contractor the amount certified in the Payment Certificate
under Sub-Clause 15.6 [Valuation after Termination for Employer’s Convenience] within
112 days after the Engineer receives the Contractor’s submission under that Sub-Clause.

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The Contractor – Clause 4
Clause 4 sets out various obligations which fall on the Contractor under the Contract and
which cannot easily be classified elsewhere. The obligations under Clause 4 are of a wide
range covering 24 different topics.

Sub-Clause 4.1 sets out the Contractor’s general obligation to carry out his duties in
accordance with the contract.

Clause 4 of the FIDIC Red Book 1999 amalgamates various Contractor obligations under
one provision. However this Clause 4 is not exclusive as there are also other Contractor
obligations scattered throughout the Contract.

Other significant general obligations which could equally have been included in Clause
4 (and which should be read in conjunction with this Clause 4) are as follows:
The Contractor – Clause 4
• Sub-Clause 1.3 [Communications]
• Sub-Clause 1.7 [Assignment]
• Sub-Clause 1.8 [Care and Supply of Documents]
• Sub-Clause 1.9 [Delayed Drawings or Instructions]
• Sub-Clause 1.10 [Employer’s Use of Contractor’s Documents]
• Sub-Clause 1.12 [Confidential Details]
• Sub-Clause 1.13 [Compliance with Laws]
• Clause 6 [Staff and Labour]
• Clause 7 [Plant, Materials and Workmanship]
• Sub-Clause 8.2 [Time for Completion]
• Sub-Clause 8.3 [Programme]
The Contractor – Clause 4
Cross-references: reference to Clause 4 is found in the following clauses:
• Sub-Clause 1.1.2.5 [Definitions] “Contractor’s Representative”
• Sub-Clause 1.1.6.6 [Definitions] “Performance Security”
• Sub-Clause 2.3 [Employer’s Personnel]
• Sub-Clause 2.5 [Employer’s Claims]
• Sub-Clause 9.1 [Contractor’s Obligations]
• Sub-Clause 13.2 [Value Engineering]
• Sub-Clause 14.2 [Advance Payment]
• Sub-Clause 14.3 [Application for Interim Payment Certificates]
• Sub-Clause 14.7 [Payment]
• Sub-Clause 15.2 [Termination by Employer]
• Sub-Clause 17.6 [Limitation of Liability]
The Contractor – Clause 4
The Contractor obligations which are dealt with exclusively within Clause 4 itself are
the obligations for Setting Out (Sub-Clause 4.7), Quality Assurance (Sub-Clause 4.9),
Site Data (Sub-Clause 4.10), Rights of Way (Sub-Clause 4.13), Avoidance of
Interference (Sub-Clause 4.14), Transport of Goods (Sub-Clause 4.16), Security of the
Site (Sub-Clause 4.22) and Fossils (Sub-Clause 4.24).
The Contractor – Clause 4
Sub-clause 4.2 specifies that the Contractor shall provide a Performance Security where
the amount has been specified in the Appendix to Tender, and the sub-clause continues
with provisions for extending the security.
Some protection is afforded to the Contractor as the sub-clause requires the Employer to
provide an indemnity to the Contractor against damage, loss and expense resulting from a
claim under the performance security:
“to the extent to which the Employer was not entitled to make the claim”.
The Contractor – Clause 4
Clause 4.21 provides details of the information required to be inserted by the Contractor in
the Progress Reports. The provision of this report is a condition of payment. Under clause
14.3, payment will only be made within 28 days of receipt of the application for payment
and the supporting documents, one of which is the Progress Report.