FIDIC s New Suite of Contracts Clauses 17 to 19 Risk

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Clause 17 3 This mistake has led to many instances of misunderstanding conflict and at least one serious. arbitral proceedings where the employer pointed out that by Sub clause 17 5 he bears no risks under the. contract other than those specified in Sub clause 17 3. 5 It is also interesting to note that in referring to the article by Mr Seppala the editors of ICLR fall into the. same trap in their Introduction They refer to the term Employer s Risks in Sub clause 17 3 as the. contractual risks concluding that Part I of the article considers the contractual risks to be borne by. contractor and employer 3 As explained above such a conclusion is of course incorrect. 6 Accordingly it is essential to understand that the Employer s Risks traditionally identified under Sub. clause 20 3 of the old Red Book and those under Sub clause 17 3 of the new suite of contracts are only the. amalgamation of risks which are beyond the control of either the contractor alone or both the contractor. and the employer Furthermore these risks might have an implied resultant loss or damage to physical. property or cause bodily injury all of which are insurable In contrast very few of the other risks to which. the project is exposed are insurable, 7 There are other problems in Clause 17 The second problem is the allocation of the risks specified in sub. paragraph h of Sub clause 17 3 to the employer 4 Whilst this does not form a departure from the old Red. Book it was hoped that the new suite of contracts would be up to date with developments in this field The. origin of this sub paragraph goes back to the ACE Form of Contract recognisable as the route for the FIDIC. Red Book Whilst it is true that the contractor has no control over the events identified in this sub. paragraph he is in control over their consequences and can instigate protection measures The contractor. can also mitigate any losses that might occur should any of these risks eventuate Perhaps more. importantly all the risks identified in sub paragraph h represent events that are insurable and are. generally required to be insured under the terms of the contract The employer ultimately pays for such. insurance through the contract provisions leaving the contractor in charge of any necessary repair its cost. and any claim negotiations with the Insurers following the filing of such claims These risks are not included. as Employer s Risks in the ICE domestic contract or the others rooted in it 5. 8 The third problem in Clause 17 of the new suite of contracts is the newly introduced restriction in Sub. clause 17 1 b ii of the contractor s indemnity to the employer for property damage This indemnity is now. based on negligence rather than on legal liability as was provided in Clause 22 1 of the old Red Book 6 This. change is a retrograde step and copied from standard forms of contract for Building Works in the UK 7. without any benefit to either the contractor or the employer The only beneficiary as a result of this change. is the insurance market since to cover this gap a new policy is now needed which is commonly referred to in. the UK as the non negligence insurance policy As Mr Seppala explains in his article it seems that in making. this change the draftsmen of Clause 17 of the new suite of contracts took comfort from a footnote in. Hudson s Building and Engineering Contracts 1995 Vol II page 1437 where reference is made to both the. RIBA and the ICE forms of contract The reference to the ICE form of contract in that footnote is incorrect. since civil engineering contracts do not distinguish between the indemnity required to be given by the. contractor for property damage on one hand and that for bodily injury disease or death of any person on. the other In fact the standard forms of contract for civil engineering construction in the UK or elsewhere do. not impose the restriction now introduced 8, 9 The last major problem in Clause 17 relates to the allocation to the contractor of the risk of use or. occupation by the employer of any part of the Permanent Works in the EPC Form of contract The. reasoning for such allocation is extremely obscure since such use or occupation by the employer of any part. of the Permanent Works cannot be within the control of the contractor and thus it is not a risk that could be. assessed or against which some preventative measure could be taken. 10 Finally there are some minor problems of drafting in Clause 17 which should be addressed for the. proper understanding of what is intended by such a clause For example Sub clause 17 2 is a. Responsibility clause Sub clause 17 5 is a Risk clause and accordingly they should be designated as. such Another example is the need for there to be a statement as to proportional apportionment of. indemnities when both employer and contractor have contributed to damage loss or bodily injury This. would be particularly important where an indemnity clause is strictly interpreted under the applicable law of. contract 9,A Clause 18 Insurance, 6 Whilst there was no commentary provided by Mr Seppala on Clause 18 of FIDIC s new suite of contracts. it is important to include one here since as explained earlier insurance is the last of the contractual. provisions in the chain of Risk Responsibility Liability Indemnity and Insurance. 7 The first major problem in this Clause is the fact that the Insuring Party as defined in the contract is not. the same for all the insurance policies required under the contract and it may be either of the two parties. employer or contractor This is a recipe for confusion gaps and or overlaps in the combined insurance. package which could cost the parties dearly It could only be advantageous to those involved in the. insurance market, 8 The second paragraph of Clause 18 assumes that there would be a meeting between the parties prior to. the date of the Letter of Acceptance at which the whole insurance package would be discussed and. agreement would be reached on a policy towards insurance which would take precedence over the. provisions of Clause 18 It remains to be seen as to how this provision would operate in practice and the. effect it would have, 9 There are many drafting ambiguities in this Clause which should be clarified if the contract is to be.
operated successfully Examples are, Sub clause 18 1 provides that Wherever the Employer is the insuring Party each insurance shall. be effected with insurers and in terms consistent with the details annexed to the Particular. Conditions 10 What is intended by the term details If as stated these details are expected to. furnish the terms of the insurances supplied by the employer then surely this must mean that. nothing less explicit than the policies of insurance themselves have to be annexed. Sub clause 18 1 provides that When each premium is paid the insuring Party shall submit. evidence of payment to the other Party 11 This wording does not provide the intended. meaning Payment of each insurance premium should be made to initiate or maintain the insurance. cover and evidence should be provided whenever required. Sub clause 18 2 d specifies the deductibles to be applied to the insurance cover for some of the. Employer s risks Should the insurance cover for the Contractor s risks be subject to no deductibles. What is the meaning of insurable at commercially reasonable terms in Sub clause 18 2 d in the. last paragraph of Sub clause 18 2 and in Sub clause 18 3 d iii. A Clause 19 Force Majeure, 6 As observed by Mr Seppala a force majeure clause is an increasingly common feature of international. contracts It is the fashion but is it necessary or even desirable For FIDIC I suspect that importing force. majeure from the old Yellow and Orange Books into the new suite of contracts was a desire to show a closer. position to the civil law concepts and a move away from the common law principles If the truth be told. such a move in the context of force majeure is neither necessary nor desirable because. Firstly incorporating a clause such as Clause 19 into a contract not only duplicates what is usually. provided for in the civil code of a civil law jurisdiction but also enlarges the scope of the meaning. and application of force majeure This could result in the Parties getting into a muddle and a. contradictory situation, Secondly the original concept of the Special Risks in Clause 65 of the old Red Book is all the. protection that the contractor needs, Thirdly most of the risks which now come under the FIDIC definition of force majeure are insurable. and required to be insured Therefore no real benefit accrues to the contractor from being. protected by such a clause without having to slip into uncharted waters. 6 Therefore whilst it must be agreed that the treatment of the risks specified in Clause 19 should be a. special one it is erroneous to swing to the extreme end of the scale and designate them in the category of. false majeure particularly when that tem has legal implications in certain jurisdictions The answer for the. purposes of these conditions of contract should to designate as what they are i e an exceptional set of risks. with different treatment to that given to the normal set of risks to which the project is exposed. A The solution, 1 It is unwise to criticise without offering a reasonable alternative Therefore attached herewith is a.
replacement offer to Clauses 17 to 19 of the new Red Book of FIDIC The new Yellow Book and the Silver. Book require some modification to suit the risks shifted from the employer to the contractor and in. particular the design risk, The Replacement for Clauses 17 to 19 of the New Red Book 12 13. 17 Risk and Responsibility,Employer s Risks of Loss Damage. 17 1 The risks of loss and damage to the Works Goods or Contractor s Documents for which the Contractor. is not liable are, a Employer s Exceptional Risks of Loss Damage which are. i war hostilities whether war be declared or not invasion act of foreign enemies. ii rebellion terrorism revolution insurrection military or usurped power or civil war within the Country. iii riot commotion or disorder within the Country by persons other than the Contractor s Personnel and. other employees of the Contractor and Subcontractors and. iv munitions of war explosive materials ionising radiation or contamination by radio activity within the. Country except as may be attributable to the Contractor s use of such munitions explosives radiation or. radio activity, b Employer s Normal Risks of Loss Damage which are. i pressure waves caused by aircraft or other aerial devices traveling at sonic or supersonic speeds. ii use or occupation by the Employer of any part of the Permanent Works except as may be specified in the. Contract and, iii design of any part of the Works by the Employer s Personnel or by others for whom the Employer is.
responsible if any,Responsibility for Care of the Works. 17 2 The Contractor shall take full responsibility for the care of the Works and Goods from the. Commencement Date until the Taking Over Certificate is issued or is deemed to be issued under Sub Clause. 10 1 Taking Over of the works and Sections for the Works when responsibility for the care of the Works. shall pass to the Employer If a Taking Over Certificate is issued or is deemed to be issued for any Section or. part of the Works responsibility for the care of the Section or part shall then pass to the Employer. After responsibility has accordingly passed to the Employer the Contractor shall take responsibility for the. care of any work which is outstanding on the date stated in a Taking Over Certificate until this outstanding. work has been completed, If any loss or damage happens to the Works Goods or Contractor s Documents during the period when the. Contractor is responsible for their care from any cause not listed in Sub Clause 17 1 Employer s Risks of. Loss Damage the Contractor shall rectify the loss or damage at the Contractor s risk and cost so that the. Works Goods and Contractor s Documents conform with the Contract. The Contractor shall be liable for any loss or damage caused by any actions performed by the Contractor. after a Taking Over Certificate has been issued The Contractor shall also be liable for any loss or damage. which occurs after a Taking Over Certificate has been issued and which arose from a previous event for. which the Contractor was liable,Consequences of Employer s Risks of Loss Damage. 19 1 If any of the risks listed in Sub Clause 17 1 a above occur the parties rights and obligations are set out. in Clause 19 below, If and to the extent that any of the risks listed in Sub Clause 17 1 b above result in loss or damage to the. Works Goods or Contractor s Documents the Contractor shall promptly give notice to the Engineer and. shall rectify this loss or damage to the extent required by the Engineer If the Contractor suffers delay. and or incurs Cost from rectifying this loss or damage 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 which shall be included in the Contract Price In the case of sub paragraphs ii.
and iii of Sub Clause 17 1 b Employer s Normal Risks of Loss Damage reasonable profit on the Cost shall. also be included,After receiving this further notice the . paragraph h of Sub clause 17 3 to the employer 4 Whilst this does not form a departure from the old Red Book it was hoped that the new suite of contracts would be up to date with developments in this field The origin of this sub paragraph goes back to the ACE Form of Contract recognisable as the route for the FIDIC Red Book Whilst it is

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