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December 2006
Version 1.0
PREFACE
To realize effective and prompt implementation of projects financed by JBIC ODA
Loans, it is essential to set out the rights and obligations of the Borrower and the
Consultant in a consultancy contract and those of the Borrower and the Contractor in a
construction contract, clearly and properly . (See Section 2.02 of “Guidelines for
Employment of Consultant under JBIC ODA Loans” and Section 4.04 of “Guidelines for
Procurement under JBIC ODA Loans”).
JBIC recommends all the Borrowers to use “The Sample Bidding Documents under
JBIC ODA Loans for Procurement of Civil Works” in drafting civil work contracts.
These sample documents adopt the 1987 Edition of FIDIC conditions of contract (the
FIDIC Red Book) under which the balanced risk allocation between the Employer and
the Contractor is maintained. However, it is sometimes observed that contract
documents prepared by the Borrower contain one-sided contract provisions, changing a
fair allocation of contractual risks between the parties. Such one sided contracts actually
affect negatively the smooth implementation of projects and consequently are considered
to be disadvantageous to the Borrowers due, amongst other things, to the late completion
of the project.
With this thought in mind JBIC commissioned the Association of Japanese Consulting
Engineers (AJCE) to prepare a check list to encourage to avoid such one sided contract
provisions. This check list is based on samples actually observed in JBIC ODA projects.
It is intended to be used by the Borrowers in preparation of fair contract conditions.
JBIC will also use it when reviewing draft contract documents prepared by the
Borrowers. JBIC recognizes that, even contract conditions maintain a balanced risk
allocation, if these conditions are not properly applied, smooth project implementation
cannot be achieved. However, to set out the proper provisions is essential for the smooth
implementation..
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Context of this Document
The FIDIC general conditions of contract may be modified in consideration of the actual project
circumstances and requirements by adding conditions of particular applications in Part II of the
FIDIC Red Book. If modifications for any particular project alter the originally contemplated
risk distribution to a large extent and the risks allocated to the Contractor become excessively
high, the following problems may occur:-
These situations interfere with the smooth implementation of projects financed by Japanese
ODA loans and, as a result, may impose larger financial burdens on the Employer.
The Check List is prepared for the purpose of elimination of one sided provisions from the
contract. It is recommended to the executing agencies of loan recipient countries to utilize this
Check List as a reference guide in preparation of bid documents under JBIC Loans in order to
1
allocate risks and liabilities fairly between contracting parties as well as to keep fairness of the
Engineer .
The Check List is drafted based on actual experience on pervious construction contracts financed
by Japanese ODA loans.
The JBIC Sample Bidding Documents adopt FIDIC Red Book 1987 as general conditions of
contract. FIDIC has a long history in drafting various conditions of contract for construction
works. In particular, FIDIC Red Book2 (first published in 1957) is recognized as a de facto
standard for civil and building works contracts in international projects. FIDIC Red Book is
adopted in standard bidding documents for most multilateral development banks including
World Bank and Asian Development Bank3.
While JBIC is examining revision of the Sample Bidding Documents incorporating new FIDIC
Red Book 1999, the Engineer’s roles described hereinafter will remain unchanged in principle
except for the matters indicated in foot notes 3 and 4 on Page 4.
The FIDIC conditions of contract comprise Part 1: General Conditions of Contract and Part 2:
Conditions of Particular Application. Part II has the following functions:-
(2) to add particular provision required by local conditions such as characteristics of execution
agency, project, region and country, etc.
If the Part II additions, supplementations and or modification of Part I alter the basic balance of
the FIDIC Red Book the contract may become unfairly advantageous to the drafting party.
The basic concepts and framework of the FIDIC Red Book are summarized below:-
1) Design by Employer
FIDIC Red Book is suitable for Design-Bid-Build projects. The Employer designs the
2
The first edition of FIDIC Red Book was issued in 1957 and it was drafted based on ICE conditions of contracts in
UK.
3 World Bank and Asian Development Bank issued Harmonized Edition of Sample Bidding Documents based on
FIDIC Red Book 1999 in May 2005. Both banks adopted FIDIC Red Book 1987 in their previous versions of Sample
Bidding Documents.
2
permanent work except for the works to be designed by Contractor in accordance with Clause
7.2, and the contractor executes the work according to those drawings and specifications
provided with the bid documents. The design work is usually carried out by a consulting
engineer appointed by the Employer and the design liability lies with the Employer㧔refer to
Sub-clauses : 6.1, 6.4, 7.1, 7.2, 8.1).
The design of the civil work structure largely depends on the site conditions including
topography and geology. Since it is not entirely possible to know the actual geological conditions
in the pre-investigation, design modification is frequently required during construction.
Sub-clauses 51.1 “Variations”, allows such unforeseeable variations to be efficiently achieved
without contractual problems.
2) Presence of Engineer
One of the distinctive features of FIDIC Red Book is the appointment of "The Engineer". The
Engineer is not a contracting party but his duties and authority are stipulated in the contract and
the Engineer plays an essential role in the contract administration process.
Employer
(Construction (Consultancy
Contract) Agreement)
(Report, Notice,
Application)
Contractor Engineer
The roles of the Engineer can be classified into three categories in administration of construction
contracts.
3
x Carrying out project management services including time and cost management,
quality control, testing and inspection, safety and environmental management under
various Sub-clauses especially 36-39, 49 and 50
(2) Certifier
The Engineer issues various certificates certifying the quality of the Contractor’s
performance and payment therefor at the Engineer discretion. The Engineer’s certificates
have a strong binding effect on both the Employer and the Contractor.
1) As Employer’s agent,
2) As certifier, and
3) As decision maker in claim and dispute settlement
In carrying out the last two roles the Engineer is obliged to remain independent and to act
impartially as described in Sub-clause 2.64.
3 Under FIDIC Red Book 1999, a dispute shall be referred to Dispute Adjudication Board (DAB) in accordance with Sub-clause
20.2.
4 Under FIDIC Red Book 1999, the Engineer shall make his determination fairly in accordance with Sub-clause 3.5.
4
(b) expressing his satisfaction or approval, or
(c) determining value, or
(d) otherwise taking action which may affect the rights and obligations of the Employer
or the Contractor
he shall exercise such discretion impartially within the terms of the Contract and having
regard to all the circumstances. Any such decision, opinion, consent, expression of
satisfaction, or approval, determination of value or action may be opened up, reviewed or
revised as provided in Clause 67.
It is usual to appoint consulting engineers as the Engineer under the contract with the Employer
in JBIC ODA loan projects. JBIC Guideline for Employment of Consultants stipulates that the
nature and the limit to delegation of authority to the consultant, as well as he scope and the
nature of the responsibilities which the consultant is to assume shall be clearly defined in the
contract between the Borrower and the consultant.
Under FIDIC Red Book, the Contractor has an entitlement to extensions of time for completion
of the work if he suffers delay from specified events and payment of qualifying additional cost
he incurs as a result of such events. The FIDIC Red Book sets out, in detail, a claims and
dispute settlement procedure to cope with uncertainties involved in construction works.
Appendix-1 shows a flowchart of the claims and dispute resolution procedures under FIDIC Red
Book 1987.
It is said that the FIDIC Red Book is drafted so as to allocate the risk to the contracting parties in
a fair manner using the following principles:
x The party who can best manage the risk, takes such risk.
x Risks for which neither the Employer nor the Contractor can control, is in principle taken
by the Employer as the initiator of the project.
5
The payment to the Contractor is based on the actual quantities of work done at the unit prices
set out in the contract Bill of Quantities. The quantities set out in the contract Bill of Quantities
are provisional estimates of the work to be done. The actual work quantities are measured by the
Engineer in the presence of the Contractor. The Engineer certifies interim payment amounts,
usually monthly on the basis of the measurement of the work carried out during the relevant
period.
All three factors can be introduced in the preparation of Conditions of Particular Application and
result in an enhanced risk to the Contractor.
The FIDIC Red Book 1987 allows the Contractor to exercise his entitlement to extensions of
time and consequent additional cost arises in the following situations:-
Add.
Event Sub-clause *1
EoT*2 Process*3
Cost
Delay of Drawing and instruction by the
1 6.4 ż ż A
Engineer
Occurrence of unforeseeable physical
2 12.2 ż ż A
obstructions and conditions
Error in position, levels, dimension, and
3 alignment of the works given by the 17.1 ż B
Engineer
Loss or damage due to Employer’s risk
4 20.3 ż B
event
5 Discovery of fossil, coins, article of value, 27.1 ż ż A
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etc.
6 Facilities for other contractors 31.2 ż A
Execution of additional test required by the
7 36.5 ż ż A
Engineer
Uncovering of the work not attributable to
8 38.2 ż A
the Contractor
Suspension of the work instructed by the
9 40.2 ż ż A
Engineer
Employer’s failure to give possession of the
10 42.2 ż ż A
site
Remedying defect not attributable to the
11 49.3 ż B
Contractor
12 Search not attributable to the Contractor 50.1 ż A
13 Valuation of Variation 52.1 ż A
14 Variation exceeding 15% of contract price 52.3 ż A
15 Delayed payment 60.10 ż C
16 Damage to the works by Special risk 65.3 ż B
Increased costs arising from Damage to the
17 65.5 ż A
works by Special risk
18 Contractor’s entitlement to suspension 69.4 ż ż A
19 Increase of market price 70.1 ż C
20 Change to legislation 70.2 ż A
Notes:
*1 : Additional Cost
*2 : Extension of Time
*3 : The Engineer is central to the decision making process to determine the Contractor’s
entitlement to an extensions time and additional cost. The determination and analysis
is carried out in three categories Type A, B, and C as follows:-
Type A: To be determined by the Engineer after due consultation with the Employer
and the Contractor.
Type B: To be determined by the Engineer.
Type C: To be determined by rules stipulated in the contract
The following are typical examples of Employer’s obligations and responsibilities under the
FIDIC Red Book 1987:-
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1. to give possession of the site to the Contractor under Sub-clause 42.1
2. to give necessary instructions, consents, approvals and notices to the Contractor
under various clauses
3. to avoid delay, impediment or prevention by the Employer under Sub-clause 44.1
4. to be responsible for damage to transportation routes when the Employer is liable for
this under Sub-clause 30.3
5. to supply goods or execute specified work when the Employer is responsible
therefore
6. to pay the Contractor according to Sub-clause 60.10, etc.
7. to be responsible for the Employer’s risk items under Sub-clause 20.3, 20.4 and 21.3
8. to settle disputes amicably under Sub-clause 67.2
If any of the above items are excluded entirely or partially from the Employer’s obligations or if
such responsibilities are in all circumstances or even in certain specified circumstances
transferred to the Contractor then the Contractor’s contractual responsibilities would be
considered to be increased unreasonably.
Similarly, the Engineer’s authority may be diminished if words such as “subject to prior approval
of the Employer” are inserted in the independent clauses as listed in Chapter 3-1, in which the
Engineer’s authority is described.
Excessive use of Employer’s prior approval as a precondition for the exercise of the Engineer’s
authority may tend to bias the Engineer’s independent decision making ability and thereby
increase the one sided tendency of a contract.
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As described in section 3-1) above, the Engineer shall make determinations about alleged claims
after due consultation with the Employer and the Contractor. This will ensure that the
Employer’s views can be deemed to have been considered in the decision making process
undertaken by the Engineer.
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4. Commentary on Checklist
Check Point 01 Are the Bidding Documents based on the JBIC Sample
Bidding Documents?
FIDIC Clause Whole
<Interpretation>
JBIC recommends that bidding documents are prepared based on “Sample Bidding
Documents under JBIC ODA Loans (Civil Works) Nov.1999” (the JBIC Sample
Bidding Documents). The JBIC Sample Bidding Documents are based on FIDIC Red
Book 1987 (FIDIC Red Book) as the de facto standard for international civil
construction contracts. FIDIC Red Book is considered to be a fair balance of risk
between the Employer and the Contractor.
It is strongly recommended that bidding documents are prepared in line with the JBIC
Sample Bidding Documents. If local standard bidding documents are used instead of the
JBIC Sample Bidding Documents, the following problems have been encountered:
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x To provide the necessary details left blank in Part I (for example clauses: 1.1,
2.1, 5.1, 14.1, 14.3, 68.2, etc.),
x To provide information specific to the project, specific to the region and specific
to the country where the project is to be carried out, and
x To provide information on terms required or recommended by the financing
bank (for example JBIC).
The Part I provisions have been improved through use on many projects and its
provisions reflect a standard policy that has a high degree of professionalism. Great care
is also necessary to coordinate Part I and Part II. Any rewriting may destroy the entire
balance of the provisions and introduce referencing errors. For example when Clause
20.4 "Employer's Risk" is changed, it is possible to create inconsistency with Clause
65.2 "Special Risks". Completion and checking the consistency of Part I and Part II
should only be undertaken by a specialist with the following necessary experience:
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is highly recommended that this procedure be changed and that such execution agencies
appoint an independent consultant to maintain the Engineer’s impartiality. Independence
of the Engineer is an integral part of the FIDIC Red Book philosophy.
Check Point 04 Is the design executed by the Employer, and does the
Employer have design responsibility?
FIDIC Clause Whole
<Interpretation>
The Design-Bid-Build method is the assumed method of executing any project under the
FIDIC 㧾ed Book. The Employer designs the permanent works, and the bidding is done
based on that design. The Employer assumes the liability for defective design (for
example under clauses: 6.1, 6.4, 7.1, 7.2, and 8.1).
It would be a fundamental deviation from the JBIC Sample Bidding Documents and the
FIDIC Red Book to impose liability on the Contractor for defective design and
additional cost for construction due to the modified design. If the Design-Bid-Build
method is used then such text change should be avoided as it increases the Contractor's
risks too greatly.
Check Point 05 When the Engineer exercises an authority or power are the
circumstances under which he is required to get the
Employer's prior approval excessive?
FIDIC Clause 2.1 Engineer’s Duties and Authority
<Interpretation>
Another feature of the FIDIC Red Book is that the Engineer is required to be impartial
in administering the contract as described in Clause 2.6 and Chapter 2. Clause 2.1(b)
specifies that if any Engineer's decision to approve, prove, determine or decide is subject
to the acquisition of specific prior approval from the Employer then such decisions shall
be set out in FIDIC Red Book Part II.
It is preferable to minimize the number of matters which need the prior approval of the
Employer. This encourages the Engineer to make impartial judgments in line with the
basic philosophy of the FIDIC Red Book. If there are many matters which need the prior
approval of the Employer then there is the possibility that the Employer's view will
excessively be reflected when the Engineer's exercises any discretion. Similarly when
the text of FIDIC Red Book Part I and II is changed in this fundamental issue then
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neutral judgment could be obstructed.
As described in section 3-1)) above, the Engineer shall make hisdeterminations about alleged
claims after due consultation with the Employer and the Contractor. This will ensure that the
Employer’s views can be deemed to have been considered in the decision making process
undertaken by the Engineer (Refer to Clauses 27.1, 36.5, 40.2, 42.2, 65.5, 69.4 and 70.2).
FIDIC Red Book clause 1.5 specifies that any consent, approval, certificate or
determination shall not unreasonably be withheld or delayed. If the Employer's prior
approval is required then the Contractor may consider such approval procedures
represent an unjustifiable delay.
The FIDIC Guidelines for Preparation of Part II clauses do not indicate which
discretions should be subject to approval. To consider the circumstances under which
restraints may be placed on the Engineer’s authority it would be necessary to take into
account the factors specific to the country in which the works are to be carried out. The
JBIC Sample Bidding Documents recommend that the following five situations should
be subject to prior approval from the Employer:-
The issuance of the certificates under Clauses 48.1 "Taking-Over", 60.2 and 60.8
"Payments", and 62.1 "Defects Liability" should be assumed to be the sole discretion of
the Engineer, and should not be included in the matters requiring Employer's prior
approval.
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his decisions will in fact be thought of as fair and impartial.
If there is a text change that requires the Engineer to get the Employer's prior permission
to exercise the Engineer’s authority under this clause, then the fairness of the Engineer’s
decision may be affected greatly by the Employer’s view. Such text change should be
avoided.
If the Conditions of Contract are made in two languages (e.g. English, French, or
Spanish plus language of the country where the Works are to be carried out or language
of the Employer's country) it is advisable to avoid specifying languages other than
English, French, and Spanish as the ruling language for interpretation in the event of
contradictions. This is advisable as all the stake holders in the Contract (the Employer,
the Contractor, the Engineer, and JBIC) can regard English, French, and Spanish as
neutral.
14
Contract amendments such as "The document which describes the content in detail shall
be given priority over a more general document." should be avoided. Such provisions if
included regardless of the definition of priority, create uncertainty.
Additional provisions dealing with the priority of documents should be drafted carefully
so as not themselves, to create discrepancies and contradictions in the interpretation of
the priority provisions whether the additional provisions are in the Contract Agreement,
the Conditions, or the Letter of Acceptance.
The Contractor suffers delay and / or incurs cost for waiting time in preparation of shop
drawings and / or a delay in the Works arises from delay by the Engineer in issuing the
construction drawings. Such delay and / or incurred cost are risks that the Contractor
cannot manage and should not be asked to take responsibility for.
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other defect in the design….” is added.
Any text change which makes the Contractor assume the responsibility for the design
carried out by the Employer excessively expands the Contractor's obligations. Such text
changes should not be made and the Contractor should not be responsible for any design
which he has not prepared.
FIDIC Red Book Clause 61.1 provides that the Contract shall only be regarded as
complete upon issuance of the Defects Liability Certificate in accordance with Clause
62.1. The Contractor’s contractual obligations are at an end upon the issuance of this
Certificate. Any text change that excessively expands the Contractor's obligation by
requesting a performance security to remain valid beyond that date keeps the
Contractor’s obligation alive unfairly.
Check Point 12 Is the Contractor made to bear responsibility for the site
conditions, and are extensions of time and additional cost for
the presence of unforeseeable site conditions limited?
FIDIC Clause 11.1 Inspection of Site
<Interpretation>
Any text change or additional provision which makes the Contractor assume all the
responsibilities for the inaccuracy and / or insufficiency in information given by the
Employer deviates from the FIDIC Red Book and imposes an excessive and unfair
responsibility on the Contractor.
In case of inaccuracy of the site data, a claim can be submitted by the Contractor under
Clause 12.2. Even if there is a text change attempting to limit this right the Employer
may still be held responsible as the drafter of the tender / contract documents. If such a
claim develops into arbitration, an award could go against the Employer. An arbitration
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tribunal could decide that a bidder had insufficient time to investigate and verify the site
data provided by the Employer and it would have been necessary and reasonable for the
Contractor to have relied on the accuracy of the site data to calculate the tender price.
The JBIC Sample Bidding Documents recommend adding a new Clause 11.2. This new
clause allows the bidders to access data provided elsewhere in the Contract. This
provision is helpful as it permits the bidders to understand site conditions in more detail.
The critical factor is to select a proper contractor at an appropriate price by providing a
thorough understanding of the site situation at the time of the tender.
Check Point 13 Are the Contractor's right to claim for an extension of time
and additional cost for unforeseeable physical obstructions or
the conditions limited? Further, is there any possibility of the
Engineer being unfairly influenced by the Employer when
making a decision on such extension of time and additional
cost?
FIDIC Clause 12.2 Not Foreseeable Physical Obstructions or Conditions
<Interpretation>
No Contractor can manage risks arising from physical obstructions or conditions which
an experienced contractor could not reasonably have foreseen. Imposing a risk on a
Contractor which he cannot manage may lead the bid evaluator to select a bidder
without the maturity and / or experience to reflect such a risk in the price. In these
circumstances there is a high possibility of spoiling another very suitable bidder who has
properly reflected the risk in his tender price.
Any text change which restricts or limits the Contractor’s right to claim for extension of
time and additional cost shall be avoided to prevent from disadvantage for both the
Employer and the Contractor.
If there is a text change to the effect that the Engineer requires the Employer's prior
permission to exercise his discretion in relation to extension of time and additional cost,
the Engineer’s fair decision may be affected greatly by the Employer's views. Any such
text change should be avoided as being against FIDIC Red Book principles and unfair.
Check Point 14 Has the right to receive progress payments for work carried
out been limited by the Employer's capital plan?
FIDIC Clause 14.3 Cash Flow Estimate to be Submitted
17
<Interpretation>
FIDIC Red Book Clause 60 sets out the payment procedure which is invariably to be
payment according to work progress. However, payment by some executing agencies /
Employers is limited by an annual government budget. This limit is stipulated in the
Contract. In such cases payment can only be made within the limit of the budget
regardless of the amount due according to the FIDIC Red Book work progress
procedures.
The construction time schedule is prepared by the Contractor in accordance with their
own construction methods. A cash flow plan is established referring to this construction
time schedule. Any text change by which the Employer limits the Contractor’s cash flow
plan should not be made.
Check Point 16 Has any of the Employer's risk been imposed on the
Contractor and consequently has the Contractor's obligation
been expanded?
FIDIC Clause 20.3 & Loss or Damage Due to Employer’ Risks and other related
others issues
<Interpretation>
FIDIC Red Book Clause 21.2 provides that insurance shall be in the joint names of the
Contractor and the Employer. Such insurance shall include all the Employer’s risks
except the Special Risks stipulated in Clause 65. Any loss or damage not insured or not
recovered from the insurers, pursuant to Clause 21.3, shall be borne by the Employer or
the Contractor in accordance with their respective responsibility set out under the FIDIC
Red Book or at law. Any amount not recovered from the insurers is described
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as ”Excess” and/or "Deductibles”. Any insurable event not covered by the policy for any
reasons is described as an "Exclusion”.
Any text changes which transfers the Employer’s risks to the Contractor increases the
Contractor’s obligation and would mean that the Contractor is required to bear any loss
and or damage not recovered from the insurer.
If a text change is made to delete an exclusion from FIDIC Red Book Clause 21.4 and
such event occurs then the Contractor’s responsibility will have been unreasonably
enlarged. It is necessary to avoid such text changes that move those normally excluded
risks to the Contractor. Those risks cannot be managed and are not insurable at normal
premiums.
Check Point 18 Has the responsibility for compensation for damaged road
and bridges that the Employer should assume been imposed
to the Contractor?
FIDIC Clause 30.3 Transport of Materials or Plant
<Interpretation>
Any text change to FIDIC Clause 30.3 which imposes the Employer’s liability to
compensate for damage to roads and bridges on the Contractor regardless of the law and
the regulations, forces the Contractor to bear a risk that he cannot manage. Any such text
changes should be avoided as being against FIDIC Red Book principles and unfair.
19
Check Point 19 Is there any possibility of the Engineer being unfairly
influenced by the Employer when making a decision with
regard to the Contractor’s additional cost for facilities for
other contractors?
FIDIC Clause 31.2 Facilities for Other Contractors
<Interpretation>
If there is a text change which requires the Engineer to get the Employer's prior
permission to exercise his discretion in relation to additional cost, the Engineer’s fair
decision may be affected greatly by the Employer's views. Any such text changes should
be avoided as being against FIDIC Red Book principles and unfair.
Check Point 20 Is there any restriction on the Contractor’s right to claim for
extension of time and additional cost for testing not provided
for? Further, is there any possibility of the Engineer being
unfairly influenced by the Employer when making a decision
for such extension of time and additional cost?
FIDIC Clause 36.5 Engineer’s Determination where Tests not Provided for
<Interpretation>
Any text change to FIDIC Red Book which removes the Contractor’s entitlement to a
claim for extension of time and additional cost for the tests not provided for in the
Contract may lead to restriction on the Contractor’s rights. Such tests are unplanned
work and an extension of time would be unavoidable if this work is on the critical path.
Further, such cost could not have been included in the Contract Price. It is necessary to
avoid any such text change that imputes such risk that cannot be managed.
If there is a text change which requires the Engineer to get the Employer's prior
permission to exercise his discretion in relation to extension of time and additional cost,
the Engineer’s fair decision may be affected greatly by the Employer's views. Any such
text changes should be avoided as being against FIDIC Red Book principles and unfair.
Check Point 21 Is there any restriction on the Contractor’s right to Claim for
additional cost for uncovering and making openings?
Further, is there any possibility of the Engineer being
unfairly influenced by the Employer when making a decision
for such additional cost?
FIDIC Clause 38.2 Uncovering and Making Openings
20
<Interpretation>
Any text change to FIDIC Red Book Clause 38.2 which deletes the Contractor’s right to
an additional cost for making openings of any part of the Works covered up in proper
manner would impose an unmanageable risk to the Contractor.
If there is a text change which requires the Engineer to get the Employer's prior
permission to exercise his discretion in relation to additional cost, the Engineer’s fair
decision may be affected greatly by the Employer's views.
Both such text changes should be avoided as being against FIDIC Red Book principles
and unfair.
Check Point 23 Is there a possibility of delay and idling time for the
Contractor before the Contractor can start work even though
the Letter of Acceptance had been issued?
FIDIC Clause 41.1 Commencement of Works
<Interpretation>
The issuance date of the Notice to Proceed marks the commencement of the contractual
construction period. The FIDIC Red Book requires the Contractor to submit a
programme under Clause 14.1, and Cash Flow forecast under Clause 14.3 within the
number of days stipulated in Part II such period counting from the date of the Letter of
Acceptance. The Contractor is also required to submit the Performance Security under
Clause 10.1, and a breakdown of the Lump Sum prices under Clause 57.2.
A time limit for the issuance of the Notice to Proceed is usually stipulated in the
21
Appendix to Tender in relation to the date of issuance of the Letter of Acceptance by the
Employer. The Contractor is not able to schedule the Works when the Notice to Proceed
and Letter of Acceptance are delayed. Therefore if there is a text change which deletes
the time limit for issue of the Notice to Proceed from the date of the Letter of
Acceptance the Contractor may be forced to stand in readiness for a long time. The
Contractor would also be forced to start contractual activities, such as the preparation of
the Performance security under Clause 10.1, and preparation of the Lump Sum prices
breakdown of under Clause 57.2 in order to submit these within 28 days from the date of
the Letter of Acceptance. This would be so even if the Notice to Proceed had not been
issued by the Engineer after 28 days from the Letter of Acceptance. Such a text change
creates a risk that cannot be managed by the Contractor and should not be incorporated.
An Employer may have many internal problems to overcome to commence the project
such as land compensation, arrangement of budget and staff arrangement. It may be
difficult to predict how long these tasks will take to solve and that may be the reason to
make a text change so as not to stipulate a time limit in the Appendix. However,
managing these various procedures is not the Contractors problem but is the Employer's
responsibility. Managing these procedures is a prerequisite for the smooth execution of
construction works.
If there is a text change that requires the Engineer to get the Employer's prior permission
to exercise his discretion in relation to extension of time and additional cost, the
Engineer’s fair decision may be affected greatly by the Employer's views. Any such text
22
changes should be avoided as being against FIDIC Red Book principles and unfair.
Check Point 25 Are there any restrictions on the Contractor’s right to claim
for extension of time for Completion?
FIDIC Clause 44.1 Extension of Time for Completion
<Interpretation>
Any amendment which changes the conditions for, or deletes entirely, any of the five
reasons for extensions of time and of the Contractor’s right to claim for extension of
time should be avoided. Such an amendment attempts to impose on the Contractor risks
that he cannot manage. Any such text changes should be avoided as being against FIDIC
Red Book principles and unfair.
Check Point 26 Are amounts and limits of liquidated damages which may be
imposed on the Contractor appropriate?
FIDIC Clause 47.1 Liquidated Damages for Delay
<Interpretation>
The Guidelines for Procurement under JBIC ODA Loans published January 2005
recommend liquidated damage at a rate of 0.1% per day of the Contract price or 0.5 %
per week of the Contract Price. It also recommends an upper limit in the range of
between 5% and 10% of the Contract Price.
Any text change which deletes the upper limit of liquidated damages and has the
possibility of deducting extremely large amounts of money may be judged as a penalty
if a dispute proceeds to arbitration. Any decision that liquidated damages are a penalty
causes there to be a doubt on the effectiveness of the whole liquidated damages
provision.
Contractors may include a contingency in their bid price to cover the risk of extremely
large amounts of liquidated damages set out in the bid documents. If the Works are not
delayed then the contingency is an unnecessary expense for the Employer. There is also
the possibility that capable contractors will be deterred from bidding as described in
Checkpoint 12. Such text changes have no advantage for the Employer or the
Contractor.
23
Check Point 27 Is there any possibility of the Engineer being unfairly
influenced by the Employer when making a decision to issue
the Taking-Over Certificate?
FIDIC Clause 48.1 Taking-Over Certificate
<Interpretation>
If there is a text change which requires the Engineer to get the Employer's prior
permission to exercise his discretion in relation to issue of a Taking-Over Certificate, the
Engineer’s fair decision may be affected greatly by the Employer's intention. Any such
text changes should be avoided as being against FIDIC Red Book principles and unfair.
Any text change which imposes an excessive risk on the Contractor by unreasonably
extending the defects liability period may increase the bid price and make the project
more expensive for the Employer. There is also the possibility that capable contractors
would be deterred from bidding as described in Checkpoint 12. Such text changes have
no advantage for the Employer or the Contractor.
Check Point 29 Has the Contractor’s scope of the responsibility for defects
liability been expanded excessively?
FIDIC Clause 49.2 Completion of Outstanding Work and Remedying Defects
<Interpretation>
The Contractor cannot control natural wear and tear caused by operation of facilities
during the Defects Liability Period, even if such a text change is made to impose such a
responsibility on the Contractor. Wear and tear of facilities and structures is natural
when they are put into use under normal operating conditions.
24
There is also the possibility that capable contractors will be deterred from bidding as
described in Checkpoint 12. Such text changes have no advantage for the Employer or
the Contractor.
25
The basis of this clause is to balance the Employer's and the Contractor's risk for
increases or decreases of the Effective Contract Price. To accomplish this balance of risk
it is necessary to allow for the adjustment of the Effective Contract Price if such
increase or decrease of variations adversely the affects the proportion and therefore
recovery of indirect construction costs.
The Effective Contract Price shall be adjusted in relation to the amount of contract
variations. Any text change which specifies an unreasonably high percentage for
variations before adjustment is made should be avoided.
If there is a text change that requires the Engineer to get the Employer's prior permission
to exercise his discretion in relation to increase or decrease amount of the Effective
Contract Price, the Engineer’s fair decision may be affected greatly by the Employer's
intention. Any such text changes should be avoided as being against FIDIC Red Book
principles and unfair.
The FIDIC Red Book Clause 53.3 requires the Contractor to send to the Engineer, with
an explanation of the grounds upon which the claim is based, with an account giving
detailed particulars of the amount claimed. According to the Contract, the assessed value
of the claim will be paid to the Contractor when the Engineer has determined that the
amount claimed was reasonable in the light of the facts and rights under the Contract.
26
Check Point 34 Have the provisions on the Employer’s assistance to the
Contractor been deleted or reduced?
FIDIC Clause 54.3 Customs Clearance
<Interpretation>
FIDIC Red Book Clause 54.3 sets out the range of support to be offered by the
Employer to the Contractor regarding customs clearance. The clause does not clearly
specify the details of such support. The Employer must therefore describe in Part II of
the Conditions of Contract, the details of the Employer's support. What support the
Employer provides actually varies in different countries and projects.
Any text change which deletes such support from the Employer may not only expand
the Contractor’s obligation but also obstruct execution of the Project.
Customs departments usually require endorsement by the Employer for re-export of the
Contractor’s construction equipment after the construction in accordance with FIDIC
Red Book Clauses 33.1 and 54.1.
Any text change which prevents the Contractor from rejecting any subcontractor
selected by the Employer who will not undertake such responsibility shall be avoided
because it prejudices the Contractor's chance of keeping the quality of work and time
period stipulated in the Contract.
Check Point 36 Does the Contractor have the right to set out in the Contract
his attendances and profit on Nominated Subcontractors?
FIDIC Clause 59.4 Payments to Nominated Subcontractors
<Interpretation>
The Contractor shall submit his method statement, applications for approval of
construction materials, and selection of subcontractors. It is a right of the Contractor to
27
receive profit and payment for services which he provides to the subcontractors. The
rate of profit and payment for charges must be at the Contractor’s discretion.
The Tender document must include a format sheet to include the appropriate rate of
profit and payment for charges in the build up of the Contract Price. This format sheet
shall provide separate columns for the rates for his own work and subcontracted work as
the Contractor’s management input is different in each case.
Therefore FIDIC Red Book Clause 59.4(c) should have no text change to fix the rates to
a single rate to avoid violation of the Contractor’s right.
Check Point 37 Is the party to pay for the bank commissions and fees etc.
clearly defined in the contract?
FIDIC Clause 60.1 Monthly Statements
<Interpretation>
The JBIC Sample Bidding Document recommends a clause for Certificates and
Payment. The numbering system of this recommended clause is different from FIDIC
Red Book but the effect of the clause is the same.
If the Employer intends to pay the bank for opening letters of credit, making remittance
and other bank charges including those incurred by the Contractor then it is necessary to
clearly specify this in the Contract.
The Contractor can request payment for these bank fees under Clause 60.1(e) and
include them as “any other sum to which the Contractor may be entitled under the
Contract” in both the FIDIC Red Book and the JBIC Sample Bidding Documents.
Check Point 38 Is the Contractor's right limited by extending the time limit
for the Employer to honour a payment certificate issued by
the Engineer?
FIDIC Clause 60.2 Monthly Payments
<Interpretation>
Both the FIDIC Red Book and the JBIC Sample Bidding Documents specify the time
limit for the Employer to honour an Engineer’s certificate for payment as 28 days.
Any text change to extend the 28 day honouring period will extend the time limit for
payment by the Employer and will probably increase the Contract Price. There is also
the possibility of deterring capable contractors from bidding as stipulated in Checkpoint
28
12. Therefore such text changes should be avoided from the perspective of economic
rationality.
Any text change to make the Contractor repay the advance payment much before
interim payments have reached 80% of the Contract Price should be avoided as they
may undermine the original purpose of the advance payment.
Any text change to request the Contractor to submit a bank bond in exchange for the
return of the first half of the retention money may impose on the Contractor an
excessive obligation beyond the FIDIC Red Book model. Any such text changes should
be avoided as being against FIDIC Red Book principles and unfair.
29
Check Point 41 Is the Contractor's right to payment in a specified period
prolonged, or is he denied interest for delayed payment?
FIDIC Clause 60.10 Time for Payment
<Interpretation>
The JBIC Sample Bidding Documents recommend 56 days as the time for payment in
FIDIC Red Book Clause 60.8..
Any text change which allows the Employer to delay payment beyond the standard time
limit of 56 days and / or deletes the obligation to pay interest for delayed payment may
push up the Contract Price. Such a text change could deter capable contractors from
submitting a bid as stipulated in Checkpoint 12 and should be avoided from the point of
view of economic rationale.
It is important that the payment obligation of the Employer should be clearly specified
in FIDIC Red Book Clause 60.10. The actual time of payment by the Employer could
vary according to the particular contract definition. Payment could be the time of
delivery by the Employer of necessary documents to the Contractor, or delivery to JBIC,
or at the time of actual payment into the Contractor’s bank account. The FIDIC Red
Book Clause 60.10 should clearly specify the time of payment to define the starting date
for calculation of interest.
30
FIDIC Clause 65.5 Increased Costs arising from Special Risks
<Interpretation>
If there is a text change that requires the Engineer to get the Employer's prior permission
to exercise his discretion on the amount of increased cost arising from Special Risks, the
Engineer’s fair decision may be affected greatly by the Employer's view. Any such text
changes should be avoided as being against FIDIC Red Book principles and unfair.
Check Point 45 When the DAB procedure is used, has the cost been
examined sufficiently?
FIDIC Clause 67.1 Engineer’s Decision
<Interpretation>
Chapter 11 of the JBIC Sample Bidding Documents provides for the use of a Dispute
Adjudication Board (DAB). The DAB comprises three (3) members in the case of a
project in which the contract price exceeds 42 million US$ (equivalent to 5.0 billion
Japanese Yen) as the optional method for the settlement of disputes. Under the FIDIC
Red Book Clause 67.1 this option is included at the discretion of the Employer as a
method of resolving differences over any Engineer’s decision.
There have been projects where the establishment of a DAB was suspended because of
the large sums of money to be paid for the DAB by both the Employer and the
Contractor. Even if the sharing of such cost was stipulated in the FIDIC Red Book the
cost of a DAB can be exceptionally high especially if the adjudicators come from third
countries. The Employer should have understood that such expenses are inevitable when
the DAB procedure was selected.
31
Check Point 46 Is the selection of the arbitration procedure and the method
of selection of arbitrators properly international?
FIDIC Clause 67.3 Arbitration
<Interpretation>
There should be proper consideration given to the selection of the dispute settlement
procedure incorporated in an international contract especially in the case of the
nomination of an arbitration rules / organization which is based in the country of the
Employer and (usually) the country where the Works are to be carried out. The general
rule should be to appoint a truly international and neutral rules / organization such as
International Chamber of Commerce (ICC).
Check Point 47 Are the Contractor’s rights limited by shortening the notice
period, or providing for a prolonged grace period for the
effectiveness of termination of the Contract by reason of an
Employer’s default?
FIDIC Clause 69.1 Default of Employer
<Interpretation>
The FIDIC Red Book Clause 60.10 (a) provides a period of 28 days within which
payment should be made by the Employer for interim certificates and 56 days for the
Final Certificate. The FIDIC Red Book Clause 69.1 also provides a period of 14 days
for the effectiveness of a notice of termination for Employer's failure to pay as required.
Proper consideration should be give to these periods taking into account the
implementation method and the context of the country where the Works are to be carried
out. The specification of these time limits shall be subject to sufficient investigation
especially when the executing agency has no authority to make a decision on the issue
related to this clause and is required to consult with other government authorities.
32
FIDIC Clause 69.4 Contractor’s Entitlement to Suspend Work
<Interpretation>
If there is a text change that requires the Engineer to get the Employer's prior permission
to exercise his discretion in relation to extension of time and additional cost, the
Engineer’s fair decision may be affected greatly by the Employer's intention. Any such
text changes should be avoided as being against FIDIC Red Book principles and unfair.
It is necessary to avoid any text change to restrict the Contractor’s right which deletes
this clause, or specifies unreasonable formula, or automatically cuts a certain percentage
of price escalation, or limits adjustment to the cases of drastic movement in price.
Check Point 50 Is the Contractor’s right to claim for additional cost for
changes in legislation limited? Further, is there any
possibility of the Engineer being unfairly influenced by the
Employer when making a decision for the amount of
increase or decrease cost due to changes in legislation?
FIDIC Clause 70.2 Subsequent Legislation
<Interpretation>
The FIDIC Red Book Contract stipulates that the Contractor is entitled to additional
costs incurred due to changes in legislation and any text changes that limits the
Contractor's right to price adjustment only in circumstance when the additional amount
would exceed a certain limit are unfair.
The limits of price adjustment under Clause 70.1 can be ambiguous as described in the
Commentary on Clause 70.1 above. A description which clarifies adjustment to be made
under Clause 70.1 is required in a particular project.
If there is a text change that requires the Engineer to get the Employer's prior permission
to exercise his discretion on increase or decrease cost caused by changes in legislation,
33
the Engineer’s fair decision may be affected greatly by the Employer's view. Any such
text changes should be avoided as being against FIDIC Red Book principles and unfair.
34
Appendices
Appendix -1 Procedure of Claim and Dispute Settlement㩷 䋨FIDIC RedBook -1987䋩
67.1
Occurrence of Claimable Event 67.2
67.1 Reference of
Reference of
dispute to dispute to
㪍㪎㪅㪈㩷 *1
Engineer DAB
67.1
Notice to Engineer of Intention to Claim 53.1䋨Cost䋩
67.2
䋨Within 28 days䋩 44.2䋨Time䋩 67.1 Engineer’s DAB’s
Decision Decision*1
㪍㪎㪅㪈㩷
䋨Within 84 䋨Within 84
days䋩 days䋩
Notice of ground and details of Claim 53.3䋨Cost䋩
Yes
Agreement to Engineer’s Settlement
or DAB’s Decision of Dispute
Engineer’s Determination after 53.5䇮52.2䋨Cost䋩
Arbitration
Agreement to Yes Settlement 䋨Within 70 days䋩
the Determination of Claim
Yes Settlement
Amicable Settlement
of Dispute
No
Arbitration
67.3
(under ICC Rule䌳)
Note 1*
If a Dispute Adjudication Board (DAB) has been
appointed by the modification of Part II Conditions Final Settlement of Dispute
of Particular Application.
AP-1
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JAPAN
BANK FOR
INTERN ATIONAL
COOPERATION
J BI C
Japan Bank for International Cooperation
Head Office
4-1 Ohtemachi 1-chome, Chiyoda-ku,
Tokyo 100-8144, Japan
Telephone : Tokyo 81- 3 - 5 2 1 8 - 9 6 1 1
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URL: http://www.jbic.go.jp
E-mail: pdds@jbic.go.jp