Legally Bound

Jordan ... Fidic, a good platform.

Jordan ... Fidic, a good platform.

Golden Principles in the spotlight

STUART JORDAN* discusses ‘Golden Principles’, a new feature of Fidic’s Second Edition suite of contracts which are designed to provide guidance in drafting contracts, and the philosophy behind them.

January 2020

When Fidic (Fédération Internationale Des Ingénieurs-Conseils – International Federation of Consulting Engineers) published its Second Edition suite of main contracts, the industry commentary (including on this page) was all about the fundamental changes in the contract conditions. One completely new feature in those contracts - Fidic’s ‘Golden Principles’ – was not much remarked on.

The Golden Principles are part of the Guidance for the Preparation of Particular Conditions. They are intended as overriding guidance, applicable in all circumstances. Of course, Fidic can’t enforce this guidance but it “strongly recommends” that parties and contract drafters take due regard of them. They are:

GP1: The duties, rights, obligations, roles and responsibilities of all the Contract Participants must be generally as implied in the General Conditions, and appropriate to the requirements of the project.

GP2: The Particular Conditions must be drafted clearly and unambiguously.

GP3: The Particular Conditions must not change the balance of risk/reward allocation provided for in the General Conditions.

GP4: All time periods specified in the Contract for Contract Participants to perform their obligations must be of reasonable duration.

GP5: All formal disputes must be referred to a Dispute Avoidance/Adjudication Board (or a Dispute Adjudication Board, if applicable) for a provisionally binding decision as a condition precedent to arbitration.

We can ignore the advice to draft clearly – especially since Fidic forms (like other published forms) are not perfect and they are amended in part to bring clarity. We can also pass over the requirement to take all disputes through a DAB (dispute adjudication board) as a prerequisite to arbitration. The DAB process is effectively a 154-day diversion in the journey to filing a Request for Arbitration. These provisions will continue to be been routinely deleted in the Gulf region, regardless of Fidic’s recommendation.

The real message here is a warning to not substantially depart from the general conditions. The thinking behind it is revealed in the stated reasons for the Golden Principles: Fidic says they are “necessary to ensure that modifications to the General Conditions:

• are limited to those necessary for the particular features of the Site and the project, and necessary to comply with applicable law; and

• the Contract remains recognisably a Fidic contract.”

To me, that first reason is more restrictive than the Golden Principles themselves. If we were to amend only for site, project and legal compliance necessities, we wouldn’t transgress any of the Golden Principles anyway, so why not replace them with this single ‘Platinum Principle’?

The second reason is branding: Fidic does not want parties referring to heavily-amended contracts as being Fidic.    

Fidic considers that this is all in line with its long-held philosophy to produce contract terms which are generally fair and have a balanced allocation of risk and reward, but fairness cannot be judged without commercial context. These contracts govern projects across multiple sectors with a huge range in size, value, complexity and hazard. In a functioning market with experienced and sophisticated participants, those risks will be allocated to the party best able to manage them (usually) and they will be priced (always!) so. Unless Fidic is going to advise users on the appropriate price for the risks in their contracts, any talk of the right balance between risk and reward is meaningless.

Also, Fidic itself produces a range of risk profiles: Fidic Yellow Book and Silver Book do pretty much the same job but in Silver Book, core risks such as site conditions and document discrepancies are much less favourable to the contractor. These Silver Book features are not ‘necessities’ to project delivery; they are pure risk-shifting measures required by funders. So, on any given project, if we execute a Silver Book unamended, we have not transgressed any Golden Principles but if we amend Yellow Book to look like Silver Book, are we in trouble?

Of course, there is poor contracting practice which we have looked at many times before: requirements to take on the risk of events controlled by, or known only by, the other party; subjective criteria to judge performance, the absence of effective remedy for breach or for capricious or abusive behaviour. We criticise these features, not because of abstract unfairness but because, in the end, they tend not to work in terms of project outcomes.     

The benefits of Fidic have historically been their clarity and simplicity of drafting (although the Second Edition forms are arguably less clear and simple) and their general balance, which provide a good platform. But it is only ever a platform to start from.

My respectful view is that the Golden Principles are overreach and the reasoning behind them is shaky. Departure (even significant departure) from set terms, maintaining good practice, is not an offence. If bespoke amendments become a problem, the solution is bespoke contracts.

 

* Stuart Jordan is a partner in the Global Projects group of Baker Botts, a leading international law firm. Jordan’s practice focuses on the oil, gas, power, transport, petrochemical, nuclear and construction industries. He has extensive experience in the Middle East, Russia and the UK.




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