FIDIC 1999 or something else in disguise?
Michelle Nelson, partner, Masons Galadari, explores changes made to the Abu Dhabi government forms of contract.
Contractors already working in or thinking of working in the UAE capital may be aware that the Abu Dhabi government has recently issued new contracts for construction projects being undertaken in the emirate on behalf of public entities. The word on the street is that these contracts are to be welcomed since it is perceived that the Abu Dhabi government has decided to adopt the FIDIC 1999 form of contract.
However, how many of you have studied these contracts in any detail? Are you aware, for example, of the type and extent of the changes that have been made to the standard FIDIC forms in these new contracts? This article will explore some of the key features of the FIDIC forms and highlight a number of the interesting amendments made in the new Abu Dhabi contracts.
The new Abu Dhabi contracts were introduced by Law No. 21 of 2006 and copies were attached to Executive Decision No. 1 of 2007, bringing them into force. There are two forms of contract: Build Only and Design and Build. These contracts replace the earlier General Conditions of Contract adopted by government departments in Abu Dhabi and are applicable for all civil construction works entered into by government departments in Abu Dhabi. They do not, however, apply to the private developers such as Sorouh, Aldar and Al Qudra, who remain free to adopt whatever forms of contract they wish.
The good news is that these contracts, in general terms, maintain the principle features of the FIDIC 1999 forms of contract, which were introduced to counter the growing criticism from the international contracting community in relation to the old forms of contract, and in particular the FIDIC 1987 Red Book 4th Edition. For example, we now have the introduction of the dispute adjudication board and the erosion of some of the power previously given to the engineer, new provisions in relation to design, worked-up clauses in relation to variations, claims and payment and an optional clause allowing the contractor to claim for price escalation.
The not-so-good news for contractors operating on these new forms, however, is that there are many subtle changes from the FIDIC 1999 forms of contract, which seek to impose harsher obligations upon the contractor and relieve the employer from some of the "balancing obligations" that FIDIC had deliberately put in place to provide an even risk allocation between the parties. It is these changes, which contractors entering into these contracts should be aware of and ensure they have priced, as far as possible.
One of the most notable amendments is found in the Design and Build form, which is based upon the FIDIC Yellow Book. One of the basic philosophies of the FIDIC Design and Build contract is that the employer will retain responsibility for both the correctness of information provided to the contractor by the employer as well as the correctness of the employer's requirements.
Furthermore, the employer also takes the risk of unforeseen physical conditions. As such, to the extent that errors are discovered in the information provided by the employer or unforeseen physical conditions are discovered to exist, the contractor will be entitled to an extension of time and additional costs. The provisions providing such remedies have, however, been completely deleted in the new Abu Dhabi contracts and what's more, there is an express provision which confirms that the contractor will assume responsibility for any design prepared by the employer - irrespective of whether it contains errors!
Another example of an amendment in the Abu Dhabi contracts is the addition of a new clause which provides a list of warranties to be given by the contractor, over and above the general obligations found in the standard form of contract. A further change is that the cap on liquidated damages for delay has been increased from the standard 10% generally provided in this region to 20% of the contract sum. This could clearly be extremely substantial in many contracts worth significant sums of money.
In relation to termination, while the employer has the ability to terminate the contract on 14 days' notice, the contractor has to follow a series of steps, including referral of the issue to the dispute board, before it is entitled to terminate - the culmination of which means that it has to wait for a period of 132 days from the event/breach in question before it can terminate the contract! Again, a good example of the "balance" of power between the parties!
There are many more examples of changes - some of which are subtle, some are not. The message to contractors entering into contracts on the basis of these forms is to review them very carefully before signing. Do not be fooled into thinking they are simply the FIDIC 1999 Red and Yellow books with a few tweaks.