New-FIDIC-Checklist-Guidelines

Procurement Policy and Supervision DivisionProject Development Department

Japan Bank for International Cooperation(JBIC)

Check List for One Sided Contracts

For use with “Sample Bidding Documents under JBIC ODA Loans - Procurement of Civil Works” November

1999 Edition

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..

JBIC will make a continuous effort to improve project implementation by close

discussion and cooperation with Borrowers. JBIC hopes that this check list will

contribute to the improvement.

Context of this Document

Check List for One Sided Contract

A check list is set out in the first part of this document. This check list is prepared to avoid one

sided provisions effecting the rights, obligations and risk of contracting parties. It can be used

during preparation and review of contracts documents for construction works under JBIC ODA

loans.

Chapter 1 : Purpose of Check List

The purposes of the Check List are described in chapter 1 together with the background behind the

necessity of such a check list.

Chapter 2 : Distinctive Features of FIDIC Red Book

The general features and basic concepts of the FIDIC Red Book, which should be well understood

by writers of construction contracts under JBIC ODA loans, are set out in chapter 2.

Chapter 3 : Factors which create One Sided Contract

The factors which create contracts one sided are examined in chapter 3 by categorizing the effects

into 3 groups.

Chapter 4 : Commentary on the Check List

A commentary on the Check List is set out in chapter 4 as a guide to users.

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1. Purposes of Check List

A contract is a document which stipulates rights, responsibilities and risks to be undertaken by

each of the contracting parties. It is therefore a very important document to be used for smooth

implementation of the project by the various stakeholders. Japan Bank for International

Cooperation (JBIC) recommends that executing agencies of loan recipient countries utilize the

"Sample Bidding Documents under JBIC ODA Loans (Procurement of Civil Works)" published

by JBIC in 1999 (hereinafter called as “JBIC Sample Bidding Documents”) in preparation of

bidding documents for construction works. These sample bidding documents use the FIDIC

Red Book 19871 as general conditions of contract. FIDIC Red Book provides a well-balanced

allocation of risks as between the Employer and the Contractor.

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:-

(1) Higher bid price

(2) Bid failure and disruption of project implementation

(3) Non-participation in the bid of conscientious and capable contractors

(4) Contract award to a bidder who fails or was not capable of estimating the risks properly

(5) Poor construction quality and delay to the progress of the work due to lack of risk

contingency

(6) Undermining the relationship of mutual trust and respect between the Employer and the

Contractor

(7) Repetition of groundless claims from the Contractor

(8) Frequent disputes between the Employer and the Contractor

(9) In an extreme case eventual termination of the contract

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 Conditions of Contract for Works of Civil Engineering Construction

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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.

2. Distinctive Features of FIDIC Red Book

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:-

(1) to supplement and complete Sub-clause 1.1 2.1 5.1 14.1 14.3 68.2 in Part I

(2) to add particular provision required by local conditions such as characteristics of execution

agency, project, region and country, etc.

(3) to add to particular requirements or recommendations of the project financer

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.

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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 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.

The roles of the Engineer can be classified into three categories in administration of construction

contracts.

(1) Employer’s agent

The Engineer has three main functions in the administration of FIDIC Red Book based

construction contracts:-

Production of detailed design drawings under Sub-clauses 6 and 7

Issuance of instructions for variation of the works under Sub-clause 51

Review of plans and drawings submitted by the Contractor under Sub-clause 7.2

Employer

Contractor Engineer

(Construction

Contract)

(Consultancy

Agreement)

(Report, Notice,

Application)

(Supervision, Notice, Instruction,

Determination, Approval, Consent)

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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.

Taking-over certificate under Sub-clause 48.1

Certification of work completion date under Sub-clause 62.1

Interim payment certificate under Sub-clause 60.2

Defect liability certificate under Sub-clause 62.1

Final payment certificate under Sub-clause 60.8

(3) Decision maker in claim and dispute settlement

The Contractor is entitled to submit claims, as set out in the FIDIC Red Book, to the

Engineer if the Contractor encounters events which are unforeseeable at the time of bidding

or are deviations from the contract provisions. The Engineer will evaluate such claims and

give his determination to the Employer and Contractor. If either party is dissatisfied with the

Engineer’s decision a dispute arises and such dispute can be referred to the Engineer for his

decision under Sub-clause 673.

The Engineer therefore has three distinct and different roles:-

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.

2.6 Engineer to Act Impartially

Wherever, under the Contract, the Engineer is required to exercise his discretion by:

(a) giving his decision, opinion or consent, or

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.

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(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.

3) Claim and Dispute Settlement Procedure

Construction work is susceptible to many external influences such as variable subsurface and,

metrological conditions as well as social, economic and environmental factors. It is impossible

to eliminate all uncertainties from construction work and unforeseen events are likely to occur

during any lengthy construction period.

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.

4) Balanced Risk Allocation

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:

The party who can best manage the risk, takes such risk.

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) Unit Price/Re-measurement Contract

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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.

3. Factors which create One sided Contract

There are three potential factors which make any contract one sided as follows:-

(1) the Contractor’s contractual rights are unreasonably limited.

(2) the Contractor’s contractual responsibilities are unreasonably expanded.

(3) the Engineer’s powers, discretions and or authority are excessively restricted.

All three factors can be introduced in the preparation of Conditions of Particular Application and

result in an enhanced risk to the Contractor.

Examining each of these factors in turn:-

1) Limitation of Contractor’s right

The entitlement to claim (if an unforeseeable event occurs, or when there is a deviation from the

contract provision not attributable to the Contractor) is one of the most important contractual

rights given to the Contractor. If such entitlement is unreasonably restricted then the risk taken

by the Contractor are increased.

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:-

Event Sub-clauseAdd.

Cost*1EoT*2 Process*3

1Delay of Drawing and instruction by the Engineer

6.4 A

2Occurrence of unforeseeable physical obstructions and conditions

12.2 A

3Error in position, levels, dimension, and alignment of the works given by the Engineer

17.1 B

4Loss or damage due to Employer’s risk event

20.3 B

5 Discovery of fossil, coins, article of value, 27.1 A

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etc.

6 Facilities for other contractors 31.2 A

7Execution of additional test required by the Engineer

36.5 A

8Uncovering of the work not attributable to the Contractor

38.2 A

9Suspension of the work instructed by the Engineer

40.2 A

10Employer’s failure to give possession of the site

42.2 A

11Remedying defect not attributable to the Contractor

49.3 B

12 Search not attributable to the Contractor 50.1 A

13 Valuation of Variation 52.1 A

14 Variation exceeding 15% of contract price 52.3 A

15 Delayed payment 60.10 C

16 Damage to the works by Special risk 65.3 B

17Increased costs arising from Damage to the works by Special risk

65.5 A

18 Contractor’s entitlement to suspension 69.4 A

19 Increase of market price 70.1 C

20 Change to legislation 70.2 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

2) Expansion of Contractor’s responsibility

The Contractor’s contractual responsibility is considered to be increased unreasonably if no

maximum amount is set for Liquidated Damages or an excessively long Defects Liability Period

is stipulated.

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.

3) Restriction of the Engineer’s authority

The Engineer is required to exercise his authority impartially in giving approval, consent,

certification and determination as described in Chapter 2. However, under Sub-clause 2.1 of

Conditions of Particular Application, it is possible to impose the Employer’s prior approval as a

precondition for the exercising of such Engineer’s authority.

2.1 Engineer's Duties and Authority

(b) The Engineer may exercise the authority specified in or necessarily to be

implied from the Contract, provided, however, that if the Engineer is required,

under the terms of his appointment by the Employer, to obtain the specific

approval of the Employer before exercising any such authority, particulars of

such requirements shall be set out in Part II of these Conditions. ……………

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

To draft Conditions of Contract in accordance with FIDIC Red Book's fundamental

concepts and at the same time to avoid a one sided contract to be unreasonably

advantageous to the drafting party as listed above, the following commentary is provided

for to assist in the understanding and intention of the check list.

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:

Examination of the specially drafted conditions of contract takes a great deal of

time as the clause numbers may not be consistent.

The provisions may deviate from usual international standard contractual

practice.

The contract document may not be complete.

Check Point 02 Has FIDIC Red Book Part II Conditions of Particular

Application been completed and checked by a specialist who

has the necessary experience?

FIDIC Clause Whole All

<Interpretation>

FIDIC Red Book consists of two parts; Part I Conditions of Contract, and Part II

Conditions of Particular Application. Part II is prepared:

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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.),

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

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:

(1) A thorough knowledge of the international construction contracts,

(2) An understanding of the basic concepts of FIDIC Red Book,

(3) A technical understanding of the scope of construction work to be executed,

(4) A knowledge of construction cost estimates and time scheduling,

(5) English language and drafting skills.

Check Point 03 Has an independent engineer been appointed to administer

the contract?

FIDIC Clause Whole

<Interpretation>

One of the main features of the FIDIC Red Book is that it provides for defined

decisions, and for the contract administration (described in Chapter 2) to be undertaken

fairly, by an independent engineer.

Some execution agencies in developing countries acting as Employers have a tradition

of providing an employee or related organisation to serve as the Engineer. In some other

countries the Employer also holds the post of the Engineer, and the Engineer then

appoints an independent consultant as the Engineer’s Representative. Even in this

situation, the Engineer’s Representative may face difficulty in remaining impartial,

unless a great deal of the power and authority of the Engineer is delegated completely to

him. Where it is usual that execution agencies are both the Employer and the Engineer it

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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 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:-

(a) approving subletting of any part of the Works under Clause 4,

(b) certifying additional cost determined under Clause 12,

(c) determining an extension of time under Clause 44,

(d) issuing a variation order under Clause 51, except in an emergency situation or if

such variation would increase the Contract Price by less than xx %,

(e) fixing rates or prices under Clause 52.

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.

Check Point 06 Is any restriction on the Engineer's ability to make an

impartial decision fair?

FIDIC Clause 2.6 Engineer to Act Impartially

<Interpretation>

As stated in Checkpoint 5 the FIDIC Red Book imposes on the Engineer an obligation

to make impartial decisions when he has to exercise a discretion. From a broader point

of view when any Engineer follows the FIDIC Red Book requirements faithfully then

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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.

Check Point 07 Is the specified language of the contract, considered an

international well understood neutrally regarded language?

FIDIC Clause 5.1 Language/s and Law

<Interpretation>

The JBIC Sample Bidding Documents recommend that English be nominated to be a

language of the Contract.

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.

Check Point 08 Is the priority order of documents forming the contract

clearly defined?

FIDIC Clause 5.2 Priority of Contract Documents

<Interpretation>

The priority of documents forming the contract recommended in the JBIC Sample

Bidding Documents is as follows:-

(1) the Contract Agreement (if completed);

(2) the Letter of Acceptance;

(3) the Bid and the Appendix to Bid;

(4) the Conditions of Contract Part II;

(5) the Conditions of Contract Part I;

(6) the Specifications;

(7) the Drawings; and

(8) the priced Bill of Quantities.

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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.

Check Point 09 Are the Contractor's rights to extension of time, and / or

additional cost limited for delay in issuance of drawings and

instructions?

FIDIC Clause 6.4 Delays and Cost of Delay of Drawings

<Interpretation>

Under the FIDIC Red Book, the Engineer has a duty to issue construction drawings at

the times set out in the construction time schedule submitted by the Contractor under

Clause 14.1. The Contractor then prepares detailed drawings based on the construction

drawings. The lead time for preparation of those drawings by the Contractor should be

agreed at the time of the Contract.

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.

As a matter of fairness to the Contractor it is necessary to avoid text changes which

restrict the Contractor’s right to claim for extensions of time and the additional cost

arising from delayed issue of drawings and instructions.

Check Point 10 Has the Contractor's general obligation been extended so as

to impose design responsibility?

FIDIC Clause 8.1 Contractor’s General Responsibilities

<Interpretation>

The JBIC Sample Bidding Documents recommend that the provision “the Contractor

shall promptly notify the Employer and the Engineer of any error, omission, fault or

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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.

Check Point 11 Has the Contractor's obligation been expanded by extending

the performance security's validity period?

FIDIC Clause 10.2 Period of Validity of Performance Security

<Interpretation>

FIDIC Red Book Clause 62.1 provides for the validity of the performance security to

expire on the issuance of the Defects Liability Certificate. The performance security

document shall be returned to the Contractor within 14 days of the issuance of the

Defects Liability Certificate.

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

17

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

18

<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 15 Have the Contractor's obligations expanded to include

responsibility for the original points, lines and levels given

by the Engineer?

FIDIC Clause 17.1 Setting-out

<Interpretation>

Any text change to make the Contractor assume responsibility for the accuracy of the

original points, lines and levels given to the Contractor by the Engineer changes the

procedure stipulated in FIDIC Red Book Clause 17.1. Such a change imposes too much

risk on the Contractor and any such text changes should be avoided as being unfair and

against FIDIC Red Book principles.

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 &

others

Loss or Damage Due to Employer’ Risks and other related

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

19

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 17 Is there any possibility of the Engineer being unfairly

influenced by the Employer when making a decision

regarding obstruction to the Contractor during construction

of the Works for which he is not responsible?

FIDIC Clause 27.1 Fossils

<Interpretation>

If there is a text change which requires the Engineer to get the Employer's prior

permission to exercise Engineer's discretion in relation to extension of time and

additional cost caused by removal of obstruction by fossils, the Engineer’s ability to

make a fair decision may be affected by the Employer's views. Any such text changes

should be avoided as being against FIDIC Red Book principles and unfair.

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.

20


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>


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.



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

21

<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.



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.


influenced by the Employer when making a decision with

regard to the Contractor’s additional cost and extension of

time arising from work suspension ordered by the Engineer?

FIDIC Clause 40.2 Engineer’s Determination following Suspension

<Interpretation>



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.

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

22

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.

Check Point 24 Is there a restriction on the Contractor’s right to claim for

extension of time and additional cost for delay in possession

and or access to the Site? Further, is there any possibility of

the Engineer being unfairly influenced by the Employer

when making a decision on the Contractor’s right to an

extension of time and additional cost for such events?

FIDIC Clause 42.2 Failure to Give Possession

<Interpretation>

Any delay in giving possession of, and access to, the site is necessarily the responsibility

of the Employer. Such matters cannot be managed by any Contractor. If a delay to either

of these activities actually affects the critical path of the Works, an extension of time is

unavoidable. Text changes to impose responsibility for these activities on the Contractor

therefore should be avoided.


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

23


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.

24


influenced by the Employer when making a decision to issue

the Taking-Over Certificate?

FIDIC Clause 48.1 Taking-Over Certificate

<Interpretation>


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


Check Point 28 Is the defects liability period excessive?

FIDIC Clause 49.1 Defects Liability Period

<Interpretation>

The Defects Liability Period set out in the FIDIC Red Book Appendix to Tender is

usually one year for civil works. There is also an implication that the Engineer's

monitoring of the Works as a third party during the construction process functions to

ensure that the economic life of the civil works and structure will generally be durable in

the range of between 30 and 50 years.

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.

To impose such responsibility on the Contractor is an unfair expansion of the

Contractor’s obligations and may increase the bid price and expense to the Employer.

25

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.


influenced by the Employer when making a decision on the

additional cost to be paid to the Contractor for rectification

of defects?

FIDIC Clause 50.1 Contractor to Search

<Interpretation>



decision may be affected greatly by the Employer's view. Any such text changes should


Check Point 31 Is there an infringement on the rights of the Contractor such

as the Employer reserving the unconditional right to omit

parts of the Works?

FIDIC Clause 51.1 Variations

<Interpretation>

FIDIC Red Book Clause 51.1(b) provides that "to omit any such work" is a part of a

variation. However, the right of the Employer is conditional on the fact that such

omission shall not be for the purpose of having that work carried out by the Employer or

by another contractor. It is necessary to avoid any text change which deletes such

provision because this is a violation of the right of the Contractor to carry out the

contractual work.

Check Point 32 Is the percentage applied in this clause reasonable? Is the

formula by which the Contractor's right is calculated

provided for? Further, is there any possibility of the Engineer

being unfairly influenced by the Employer when making a

decision on the amount of addition or deduction to the

Contract Price?

FIDIC Clause 52.3 Variations Exceeding 15 percent

<Interpretation>

26

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.


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.

Check Point 33 Is there an unfair limitation in the period of time during

which the Contractor has a right to claim?

FIDIC Clause 53.1 Notice of Claims

<Interpretation>

The basic philosophy behind a claim notice period being set as 28 days is that the

Employer and the Contractor are able, in good time, to identify which contemporary

records will be required to substantiate the claim and to take any action that may be

appropriate. Clearly memory alone is not a good basis as it becomes fainter as time goes

by. There is also a common sense view that a 28 days period is appropriate for the

Contractor to recognize that an event may developed into a claim. A text change to

shorten this 28 days period should be avoided because of possible unfair restriction of

the Contractor’s rights.

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.

27

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.

Check Point 35 Is the Contractor's right to reasonable objection to the

Employer's selection of nominated subcontractor been

limited or deleted?

FIDIC Clause 59.2 Nominated Subcontractors; Objection to Nomination

<Interpretation>

Under FIDIC Red Book Clause 59.2(a) all nominated subcontractors should undertake

towards the Contractor such obligations and liability that will enable the Contractor to

discharge his own obligations and liabilities towards the Employer.

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

28

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

29

12. Therefore such text changes should be avoided from the perspective of economic

rationality.

Check Point 39 Has an excessive obligation been forced on the Contractor

with regard to amortisation of the Advanced Payment?

FIDIC Clause - Advance Payment

<Interpretation>

The provision of an advance payment allows the Contractor to pay for preparation of the

site and temporary works until receipt of the first interim payment.

The advance is amortised by the Employer deducting a defined amount from an

otherwise due interim payment. The JBIC Sample Bidding Document recommends that

repayment should be calculated so as to obtain full recovery of the advance payment by

the time 80% of the Contract Price has been certified for payment.

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.

Check Point 40 Has an excessive obligation been imposed on the Contractor

in respect of amount or timing of release of retention money?

FIDIC Clause 60.3 Payment of Retention Money

<Interpretation>

FIDIC Red Book Clause 60.3 provides that the first half of the retention money shall be

returned to the Contractor upon the issue of the Taking-Over Certificate with respect to

the whole of the Works. This recognises the fact that the Employer’s risk from the

default by the Contractor is reduced at this time. The second half of the retention money

is still held by the Employer to cope with the risk of the Contractor not remedying

defects in workmanship. For this reason the second half of the retention money is

released only at the end of the defects liability period at the same time as the

performance security is also returned to the Contractor.

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


30

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.



amount to be reimbursed for the Contractor to rectify or

replace any Works damaged by Special Risks?

FIDIC Clause 65.3 Damage to Works by Special Risks

<Interpretation>

If there is a text change that the Engineer requires the Employer's prior permission to

exercise his discretion on cost related to damage caused by Special Risks, 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.



amount of increased cost arising from Special Risks?

31

FIDIC Clause 65.5 Increased Costs arising from Special Risks

<Interpretation>


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




additional cost at the termination of the Contract arising from

Special Risks?

FI DIC Clause 65.8 Payment if Contract Terminated

<Interpretation>


to exercise his discretion in relation to additional cost, 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.

32

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.

It is necessary to investigate all the circumstances surrounding the executing agency at

the same time as considering the rights of Contractor stated and implied in the Contract.


influenced by the Employer when making a decision on

extensions of time and additional cost at the termination of

the Contract or suspension of the Works caused by

Employer’s default?

33

FIDIC Clause 69.4 Contractor’s Entitlement to Suspend Work

<Interpretation>


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


Check Point 49 Is the Contractor’s right to price adjustment limited by the

Employer selecting an unreasonable adjustment formula or

providing a very large non-adjustable range?

FIDIC Clause 70.1 Increase or Decrease of Cost

<Interpretation>

The JBIC Sample Bidding Documents recommend alternative provisions to FIDIC Red

Book Clauses 70.1 to 70.7 in Part II of the Conditions of the Contract.

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.


to exercise his discretion on increase or decrease cost caused by changes in legislation,

34

the Engineer’s fair decision may be affected greatly by the Employer's view. Any such


Check Point 51 Is the provision of ratio of currencies of payment reasonable,

does it unfairly restrict the Contractor’s right and does it

avoid conflict with any other clause?

FIDIC Clause 72.2 Currency Proportion

<Interpretation>

When the Employer specifies his obligation to pay, in more than one currency, an

unbridgeable gap in the Contractor's actual cash flow may be caused if the text changes

fix that ratio. There is also the possibility that the bid price will be increased by the

contractor making provisions for this exchange risk and the restriction on the recovery

for Clause 70.1 price adjustment. Any such text changes should be avoided as being

against FIDIC Red Book principles and unfair.

Appendices

AP-1

Appendix -1 Procedure of Claim and Dispute Settlement FIDIC RedBook -1987

Note 1*

If a Dispute Adjudication Board (DAB) has been

appointed by the modification of Part II Conditions

of Particular Application.

Occurrence of Claimable Event

Notice to Engineer of Intention to Claim

Within 28 days

Notice of ground and details of Claim

Within 28 days

Engineer’s Determination after

consultation with parties

Agreement to

the Determination

Occurrence of Dispute

Settlement

of Claim

53.1 Cost

44.2 Time

53.3 Cost

44.2 Time

53.5 52.2 Cost

44.1 Time

Notice to commence

Arbitration

Within 70 days

Attempt at Amicable

Settlement

Within 56 days

Amicable Settlement

Arbitration

(under ICC Rule )

67.2

67.3

Yes

No

Yes

Yes

No

No

67.1

Agreement to Engineer’s

or DAB’s Decision

Settlement

of Dispute

Settlement

of Dispute

Reference of dispute to Engineer

Engineer’s Decision

Within 84

days

Reference of dispute to

DAB*1

67.1

67.2

67.1

67.2

67.1

67.1 DAB’s Decision*1

Within 84

days

Final Settlement of Dispute

Japan　Bank　for　International　Cooperation

Head Office4-1 Ohtemachi 1-chome, Chiyoda-ku,Tokyo 100-8144, Japan

Telephone : Tokyo 81-3-5218-9611Facsimile: Tokyo 81-3-5218-9640URL: http://www.jbic.go.jpE-mail: [email protected]

JAPAN

BANK FOR

INTERNATIONAL

COOPERATIONJ B I C

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