TOOLS OF THE TRADE – JUNE 2024
FIDIC GOLDEN PRINCIPLES:
THEY APPLY TO ALL CONSTRUCTION CONTRACTS!
Introduction
In 2017, the Fédération Internationale des Ingénieurs-Conseils or, more commonly known as, the International Federation of Consulting Engineers (FIDIC), introduced what are known as the FIDIC Golden Principles, which are the pillars upon which all FIDIC construction contracts are founded.
These five principles are equally applicable to other forms of contract and should not only be considered as particular to FIDIC contracts.
The first four principles are, in my opinion, generic to all construction contracts and the fifth principle is really only applicable to FIDIC contracts, but could well be considered worthwhile for other forms of contract.
1.
Golden Principle (GP) 1:
‘The duties, rights, obligations, roles and responsibilities of all the Contract Participants must be as implied in the General Conditions, and appropriate to the requirements of the project.’
In a nutshell this principle requires that the correct form of contract must be selected for the project.
That said, it would be inappropriate to choose a contract for an electrical installation using a contract normally used for the construction of a road.
Other factors to consider would be: (i) which entity will be responsible for the design of the project, (ii) how is the project going to be funded, (iii) what period of maintenance is required, and (iv) what is the size and complexity of the project.
Also to be considered could be whether the contract will be a fixed-price contract, a re-measurable contract and whether or not adjustments for increased costs will be allowed.
2.
GP 2:
‘The Particular Conditions must be drafted clearly and unambiguously.’
Whether the expressions ‘Particular Conditions’ or ‘Special Conditions’ are used is of no consequence, but the principle remains the same, which is that there should be no ambiguities created between the contractual terms contained in the ‘General Conditions’ of the contract and those contained in the ‘Particular Conditions’ thereof.
It is an accepted rule of law that if an ambiguity were created between the different sections of the contract, and that ambiguity cannot be resolved by the application of the ordinary rules of interpretation, the so-called contra proferentem[1] rule could find application.
Ambiguities in contracts are very often a source of claims and increased costs.
3.
GP 3:
‘The Particular Conditions must not change the balance of the risk/reward allocation provided for in the General Conditions.’
It is (regrettably) a common practice that many drafters of contracts attempt to introduce clauses and terminology which will change the risk/reward allocation contemplated in the general conditions of contract.
In many instances, the employer’s legal team believe it is their duty to place as much risk upon the contractor as possible when drafting a contract. This practice should be frowned upon as it will generally lead to a much higher initial bid price and open the door to claims.
Instead of shifting the risk by redrafting the contract provisions, it would be more appropriate in this type of scenario to consider GP 1 and select a different form of contract.
An example of this frowned upon practice, could be where the drafter of the contract inserts a clause requiring the contractor to be liable for any unforeseen physical conditions encountered on the project, but does not give the contractor adequate time to do a comprehensive site investigation prior to submission of his bid.
4.
GP 4:
‘All time periods specified in the Contract for Contract Participants to perform the obligations must be of a reasonable duration.’
I am of the opinion that this is one of the most important principles and is applicable to the total procurement process from the time of feasibility studies right through to contract completion.
I believe it is important for the Employer to allow sufficient time for the professional team to prepare the drawings and documentation correctly such that the bidding process can proceed without challenge. Unfortunately, in many instances, these times are dramatically reduced due to political influence where unrealistic service delivery promises have been made.
It is also important that sufficient time should be allowed for the bid evaluation process to be conducted. This requires, among other things, that appropriate due diligence be performed to evaluate the potential of selected contractors to successfully undertake and complete the project timeously.
Lastly, but obviously critical, is that the time allowed for completion of the project should be reasonable. This is to ensure that the contractor has sufficient time to complete the works with due diligence and to the correct standards of quality required, rather than being forced to, perhaps, resort to shortcuts with a consequential loss of quality.
As stated in the introduction, these first four Golden Principles are applicable to all construction contracts – not necessarily only to FIDIC contracts.
The fifth Golden Principal, or GP 5, although really drafted specifically for FIDIC contracts, could well be applied to many other of the generally used forms of construction contracts
5.
GP 5:
‘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.’
All contracts in South Africa that have been approved by the Construction Industry Development Board (CIDB), contain a provision for resolution of disputes by adjudication.
However, FIDIC has taken this a step further and now requires that ‘dispute avoidance’ should be practised rather than only dispute resolution.
FIDIC’s philosophy is that primary function of members of the Dispute Avoidance/Adjudication Board (DAAB) is to assist the parties to avoid disputes rather than to only render decisions once disputes have been referred.
By implication, this means that all DAABs should be of a standing nature rather than ad hoc boards appointed only if and when a dispute arises – this has a cost implication which many employers are not prepared to contemplate.
Kevin Spence
Pr. Eng. BSc. Eng. (Civil) (Wits) FIQ FAArb
Member of FIDIC Presidents List, Accredited FIDIC Trainer.
[1] The contra proferentem rule (Latin expression meaning ‘against the offeror’) is a legal principle that interprets ambiguous contract clauses against the party that created, introduced, or requested them.