ESCL Conference August 25th 2006 – Risk in Construction and how to deal with them.

1. ESCL Conference August 25th 2006 – Risk in Construction and how to deal with them. Duty for the contractor to inspect the site and other physical conditions according to FIDIC. Presented by Mikael Wahlgren Former Senior Legal Counsel NCC Construction Sweden AB NCC Construction Sverige AB

2. FIDIC’s old standard forms • Conditions of Contract for Works of Civil Engineering Construction, Fourth Edition, 1987 (reprinted in 1988 with editorial amendments and reprinted in 1992 with further amendments) (the “old Red Book”); • Conditions of Subcontract for Works of Civil Engineering, Construction, First Edition, 1994 (to function with the old Red Book); • Conditions of Contract for Electrical and Mechanical Works, Third Edition, 1987 (reprinted in 1988 with editorial amendments) (the “old Yellow Book”); and • Conditions of Contract for Design-Build and Turnkey, First Edition, 1995 (the “Orange Book”). • Client-Consultant Model Services Agreement (3rd Ed., 1998, ) ("White Book") NCC Construction Sverige AB

3. FIDIC’s (the International Federation of Consulting Engineers) new standard forms • Conditions of Contract for Construction (1999; for building and engineering works designed by the employer) (the “new Red Book”); • Conditions of Contract for Plant and Design-Build (1999; for electrical and mechanical plant and for building and engineering works designed by the contractor) (the “new Yellow Book”); • Conditions of Contract for EPC Turnkey Projects (1999; EPC being the abbreviation for Engineer-Procure-Construct) (the “Silver Book”); and • Short Form of Contract (1999; for projects of relatively small value) (the “Green Book”). NCC Construction Sverige AB

4. Clause 4.10 (new Red Book & Yellow Book) – Site Data “The Employer shall have made available to the Contractor for his information, prior to the Base Date, all relevant data in the Employer’s possession on sub-surface and hydrological conditions at the Site, including environmental aspects. The Employer shall similarly make available to the Contractor all such data which come into the Employer’s possession after the Base Date. The Contractor shall be responsible for interpreting all such data. NCC Construction Sverige AB

5. Clause 4.10 (new Red Book & Yellow Book) – Site Data (cont.) To the extent which was practicable (taking account of cost and time), the Contractor shall be deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may influence or affect the Tender or Works. To the same extent, the Contractor shall be deemed to have inspected and examined the Site, its surroundings, the above data and other available information, and to have been satisfied before submitting the Tender as to all relevant matters including (without limitation): (a) the form and nature of the Site, including sub-surface conditions, (b) the hydrological and climatically conditions, (c) the extent and nature of the work and Goods necessary for the execution and completion of the Works and the remedying of any defects, (d) the laws, procedures and labour practices of the Country (means the country in which the Site (or most of it) is located, where the Permanent Works are to be executed), and (e) the Contractor’s requirement for access, accommodation, facilities, personnel, power, transport, water and other services.” NCC Construction Sverige AB

6. Clause 4.10 (Silver Book) – Site Data The last sentence of paragraph 1 have been deleted and replaced the 2nd paragraph with the following wording: “The Contractor shall be responsible for verifying and interpreting all such data. The Employer shall have no responsibility for the accuracy, sufficiency or completeness of such data, except as stated in Sub-Clause 5.1 [General Design Responsibilities].” NCC Construction Sverige AB

7. Comments to Clause 4.10 – Site Data In the new Red Book and new Yellow Book: • Constitutes a step backwards for the Contractor by inserting the words “relevant data in the Employer’s possession”. • Reference to “relevant data” limits the information to be provided by the Employer. • Contractors are advised to amend this requirement so that theEmployer is required to supply all available data on hydrological and sub-surface conditions. • In the new Yellow Book should beexpanded to include all information relevant to the Contractor’s design. NCC Construction Sverige AB

8. Comments to Clause 4.10 – Site Data (cont.) In the Silver Book: • The Contractor is responsible for verifying data - particularly, verifying and interpreting all data on subsurface and hydrological conditions, including environmental aspects. • Carefully scrutinise the precise extent to which the exceptions offered under Sub-Clause 5.1. • The disclaimer covers any information provided during the performance of the Works - the Contractor cannot rely on information provided by the Employer during the execution of the Contract. • FIDIC recognise that, the Silver Book is not suitable for use where “there is insufficient time or information for tenderers to scrutinise and check the Employer's Requirements or for them to carry out their designs, risk assessment studies and estimating” - FIDIC's alternative is the Yellow Book. NCC Construction Sverige AB

9. Clause 4.12 (new Red Book & Yellow Book) – Unforeseeable Physical Conditions “In this Sub-Clause, “physical conditions” means natural physical conditions and man-made and other physical obstructions and pollutants, which the Contractor encounters at Site when executing the Works, including sub-surface and hydrological conditions but excluding climatic conditions. If the contractor encounters adverse physical conditions which he considers to have been Unforeseeable, the Contractor shall give notice to the Engineer as soon as possible. This notice shall describe the physical conditions, so they can be inspected by the Engineer, and shall set out the reasons why the Contractor considers them to be Unforeseeable (means not reasonably foreseeable by an experienced contractor by the date for submission of the Tender). The Contractor shall continue executing the Works, using such proper and reasonable measures as are appropriate for the physical conditions, and shall comply with any instructions which the Engineer may give. If an instruction constitutes a Variation (means any change to the Works, which is instructed or approved as a variation), under Clause 13 [Variations and Adjustments] shall apply. NCC Construction Sverige AB

10. Clause 4.12 (new Red Book & Yellow Book) – Unforeseeable Physical Conditions (cont.) If and to the extent that the Contractor encounters physical conditions which are Unforeseeable, gives such a notice, and suffers delay and/or incurs Cost by the Contractor, whether on or off the Site, including overhead and similar charges, but does not include profit) due to these conditions, the Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claim] to: • an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) Payment of any such Cost, which shall be included in the Contract Price. After receiving such notice and inspecting and/or investigating these physical conditions, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determination] to agree or determine (i) whether and (if so) to what extent these physical conditions were Unforeseeable, and (ii) the matter described in sub-paragraphs (a) and (b) above related to this extent. NCC Construction Sverige AB

11. Clause 4.12 (new Red Book & Yellow Book) – Unforeseeable Physical Conditions (cont.) However, before additional Cost is finally agreed or determined under sub-paragraph (ii), the Engineer may also review whether other physical conditions in similar parts of the Works (if any) were more favourable than could reasonably have been foreseen when the Contractor submitted the Tender. If and to the extent that these more favourable conditions were encountered, the Engineer may proceed in accordance with Sub-Clause 3.5 [Determination] to agree or determine the reductions in Cost which were due to these conditions, which may be included (as deductions) in the Contract Price and Payment Certificates. However, the net effect of all adjustments under sub-paragraph (b) and all these reductions, for all the physical conditions encountered in similar parts of the Works, shall not result in a net reduction in the Contract Price. The Engineer may take account of any evidence of the physical conditions foreseen by the Contractor when submitting the Tender, which may be made available by the Contractor, but shall not be bound, by any such evidence.” NCC Construction Sverige AB

12. Clause 4.12 (Silver Book) – Unforeseeable Difficulties “Except as otherwise stated in the Contract: (a) the Contractor shall be deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may influence or affect the Works; (b) by signing the Contract, the Contractor accepts total responsibility for having foreseen all difficulties and costs of successfully completing the Works; and (c) the Contract Price shall not be adjusted to take account of any unforeseen difficulties or costs.” NCC Construction Sverige AB

13. Clause 4.12(new Red Book & Yellow Book) – Unforeseeable Physical Conditions Unforeseeable” is a defined term = “not reasonably foreseeable by an experienced Contractor by the date of submission of the Tender”. Entitlement to recover additional costs will not include profit. Relief for cost and time due to unforeseeable “natural physical conditions and man made and other physical obstructions or pollutants” and “including subsurface and hydrological conditions”. No relief due to impediments encountered off the site. Excludes climatic events. Engineer may take into account whether “other Physical Conditions in similar parts of the Works (if any) were more favourable than could reasonably have been foreseen when the Contractor submitted its Tender”. New concept that allows for the Contractor to provide evidence of the physical conditions foreseen in his tender calculation. An alternative is to agree the foreseeable conditions beforehand. NCC Construction Sverige AB

14. Clause 4.12(Silver Book) – Unforeseeable Difficulties • The language is uncompromising in the extreme and its scope and application are much more wide-ranging. • The consequential effects of all unforeseen difficulties are passed to the Contractor, “Except as otherwise stated in theContract”. • The Contractor is to foresee and allow in the price for every eventuality however unforeseeable! • It is difficult to imagine a clause which would be more threatening to contractors - Contractors should beware! NCC Construction Sverige AB

15. Conclusion & final notes The main reason for the diminishing use of the FIDIC standard forms : • need quite substantive amendments; • many law firms have produced and promote their own bespoke contract forms; and • the number of competing standard forms. NCC Construction Sverige AB

16. Conclusion & final notes (cont.) Regions where FIDIC standard forms are used: • projects in Africa and Asia. • projects financed by the World Bank. • Under US law, where the contractor has a duty to inspect, that duty does not include taking its own soil borings. A contractor is entitled to rely on the borings provided by the Employer. • The new Red and Yellow Book (clause 4.12) can give time and money for unforeseen site conditions whereas Silver Book says largely the reverse – the Contract Price should not be adjusted for unforeseen difficulties or cost. • If the Silver clauses remain unchanged, contractors may try (if the facts justify it) to claim for: • site conditions on the basis that the Employer did not make relevant data available (clause 4.10); • ground conditions on the basis of inability to verify (clause 5.1(d)); and • Force Majeure in extreme cases (clause 19.1). NCC Construction Sverige AB