Are Civil Law Engineers fit for FIDIC?

by | 15. March 2018 | Commercial Law

The FIDIC standard forms, known as the FIDIC Red Book, FIDIC Silver Book, FIDIC Yellow Book (1999 1st Edition and 2017 2nd Edition) and the FIDIC Green Book 1999 and 2021, since September 2008 also the Gold Book, and finally since 2019 the FIDIC Emerald Book, sometimes seem to be a mystic thing for Civil Law engineers, who do not have in depth experience in international construction projects for quite a while. German major sized contractors on the other hand have always been fit for FIDIC contract terms, thus being competitive worldwide, though over the last years less and less German speaking contractors accept the challenge to go outside the EU. For the future there are several reasons why the interest of German engineers in the FIDIC standards forms is continously likely to increase.

FIDIC forms of contract are intended to be suitable for projects being carried out around the world by all types of employers, often in a civil law environment (like Indonesia, Vietnam, or the Middle East), where the government departments or private developers wish to implement their project on a fixed-price turnkey basis and with a strictly two party approach. For quite a while new markets in Eastern Europe (Poland, Russia, Romania, Ukrania, Serbia etc.) were still growing and essentially covered by FIDIC standard forms.

In the Middle East and in Far East, FIDIC is a well known basis for infrastructure projects. EBRD, EIB, ADB and World Bank are funding more and more investments in these countries and they recommend using FIDIC standards. New licence agreements with FIDIC in 2019 show evidence for this development.

The growing market involves traditional transportation projects but also mechanical and electrical engineering works. Tunneling projects and offshore renewable energy projects have been added. All of them are a growing factor worldwide since employers more and more search for one-hand solutions as to plants, systems, power stations etc.

A new generation of architects and engineers has grown up in civil law countries, including Germany, and the need for international competition grows up the market for FIDIC even in traditional Civil Law countries like Germany where for example recent offshore windmill projects have been based on FIDIC or France, where nuclear power FIDIC contracts have been awarded to contractors.

Experience at the position of the Engineer under a FIDIC contracts will be heplful step towards a career as FIDIC adjudicator.

The first impression that for instance French or German engineers, contractors and lawyers have when giving a quick glance to the FIDIC Standard forms might be that they are suffering a disadvantage. This has various reasons: The forms are not only written in formal legal English (using somehow prescriptive wording), they are also obviously drafted with an English common law background in mind which will typically affect the interpretation of the conditions. However, this disadvantage turns out to be not only a challenge but even an advantage if one focuses on the Eastern European, Indonesian or Vietnamese markets. The reason is this: Some concepts employed by the FIDIC standard forms like “time at large” and “liquidated damages” are quite unknown in civil law, where similar results are usally achieved by using different legal features or concepts (e.g. penalties (civil law) in lieu of delay damages (common law)). Other concepts like the powerful role of “the Engineer” under the FIDIC Red Book and the FIDIC Yellow Book are completely unknown to civil law lawyers, unless they do have sound international experience and exposure. While legal features like “hardship” and “force majeure” are quite similar to German law (though of course not identical), others may vary greatly. The existing similarities and contradictions between the FIDIC contract forms and the substantive law of the jurisdiction, where they are used, will hardly be discovered by engineers and lawyers who have exclusively been trained on the use of common law. By contrast civil law lawyers and engineers have frequently identified the dissimarities and try to solve the resulting issues and problems. Because most East European jurisdictions have adopted either German or other continental civil law (Romania has for example adopted the French Civil Code or since the reform basic French concepts), the same or similar problems will arise there. Who knows then the remedy to resolve these problems either by means of mediation or dispute adjudication? This is a challenge and an opportunity or chance, especially for French, German, Indonesian and Japanese engineers who may avoid bad experiences by using FIDIC contracts in a different legal environment as originally planned by FIDIC.

From the perspective of a lawyer English minded contract wording does not necessarily contradict civil law concepts. Contractual freedom is a widely accepted maxim in civil alw countries as well as the maxim pacta sunt servanda. However, of course mandatory or compulsory domestic civil law which does not per se intend to exist in harmony with such English minded contract wording, may override special wording or even underlying FIDIC concepts. For instance the Engish concept of frustration does not intend to adapt the contract to fundamental change which occurs after contract award while civil law is likely to do this.

In the past sometimes German lawyers have contemplated whether certain provisions of the FIDIC conditions are unfair, unreasonable or even totally void pursuant to Paragraph 307 German Civil Code (abbreviated: BGB)[1]. Under this statutory law standard business terms are deemed to be invalid or void if they put the other party to the contract in an unreasonably disadvantageous position, are drafted to the sole advantage of the drafter, are grossly one-sided or are totally unclear or incomprehensible. However, care must be taken in order to avoid premature conclusions.

Obviously, the goal of this German statutory law is not only consumer protection. It also applies to commercial contracts between merchants and thus to most cases that are governed by the FIDIC formulas, that by the way are not accepted as international trade customs or usage of the industry (lex mercatoria)[2]. German lawyers have challenged the FIDIC Silver Book (1999) in particular. Though it has to be admitted that the risk allocation policy of the Silver Book is very favourable for the employer and that the Contractor assumes a lot of additional risks, one should also consider that the Silver Book has been drafted for very special purposes requiring strict compliance in respect to price and time arrangements.

Contrary to above criticism of the Silver Book, the FIDIC Red Book and the FIDIC Yellow Book are considered to be fair and balanced contract forms on the continent. They are even recommended by major public financing institutions like the German KfW banking group or its Japanese homologue, JICA. Since 2010 a harmonised version of the FIDIC Red Book was available for use for projects financed by multilateral development banks. This practice has come to an end upon the launch of the second edition of the FIDIC Rainbow Edition in 2017. The new World Bank Standard Bidding Documents 2020 refer already to this second edition and include detailed bank based Particular Conditions.

However, in spite of this good reputation especially Germans and other civil law practitioners should be aware of common pit falls.

For example: It is clear and widely accepted in international arbitration that ignorance of the requirements regarding claim management provisions covered by Sub-Clauses 20.1 and 3.5 FIDIC 1999 or Sub-Clauses 20.2 and 3.7 FIDIC 2017 results to the lapse of claims. However, German lawyers might be tempted to disregard these requirements by arguing the invalidity of these provisions under Sect. 307 German Civil Code. Likewise, the FIDIC concept (see clause 4.12 FIDIC 1999/2017) regarding the risk allocation as to adverse ground conditions is as well quite different from the view German law takes in this respect under which most of these risks lie with the employer (compare Sect. 645 German Civil Code).

German concerns may not have been fully solved by introducing the preliminary notice requirements in Sub-Clauses 20.2.2 and 20.2.4 FIDIC 2017 and related wording in Sub-Clause 20.2.5 FIDIC 2017 according to which the Engineer may have to take in account, when assessing claims, to what extent the other Party would be prejudiced by acceptance of the late submission and evidence regarding prior knowledge of the claiming party of the relevant event or circumstance, thus arguably the Engineer will have to take in account the dilligence and care of an experienced claimant in matters of claims.

Another issue may be faced due to different legal concepts. A well known issue under common law is “constructive acceleration” which occurs in the absence of owner directed acceleration (failure to give an instruction which constitutes a variation). The owner’s refusal to grant extension of Time for Completion for excusable delay will as a matter of fact result in an acceleration effort by the contractor in order to complete the works on the contractual completion date. In the US the courts have become accustomed to the concept of constructive acceleration orders and claims. English courts have been reluctant as to this approach but in Motherwell Bridge Construction Limited v. Micafil Vakuumtecchnik (2002) TCC 81 CONLR44 the issue of acceleration was addressed in a long judgment by Judge Toulmin CMG QC who finally recognised a “constructive acceleration” claim. According to this legal theory the refusal to grant EOT for excusable delay is normally converted into an implied instruction to accelerate followed by a additional money recovery claim. However, this approach has not yet been recognised in South Africa, a civil law jurisdiction. German courts have rejected constructive accleration like claims (z.B. Court of Appeal Koblenz, Judgment dated 12.1.2007 – 10 U 423/06 –, IBR 2007, 237). The issue for civil law practitioners is that the concept of “liquidated damages” in conjunction with the concept “time at large” is more or less unknown. Thus the first thing to do is to understand that delay damages under Sub-Clause 8.7 FIDIC 1999 (Sub-Clause 8.8 FIDIC 2017) shall be due even though the contractor has suffered excusable delay if EOT has been denied (if time for completion did not become at large). The second issue will then be to explain that due to this unknown concept there is a need of “constructive acceleration”. In any case there will be a big hurdle to jump over and contractors may be in a difficult situation because they will have to decide whether to accelerate or to rely or the defence “time at large”. Omn the other hand owners should understand that extension of time is first of all a means of protection in favour of the owner against the argument of “time at large”. Extension of time may also avoid “constructive acceleration” claims.

Contrariwise Common Law practitioners may also encounter difficulties as to the handling of FIDIC contracts where the governing law is for example Romanian or Turkish law. Civil law jurisdictions provide for concepts which cannot be ignored without prejudice to the legal balance and justice. Under civil law the parties will make their contract in contemplation of a pre-determined contractual framework which they may shape and modify in order to meet the common intentions. Construction contracts are embedded in good faith and imply the application of the good faith principle. The extent to which a pre-determined type of contract may be modified without switching to another pre-determined type of contract depends on the applicable law. Although contractual freedom is widely recognised being a rule so called innominate contracts are rarely accepted although being generally admitted. Instead the opinion prevails that contracts may have a mixed nature thus being partially amended  by the pre-existing framework of one nominate contract and partially amended by the pre-existing framework of a another nominate contract, as it may the case for a design, build and operate contract if the operation service meets the elements of a simple service contract by which the contractor undertakes to perform services with due skill and care only (best efforts approach) whilst the contractor shall deliver the Works under the regime of a locatio conductio operis (German: Werkvertrag, French: contrat d´entreprise, Romanian: contractul di antepriza, Turkish: istisna akdi). Also penalty clauses are admitted and quite often Sub-Clause 8.7 FIDIC 1999 or Sub-Clause 8.8 FIDIC 2017 is therefore quite often misconstrued by Civil Law judges. The Civil Law defects liablity concept is much more sophisticated than the respective Common Law concept of breach of contract. Also the concept of “acceptance of the works” (which is for example well known in Germany and in France) which involves the legal approval of completed work may cause debate because acceptance of work is linked to various legal consequences such as the start of the legal defects liability (prescription) period and reallocation of the risk care of the works. Under Romanian law acceptance of the work requires even the establishment of a particular commission.

In order to avoid mistakes and misunderstandings it might be a good idea to become familiar with the Unidroit Principles of international commercial contracts (2004, 2013, 2016). For those, who like to check FIDIC conditions, it is recommended to compare them with the Unidroit Principles of international commercial contracts. Some of the concepts of FIDIC standard forms have also been adopted by Unidroit. When preparing the Particular Conditions of Contract the Unidroit Principles may be helpful as well to find a widely accepted, understandable and provable wording especially in order to comply with local applicable laws (see Sub-Clause 1.13) and when modifications of the General Conditions are required in some jurisdictions.

Since 2006 the German Association of Consulting Engineers (VBI) together with FIDIC offers FIDIC training seminars. The seminars cover the whole range of FIDIC books 1999 and 2017. Mr. Axel Volkmar Jaeger, the former past chairman of the FIDIC Contracts Committee, and Dr. Götz-Sebastian Hök and Siobhan Fahey are currently the (FIDIC accredited) trainers. VBI has also published German translations of most of the FIDIC books. French translations are available at FIDIC, Geneva. Since 2010 Nestor Bildungsinstitut together with FIDIC offer FIDIC trainings in Copenhagen covering FIDIC modules 1, 2 and 3. Dr. Hök and Axel Jaeger are both FIDIC accredited trainers and also both members of the FIDIC adjudicator´s assessment panel in Germany. Dr. Hök was serving as the chairman of the FIDIC Trainer Assessment Panel from 2011 to 2016. In 2016 Siobhan Fahey (an experienced concilator, arbitrator and FIDIC CC member) has joined the team. Sebastian Hök is FIDIC accredited and FIDIC (FCL) Certified. He lectures at Leuphana University and directs the Leuphana ICAE progamme.

Dr. Hök is member of FIDIC network and author of several articles having been published in German law reviews (Zeitschrift für deutsches und internationales Baurecht, Zeitschrift für Baurecht, Baurechtsberater) and the International Construction Law Review (ICLR). He is also the author of the Manual for international and foreign construction law (Handbuch des internationalen und ausländischen Baurechts, 2nd Edition, Heidelberg 2012). He is familiar with FIDIC standard forms of contract since more than 25 years and provides services as a mediator, adjudicator and arbitrator as well. He was involved in the drafting of the FIDIC 2nd Edition as a friendly reviewer and advises the FIDIC Task Group on the Bronze Book (Operate-Design-Build) which is aimed at tackling refurbishment and enhancement projects.

[1] See Kus/Markus/Steding ICLR 1999, 533, 538; Gaede ICLR 2000, 476, 484 ff.; Kennedy ICLR 2000, 504, 505

[2] ICC case 8873 Clunet 1997, 1017, 1019