Fundamental or Golden FIDIC Principles – Do they exist?

by | 13. February 2018 | Commercial Law

I should first clarify and underline that in my view Golden FIDIC principles[1] do exist. For instance the aim to fairly allocate risk[2] belongs to the Golden principles. Also I would include the aim that FIDIC wording is user friendly, clear and coherent but also fair and equitable[3] as an obvious Golden principle. In an international context a consistent and purposive interpretation of used words is recommendable taking in account the factual matrix of events surrounding the formation of contract[4], though it would be wrong to imply that a contract accords with FIDIC´s principles if it distorts the risk allocation contained in the General Conditions[5]. Hence, it is not in line with fundamental FIDIC principles to imply terms which contradict the FIDIC risk allocation policy.

Since 1957 FIDIC forms of contract are used for “international” purposes. This has never been changed and belongs to the principles which FIDIC draftspersons usually have and should bear in mind. The words should be fit for use in various countries and are not aimed at the use in a special legal environment. On the other hand FIDIC contracts presuppose a gap filling proper law of the contract because various aspects like the dtermination of the limitation period in respect of claims or in respect of the scope of remedies (e.g. specfic performance or damages) Additionally tort law and other bodies of law (unjust enrichment provisions, quasi contract rules) may complement the governing law of the contract though the law does not automatically impose upon every contractor or sub-contractor for instance tortius or other duties of care co-extensive with the contractual terms. Also, frequently the international context may suggest to refer to the Undroit Principles of International Commercial Contracts in order to avoid the denaturing of FIDIC wording in accordance with shortcoming concepts or legal approaches in the governing law of the contract.

In the view of some authors, FIDIC forms of contract form part of an international “lex mercatoria contructionis”[6]. This cannot be said of customized FIDIC contracts which actually bear the name of FIDIC but miss the fundamental and characteristic content. Such contracts should not be headed as a FIDIC contract. Tenderers should apply diligence and care in understanding the consequences of such change.

Interestingly JICA has published a document called Check List for One Sided Contracts which observes shortcomings in proper contract drafting[7]. JICA complains about “one sided contracts” which actually affect negatively the smooth implementation of projects and consequently considers these contracts to be disadvantageous to the borrowers due, amongst other things, to the late completion of the project. For instance JICA identifies the presence of FIDIC dispute board provisions as the “most distinctive characteristic of the Red Book MDB Edition”[8]. In a similar way JICA emphasises the role of the FIDIC Engineer[9].

In the Guidance Note for Particular Conditions of the 2nd Edition 2017 of the FIDIC Rainbow (FIDIC Red Book, Yellow Book and Silver Book, 2017)it is now noted:

FIDIC strongly recommends that the Employer, the Contractor and all drafters of the Special Provisions take all due regard of the five FIDIC Golden Principles:

GP1: The duties, rights, obligations, roles and responsibilities of all the Contract Participants must be generally as implied in the General Conditions, and appropriate to the requirements of the project.

GP2: The Particular Conditions must be drafted clearly and unambiguously.

GP3: The Particular Conditions must not change the balance of risk/reward allocation provided for in the General Conditions.

GP4: All time periods specified in the Contract for Contract Participants to perform their obligations must be of reasonable duration.

GP5: 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.

In 2019 FIDIC has launched its Golden Principles booklet including the five GPs and guidance notes. The FIDIC Golden Priniciples as launched in 2019 suggest that the FIDIC standard forms of contract should be used as unamended or unchanged as possible. Each modification shall be weighted against the five FIDIC Golden Principles. In practice these Principles are rarely used or discussed. This is unfortunate because the guidance notes are quite helpful. However, the express aim was to avoid denaturing and lengthy Particular Conditions which contradict the five Principles. This aim is difficult to achieve for various reasons. At first there is freedom of contract. Second, projects are unique and not everything can be harmonized and treated as usual. Third, laws and the related legal education vary from country to country. Fourth, the widely unbroken English style of FIDIC is sometimes perceived as strange, thus requiring an adaptation to the law and local practice. Finally, human nature is such that compliance with rules, laws and provisions is frequently understood as “unnecessary” or too “burdensome” and “inappropriate”.  This unholy alliance of thoughts, perceptions and diversity makes it difficult to enforce the GPs. Sometimes it may therefore be necessary and helpful to remember that most FIDIC wording is tested and reflects a huge amount of practical experience and good practice.

FIDIC describes the Golden Principles as “inviolable and sacrosanct”. However, to the opposite of what FIDIC seems to suggest by referring to these words, from a legal perspective the Golden Principles do not represent more than a FIDIC policy. The Golden Principles do not have the force of law, unless employers, contractors or engineers agree to abide by the FIDIC Golden Policies. If this does not happen, users can rely on it at the very best as an important FIDIC policy.

Expecting more from the principles would require a legal basis. Since 2019 FIDIC standard forms and Particular Conditions may have to be construed in the light of the principles in order to assist in its drafting.[10]  However, the Matthew Hall decision was contrasted by the decision TFW Printers.

TFW Printers Ltd v. Interserve Project Services Ltd involved two issues of construction on the standard JCT Agreement for Minor Building Works (1993 revision).[11]  The employer argued that, in construing clause 6.3B, it was relevant and permissible to have regard to the JCT Practice Note 22 and Guide to the Amendments to the Insurance and Related Liability Provisions published by the Joint Contracts Tribunal in 1986 (“JCT Practice Note 22”). By relying on Lord Hoffmann  he concluded, that the Practice Note was part of the admissible background that would have been reasonably available to the parties at the time when they entered into the contract.

Lord Dyson questioned the admissibility of the Practice Note as an aid to the true construction of the JCT clause.[13]  He doubted whether the answer to this question can be found in the observations of either Lord Hoffmann in the Investors Compensation Scheme case or Lord Bingham or Lord Hoffmann on another case.[14]

Hence, predominantly the Golden Principles provide practical guidance, if and when it is necessary to adapt FIDIC Conditions of Contract to the needs, which undeniably exist due to the diversity of law, the pecularities of projects, language and culture. Contract management (including risk management) commences early and continues after contract award in a different way. Procurement is certainly a holistic process that commences at project conception, through the procurement diligence, procurement plan, selection of apprprpate procurment route and selection of optimal contract form, tendering and award and feeding into in an integrated manner the ongoing contract and implementation management as well for instance the claim management.

It is possible that the difference is very simple. At procurement stage the “manager” must anticipate the issues and make them manageable and after contract award the “manager” can exclsuively use what has been anticipated, or rely on its charismatic negotiation skills. Modifying FIDIC conditions is an art and requires attention regarding manageability and not only to carelessless shift risk to somebody else. It should not be ignored that a construction contract creates a community of fate, because both parties must be able to cope with risk if it occurs in a way which does not put the project at danger. The community of fate rules (in other words the contract provisions) have force of law and are more or less immutable unless both parties settle their issue amicably.

[1] Such principles have been presented to the public for instance at the IBC FIDIC Middle East Users´ Conference in Dubai on 16 and 17 February 2016. A new Task Group shall has become established in order to collect and establish such principles which shall become marked “fundamental” as guidance for those who intend to use the FIDIC logo for the purposes of their respective contracts.

[2] Tunay Köksal, FIDIC Conditions of Contract as a Model For an International Construction Contract, [2011] International Journal of Humanities and Social Science, 140, at page 141.

[3] See for instance FIDIC Contracts Guide, 2000, at page 19; Sunil Seth and Vasanth Rajasekaran in: Edward Banyard Smith, Construction law and Practice, 1st Edition 2012, at page 100; Punit Sethi, Use of FIDIC and JVs for success in Business, https://www.academia.edu/8107079/Use_of_FIDIC_and_JVs_for_success_in_Businessby_Dr_Punit_Sethi.

[4] See Charles Molineaux, Moving Toward a Construction Lex Mercatoria – A Lex Constructionis, [1997] International Arbitration, 55 at page 63; Donald Charrett, The Use of Unidroit Principles in International Construction Contracts, [2013] ICLR 507, at page 520; also Hök, FIDIC Verträge im Lichte der Unidroit Prinzipien als Vertragsstatut, ZfBR 2008, 115 et seq. (English Translation: Hök, FIDIC contracts in the light of Unidroit Principles as governing law of the contract, [2008] ZfBR 115)

[6] See Charles Molineaux, Moving Toward a Construction Lex Mercatoria – A Lex Constructionis, [1997] International Arbitration, 55 at page 63

[7] https://www.google.de/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKE
wiH8tSNo7vNAhUCWSwKHQoxBIkQFggcMAA&url=http%3A%2F%2Fwww.jica.go.jp%2Factivities%2Fschemes%2Ffinance_co%2Fprocedure%2Fguideline%2Fpdf%2Fcheck_e.pdf&usg=AFQjCNGAbGO1ZZNo-GoLwbY96pTuxAW3Zg.

[8] Check List for One Sided Contracts, Ibid, at page 3.

[9] Check List for One Sided Contracts, Ibid, at page 4.

See Matthew Hall Ortech Ltd. v. Tarmac Roadstone Ltd. 1997 87 BLR 96

TFW Printers Ltd v. Interserve Project Services Ltd [2006] EWCA Civ 875 (27 June 2006)

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912F-913E

TFW Printers Ltd v. Interserve Project Services Ltd [2006] EWCA Civ 875 (27 June 2006), para 24

Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251, paras 8 and 39

Dr. Hök has been involved in FIDIC projects worldwide. He has been a friendly reviewer of the FIDIC Gold Book and the 2017 FIDIC Conditions and he is the legal advisor of the FIDIC TG 11 (Operate Design and Build) also referred to as the FIDIC Bronce Book and FIDIC TG 9 (Design and Build Subcontract). He has operated as a member of DABs for design and build contracts in the offshore windmill industry, harbor projects, wastewater and irrigation projects and he has operated as a member of DABs in road projects in Armenia, BiH, Kazakhstan and Tanzania.

WARNING: the material contained in these notes is a simplified guide to some of the major topics in international and German construction law. It is not intended as a substitute for legal advice on individual transactions, and does not necessarily stand on its own. Whilst the contents are believed to be correct, the authors cannot accept any responsibility for errors or omissions.