Contract In Fidic Red Book - Assignment Example

? Allocation of risks between the parties to a contract in Fidic red book Introduction No construction contract is without risk. However, the partiesshould try to control these risks and there is a need to allocate those risks and how the accountability for the opportunity and risk is allocated between the parties to a construction contract. As all construction contracts do contain some magnitude of risk and there is a need to define the allocation of opportunities and risks in construction contracts1. The Federation of Internationale des Ingenieur-Counceils (FIDIC) is a renowned international association of construction engineers. FIDIC is regularly publishing standard construction contracts forms, which are just more than traditional construction contract’s forms. One of the salient features of FIDIC contract is that it facilitates the allocation of risk between the contractor and the employer. Red Book of FIDIC states that it has been drafted with sharing of risks between the parties in a construction contract evenly. Risks in a construction contract include unanticipated or poor ground scenarios, performance and operational needs, minimal ownership involvement and design responsibility. Risk can be defined as the probability of peril, loss, injury or damage. In a construction project, risks include loss of the property, injury to the employees, loss of materials, opportunity, finances and personal safety and impact on both corporate repute and personal safety2. In construction contracts, a contractor assumes more risks that may have a direct impact on contract’s completion date or final price. Further, the risks include unanticipated or poor ground situations, minimum performance or operational needs, design accuracy and minimum owner’s involvement in the contract. Despite the fact that the contractor assumes more accountability and liability in a construction contract, the employer will also be held accountable for some risk under FIDIC contract like loss due to terrorism, war or due to force majeure events. FIDIC Red book has the unique risk allocation provisions, and this research essay’s main aim is to explain and discuss in detail how risks are being allocated in Red Book of FIDIC Construction contracts between the parties. Analysis How Red Book of FIDIC allocates the risk between the parties in a Construction Contract The FIDIC contract recognises the risks in a construction contract and allocates many such risks to the contractor. The main aim is to enable the employer an enhanced certainty of the final project price. Further, Red book also offers more opportunities and time to the contractor to receive and evaluate information pertaining to the risks’ factors in the project. This will enable the contractor to conceive these risks and to offer his price to the project accordingly. Contractors employing the FIDIC Red Book will find is useful to comprehend how the FIDIC documents allocate and classify the various perils so as to forbid the cost overruns and losses that may be sustained on the problematic provinces of the project. Here, the contractor has to consider the risks associate to the capability of the contractor, physical risks, time-associated risks, economic risks, construction and engineering risks and other risks3. In Fidic red book, Contractor’s risks are detailed in clause 17.003. The Contractor will be held accountable for the following risks. Any loss or personal injury to employees or property due to Contractor’s wilful act, negligence or breach of contract or personal injury caused due to faulty design by the contractor. Loss caused due to Employer’s privilege to occupy any land or to have work executed. Risk in a construction Contract can be explained through the following chart– Chart 14 In Fidic red book, employer’s risks are detailed in clause 17.4 and also under Force Majeure Clause 19. Under the employer’s risks category, the Contractor is entitled to claim both extension of time and also to recover additional costs from the employer. The Employer’s risk will cover the following categories of losses arising due to: Invasion, war or hostilities by foreign enemies Revolution,rebellion,civil war or terrorism happening within a nation Any commotion, riot or civil disorder perpetrated by personnel of other than the Contractor’s employees. Loss due to explosive materials or due to munitions of war Loss due to pressure waves created by aircrafts Occupation or usage of any part of the Permanent Works by the Employer , unless mentioned in the contract Where the Employer’s personnel had designed any part of works to whom the Employer is accountable Loss created by natural forces, which were not predictable or where an experienced contractor could not have been predicted. (except any adverse climatic weather conditions5) In case of an incidence of one or more risks stated above, the Contractor is required to give notice to the employer, and he will be granted time extension and additional costs, which will include reasonable profit. The contractor is also entitled to claim costs and time –extension due to any incidence due to force majeure also. Force Majeure is explained in Clause 19 and Force Majeure will include the following; An exceptional scenario or event: Which is not under control of a party Where such party could not have realistically predicted it before signing the contract. The incidence should be not realistically overcome or avoidable Which is not attributable to the other party 6 The Entitlement of Contractors for any additional costs and time in case there is any risk due to force majeure incidence. Sub-Clause 17.1 of Red Book of FIDIC Contract explain those risks mainly in relation to damage or loss which the Employer or Contractor will be held for accountable. Further, in most of the cases, Contractor would be held be liable for the majority of risks. Under sub-clause 18.3 (d), no damage can be claimed by a Contractor for the loss sustained due to unavoidable result of the contractor’s commitment to carry out the contract7. As per Clause 17-008, the Contractor is accountable for the project and materials until the Taking –Over Certificate (TOC) is given by the Employer. Even after the issue of TOC, the contractor shall be held accountable if any damage or loss due to contractor’s action. As per sub-clause 19.4 FIDIC , a contractor is entitled to claim only extra cost and not any added profit in case if there is a force majeure event. Likewise, in case when there is an extraordinarily unfavourable climatic scenario, a contractor is entitled only to extension of time and not any extra cost and reasonable profit under clause 8.4. Moreover, if the parties have specifically divided their contractual risks, then their desires should be accomplished8. The details’ categories of risk and how the risk is being allocated between the parties under FIDIC are detailed below: Physical Risk This risk pertains to scenarios and events that forbid or prevent the contractor from physically or tangibly completing the work within the schedule time, and it includes adverse impacts from natural forces, limitations of access to the project site, latent project site scenarios, archeologically findings from the work site and all other issues related to force majeure clauses. Environmental Damages Project work may be impacted due to noise, pollution and other operations. The contractor is to make sure that the discharge from the construction activities that may impact the environment do not surpass the needed limit required by law or employer’s conditions. This may result in the risk of additional cost or extension of time for completion of the project. Antiquities and Fossils If some antiquities or fossils are found in the project site, then the contractor is entitled to extra time or cost for the completion of the project. In such cases, the contractor is liable to give notice of discovery to the employer and should initiate all steps to stop damages to it. Thus, under FIDIC Red Book, the risk associated with the findings of fossil or antiquities are fully assigned to the employer9. Site Access If there is a delay on the part of the employer to offer possession of the project site, the contractor is entitled to claim an extension of time, its associated costs and reasonable share of profit on the cost. Site Security The contractor is fully responsible for the security of the material, equipments and work-in-progress at the works’ site and it is essential to keep the work site away from trespassers. Further, the contractor is having an equitable and fair basis to assume the risks if it is happened due to his own negligence or carelessness. The risk is allocated between the parties under the Red Book of FIDIC by taking recognition of the factors like sound cannons of project administration, insurability of the risks and each party’s capability to predict and avoid the impact of the background of each risk. The following chart is showing how risk is being allocated under the Red Book of FIDIC10. Chart showing the risk allocation in Red Book of FIDIC11 Conclusion All construction contracts do contain some magnitude of risk and there is a need to define the allocation of opportunities and risks in construction contracts. FIDIC contract facilitates the allocation of risk between the contractor and the employer. Red Book of FIDIC states that it has been drafted with sharing of risks between the parties in a construction contract evenly. In construction contracts, a contractor assumes more risks that may have a direct impact on contract’s completion date or final price. FIDIC Red Book allocates and classifies the various perils in a construction contract so as to forbid the cost overruns and losses. It also allows the contractor to claim extra cost or time in case if there are force majeure events. Thus, the risk is allocated between the parties under the Red Book of FIDIC by taking recognition of the factors like sound cannons of project administration, insurability of the risks and each party’s capability to predict and avoid the impact of the background of each risk. Bibliography Bramble B B, Design-Build Contracting Claims: Cumulative Supplement (Aspen Publishers Online 2004) Bunni N G, The FIDIC Forms of Contract (Blackwell Publishing 2005) Jaeger AV & Sebastian G, FIDIC – A Guide for Practitioners (Springer 2010) Ramsey V, Construction Law Handbook (Thomas Telford 2007) 177 Thomas C, Jeremy Glover & Simon Hughes, Understanding the New FIDIC Red Book: A Clause –by Clause Commentary (Sweet & Maxwell 2011) Totterdill B.W, FIDIC User’s Guide: A Practical Guide to the 1999 Red Book (Thomas Telford 2001) Read More