Slow transition to Fidic ’99 contract forms in the UAE

The UAE construction industry is witnessing a transition to Fidic ’99 forms from the earlier Fidic ’87, according to international legal firms here.

For many years the most common form of contract has been the general conditions published by the Federation International des Ingeneurs-Conseils (Fidic).

“State governments [including Abu Dhabi] have taken to the Fidic 1999 form, albeit with amendments, so there is now greater contractor and client familiarity with the newer form,” Francis Ho, Senior Associate at international law firm King & Spalding, told Emirates Business.

However, certain employers tend to delete the dispute adjudication board (DAB) provision in ’99 since its benefits are not fully understood, it is perceived to be costly and it does not have legislative backing as yet.

Is it true the UAE is witnessing a slow transition to ’99 from the fourth edition known as ’87?

Francis Ho, Senior Associate at King & Spalding: There has been more of a trend recently for transitioning from Fidic ’87 to ’99. The construction market is generally quite conservative. So it takes a while for people to stop using a form they were very familiar with, such as ’87. Two other factors may be responsible. Firstly, state governments (including Abu Dhabi) have taken to the Fidic 1999 form, albeit with amendments, so there is now greater contractor and client familiarity with the newer form. Secondly, the Silver Book (turnkey contract), which was only introduced to the Fidic suite in 1999, is rapidly becoming popular in Mena thanks to its risk allocation provisions. As a turnkey contract, the contractor takes primary responsibility for designing and delivering the completed project.

Mark Blanksby, Partner (construction and engineering) at legal firm Clyde & Co: People are still familiar with ’87 but there are those who are moving from ’87 to ’99. I cannot comment on the figures but I can certainly say the old Fidic forms outnumber ’99 forms especially, for the first time, developers that have one-off projects. It is more popular in Abu Dhabi because that is where the new and larger projects are happening and there is a tendency down there to innovate.

Nigel Truscott, Partner at Trowers & Hamlins: New projects are definitely realising the benefits of ’99 edition because the terminologies are much clearer. One of the significant moves is that the ’99 talks of the engineer being a client’s representative, while the ’87 refers to the impartiality of the engineer. There is a recognition in ’99 that his instructions come directly from the client and his actions are necessarily influenced by that. Over the past five years I have seen the shift to the ’99. A number of large developers remodelled their standard forms on the basis of ’99 – it was for example, used as a basis for the Abu Dhabi Government standard forms.

Jonathan Sutcliffe, Associate at Fulbright & Jaworski: The ’99 is the most recent contract and the industry here is used to ’87. There are a number of major differences and one of the main ones is the introduction of the dispute adjudication board (DAB). In ’87, the dispute resolution provision had an optional element of having a DAB. The big change in ’99 is that the DAB became the default. Then you had the DAB as the part of the main dispute resolution clause and though you can delete it, it is there. Almost all of our clients are sticking to Fidic fourth edition, say around 95 per cent and we have not seen a big rise for clients opting for ’99.

It is not just in this part of the world. One must also take into account that it takes people time to get used to ’99. Besides, some construction projects can be long running and one must also take into account that they have a lengthy time span for bid-tender-award as well as finance process and hence it is not such a long time after all. It also depends on which part of the world that you are talking about. In the US, the industry does not use Fidic forms at all.

An interesting point in ’99 is that the employer in the project can be asked to demonstrate that it has sufficient financial resources to meet its obligations to the contractor. If the employer is not able to show that, then the contractor has the right to suspend the project. The third point is that the engineer’s powers are altered in Fidic ’99 and the engineer has less powers than in ’87. Fourthly, the engineer is explicitly the employer’s representative rather than being impartial as in the fourth edition. There are also various changes to design, variations, claims and payment and there is also a price escalation clause in ’99.

Is it true there is a lot of resistance to the dispute adjudication board and clients prefer to delete it from the contract?

Sutcliffe: They often delete it since the DAB introduces another tier in the dispute provision. If a party disagrees with it, it can issue a notice to that effect, in which case you go to the next level, which most often is international arbitration. The preferred option is to resolve the dispute at an earlier stage before it gets into arbitration.

Ho: Some of the main changes visible in ’99 from ’87 include the introduction of on-demand bonding and a DAB to adjudicate disputes between parties. This was because ’99 largely reduced the impartiality of the engineer. A DAB is useful because the parties can use it to resolve differences while reducing the risk of the project grinding to a halt because of a dispute. However, for some projects a DAB may be viewed as being overly expensive and unnecessary so often an expert determination process is substituted for it instead.

Blanksby: In ’99, the role of the engineer has changed and the dispute resolution process is far more sophisticated. However, DAB is not quite understood yet and there is a need for great education process. At the end of the day, they are helpful since the board puts thing in place as the project progresses. We do see a resistance to it since many people are very comfortable with the existing relationship where the engineer is given the role of advising a related dispute and then go into arbitration process if need be.

Truscott: There is resistance but that is because there is no legislation supporting such boards. The danger is that when you follow that process, it cannot be enforced without legislation to back it up. It is relatively easy – even if you have a full and final binding agreement to abide by the decision of the DAB board, to argue that that it was a form of arbitration and so consequently does not follow the correct procedure. On this technical basis, the DAB decision can be effectively challenged.

Where the DAB boards are useful is in providing an independent view of the issue arising under the construction contract. The problem is that, if you have a DAB board appointed at the start of a project, there is a tendency for the board to get drawn into the project itself so that the parties are frequently referring disputes to them, which becomes very costly and time consuming.  In this way, there is a danger it becomes more obstructive than constructive.

Which are the different ways that ’99 is customised by clients and the construction industry?

Sutcliffe: In principle, all the changes are helpful but the devil is in the detail in terms of how Fidic ’99 is amended to suit the specific project. For example, the Abu Dhabi Government forms are based on the Fidic ’99 but they make some changes, including, for example, that the contractor has to be responsible for the design prepared by the owner even if the design contains some errors.

The Abu Dhabi Government forms also change the termination provisions in Fidic ’99 so that the employer can terminate on 14 days notice, for example, whereas a contractor must take longer than that. As amended, it can go against the contractor. It is possible to delete the dispute resolution provisions from the contract and it is sometimes done in this region. Typically, the reasons for doing so are cultural – in the sense that the culture is in general for parties to resolve disputes by negotiation rather than get into formal dispute resolution procedures. Another issue is the extra layer of cost, which clients might be reluctant to bear. Another view is that the costs involved in having a DAB built into the dispute resolution procedure swill be acknowledged as worth the expense since DABs are needed for large complex projects where they will knock out disputes before they get into arbitration.

Truscott: Fidic works for the parties amending it as they wish. You just cannot simply pick it off the shelf and use it. It is a question of negotiation. Part 1 is the general conditions and Part 2 is the conditions of particular application, which basically amends part 1 general conditions. Part 2 is what is negotiated. Often one party will be in a better position than the other. A couple of years back it was a contractors market but now it is a clients market, which means they are in a better bargaining position at the moment.

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