The FIDIC contracts are international contracts that cover a wide range of projects and procurement methods. The covers of the contracts are in different colours and the contracts are commonly known by the colour of their cover. For example:
| The Red Book (1999 onwards) | The Red Book is suitable for contracts where most of the design rests with the Employer. |
| The Yellow Book (1999 onwards) | The Yellow Book is suitable for contracts where the contractor has the majority of the design responsibility. |
| The Silver Book (1999 onwards) | The Silver Book is for turnkey projects. This contract places significant risks on the contractor and the contractor is responsible for the majority of the design. |
| The Gold Book (2008 onwards) | This is the design-build and operate contract. |
The purpose of this article is to introduce the procedures and processes for managing change under the FIDIC Red Book (Second Edition, 2017). We have looked at this between the Contractor and the Engineer.
Change on construction is almost inevitable. The changes could include:
- Changes to the quantities
- Changes to the quality and other characteristics of any item of work
- Changes to the levels, positions and/or dimensions
- The omission of any work
- Any additional work, plant, materials or services
- Changes in the sequence or timing of the execution of the Works.
Often change plays a central role in the profitability of a project. Change is also frequently seen as a contentious issue especially when managed poorly, however, when there is a clear understanding of the change process it can often provide a Contractor with greater certainty and help avoid potential disputes about time and cost.
The management of change is an important issue because, in our experience, change is often the cause of a dispute.
Under the provisions of the FIDIC Red Book (Second Edition 2017) a variation may be initiated in two ways:
- ‘Variation by Instruction’ (Sub-Clause 13.3.1)
- ‘Variation by Request for Proposal’ (Sub-Clause 13.3.2);
These are explained in more detail below.
Variations are Instructed
Variations can be instructed by the Engineer under Sub-Clause 13.3.1 [Variation by instruction], which says ‘The Engineer may instruct a Variation by giving a Notice (describing the required change and stating any requirements for the recording of costs) to the Contract or in accordance with Sub-Clause 3.5 [Engineer’s Instructions]’;
When a variation is instructed (by the issuing of a Notice) the Contractor must proceed with the execution of the variation. The Contractor is required to submit detailed particulars of the effect on the change within 28 days of receiving the Instruction. The details must include:
- A proposal for modifying the Programme to execute the variation;
- A proposal for adjusting the Contract Price, including supporting particulars;
- The amount of time related costs, if any; and
- Any further particulars the Engineer may reasonably require.
The Engineer shall then agree (Sub-Clause 3.7.1) or determine (Sub-Clause 3.7.2) the extension of time, if any, or the adjustment to the contract price (Sub-Clause 12 [Measurement and Valuation]).
Proposal Requested
The Engineer can request a proposal before giving an instruction for a variation. The proposal is requested by issuing a Notice.
Proposals for Variations can be requested by the Engineer under Sub-Clause 13.3.2 [Proposal Requested], which says ‘The Engineer may instruct a Variation by giving a Notice (describing the required change and stating any requirements for the recording of costs) to the Contract or in accordance with Sub-Clause 3.5 [Engineer’s Instructions]’;
The Contractor must respond as soon as is practicable by either submitting a proposal, including providing the detailed particulars that would be required under initiation of the variation by instruction or otherwise by giving reasons as to why he cannot comply.
Where the Contractor submits a proposal, the Engineer must respond as soon as is practicable to the proposal by giving a Notice of his/her consent or otherwise.
In the meantime, the Contractor shall not delay any work while awaiting the response. If the Engineer’s consent is given, with or without comments, then the Engineer must instruct the Variation and the Contractor must submit any further particulars as reasonably required by the Engineer.
Time Limits
The Engineer’s time limit for agreement of the variation commences upon receipt of the Contractor’s submission or upon receipt of any further particulars. If the Engineer does not give the Notice of agreement or determination within the relevant time limit, 42 days or as otherwise agreed, then the matter shall become a dispute, which may be referred by either Party to the Dispute Avoidance/Adjudication Board (Sub-Clause 3.7.3).
Disputes about whether there has been a variation
For obvious reasons, the Engineer is the only Party able to issue a variation, but what happens when the Engineer issues an instruction which constitutes a variation but which the Engineer does not acknowledge as a variation?
In these circumstances the Contractor may give Notice to the Engineer that the instruction constitutes a variation. The Engineer then decides whether the instruction is a variation or not. The Engineers may confirm, reverse or vary the instruction and the Contractor must comply with the instruction regardless under the provisions of Sub-Clause 3.5 [Engineer’s Instructions].
Notice of Claim
If there is still a disagreement the Contractor must submit a Claim for a variation. FIDIC Red Book Second Edition 2017 defines Claim as ‘…a request or assertion by one Party to the other Party for an entitlement or relief under and Clause of these Conditions or otherwise in connection with, or arising out of, the Contract or the execution of the Works.’
In order to Claim for a Variation, the Contractor must issue a Notice of the Claim to the Engineer as soon as practicable and in any case not later than 28 days after he becomes aware of the event or circumstances. The Notice shall include details of his case and the disagreement. It is crucial that a notice is given. If the Contractor fails to give Notice within 28 days, then he will not be entitled to any additional payment or extension of time under the provisions of Sub-Clause 20.2.1 [Notice of Claim].
The Contractor’s Notice of Claim must describe the event or circumstance giving rise to the cost, loss, delay or extension of time for which the Claim is made and to be a Notice it must comply with the provisions of Sub- Clause 1.3 [Notices and Other Communications] as summarised;
- It must be in writing;
- Either a paper-original signed by the Contractor’s Representative; or
- An electronic original generated from any of the systems stated in the Contract Data; or
- Both paper-original signed and an electronic original, as stated in the Conditions; and
- It shall be identified as a Notice;
- Be delivered by hand (against receipt), or sent by mail or courier (against receipt), or transmitted by any of the electronic systems stated in the Contract Data; and
- Delivered, sent or transmitted to the Engineer’s address as stated in the Contact Data.
If the Engineer considers the Contractor has failed to give Notice within 28 days then he/she will give Notice to the Contractor accordingly, within 14 days. Unless this validity of the Notice is challenged successfully by the Other Party then the Engineer will review the Claim under Sub-Clause 20.2.5 [Agreement or determination of the Claim]. However, if in the event the Contractor receives a Notice and disagrees with the Engineer, or he considers there are circumstances which justify late submission of the Claim Notice then he should include such details in his fully detailed Claim. If the Contractor does not receive such a Notice within 14 days, then the Notice of Claim is deemed to be valid under Sub-Clause 20.2.2 [Engineer’s Initial Response].
The Claim
The Contractor must keep contemporary records in order to substantiate the Claim and the Engineer will monitor these records and may instruct the Contractor to keep additional contemporary records. The Contractor must allow the Engineer to inspect these records upon request and, if instructed, submit copies to the Engineer under the provisions of Sub-Clause 20.2.3 [Contemporary records].
The Contractor must submit a fully detailed Claim within 84 days of the Contractor becoming aware, or when the Contractor should have become aware, of the event or circumstance giving rise to the Claim or such other period as may be agreed with the Engineer under the provisions of Sub-Clause 20.2.4 [Fully detailed Claim].
The fully detailed Claim submission should include the following;
- A detailed description of the event/circumstance giving rise to the Claim;
- A statement of the contractual and/or legal basis of the Claim;
- All contemporary records supporting the Claim;
- Detailed supporting particulars of the additional payment and/or extension of time claimed.
The Contractor’s Notice of Claim will be deemed to have lapsed and the Notice will no longer be considered a valid Notice if the statement of the contractual and/or legal basis of the Claim is not submitted within 84 days or such other period as may be agreed with the Engineer. In which case the Engineer will give Notice to the Contractor accordingly, within 14 days after the time limit has expired. If the Engineer does not give such Notice within 14 days of the time limit lapsing then the Claim is deemed to be valid.
If the event of circumstance giving rise to the Claim has a continuing effect then the fully detailed claim will be considered interim and the Engineer will give his/her response on the contractual and/or legal basis of the Claim by giving Notice within the time limit stated in Sub-Clause 3.7.3 [Time limits]; 42 days or as otherwise agreed. Following the initial submission, the Contractor shall submit further interim fully detailed claims at monthly intervals stating the accumulated amount of additional payment and/or extension of time claimed in accordance with Sub-Clause 20.2.6 [Claims of continuing effect].
The Contractor must submit a final fully detailed claim, including the total additional payment and/or extension of time claimed, within 28 days of the end of the effects resulting from the event or circumstance, or within such period as agreed.
Following receipt the Notice of Claim the Engineer will certify in each Payment Certificate amounts for any Claim that have been reasonably substantiated as due by the Contractor under the relevant provision of the Contract, however be aware because if the Contractor fails to comply with any Sub-Clause in relation to the Claim then the Engineer shall take into account the extent to which the failure has prevented or prejudiced proper investigation of the Claim in relation to any potential additional payment and/or extension of time to be awarded.
Summary and Conclusions
The above offers an insight into change management in the FIDIC Red Book 2017.
From our experience some useful steps in managing the process and in avoiding potential disputes on FIDIC contracts and other contracts are:
Step 1 Examine the Contract Documents
Ensure a full examination of the contract documents at the earliest opportunity paying special attention to the correct administrative procedures in relation to Variations and Claims.
- Giving notices and other notices required by the contract.
- Keeping contemporary records.
- Submitting interim updates if the claim is ongoing.
- Submitting a fully detailed claim.
- If the claim is ongoing submitting interim updates followed by a final claim.
- Timeframes for all the above.
Step 2 Change Log
Create a Change Log of potential change events that may give rise to claims and update it on a regular basis. Ensure it's controlled distribution with the project team allowing their detailed input where necessary through regular attendance of change meetings.
Step 3 Inspect all information
Inspect without delay every Engineer issued email, letter, RFI response, drawing issue, written or verbal instruction and other vehicles of potential change issued by the Engineer to get an early handle on potential change.
Step 4 Instructions
If any change is found in instructions received then identify it and follow contractual procedure, this may include writing to the Engineer/Contact Administrator acknowledging receipt of the instruction while confirming the instruction to be a variation.
Step 5 Notify Claims
If the Engineer/Contact Administrator agrees the instruction constitutes a variation then a variation should follow and there would be no need to pursue a claim, however, if the Engineer/Contact Administrator doesn’t agree then follow contract procedures, this may include the submission of a notice strictly in accordance with the notice provisions under the contract, which should state the contractual requirements to be considered a notice.
Step 6 Record Keeping
It is essential to ensure to keep detailed records which may support the claim or those which the Engineer/Contact Administrator considers necessary. This will usually play a big part in the claim’s success in terms of proving entitlement and achieving additional compensation. Such records may take the form of notices, letters, emails, meeting minutes, transmittals, programmes, reports, tender documents, progress information, resource data, dated and location photographs, variation orders, material delivery notes, site diaries and measurement sheets to name a few.
Step 7 Interim Claims
If the claim has a continuing effect, then know the contractual requirements and never miss a submission date which can potentially invalidate claims. Usually, interim updates at monthly intervals are required. Add detail every interim submission to ensure the final submission is delivered smoothly.
Step 8 Final Claims
If the claim event doesn’t have a continuing effect then submit a fully detailed claim within the contractual time limits, and don’t leave it to the last minute otherwise mistakes are bound to occur.
The final claim must include full supporting particulars of the basis of the claim and the extension of time and/or additional payment claimed. This must cover the cause, effect, entitlement and substantiation of the claim and be presented through a main narrative and appendices which must be separate documents for ease of cross-reference of the reviewer. More detail on full claim preparation shall be released in the near future, including important tips in persuading the reviewer to arrive at the correct decision.
Step 9 Assisting the Engineer/Contact Administrator
The final step is to assist the Engineer/Contact Administrator where necessary for his decision on the claim, furnishing any further information when requested in a timely manner, bearing in mind that if the Engineer/Contact Administrator’s job is made easy then this will help him in reaching the correct conclusion, and this must be kept firmly in mind throughout the whole claim process!
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