i

ii

PROGRAMME

9.30 Registration and refreshments

10.00 Chairman‟s Introduction (10 minutes)

John Bowcock, Chairman of the Network Management Committee

10.10 A Lawyer‟s View of Differing Site Conditions Claims (25 minutes)

Edward Corbett of Corbett & Co, London

10.35 Practicable Site Investigations by the Contractor Taking Account of Cost and Time

Dr Helmut Köntges of Hoechtief AG, The German International Contractor

11.00 Break (10 minutes)

11.10 Morning breakout sessions (40 minutes)

11.50 Reports from Rapporteurs, Questions and Answers (40 minutes)

12.30 Lunch (1 hour)

13.30 Programme Management and Extension of Time (25 minutes)

Robert M. Fitzgerald, Senior Partner , Watt, Tieder, Hoffar & Fitzgerald, LLP, Virginia

13.55 Variations: Contractual Provisions and Experience (25 minutes)

Eric Eggink, Director, Netherlands Association of International Contractors

14.20 Afternoon Breakout Sessions (40 minutes)

15.00 Break (10 minutes)

15.10 Reports from Rapporteurs, Questions and Answers (40 minutes)

15.50 Chairman‟s summing up

16.0 Close

16.0

Formatted: Bullets and Numbering

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LIST OF PARTICIPANTS

No. First Name Surname Contact Details

1 Niuscha Bassiri Robert Knutson Chartered Arbitrators

London

2 Manfred Baur Knowles

Tamworth, UK

3 John Bowcock Consulting Engineer,

UK

4 George Burn Denton Wilde Sapte

London

5 Daniele Carminati Studio legale Padovan

Italy

6 Steve Coppack Knowles Solicitors, Italy

7 Edward Corbett Corbett & Co

UK

8 Guy Cottam Chartered Arbitrator, UK

9 Eric Eggink Director, Netherlands Association of

International Contractors

Netherlands

10 Robert Fitzgerald Attorney

Watt, Tieder, Hoffar & Fitzgerald, LLP.

Virginia, USA.

11 Avv Jacopo Gasperi Studio legale Padovan

Italy

12 Dr. Will Hughes University of Reading

Reading, UK

13 Luc Imbrechts JAN DE NUL N.V, Belgium.

14 Lucas Klee Metrostav a.s.

Czech Republic

iv

15 Dr. Helmut Köntges Hochtief AG, The German International

Contractor

Germany

16 Humphrey Lloyd QC Formerly a judge of the TCC

International Arbitrator

17 Dr. Roger Maddrell Halcrow Group Ltd

Swindon, UK

18 Dr. Issaka Ndekugri University of Wolverhampton

UK

19 Ian Nightingale Deputy Director of Procurement &

Purchasing, EBRD

20 Prof Nigel Smith University of Leeds

Leeds, UK

21 Miranda Ramphul Denton Wilde Sapte

London

22 Michael Stokes Precept Programme Management Ltd.

London

23 Brian Totterdill European Construction Ventures (ECV).

Bristol, UK

24 Ian Trushell Glasgow Caledonian University

Glasgow, UK

25 Timothy Whitworth Glasgow Caledonian University

Glasgow, UK

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DISCLAIMER

1

CONTENTS

INTRODUCTION ....................................................................................................................................... 2

UNFORESEEN GROUND CONDITIONS .............................................................................................. 2

EXTENT OF EMPLOYER‟S SITE INVESTIGATION ........................................................................................... 3

THE EMPLOYER‟S OBLIGATION TO PROVIDE INFORMATION ON THE SITE ................................................... 4

CONTRACTOR‟S OBLIGATION TO INVESTIGATE THE SITE........................................................................... 7

DEFINITION OF “UNFORESEEABLE” ............................................................................................................ 8

CONDITIONS FORESEEN BY OTHER TENDERERS ....................................................................................... 10

THE CONCEPT OF AN EXPERIENCED CONTRACTOR ................................................................................... 11

DSC CLAIMS EXPERIENCE ........................................................................................................................ 11

EXPERT EVIDENCE .................................................................................................................................... 11

POSSIBLE CLAIMS AVOIDANCE/REDUCTION STRATEGIES......................................................................... 12

COST REIMBURSEMENT ARRANGEMENT ON GROUND WORKS ................................................................. 12

SUPPLEMENTARY INVESTIGATION AFTER CONTRACT AWARD .................................................................. 13

PROGRAMME MANAGEMENT........................................................................................................... 13

FIXING THE COMMENCEMENT DATE ......................................................................................................... 14

APPROVAL/REJECTION OF THE CONTRACTOR‟S BASELINE PROGRAMME ................................................. 16

UPDATING THE PROGRAMME .................................................................................................................... 18

DISPUTES FROM ORDERS TO UPDATE PROGRAMMES ................................................................................ 20

SUPPLEMENTARY PROVISIONS ON PROGRAMMES ..................................................................................... 21

THE PROGRAMME AS A CONTRACT DOCUMENT?...................................................................................... 22

TENDER PROGRAMME ............................................................................................................................... 22

VARIATIONS ............................................................................................................................................ 24

DISCLOSURE OF CONTRACTOR‟S PRICING INFORMATION ......................................................................... 26

REFERENCES .......................................................................................................................................... 26

APPEMDIX A: BIOGRAPHICAL NOTES OF SPEAKERS............................................................... 28

2

INTRODUCTION

The first workshop of the FIDIC-Net Network held on 4 February 2005 was a great success. It

concentrated on contract formation and covered risk allocation, amendments often made to standard

forms of contracts and pitfalls to be avoided at that stage of contractual relationships. The report from it is

available for downloading from the Network‟s website (www.fidic-net.org).

This second workshop, held on 23rd

September 2005 in the University of Reading, focused on three

matters widely recognised as some of the commonest sources of conflict and disputes from international

construction projects: site conditions, variations, and the contractor‟s programming obligations. As

FIDIC‟s Red Book is often used for such projects, its provisions on these matters are of great interest to

the contractual parties and their professional advisers. The aim of the second FIDIC-Net workshop was to

subject these provisions and the Engineer‟s role in operating them to scrutiny by experts with direct

experience from the perspectives of the participants in such projects.

The workshop was in two sessions: a session on site conditions before lunch and the other, after lunch, on

variations and time management. Each session commenced with scene setting presentations from invited

experts. Workshop participants were divided into groups of 6-8 members in separate seminar rooms. Each

group explored the issues raised by the presentations in the light of their collective experience and

expertise. Participants then reconvened together in a base room to debate reports by rapporteurs from

each group.

UNFORESEEN GROUND CONDITIONS

In the experience of participants, unforeseen site conditions, or differing site conditions (DSC) as they are

hereafter referred to, represent the most significant risk on civil engineering projects. This view is

supported by empirical research in the UK (NEDO 1983; NEDO 1988; Institution of Civil Engineers

1991; Mott MacDonald 1994) and the US (National Research Council 1984).

3

Issues discussed concerned:

extent and quality of site investigation;

the Employer‟s contractual obligation to provide information on site conditions;

extent of pre-contract site investigations actually carried out by contractors;

definition of “Unforeseeable”;

conditions foreseen by other tenderers;

the concept of an experienced contractor;

experience of DSC claims;

expert witness evidence;

other strategies for avoiding /reducing DSC claims.

Extent of Employer’s Site Investigation

Research suggests that geotechnical risks represent the largest element of financial risk on projects. A US

study of 87 tunnelling projects found that DSC claims had been submitted on 60% of the projects

(National Academic 1984; White Tonks 1994). For 32 of the projects for which data was available DSC

claims settled represented 12% of total final project costs. Two representative studies into building

projects in the UK showed that 37% and 50% had suffered delays on account of site conditions (National

Economic 1983, 1986; Institution of Civil Engineers 1991). An investigation into costs of highway

construction in the UK showed that, on average, additional costs from DSC accounted for 28% of

contract value (National Audit Office 1992).

Participants reported that employers in international construction projects are not properly informed on

DSC claims and that, in many cases, a DSC claim comes as a complete surprise to them. This observation

4

raises two issues of particular interest: (i) the adequacy of risk management practice applied to this type

of risk; (ii) whether employers are properly and fully advised about this risk.

There is an inverse correlation between extent and quality of geotechnical investigation and cost increases

from DSC claims (Mott MacDonald 1994; Clayton 2001). Researchers have reported that in the UK and

the US expenditure on site investigation has been of the order of 0.5% of estimated project costs whilst

the recommended expenditure may be as high as 3% (White and Tonks 1994).

Participants reported that in practice budgets for site investigations are constrained and that unless the

constraints are eased considerably the problems will persist.

The Employer’s Obligation to Provide Information on the Site

The first paragraph of Clause 4.10 states:

The Employer shall have made available to the Contractor for his

information, prior to the Base Date, all relevant data in the

Employer's possession on sub-surface and hydrological conditions

at the Site, including environmental aspects. The Employer shall

similarly make available to the Contractor all such data which

come into the Employer's possession after the Base Date.

5

Points highlighted at the workshop:

1 The obligation applies to data in the Employer‟s possession even where the Employer is unaware

of its existence or relevance, e.g., data collected for an earlier project.

2 The Employer is to make data available and not information. There is therefore no obligation to

make available any geotechnical investigation report even if the Employer‟s geotechnical

engineers have submitted such a report to him. The above extract from the contract is followed by

the statement that “The Contractor shall be responsible for interpreting all such data”, suggesting a

drafting policy that tenderers are entitled to receive only raw data. That provision of data only may

be the policy is further supported by guidance at p. 113 of the FIDIC Contracts Guide that „the

Employer does not have to (although he may) make available…experts‟ opinions and other non-

factual interpretation, which are not “data”‟.

3 Some participants reported that in most cases any expert interpretations of data in documents

containing site data are blacked out before making them available to tenderers. This practice

suggests that it is a fair construction of Sub-clause 4.10 that the Employer does not have to

provide anything other than raw data.

4 The limitation of the Employer‟s obligation to providing only site data could be encouraging

employers to skimp on site investigations, as the Employer can easily discharge this obligation by

commissioning non-professional geotechnical firms to make boreholes and produce results of

standard tests on soil samples taken from them.

6

5 The main case for the Employer not providing interpretative reports is that mistakes in the report

could found claims under the contract for unforeseen site conditions or under the general law for

misrepresentation or other ground.

6 The case for providing the report is prevention of the waste of paying twice for aspects of the site

investigation: first, by the Employer‟s geotechnical expert and then by the winning bidder. Any

claim by the Contractor based on a mistake in the report can be passed onto the geotechnical

expert if the latter is found to have been professionally negligent in the preparation of his report.

Whilst the limitation of the duty to provide only data therefore clearly protects the geotechnical

expert, who may be the Engineer under the contract, its benefit to the Employer is difficult to see.

It is arguable that the limitation has survived because of an absence of distinct umbrella

institutions promoting employers‟ interests in the consultations on the content of contracts in the

way institutions representing consulting engineers and contractors, e.g., FIDIC, and contractor

associations promote the interests of their members.

7 The Employer deliberately keeping information from the Contractor goes against legal trends: the

doctrine of good faith obligations would provide compensation where the Contractor suffers loss

from withholding of information by the Employer; EU Procurement Regulations require

transparency. This trend should influence employer practices regarding project information in

general.

8 There ought to be a specified minimum in the quality of site information supplied by an

experienced Employer to counterbalance the minimum amount of pre-contract site investigations

expected of an experienced contractor. As Sub-Clause 4.10 presently reads, there is no obligation

on the Employer to carry out any geotechnical investigation.

7

Contractor’s Obligation To Investigate The Site

The second paragraph of Clause 4.10 states the Contractor‟s obligation in these terms:

“To the extent which was practicable (taking account of cost and time),

the Contractor shall be deemed to have obtained all necessary

information as to risks, contingencies and other circumstances which

may influence or affect the Tender or Works. To the same extent, the

Contractor shall be deemed to have inspected and examined the Site, its

surroundings, the above data and other available information, and to

have been satisfied before submitting the Tender as to all relevant

matters, including (without limitations):

(a) the form and nature of the Site, including sub-surface conditions,

(b) the hydrological and climatic conditions…”

Points highlighted by participants:

1 Contractors would not have the resources to carry out a full site investigation in a foreign country

unless it has a local subsidiary. There are often considerable logistical obstacles in the way. For

example, access problems often require staff and equipment to be transported to the project site by

helicopter, not a realistic expectation on a mere chance of winning the tender.

8

2 What is practical for a local contractor to do will often be impractical to a completely foreign

contractor. Practicability would therefore differ depending upon whether the tenderer is a local

contractor or has a local subsidiary. This difference carries the implication that there may be

different tests of foreseeability.

3 In the collective experience of the group, there have been only two cases in which a full site

investigation has been carried out by tenderers. Both were PFI projects, which normally have

longer tender periods and fewer tenderers. One of the projects had only two tendering contractors,

who decided to carry out a joint full site investigation.

4 In the collective experience of the group there has not been a single case in which the argument

that a contractor under a traditional contract should have carried out a full site investigation has

been seriously pursued before a court, arbitrator or Dispute Adjudication Board (DAB).

5 It was reported that, to discharge their obligations to carry out pre-tender investigation of the site,

many contractors send out small teams to visit the site and to carry out sufficient investigations to

complete standard questionnaire designed to capture general project risks, including site

conditions.

Definition of “Unforeseeable”

The 1999 Red Book defines “Unforeseeable” in Clause 1.1.6.8 as “not reasonably foreseeable by an

experienced contractor by the date for submission of the Tender”. The amended definition in The MDB

Harmonised Edition is “not reasonably foreseeable and against which adequate preventive precautions

9

could not reasonably be undertaken by an experienced contractor by the date for submission of the

tender”.

There was some support for this modified definition on the grounds that it better reflects the test of

compensability used in practice by arbitrators and DABs. According to the supporters of this modified

definition, arbitrators and DABs accept an event as compensable where it was reasonably foreseeable but

the risk of its occurrence was so low that an experienced contractor would not allow for it in his work

methods and programming.

It was reported that European International Contractors (EIC) are of the view that the modified definition

puts increased risk on the Contractor and that its members are likely to price contingencies to reflect the

greater risk.

Some participants were of the view that the problem of DSC claims is much deeper than just the text of

the definition of “Unforeseeable”. Regardless of the definition, inadequate risk management practice,

poor relationship problems between the Contractor and the Employer, and poor financial health of either

party are often drivers of DSC claims. For example, regardless of the words of the definition, such claims

are likely to arise where the Employer failed to carry out any site investigation. An Employer unable to

pay for clearly unforeseeable conditions is likely to dispute that the conditions were unforeseeable.

Similarly, a Contractor faced with serious financial problems, would be highly motivated to look for DSC

claims.

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Conditions Foreseen by Other Tenderers

What if another tenderer had foreseen the conditions complained of and priced for it? Most participants

thought that that would be almost conclusive evidence that the conditions were foreseeable.

There was the contrary view that, as the test of foreseeability is objective, the mere fact that one particular

tenderer foresaw the conditions and allowed for them cannot be proof of foreseeability. Maybe the

particular tenderer foresaw the conditions because he had special expertise or that he carried out site

investigation to a greater extent than expected under the Contract.

The workshop discussed what an Employer ought to do if it notices that a particular tenderer had foreseen

conditions not noticed by the winning tenderer. Two suggestions were discussed but without reaching

consensus as to the most appreciate response:

1 The Employer should abort the tender and follow up the conditions before proceeding with the

project if the effects of the conditions are substantial.

2 The more common practice is for the Employer to write to the winning contractor pointing out the

conditions and inviting confirmation or withdrawal of the tender. Participants were of the opinion

that in most cases winning tenderers would confirm their tenders.

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The Concept of an Experienced Contractor

Participants criticised the uncertainty created by fixing foreseeability by the foresight of an experienced

contractor. There was difficulty in agreeing the criteria for such a contractor. For example, for the same

amount of effort a local contractor or a contractor with a local subsidiary would find out more about the

site than a purely foreign contractor.

DSC Claims Experience

It was assessed that only 30-50% of DSC claims succeed. It was suggested that many Clause 4.12 claims

succeed not because the Contractor‟s case is fully justified under the terms of the Contract but because

arbitrators/DABs are sympathetic to the Contractor‟s difficulty where the Employer provided inadequate

information on conditions at the site. Some participants did not accept this suggestion and urged further

research into how DSC claims are resolved in practice.

Expert Evidence

It was reported that arbitrators and DABs put considerable weight on expert evidence provided the

tribunal accepts it as coming from an appropriate expert. The issues discussed about this matter concerned

the nature of such evidence and the background of an acceptable expert. Possibilities on characteristics of

an appropriate expert may include:

expertise in soil mechanics and foundation engineering,

experience as a consulting engineer,

experience as part of contractors‟ site investigation teams.

12

It is arguable that, considering that the role of the expert is to assist the tribunal in answering the question

whether the conditions complained of were reasonably foreseeable by an experienced contractor, the most

appropriate expert must come from a contracting background.

Possible Claims Avoidance/Reduction Strategies

Provisional Sum for DSC

This strategy avoids the problem of employers resisting DSC claims just because of financial

embarrassment. There is the argument against such a strategy that if the conditions were considered

unforeseeable enough to be worthy of such special treatment the Employer can hardly deny the

Contractor‟s claim that encountered conditions were unforeseeable. This argument would apply to

allowances for specific types of conditions. It hardly applies for a general provision for any unforeseen

conditions.

Cost Reimbursement Arrangement on Ground Works

A target cost is agreed for specific types of ground-works. The Employer and the Contractor share any

difference between the target and actual costs in accordance with an agreed formula. Target cost contracts

require open-book accounting and extra Employer‟s staff to monitor the record keeping of the Contractor.

13

Supplementary Investigation after Contract Award

This strategy has the advantage that conditions that were unforeseen during tender period can be

discovered early enough for proactive management action.

Full Site Investigation Plus Geotechnical Summary Report

Commenting on the old Red Book, Ndekugri and McDonnell (1999) questioned the failure in that

contract to follow publicised recommendations from US research that providing tenderers with

Geotechnical Design Summary Report (GDSR) was a more cost-effective approach than simply

supplying raw data on site conditions. The GDSR is an owner‟s geotechnical engineers‟ interpretation of

the site data regarding not only design but also construction of the works. It becomes a contract document

when the contract is let in that if conditions encountered are materially different from those stated in the

GDSR the Contractor is entitled to compensation for the differences. The US research reported lower bid

prices and reduced disputes on projects on which such reports had been used in this way (Underground

Technology 1989).

A workshop participant from the US expressed surprise that this approach has not been adopted in the

1999 Red Book.

PROGRAMME MANAGEMENT

Discussion on programme management under the Red Book covered the following:

fixing the Commencement Date,

approval/rejection of the Contractor‟s baseline programme,

updating the Contractor‟s programme,

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disputes from orders to update programmes,

supplemental provisions on programmes,

the programme as a contract document,

the tender programme.

Fixing the Commencement Date

Clause 1.1.3.2 defines "Commencement Date" as “the date notified under Sub-Clause 8.1”. The relevant

part of Sub-clause 8.1 states:

“The Engineer shall give the Contractor not less than 7 days' notice of the

Commencement Date. Unless otherwise stated in the Particular Conditions,

the Commencement Date shall be within 42 days after the Contractor

receives the Letter of Acceptance”.

Clause 1.1.1.3 states:

„"Letter of Acceptance" means the letter of formal acceptance, signed by

the Employer, of the Letter of Tender, including any annexed memoranda

comprising agreements between and signed by both Parties. If there is no

such letter of acceptance, the expression "Letter of Acceptance" means

the Contract Agreement and the date of issuing or receiving the Letter of

Acceptance means the date of signing the Contract Agreement.‟

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The arrangement for the fixing the Commencement Date is therefore intended to operate as follows.

Where the Employer accepted the Contractor‟s tender by a formal letter, that letter becomes the Letter of

Acceptance. The Commencement Date must be a date within 42 days after the Contractor‟s receipt of the

Letter of Acceptance. Participants agreed that the most convenient way of fixing the date of receipt of the

Letter of Acceptance is hand delivery of the letter against a signed receipt.

Where the Employer did not accept the Contractor‟s Tender by letter, the 42 days start to run from the

date of signing of the Contract Agreement.

The Engineer is to give the Contractor at least 7 days‟ notice of the Commencement Date.

The more common practice in other standard forms of contract is to state in the contract itself when the

contractor may commence. The arrangement in the Red Book gives the Employer much greater flexibility

in relation to his obligation to grant possession of site as the Employer may withhold the Letter of

Acceptance or the Contract Agreement until he is sure of his ability to grant possession. In any decision

to withhold the Letter of Acceptance, the Employer must bear in mind the date stated in the Contractor‟s

Letter of Tender as the deadline after which the offer is to expire.

The Commencement Date is therefore, for practical purposes, the date from whence the Contractor may

start construction although it is not a requirement that the Contractor starts physical work on site on that

date. He is only to “commence the execution of the Works as soon as is reasonably practicable after the

Commencement Date”. Indeed, that immediate start on site is not required can be inferred from this

extract from Sub-Clause 8.3:

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“The Contractor shall submit a detailed time programme to the Engineer

within 28 days after receiving the notice under Sub-Clause 8.1

[Commencement of Works]. The Contractor shall also submit a revised

programme whenever the previous programme is inconsistent with actual

progress or with the Contractor's obligations.

…

Unless the Engineer, within 21 days after receiving a programme, gives

notice to the Contractor stating the extent to which it does not comply with

the Contract, the Contractor shall proceed in accordance with the

programme, subject to his other obligations under the Contract. The

Employer's Personnel shall be entitled to rely upon the programme when

planning their activities.

Approval/Rejection of the Contractor’s Baseline Programme

Information expressly required to be shown on the programme include:

“(a) the order in which the Contractor intends to carry out the Works,

including the anticipated timing of each stage of design (if any),

Contractor's Documents, procurement, manufacture of Plant, delivery

to Site, construction, erection and testing,

(b) each of these stages for work by each nominated Subcontractor (as

defined in Clause 5 [Nominated Subcontractors]),

17

(c) the sequence and timing of inspections and tests specified in the

Contract, and

(d) a supporting report which includes:

(i) a general description of the methods which the Contractor intends to

adopt, and of the major stages, in the execution of the Works, and

(ii) details showing the Contractor's reasonable estimate of the number

of each class of Contractor's Personnel and of each type of

Contractor's Equipment, required on the Site for each major stage.”

If the timetable and manner of possession of the Site are not specified in the Contract, Sub-Clause 2.1

requires the Employer to grant possession “within such times as may be required to enable the Contractor

to proceed with the programme submitted under Sub-Clause 8.3”. However, the Engineer has no power to

reject the programme on the grounds that the Employer would be unable to grant possession of the Site in

a manner that allows its implementation. The Engineer may reject a programme only on the grounds that

it does not comply with the Contract, e.g., failure to provide any of the above information, indicating

completion later than required under the Contract, and conflict with sectional completion deadlines or

possession of site restrictions stated in the Contract.

There is no express requirement for the Engineer‟s approval of the contractor‟s programme. This

omission is a major change from the old Red Book, Clause 14 of which required the programme to be

approved by the Engineer. Participants questioned the justification for this change.

However, many engineers would welcome this change because it reduces the possibility of having to

answer to the Employer for extension of claims submitted by the Contractor founded on the allegation

that the Engineer delayed approval of the programme without sufficient justification. Also, in relation to

18

delay and disruption claims based on allegations of prevention from proceeding in accordance with the

baseline programme, a defence often open to the Employer would that the baseline programme was not

achievable in any event. Such a defence may be weakened where the Employer‟s Engineer approved the

programme. Furthermore, there are many who would argue that the programming of the works is a matter

entirely for the Contractor and that the Engineer ought not to have any responsibility for policing it.

Participants were of the view that, in practice, most contractors would treat non-rejection of the

programme by the Engineer as an implied approval of it. There is therefore doubt whether the problems

associated with the Engineer‟s approval of the Contractor‟s programme are avoided by silence on the

need for it.

The Engineer‟s approval has the distinct advantage that the approved programme becomes the undisputed

baseline programme. It was pointed out that, without the need for approval, communication between the

Engineer and the Contractor concerning the programme is likely to consist of a series of correspondence

on the Engineer‟s queries on the submitted programme followed by silence. In such circumstances, what

became the baseline programme would be shrouded in uncertainty. The Engineer can avoid this

uncertainty by requesting a copy of the final programme after the Contractor has revised the programme

to respond to all his queries.

Updating the Programme

Under Sub-Clause 8.3 the Engineer may require the Contractor to update the programme if it fails “to be

consistent with actual progress and the Contractor's stated intentions”. Participants agreed that this

obligation to update the programme applies where the Contractor is ahead of the original programme.

Concerns were expressed that such an update may place corresponding obligations on the Employer and

19

the Engineer to supply information at times necessary for the Contractor to comply with the optimistic

programme. Glenlion Construction v. The Guinness Trust (1987) 39 BLR 89 casts doubt on such an

obligation. In that case, which arose from a UK standard form of contract that required the contractor to

submit a programme, it was held that the contractor is entitled to complete the works earlier than

contractually required but that a programme based on such earlier completion did not create an implied

obligation on the part of the employer to perform his parts of the contract in such way that the contractor

could achieve earlier completion.

Failure of the Contractor to comply with the updating obligations is a breach of contract for which the

Employer would be entitled to damages. This approach would be appropriate where the Particular

Conditions impose liability for specified damages for each day or week during which the Contractor is in

breach of contract in relation to his programming. This strategy is recommended in a publication of the

Society of Construction Law (2002).

The 1999 FIDIC Red Book provides expressly that the Employer may call the Performance Security for

“failure by the Contractor to remedy a default within 42 days after receiving the Employer's notice

requiring the default to be remedied” (Sub-Clause 4.2). This right may be exercised to enforce the

Contractor‟s programming obligations. This express provision has been abandoned in the MDB

Harmonised Edition.

More draconian action is allowed under both editions of the Contract. Sub-Clause 15.2 provides that the

Employer may terminate the Contractor‟s employment if the Contractor “without reasonable excuse fails

to proceed with the Works in accordance with Clause 8”. It is doubted that this right includes where the

Contractor is proceeding with the Works but only not complying with his programming obligations.

However, there is less doubt that where, in response to the Contractor‟s failure to comply with his

20

programming obligations, the Engineer serves notice under Sub-Clause 15.1 requiring the Contractor to

remedy this failure within a specified time that is reasonable and the Contractor fails to do so, the

Employer may terminate the Contract relying upon the grounds for termination in Sub-Clause 15.2(a).

Disputes from Orders to Update Programmes

One of the presentations highlighted common problems associated with the Engineer ordering the

Contractor to submit a revised programme: (i) the Contractor may submit such a programme after delay

for which the Employer is responsible and later use it as evidence of the impact of such delay; (ii) the

Contractor may treat such an order as an instruction to complete earlier than contractually necessary; (iii)

where programmes are updated jointly arbitrators and DABs are likely assume that underlying facts in the

updated programme are right or true.

The Engineer needs to exercise care about issuing instructions to submit a revised programme to catch up

with the existing programme where there are outstanding applications from the Contractor for extension

of time (EOT). If the Engineer issues such an instruction before the Contractor‟s EOT application is dealt

with, the Engineer‟s instruction could amount to an order to accelerate to catch up with the existing

programme. This concept is referred to as “constructive acceleration”.

Contractors face a dilemma with such instructions. On the one hand, the Contractor would be in breach of

contract if he refuses to comply with an Engineer‟s instruction. On the hand, acceleration entails

additional costs without certainty of their recovery. There is the question of responsibility for such cost if

the EOT application is successful, i.e., there was no need for acceleration. Must the Contractor comply

with the instruction without knowing the outcome of the EOT application? This question was not

discussed in detail although most participants were of the view that the Contractor would be well advised

21

to comply and pursue a constructive acceleration claim if the outcome of the EOT application is that, at

additional cost, the works were completed earlier than necessary on the instruction of the Engineer,

particularly where there is evidence suggesting that the Engineer had apparent or ostensible authority to

order acceleration.

Supplementary Provisions on Programmes

There was universal agreement that the Contractor‟s programme is the most powerful management tool

for both the Employer and the Contractor but that the contractual provisions on it and the manner in

which it is prepared, updated and used do not adequately reflect this importance. Where it is properly

prepared it is often a very convenient basis of certifying interim payment. Many of the commercially

available CPM software packages provide a facility for determining interim payment. However, many

participants were of the view that, all too frequently, the programme is prepared for use mainly as

evidence in substantiation of claims and not as the management tool it should be.

It was a common view that for a programme to be the powerful management tool that it should be, the

content of the programme needs to go beyond the requirements of Sub-Clause 8.3. It was stated that it is

now common practice to impose far more detailed programming specifications in contracts. A common

additional requirement of programmes is a resource-loaded CPM programme with a stipulation that no

activity on it must have a duration exceeding a stated maximum. Without such requirement the Contractor

could comply with his programming obligation under Sub-Clause 8.3 by submitting a basic barchart

although such a programme would be of very little use in assessing the cascading impact of complex

delays.

22

The Programme as a Contract Document?

UK participants were of the view that the Contractor‟s programme would not normally be a contract

document in the sense that the work has to be done in accordance with it, including starting and finishing

every activity on the dates indicated on it. The decision in Glenlion Construction v. Guinness Trust

supports this point of view.

Tender Programme

It is inconceivable that a contractor will price a job and submit a tender without any reference to a

programme. Codes of practice for estimating and tendering require a programme against which the tender

is prepared. The question was asked whether or not such a programme could become part of the contract

eventually created.

The English case of Yorkshire Water Authority v. Sir Alfred McAlpine & Son (Northern) Ltd. (1985) 32

BLR 114 suggests that it is possible for the pre-tender programme to become a contract document by

incorporation. The contractor had tendered for the construction of a tunnel. The specification required the

contractor to supply with his tender a programme for carrying out the work. The contractor supplied a

programme indicating that the tunnelling was to be carried out in an upstream direction. The programme

was approved at a pre-contract meeting the minutes of which were later incorporated as a contact

document. It proved impossible to carry out the works in an upstream direction. It was held that the

programme was contractually binding and that the contractor was entitled to a variation to carry out the

works in a downstream direction, with the usual entitlement to additional time and payment.

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It follows that parties have to be extremely careful to avoid the tender programme being incorporated. An

effective way of achieving this is to state expressly in the Specification or other suitable contract

document that the tender programme cannot become a contract document in any circumstances.

Such a pre-contract programme, even if it is not incorporated into the contract, may also acquire some

contractual significance where the Contractor commences work and is delayed before completion of

consultations on the programme required under Sub-Clause 8.3. It could constitute an appropriate

baseline for assessing the impact of delay where it was reasonably achievable and there is evidence that

the Contractor has thus far complied with it.

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VARIATIONS

The amendment made to Sub-clause 12.3 in the MDB Harmonised Edition was drawn to the attention of

participants. In the original Red Book it states:

For each item of work, the appropriate rate or price for the item shall be

the rate or price specified for such item in the Contract or, if there is no

such item, specified for similar work.

However, a new rate or price shall be appropriate for an item of work if:

(a)

(i) the measured quantity of the item is changed by more than 10%

from the quantity of this item in the Bill of Quantities or other

Schedule,

(ii) this change in quantity multiplied by such specified rate for this

item exceeds 0.01% of the Accepted Contract Amount,

(iii) this change in quantity directly changes the Cost per unit quantity

of this item by more than 1%, and

(iv) this item is not specified in the Contract as a "fixed rate item";

or

(b)

(i) the work is instructed under Clause 13 [Variations and

Adjustments],

(ii) no rate or price is specified in the Contract for this item, and

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(iii) no specified rate or price is appropriate because the item of work

is not of similar character, or is not executed under similar

conditions, as any item in the Contract.

Each new rate or price shall be derived from any relevant rates or prices

in the Contract, with reasonable adjustments to take account of the

matters described in sub-paragraph (a) and/or (b), as applicable. If no

rates or prices are relevant for the derivation of a new rate or price, it

shall be derived from the reasonable Cost of executing the work,

together with reasonable profit, taking account of any other relevant

matters.

In the MDB Harmonised Edition the thresholds for having new rates and prices stated in Sub-Clauses

12.3 a (i) and a (ii) have been raised to 25% and o.25%, respectively. This change must reflect of a policy

of reducing claims for revised rates.

Another amendment in the MDB/FIDIC Harmonised Edition that concerns Variations is that, under Sub-

Clause 3.1, the Engineer is to seek the Employer‟s approval to exercise of the following authorities:

issue of a Variation that will increase the Contract Price by an amount above a ceiling stated in the

Contract Data as a percentage of the Accepted Contract Amount except in an emergency situation

(Sub-Clause 13.1);

approval of a value engineering proposal submitted by the Contractor (Sub-Clause 13.3);

specification of the currencies in which any adjustment to the Contract Price on account of a

Variation is payable (Sub-Clause 13.4).

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Disclosure of Contractor’s Pricing Information

New rates are to be “derived” from “relevant” rates and prices already in the Contract. Deriving rates

suggests that the make-up of the relevant rates (assumptions in the pricing of the tender as to unit costs of

relevant items of labour, plant and materials; labour and equipment productivity rates; wastage and usage

rates of materials; mark-up for overheads and profit) has to be considered. If this is the meaning of

“derive” there is the further question whether the Contractor is under any obligation to disclose such

information, which is usually considered confidential by contractors. National law may require such

disclosure. For example, Eggink stated in his presentation that the Public Works Laws of some countries

require the Contractor to supply detailed breakdowns of each price in the Bill of Quantities. Examples

given included France and her former Colonies, the Philippines and the Netherlands.

A US participant explained that this matter is often dealt with under a procedure known as “Escrow of

Bid Documents”. This procedure entails a requirement that all documentation of the successful bidder‟s

estimate is placed in escrow, i.e., they are delivered to an independent third party for safe keeping where

they remain the property of the contractor (Underground Technology 1989). The documentation may be

accessed jointly by the employer and the contractor to assist in resolving pricing issues in claims and

disputes.

REFERENCES

Clayton, C. R. I. (2001) Managing Geotechnical Risk: Improving Productivity in UK Building and

Construction, Thomas Telford Ltd., London

Institution of Civil Engineers (1991) Inadequate Site Investigation, Thomas Telford Ltd, London

27

Mott MacDonald and Soil Mechanics Ltd (1994) Study of the Efficiency of Site Investigation Process.

Project Report 60, Transport Research Laboratory, Crowthorne

National Audit Office (1992), Department of Transport: Contracting for Roads, HMSO, 1992

National Economic Development Office (1983) Faster Building For Industry, NEDO, London

National Economic Development Office (1986) Faster Building For Commerce, NEDO, London

National Research Council (1984) Geotechnical Site Investigation for Underground Projects, Vol. 1,

National Academic Press, Washington DC

Ndekugri, I. and McDonnell, B. (1999) Differing Site Conditions Risks: A FIDIC/Engineering and

Construction Contract Comparison, Journal of Engineering, Construction and Architectural Management,

Vol. 6, No. 2, June

Society of Construction Law (2002) The Society of Construction Law Delay and Disruption Protocol,

Society of Construction Law, Wantage

Underground Technology Research Council (1989), Avoiding and Resolving Disputes in Underground

Construction, a Report of the Technical Committee on Contracting Practice, American Society of Civil

Engineers, New York

White, I. L. and Tonks, D. M. (1994) Project Risks and Site Investigation Strategy, in Skipp, B. B. (Ed)

(1994) Risk and Reliability in Ground Engineering, Thomas Telford Ltd., London

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APPEMDIX A: BIOGRAPHICAL NOTES OF SPEAKERS

Edward Corbett

Principal of Corbett & Co.

After studying law at Oxford University, he qualified as a barrister and practised for a short while before

joining Masons in the City of London as a specialist construction lawyer. After joining Masons in 1984,

he worked exclusively in construction law. He was admitted as a solicitor in 1988.

His experience includes contract drafting and procurement strategy as well as ICC arbitration,

adjudication, litigation and ADR. He has worked for contractors as well as for employers, funders and

consultants.

He regularly advises some of the world's major contractors and his current caseload involves projects in

Europe, Africa, South-East Asia, the Indian Sub-continent and the Middle East.

He:

has an MSC in Construction Law and Arbitration from Kings College;

is a Fellow of the Chartered Institute of Arbitrators;

has experience as an adjudicator on both UK and international disputes;

is an accredited mediator;

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is on FIDIC's lists of mediators and adjudicators and is trained as a TeCSA adjudicator;

is the author of FIDIC 4th - A Practical Legal Guide and many articles and papers dealing with

aspects of international construction contracts;

has lectured extensively on construction law and in particular on FIDIC's standard forms of

contract;

is a co-chair of the International Bar Association's International Construction Projects Committee

and is currently a member of a Working Group of FIDIC that drafted the 1999 Short Form of

Contract and the Dredging Contract. Corbett & Co is an affiliate member of FIDIC.

Eric Eggink

Director, Netherlands Association of International Contractors

Eric Eggink joined Ballast Nedam in 1990 first as legal counsel and company secretary to the dredging

division and then to Ballast Nedam International in 1993. He has been involved in various infrastructure

projects, e.g., The Chek Lap Kok Airport in Hong Kong, The Island of St. Martin Harbour Facilities, as

well as development and private finance projects in infrastructure and sports facilities.

He is a member of the European International Contractors Legal Working Group and co-author of the

EIC Contractor‟s guides to the FIDIC Conditions of Contract and the EIC Blue Book on Sustainable

Procurement and is a member of the ICC Working Party on Turnkey Transactions for Major Projects.

Mr Eggink was involved in the High Speed Rail Link Project between Amsterdam and Brussels as

coordinating legal counsel for the Construction Consortia.

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Since August 1st 2001 he has been director of the NABU, the Netherlands Association of International

Contractors.

Robert M. Fitzgerald

Senior Partner, Watt, Tieder, Hoffar & Fitzgerald, LLP, Virginia Office

For over two decades, Bob Fitzgerald has been engaged in a construction contract legal practice focusing

primarily on the preparation and negotiation of prime and subcontract documents along with the

resolution of claims for additional time and money under both public and private construction contracts.

His practice is international in scope and has provided him with the opportunity to work with both the

private construction industry and federal, state and local government entities engaged in public

construction contracting.

His various legal credentials include the unique, practical experience of residing for a full year on a

construction jobsite while analyzing and preparing major claim proposals. In addition, he has defended

against and prepared claim analyses under a variety of foreign, domestic, government and private contract

terms and conditions. He also has helped to resolve contract disputes as legal counsel for the owner,

contractor, architect and subcontractor in every conceivable forum including Federal Courts, Federal and

State Board of Contract Appeals and countless forms of arbitration, mediation and alternative dispute

resolution.

While Bob has been retained to represent contractors in virtually all areas of the construction industry, he

has developed a particular expertise in heavy construction contract disputes relating to dams, canals,

power plants, water and sewage treatment plants, and machine mined tunnels. As a result of this

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expertise, he has successfully resolved complex disputes arising out of construction of deep water tunnels

in Chicago, Milwaukee and Boston, while also representing a number of contractors performing

construction on the Washington, Atlanta, L.A., Puerto Rico and Miami subway systems.

Bob has been honored with membership in The Moles.

Honors:

Best Lawyers in America, Construction Law category - 2005-2006

Chambers USA - list of Top Construction Lawyers in Virginia - 2004, 2005

Dr. Helmut Köntges

Department Manager. International Project Division, Hochtief Construction, Germany

Helmut Köntges is construction engineer with a doctorate degree in Construction Management and

Construction Economics. He started his career as designer and consultant and continued as Site Project

Manager and General Manager for General Contractors with projects in Europe, Africa and Asia.

Dr Köntges advises and manages on behalf of international clients mainly on commercial and technical

aspects of claims and resolution of disputes (amicable settlement, DRB's and arbitration) under different

rules and legal systems, representing clients in the different proceedings.

He became the representative for Germany on the Dispute Review Board Foundation Inc., and is also a

member of various other associations for construction law and arbitration.