Guest blog: Are contracts (really) difficult to use and understand?
The annual ICC-FIDIC Conference is set to get underway today in New Delhi, India. In anticipation of the world’s leading construction practitioners gathering to discuss international construction contracts and dispute resolution mechanisms, HKA Senior Vice-President Simon Longley gives us his perspective on why the administration of FIDIC contracts can be problematic, in his guest blog post for the International Chamber of Commerce.
The International Association for Contract and Commercial Management (IACCM) published a commercial excellence brochure called “10 Pitfalls to avoid in contracting” in 2015. Pitfall number seven states that “contracts are difficult to use and understand.” However is this actually the case with the FIDIC suite of contracts? FIDIC contracts are internationally renowned standard forms that have been tried and tested over time. My experience shows that—as with all forms of contracts—it is the people who seek to administer them that are the real problem.
Too many amendments to the standard conditions
How often does an employer adopt the FIDIC standard conditions of contract without amendment? Rarely is the answer. It is the amending of standard conditions of contract that provides the febrile causes of conflict between the parties. Why? Two principal reasons. Firstly, amendments are too frequently made by the employer that transfer substantially more risks to the contractor than the contact drafters considered fair. This inherently creates fertile and festering grounds for disputes between the parties, especially when considered against the second reason: amendments often create ambiguity or conflict with other conditions.
Contract administrators do not know the contract
Other reasons why FIDIC contracts often give rise to disputes are that the people charged with administering them often have no training in the FIDIC suite of contracts, do not properly understand them or simply apply partisan attitudes to their application.
Contracts are too complex
There is also a more prosaic reason: who really wants to read, understand and implement often hundreds of pages of a “contract” when there is a project to build?
One key concern of the FIDIC suite of contracts, which looks as though will be addressed in the forthcoming updated editions, is the unbalanced approach to contractor and employer claims. Contractor claims are subject to a strict 28 days “time-bar,” whereas employer claims are not. One of the biggest causes of dispute between parties is the employer (or typically his representative) seeking to time-bar claims on the basis of an alleged procedural irregularity—regardless of whether the employer was truly at fault or not. Whereas the employer can submit a claim ”as soon as practicable,” but without any definition of what ”as soon as practicable” means nor any express sanction for any failure to give notice of an employer’s claim at all. The updated version of the FIDIC conditions is slated to provide a 28 days period for the notification of both contractor and employer claims. That said, do not be surprised if this is one of the first conditions to be amended by employers.
The need for quick and effective resolution of disputes
The FIDIC suite of contracts generally provides for the resolution of disputes by a dispute adjudication board, a “real-time” method of dispute resolution that provides decisions during the course of the project and that facilitate future project programming and commercial matters. Still, myopic employers often delete this provision—a fatal mistake. Resolving disputes early has manifold advantages, including certainty of outcome and maintenance of good working relationships. Disputes that cannot be resolved quickly often lead to cataclysmic consequences, such as conflict between the parties, broken working relationships and the huge expense and time of arbitration or legal proceedings—and all for what?
Simple solutions for success
Contracts, including FIDIC, are much easier to understand and apply if both parties take the time to read and understand them thoroughly. However, it is even more essential to appoint experienced personnel to administer the contracts as they should be administered. This is the root cause of problems, as often it is not the written words of the contract but the persons appointed to administer them. Therefore, the training of staff in contract administration and forms of contract is the route to successful projects.
HKA is a gold sponsor of the ICC-FIDIC Conference on International Construction Contracts and Dispute Resolution, which takes place from 29-30 June. For more information about the event, or to register, please visit our dedicated event page.
*Disclaimer: The content of this interview does not reflect the official views of the International Chamber of Commerce. The opinions expressed are solely those of the authors and other contributors.