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Conditions of Contract for

Design, Build and Operate Projects

General Conditions

Master Draft

Reviewers Comments

March 2007

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Company

Time of Review

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Conditions of Contract for Design, Build and Operate Projects Reviewers Comments

Tuesday, 10 April 2007

GENERAL PROVISIONS

1.1Definitions

1.1.1.1 "Contract"

1.1 Definitions

The FIDIC DBO Contract contains several new Definitions and the sheer number of Definitions is arduous. Since the order of the Definitions is not necessarily logical, EIC recommends presenting the definitions in alphabetical order!

1.1.1.2 "Contract Agreement"

1.1.1.3 “Licence Agreement”

1.1.1.4 "Letter of Acceptance"

1.1.1.5 "Letter of Tender"

1.1.1.6 "Employer's Requirements"

1.1.1.7 "Schedules"

1.1.1.8 "Contractor's Proposal"

1.1.1.9 "Tender"

1.1.1.10 "Contract Data”

1.1.1.11 "Operation Management System"

1.1.2.1 "Party"



1.1.2.2 "Employer"

1.1.2.3 "Contractor"

1.1.2.4 "Employer’s Representative"

1.1.2.5 "Contractor’s Representative"

1.1.2.6 "Employer’s Personnel"

1.1.2.7 "Contractor’s Personnel"

1.1.2.8 "Subcontractor"

1.1.2.9 "Auditing Body"

1.1.2.10 "DAB”

1.1.2.11 "FIDIC"

1.1.3.1 "Base Date"

1.1.3.2 "Commencement Date"

1.1.3.3 "Contract Period"

1.1.3.4 "Design-Build Period"

Sub-Clause 1.1.3.4 [Design-Build Period] might be formulated too general in case of Section Commissioning Certificates under Sub-Clause 1.1.3.10.

1.1.3.5 "Operation Service Period"



1.1.3.6 "Time for Completion of Design-Build”

1.1.3.7 "Tests on Completion of Design-Build"

Sub-Clause 1.1.3.7/9 [Tests on Completion of Design-Build / Tests Prior to Contract Completion] should simply refer to “the tests… which are carried out under Clause 11 [Testing]…”; the passage “… which are specified in the Contract or agreed by both Parties or instructed as a Variation, and” can be deleted.

1.1.3.8 "Commissioning Certificate"

1.1.3.9 "Tests Prior to Contract Completion"

1.1.3.10 "Section Commissioning Certificate"

1.1.3.11 "Contract Completion Certificate"

1.1.3.12 "Contract Completion Date"

1.1.3.13 "Commissioning Period"

1.1.3.14 “Retention Period”

1.1.3.15 "Cut Off Date"

The second sentence in Sub-Clause 1.1.3.15 [Cut-off Date] is problematic from a systematic perspective, since the Definitions should not contain a contractual remedy. Hence, the second sentence should be shifted to an adequate place in another Clause.

1.1.3.16 "day" "year"

1.1.4.1 "Accepted Contract Amount"

The concept laid down in Sub-Clause 1.1.4.1 [Accepted Contract Amount] might not be compatible with the operation phase.

1.1.4.2 “Contract Price”



1.1.4.3 "Rates and Prices"

1.1.4.4 "Cost"

1.1.4.5 “Cost Plus Profit”

In Sub-Clause 1.1.4.5 [Cost Plus Profit] it should be clarified that the applicable percentage should be agreed in the “Contract” rather than in the “Contract Data”.

1.1.4.6 "Final Payment Certificate for Design-Build"

1.1.4.7 "Final Payment Certificate for Operation Service"

1.1.4.8 "Final Statement Design-Build"

1.1.4.9 "Final Statement Operation Service"

1.1.4.10 "Interim Payment Certificate"

1.1.4.11 “Foreign Currency”

1.1.4.12 “Local Currency”

1.1.4.13 "Provisional Sum"

1.1.4.14 "Statement"

1.1.4.15 "Schedule of Payments"

1.1.4.16 “Retention Money”

1.1.4.17 "Maintenance Retention Fund"



1.1.4.18 "Asset Replacement Fund"

1.1.4.19 "Asset Replacement Schedule"

1.1.4.12 "Financial Memorandum"

1.1.5.1 "Contractor’s Equipment"

1.1.5.2 "Goods"

1.1.5.3 "Materials"

1.1.5.4 "Permanent Works"

1.1.5.5 "Plant"

1.1.5.6 "Section"

1.1.5.7 "Temporary Works"

1.1.5.8 “Works”

1.1.5.9 “Design-Build”

Sub-Clause 1.1.5.9. [Design-Build] is…???

1.1.5.10 "Operation Service"

1.1.6.1 "Contractor’s Documents"

1.1.6.2 “Country”



1.1.6.3 "Employer’s Equipment"

1.1.6.4 "Exceptional Risk"

The definition in Sub-Clause 1.1.6.4. [Exceptional Risk] is confusing because it isolates the definition from the examples which are listed in Sub-Clause 18.1 [Exceptional Risk] and thus deviates from the concept used in the FIDIC 1999 “New Books”.

1.1.6.5 “Law”

1.1.6.6 “Performance Security”

1.1.6.7 "Site"

1.1.6.8 "Unforeseeable"

1.1.6.9 "Variation"

1.1.6.10 "Operation and Maintenance Plan"

1.2 Interpretation

1.3 Communications

1.4 Law and Language

1.5 Priority of Documents

1.6 Contract Agreement

In a DBO form of contract it should be mandatory for the Parties to enter into a Contract Agreement in order to validate the Contract, not least due to the fact that in some countries the Contract becomes valid only once it is stamped. (to be elaborated by Francine Gurral)



1.7 Licence Agreement

This Sub-Clause defines the licence which the Employer gives to the Contractor allowing him to operate the plant on behalf of the Employer. The licence is agreed and signed and becomes binding within 28 days after the Letter of Acceptance. However, it does not come into effect until it is needed, i.e. upon issue of the Commissioning Certificate and commencement of the Operation Service. It remains in force until the issue of the Contract Completion Certificate at the end of the Operation Service Period.

It is not acceptable, however, that the Employer is obliged to issue the License Agreement only after the Letter of Acceptance. The content of the License Agreement is important for pricing and thus must be part of the tender dossier. The Sub-Clause provides no answer for the case when there is a conflict between the License Agreement and the Contract. The Employer then ought to rectify any discrepancy and for that purpose has to issue a Variation. (to be elaborated by Chris Parker)

1.8 Assignment

1.9 Care and Supply of Documents

1.10 Errors in the Employer’s Requirements.

Sub-Clause 1.10 slightly deviates from the similar Sub-Clause 1.9 of the FIDIC “New Yellow Book” Under the DBO concept, it is not clear what the consequence is if the Employer’s Representative does not confirm the error as notified by the Contractor. (to be elaborated by Hakan Broman)

Deviates from the similiar Sub-Clause 1.9 of the Yellow Book, both in disposition and materially. The proposed wording suggests that a sharper time bar (immediately upon discovery) is to be introduced concerning the Contractor´s obligation to notify, whenever an error in the Employer´s Requirements is detected. Thereby contradicting the established procedure for claims (Clause 20.1). Still, last paragraph refers to Sub-clause 20.1. It is not clear either if procedure for requried assessment of Employer´s Representative, goes beyond or limits his assessment and determination under Sub-Clause 3.5. EIC fails to see the logic, or need, to add or alter the principals of notification and/or assessment/determination, which generally apply.

1.11 Employer’s Use of Contractor's Documents

The second paragraph of this Sub-Clause should be introduced with “Unless otherwise agreed,…”. The two introductory sentences should be connected in order to become project-related (“… including making and using modifications of them, provided that this license shall:…”).

Since the life-span of the contract is much longer than a pure construction contract, lit. (d), i.e. the right of the Employer to relet the Contract, should only apply in the case of Sub-Clause 15.2. (to be elaborated by Chris Parker)

1.12 Contractor’s Use of Employer’s Documents

1.13 Confidential Details



EIC would recommend adopting the respective provision of the so-called MDB Harmonised Edition of the FIDIC “New Red Book” according to which the confidentiality obligations are mutually binding upon both Parties.

1.14 Compliance with Laws

EIC would recommend adopting the respective provision of the MDB Harmonised Edition of the FIDIC New Red Book which clarifies that it is the Employer’s responsibility to obtain the building permit.

1.15 Joint and Several Liability

THE EMPLOYER

2.1 Right of Access to the Site

2.2 Permits, Licences or Approvals

EIC would recommend adopting the respective provision of the MDB Harmonised Edition of the FIDIC New Red Book which specifies the Employer’s obligation to provide reasonable assistance to the Contractor in much clearer language.

2.3 Employer's Personnel

2.4 Employer’s Financial Arrangements

FIDIC recognises the need for the Contractor to be satisfied that the Employer has the necessary financial strength to undertake his obligations under the Contract. This Sub-Clause requires that “The Employer’s financial arrangements shall be detailed in a Financial Memorandum”. Sadly, this provision falls far behind the FIDIC 1999 New Books which prescribe that “the Employer shall submit, within 28 days after receiving any request from the Contractor, reasonable evidence that financial arrangements have been made and are being maintained which will enable the Employer to pay the Contract Price”. Whilst the latter wording This isimposes a crucial obligation on the Employer, particularly where funding is being provided by third parties, the wording in the FIDIC DBO Contract leaves open to what extent the Employer has to present evidence of his financial strengths. In the EIC view, this new wording is unacceptable since tThe Contractor must have the right to assess the Employer’s initial financial strength and also the right to refuse to undertake any significant Variation if no clear evidence is provided that the available funding is sufficient to cover the cost of the varied Works.

EIC regrets that the A powerful sanction which is available to the Contractor under the FIDIC 1999 New Books in case that should the Employer should fail to furnish “reasonable evidence” has also disappeared. We recommend that the FIDIC DBO Contract entitles Tthe Contractor is entitled to suspend the work or terminate the Contract under Sub-Clauses 16.1 [Contractor’s Entitlement to Suspend Work] and 16.2 [Termination by Contractor] in such a case. However, what constitutes reasonable evidence is undefined and the Contractor should try to establish



this prior to submitting a tender. Failure to do so could prejudice any attempt to obtain more detailed information during the currency of the Contract, if for example a major Variation is instructed.b

2.5 Employer’s Claims

A provision entitling the Contractor to claim against the Employer is found in Sub-Clause 20.1 [Contractor’s Claims], but its terms are much more onerous on the Contractor than those placed upon the Employer under this Sub-Clause. The obligations of the Employer and Contractor should provide for similar time frames and sanctions for non-compliance. (See also comments under Sub-Clause 20.1 [Contractor’s Claims]). EIC would, therefore, recommend adopting the respective provision of the MDB Harmonised Edition of the FIDIC New Red Book which clarifies that the Employer generally has to give notice within 28 days after he became aware, or should have become aware, of the event or circumstances giving rise to the claim. Thus, the Employer’s obligation to notify would be brought closer to the Contractor’s respective obligation laid down under Sub-Clause 20.1 [Contractor’s Claims]. However, Sub-Clause does still not impose any sanction on the Employer in case he does not comply with this obligation.

THE EMPLOYER’S REPRESENTATIVE

3.1 Employer’s Representative’s Duties and Authority

3.2 Delegation by the Employer’s Representative

3.3 Instructions of the Employer’s Representative

3.4 Replacement of the Employer’s Representative

3.5 Determinations

THE CONTRACTOR

4.1 Contractor’s General Obligations

4.2 Performance Security

The second paragraph introduces a new feature as compared to the FIDIC 1999 New Books, since it provides that “At the end of the retention Period, the Contractor is entitled to a reduction of the amount of the Performance Security, as stated in the Contract Data”. This paragraph implies that the Performance Security shall partly be valid for the operation phase. First of all, there is a query whether a Security for such a long period of time will be issued at all by a bank or a surety. The concept will hardly be compatible with the North American



Performance Bond system, but also Bank Guarantees will usually only cover the construction period and will certainly not be available for 20 years. In the most advanced Performance-Based Contracting market, the U.K., bonds are not required by the Employer for the operation phase.

In addition, EIC questions the necessity of an extension of the validity of the Performance Security into the operation period in the light of Sub-Clauses 14.18 [Asset Replacement Fund] and 14.19 [Maintenance Retention Fund]. The existence of these funds justifies the concern that the project maybe “over-secured” and thus raises unnecessary costs. Since any Security should be adapted to the risk-profile of the project phase, EIC would expect that the face value of the Performance Security can be reduced very significantly upon completion. Eventually, FIDIC should not take a “one size fits all” approach, since e.g. roads projects differ substantially from power plants.

4.3 Contractor's Representative

4.4 Subcontractors

4.5 Nominated Subcontractors

4.6 Co-operation

4.7 Setting Out

4.8 Safety Procedures

4.9 Quality Assurance

4.10 Site Data

4.11 Sufficiency of the Accepted Contract Amount

4.12 Unforeseeable Physical Conditions

4.13 Rights of Way and Facilities

4.14 Avoidance of Interference



4.15 Access Route

4.16 Transport of Goods

4.17 Contractor's Equipment

4.18 Protection of the Environment

4.19 Electricity, Water and Gas

4.20 Employer’s Equipment and Free-Issue Material

4.21 Progress Reports

4.22 Security of the Site

4.23 Contractor’s Operations on Site

4.24 Fossils

DESIGN

5.1 General Design Obligations

5.2 Contractor's Documents

5.3 Contractor’s Undertaking



5.4 Technical Standards and Regulations

5.5 As-Built Documents

5.6 Operation and Maintenance Manuals

5.7 Design Error

STAFF AND LABOUR

6.1 Engagement of Staff and Labour

6.2 Rates of Wages and Conditions of Employment

6.3 Persons in the Service of Employer

6.4 Labour Laws

6.5 Working Hours

6.6 Facilities for Staff and Labour

6.7 Health and Safety

6.8 Contractor’s Superintendence

6.9 Contractor's Personnel

6.10 Records of Contractor's Personnel and Equipment



6.11 Disorderly Conduct

PLANT, MATERIAL AND WORKMANSHIP

7.1 Manner of Execution

7.2 Samples

7.3 Inspection

7.4 Testing

7.5 Rejection

7.6 Remedial Work

7.7 Ownership of Plant and Materials

EIC would prefer, however, if FIDIC would adopt the same provision as in the MDB Harmonised Edition of the FIDIC New Red Book according to which the Employer shall obtain property of Plant and Material when it is incorporated in the Works or when the Contractor is properly paid.

7.8 Royalties

COMMENCEMENT DATE, COMPLETION AND PROGRAMME

8.1 Commencement Date

The Engineer’s notice of Commencement Date is onerous at 7 days; a more reasonable period would be 28 days. If the Engineer fails to give notice of the commencement date, then after a period of 42 days there is entitlement to extension of time and an increase in the Contract Price.



EIC would prefer, however, if FIDIC would adopt the same provision as in the MDB Harmonised Edition of the FIDIC New Red Book. Contractors normally do not wish mobilisation to start work before the criteria set out in paragraphs a) to e) of the MDB wording have been fulfilled. These are:

(a) “signature of the Contract Agreement by both Parties, and if required, approval of the Contract by relevant authorities of the Country;

(b) delivery to the Contractor of reasonable evidence of the Employer’s Financial arrangements (under Sub-Clause 2.4 [Employer’s Financial Arrangements]);

(c) except if otherwise specified in the Contract Data, and possession of the Site given to the Contractor together with such permission(s) under (a) of Sub-Clause 1.13 [Compliance with Laws] as required for the commencement of the Works;

(d) receipt by the Contractor of the Advance Payment under Sub-Clause 14.2 [Advance Payment] provided that the corresponding bank guarantee has been delivered by the Contractor;

(e) if the said Engineer’s instruction is not received by the Contractor within 180 days from his receipt of the Letter of Acceptance, the Contractor shall be entitled to terminate the Contract under Sub-Clause 16.2 [Termination by Contractor].”

8.2 Time for Completion

8.3 Programme

same comment as under EIC-Guide on FIDIC-YB could be inserted.

8.4 Delay Damages

By reference to sub-clause 10.6 only:

to be noted that for failure to provide the Operation Service no fixed Delay Damages are foreseen, but compensation will be due for cost as in incurred!

8.5 Contract Completion Certificate

The last para is flawed. The DBO contains a specific Certificate for the Design-Build Period (1.1.3.4.) related to the Design -Build work, see 1.1.5.9. At the end of the Design-Build works, the Commissioning Certificate pursuant to 9.12 is to be issued, which confirms the date on which "the Design-Build has been completed and the Operation Service shall commence".

11.7 clearly spells out that "Only the Commissioning Certificate shall be deemed to constitute acceptance of the Works". It is thus self-evident that upon issue said Commissioning Certificate, the risk and thus the responsibility for the care of the Works shall pass to the Employer.

It is thus not acceptable in 8.5 to define that "Following the issue of the Contract Completion Certificate (i.e. at the end of Design-Build and the Operation Service) {BRACKETS MY OWN} the Employer shall be fully responsible for the care, safety, …..of the Works." At least the term "care" has to be deleted, but possibly also "safety".

This cut is fully in line with the provisions on insurance, see clauses 17.2 and 17.3. (the latter dealing with Contractor's risk during the Design-Build Period).



In this connection it is unfortunate that 11.7 does not contain the proper wording as commented under 11.7.

DESIGN-BUILD

9.1 Commencement of Design-Build

9.2 Time for Completion of Design-Build

9.3 Extension of Time for Completion of Design-Build

9.4 Delays Caused by Authorities

9.5 Rate of Progress

same comment as under EIC-Guide to FIDIC YB 8.6 could be made. In fact, it is not really in line with the principle of pre-estimate LD for delay if contrary to the provision of 9.6 second para further liaibilities for compensation of cost might arise as a consequence of delay.

9.6 Delay Damages relating to Design-Build

9.7 Suspension of Work

9.8 Consequences of Suspension

9.9 Payment for Plant and Materials in Event of Suspension

The addition of the last para (compared to FIDIC YB 8.10 imposes a further burdern on the Contractor in its pursuit of being paid.

9.10 Prolonged Suspension

9.11 Resumption of Work

9.12 Completion of Design-Build

This Sub-Clause sets out the criteria necessary for completion to be achieved, and for the Commissioning Certificate to be issued. In this respect the Commissioning Certificate is like



the Taking Over Certificate found in the FIDIC 1999 New Books. However, in the FIDIC DBO Contract it certifies that the Design-Build is complete and, at the same time, it also gives the commencement date for the Operation Service.

The clear enumeration under 9.12 constitutes an improvement because it contributes to clarity what is required for the issue of the Commissioning Certificate.

9.13 Failure to Complete

This Sub-Clause constitutes a guillotine to the Contractor. Upon missing the Cut-off Date (which admittedly is a Date later than the Date for Completion, see 1.1.3.15) but which the Parties have to agree upon in the Contract Data, the Employer may allow the Contractor to complete the Design - Build or terminate the Contract. However, in either case, the Employer may recover any direct loss incurred, including any loss resulting from the delayed operation of the Plant.

This provision entirely does away with the principle of LD as only monies due for the delay. The Contractor's exposure in case of delay has been increased drastically. It can be assumed that Employers will want to define the cut-off date as the date of the last day of the contractual delay damages. Thus, Contractors will have to be aware -in case of heavy delay attributable to them - not to trigger the end-date for LD.

This concept entails a further risk: Should there be disputes on the Contractor's rights to an EoT, and thus the Design-Build period not adequately extended, the Employer has a further servere tool in his hands to squeeze the Contractor.

OPERATION SERVICE

10.1 General Requirements

10.2 Commencement of Operation Service

Sub-Clause 10.2 lays out that Unless otherwise stated on the Employer’s Requirements, the commencement of the Operation Service shall be from the date stated in the Commissioning Certificate issued under Sub-Clause 9.12 [Completion of Design-Build]”. EIC suggests that FIDIC should change generally from the “Works” to “Design-Build”, since the general concepts between “Works” and “Design-Build” are confusing.

10.3 Independent Compliance Audit

Whilst during the Design-Build Period, the Employer has his Representative to oversee the Design-Build stage, FIDIC have decided to replace him during the 20 year Operation Service period by an independent “auditing body”, whose job it is to monitor the performance of both parties to see that each is performing its obligations correctly. The auditing body cannot “instruct” or ”decide”, it is there to monitor and advise.

EIC welcomes that the body is appointed jointly by the Employer and the Contractor and shall be paid from a Provisional Sum in the Contract. However, it is unclear how disputes around the work of the Auditing Body shall be resolved. For instance, the Parties are left with no indications what giving “due regard to each report issued by the Auditing Body” means, nor what happens after the report has been issued.



10.4 Delivery of Raw Materials

It is unclear what “health, safety, and environmental risks” are under lit. (b).

10.5 Training

10.6 Delays and Interruptions during the Operation Service

10.7 Failure to Reach Production Outputs

10.8 Completion of Operation Service

TESTING

11.1 Testing of the Works

11.2 Delayed Tests of the Works

11.3 Retesting of the Works

11.4 Failure to Pass Tests on Completion of the Works

11.5 Completion of the Works and Sections

11.6 Commissioning of Parts of the Works

11.7 Commissioning Certificate

Add to the last sentence: "…of the Works, when responsibility for the care of the Works shall pass to the Employer." (= FIDIC YB 17.2 1rst Para)

11.8 Joint Inspection Prior to Contract Completion



11.9 Procedure for Tests Prior to Contract Completion

11.10 Delayed Tests Prior to Contract Completion

11.11 Failure to Pass Tests Prior to Contract Completion

11.12 Retesting Prior to Contract Completion

DEFECTS

12.1 Completion of Outstanding Work and Remedying Defects

FIDIC have missed out to provide for the hand-back provisions. FIDIC needs a general provision that the Contractor is obliged to keep the facility in proper state.

Sub-Clause 12.1 lit. (b) is confusing, since the “Commission Certificate” shall only be issued in accordance with Sub-Clause 11.8 [Joint Inspection Prior to Contract Completion]. The wording of the last sentence of that Sub-Clause is incomprehensible as it states that “The Commission Certificate issued under Sub-Clause 11.7 [Commissioning Certificate] will not be issued…”.

lA number of alterations are introduced in comparision with similar Sub-Clause 11.1 of the Yellow Book. For example;

-there is now separation of Contractor´s obligation under Design-Build Period and Operation Service Period;

- a sharp time bar of one year for remedying of "snag-listed" defects under Design-Build Period;

- subjective criteria for determination of whether or not the Contractor has met his obligation, i.e. Employer´s Representative´s satisfaction shall be achieved;

- Under the Operation Service Period (which can be 20-30 years depending on what type of project the contract is to govern) the obligation to remedy seem to be enlarged to "any damage or effect" irrespective of any link or realtion with avaliability or performance of the Plant or the event causing the defect or damage;

- No coommision certificate will be issued unless all defects and damage etc. is rectified in advance.

EIC is not convinced of the need of any of these introductions. On the contrary they either complicate or contrast the principles of risk allocation established. In addition, the sub-clause at issue seem to be in need of redrafting as it does not make all that much sence either, e.g.



the Commissioning Certificate is conditional upon commissioning the Plant. How can then the issuance of such be conditional upon the Contractor having remedied all defects and damages during the course of the Operation Service Period, which mode cannot be entered into unless the said certificate is issued?

12.2 Cost of Remedying Defects

There is a lack of consistency in relation to Sub-Clause 12.1, since the term "Works" is used in Sub-Clause 12.1, but in this Sub-clause seems to be altered to "work", which is an undefined term. Again the principles or risk allocation seem to be rocked by the introduced wording, which e.g. states that only acts (not negligence to act or otherwise take precautions or measures to mitigate) by the Employer or his employees or agents or Exceptional Risks lead to relief from Contractor´s obligation to rectify defects or damage. A non-action could then constitute relief on the part of the Employer!

12.3 Failure to Remedy Defects

The Contractor is to be granted "reasonable time" to remedy any defect or damage, which is in contracts with Sub-Clause 12.1, which introduces sharp time bar as discussed above. In addition extrensive recovery rights are introduced in the event of Termination for Contractor´s Default, which e.g. again alter the principles of recovery previosly established by FIDIC relating to consequential damages. EIC questions recourse provisions in other sections of the GCC, when the GCC already accomodates such provisions elsewhere. Such double-entries can but only lead to confusion and suggests that "special conditions" are found already within the GCC-section.

12.4 Further Tests

12.5 Removal of Defective Work

12.6 Contractor to Search

12.7 Unfulfilled Obligations

VARIATIONS AND ADJUSTMENTS

13.1 Right to Vary

It should be considered whether or not the extensive right to vary work is applicable to the DBO-concept, a concept accomodating a contract lifespan of perhaps 30 years. The way the provision is supposed to work, renders the Employer with unilateral and ultimate right to require a variation irrespective of the objections raised by the Contractor - also in the Operation Service mode.

13.2 Value Engineering



13.3 Variation Procedure

13.4 Payment in Applicable Currencies

13.5 Provisional Sums

13.6 Adjustments for Changes in Legislation

Sub-Clause 13.7 of the Yellow Book refers. It is not clear what is achieved by the introduction of two new paragraphs. It appears that the provision now contains double-entry to programme and contract price adjustment.

13.7 Adjustments for Changes in Technology

New! Given the life-span of a DBO contract, the parties or either of them independently may wish to take advantage of improved technology over time. It is questioned though if such rigid rules should apply, i.e. granting the Employer a unilateral right to instruct the Contractor to use new technology, materials or products, without any restrictions? Such instruction, over and above reasonable limits to be determined at the offset of the Contract by the parties , should instead require the consent of the Contractor. Hence the provision should rather be founded on consent then unilateral rights.

13.8 Adjustments for Changes in Cost

This provision simply makes reference to the indexation being subject to specific schedules intended to be enclosed to contract. Given the various types of contract that the DBO-format could apply to, EIC considers it a wise choice of direction not to include a format in the GCC.

CONTRACT PRICE AND PAYMENT

14.1 The Contract Price

The payment provisions are essentially divided into payment for the design-build work and payment for the operation service. The Design-Build provisions are similar in principle to those found in the FIDIC New Yellow Book with the Contractor entitled to submit his final statement for the DB work on completion of the Design-Build Period.

The general question, however, is whether the Contractor can price for the operation phase. Any such pricing must be based on certain assumptions based on indexation and only if the specifications and the key service indicators are sufficiently detailed. (to be elaborated by Michel Démarre).

14.2 Advance Payment

Provision is made for the Contractor to receive an advance payment as an interest-free loan for his mobilisation and design provided that the amount of the advance is stated in the Contract Data.



If an advance is specified, then the Employer’s Representative will issue an Interim Payment Certificate after receipt by the him of “a Statement (under Sub-Clause 14.3 [Application for Advance and Interim Payment Certificates]) and after the Employer receives (i) the Performance Security in accordance with Sub-Clause 4.2 [Performance Security], and (ii) a guarantee in amounts and currencies equal to the advance payment”. The guarantee shall be issued by an entity approved by the Employer and from a country approved by the Employer, and shall be in the form annexed to the particular conditions or in another form approved by the Employer.

The advance payment is repaid through percentage deductions in Payment Certificates. Unless other deductions are stated in the Contract data deductions shall commence in the Payment Certifuicate in which the total of all certified interim payments exceeds 10% of the Accepted Contract Amount for the Design-Build less Provisional Sums and deductions are then made at the amortisation rate of one quarter (25%) from each (it is presumed subsequent) Payment Certificate issued during the Design- Build Period.

The cash flow implications of this should be carefully studied and if appropriate, an alternative time for commencement of repayment and rate of repayment should be agreed and provided for and entered by the Contractor into Part II Conditions of Particular Application. Both Parties can benefit from the cash flow support that is gained by adopting repayment provisions typically as set out in the Construction MDB 2006 conditions.

14.3 Application for Advance and Interim Payment Certificates

To initiate the payment process the Contractor is to submit a Statement to the Engineer at the end of the period of payment which period is to be stated in the Contract. If no period is stated, the submission is to be made at the end of each month. To be valid, the Statement must include items detailed in Sub-Clauses 14.3 (a) to (j) and also include the progress reports defined in Sub-Clause 4.21 [Progress Reports]. These requirements are considered an unduly onerous precondition for the receipt of payment and should be modified if possible. Such modification could be introduced if a degree of flexibility existed by permitting a full documentation each two months with only the minimum documentation necessary on a monthly basis.

14.4 Schedule of Payments

The Contract may provide for payment to the Contractor based upon a Schedule of Payments and if so, “the instalments quoted in the Schedule of Payments shall be the estimated contract values for the purposes of sub-paragraph (a) of Sub-Clause 14.3 [Application for Interim Payment Certificates]”.

If the instalments are not defined by reference to actual progress achieved then the Employer’s Representative is entitled to agree or revise any payment instalment by making a determination under Sub-Clause 3.5 [Determinations] which will take into account any delay in progress. Equally, if the Works are ahead of programme the Contractor should be entitled to receive an appropriate increase in the scheduled payment.

If it is intended that the Schedule of Payments is based on the achievement of specific Milestone Events, then this should be expressly stated. Otherwise, payments should be based on the actual value of work done.

14.5 Asset Replacement Schedule



This is a new Sub-Clause which gives effect to Sub-Clause 14.18 Asset Replacement Fund. It is anticipated that detailed provision will be made in the specifications and in Part II Conditions of Particular Application to enable the Contractor to clearly understand the Employer’s particular requirements.

14.6 Payment for Plant and Materials intended for the Works

This Sub-Clause makes provision for payment of plant and materials (provided that they have been identified in the Contract Data) which are either in the course of being shipped to the site (which presumably includes all forms of transportation) or, are delivered to Site.

A “bank guarantee” in favour of the Employer is required to be provided by the Contractor in respect of the Plant and Materials being shipped which is to guarantee repayment of the pre-payment to the Employer. Its validity expires when “Plant and Materials are properly stored on Site and protected against loss, damage or deterioration”.

The additional amount certified “shall be the equivalent of eighty percent of the Employer’s Representative determination of the cost of the Plant and Materials (including delivery to Site)”.

14.7 Issue of Payment Certificates during the Contract

This Sub-Clause follows the provisions of the 2000 Plant and Design-Build model for the issue of Interim Payment Certificates itheFIDIC .

This Sub-Clause provides for the Employer’s Representative to act fairly in his determination of the amount due in respect of an Interim Payment Certificate. Failure by the Employer’s Representative to act fairly in accordance with this Sub-Clause would be a breach of Contract.

The importance of the statement that “A payment Certificate should not be withheld for any reason, although….should be separated from the proviso relating to “the cost of rectification or replacement may be withheld until rectification or replacement has been completed.“ The cost of rectification or replacement, impliedly the Contractor’s responsibility, would not normally form part of a payment item. The proviso should be deleted entirely.

14.8 Payment

The Sub-Clause details the periods within which payment is to be made by the Employer in respect of the advance, interim and final payments. For Interim Payment the periods proposed of 56 days after the Employer’s Representative received the Statement from the Contractor with supporting documents corresponds to the two periods of 28 days, one for Employer’s Representative to check and prepare the Certificate (Sub-Clause 14.7) and the second period for this Sub-Clause for the Employer to arrange payment.

14.9 Delayed Payment

This Sub-Clause makes provision for interest upon late payments (referred to in this Sub-Clause as financing charges) and the payment obligations contained in Sub-Clause 14.8 [Payments] should give the Employer an incentive to pay promptly. Provision is also made for a rate of interest to be defined and the Contractor is entitled to payment without formal notice or the need for the issue of a Payment Certificate. However, in practice achieving payment may be easier with a Certificate particularly with Public Authorities as Employers.

Whilst the remedy of payment of financing charges or interest is necessary the actual delay to payment may have a major impact on performance by the Contractor. Accordingly the effect



on the programmed rate of progress has to be considered together with extension of time and costs. No provision has been made for such an event.

14.10 Payment of Retention Money

As stated in respect of Sub-Clause The amount of any Retention Money should be defined within the Contract Data or the Particular Conditions and this Sub-Clause provides for the first half of the Retention Money to be reeased after the Commissioning Certificate has been issued.

The second half of the Retention Money is to be released with the Final Payment Certificate for Design Build.

The concept of a Retention Fund is inconsistent with the long-term nature of a DBO Contract and should be deleted entirely. The Employer’s Representative has sufficient authority under the Contract to ensure appropriate payment for work executed.

At the very minimum the replacement of the Retention Fund by an acceptable Bank Guarantee should be introduced into the provisions of the Contract.

14.11 Application for Final Payment Certificate Design-Build

The Contractor is obliged to submit within 28 days after the end of the Retention Period, (a period of one year after the issue of the Commissioning Certificate) a Final Statement Design-Build with supporting documents. The Statement is to include the value of work done and any further sums which the Contractor considers due to him under the Contract in respect of Design-Build. This last item presumably refers to outstanding claims for payment although it is noted that the period of appointment of the DAB expires at the completion of the Design-Build evidenced by the issue of the Commissioning Certificate under Sub-Clause 9.12, which is the date the Retention Period commences. Clarification should be given that the Contractor is not obliged to wait one full year to submit his Statement and that the Sub-Clause is indicative of the latest time by which the Contractor’s submission is obliged to be made. This apparent difficulty was overcome for example amongst others in the 2000 Plant and Design Build document by the inclusion in Sub Clause 14.10 (c) of an estimate of any other amounts which the Contractor considers will become due to him under the Contract. Estimated amounts shall be shown separately in this Statement at Completion. Consideration should be given to the inclusion of this wording.

14.12 Issue of Final Payment Certificate Design-Build

Within 28 days of receiving the Final Statement Design-Build together with the written statement that the Statement is in full and final settlement of all related matters under or in connection with the Design-Build, the Employers Representative shall issue to the Employer the Final Payment Certificate Design- Build. In accordance with Sub-Clause 14.8 (c) this payment is to be made within 56 days. These periods are consistent with previous FIDIC Contracts.

14.13 Application for Final Payment Certificate Operation Service

This Sub-Clause follows on from the Design-Build stage (Sub-Clause 14.11) into the Operation Service stage and requires the Contractor to submit his Final Statement within 56 days of receipt of the Contract Completion Certificate. The Statement is to include the value of all work done in respect of the Operation Service including authorised payments from the Asset Replacement Fund and any further sums considered due by the Contractor (presumably including all claims) including any unused monies from the Maintenance Retention Fund. The drafting of this Sub-Clause appears more onerous to the Contractor by the omission of reference to any other amounts estimated and shown separately which the Contractor



considers will become due to him under the Contract. (For example reference Sub-Clause 14.10 P&DB)

This Statement is of considerable importance to the Contractor as it forms the basis for the cessation of liability specified in Sub-Clause 14.16 (Cessation of Employer’s Liability).

14.14 Discharge

A written discharge is to be submitted by the Contractor with the Final Statement Operation Service stating that for the discharge to become effective the Contractor must have received all payment due under the Final Payment Certificate Operation Service and that the Performance Security has been returned to the Contractor.

14.15 Issue of Final Payment Certificate Operation Service

The Employer’s Representative is required to issue to the Employer the Final Payment Certificate Operation Service within 28 days of receipt of the Final Statement Operation Service together with the Discharge under Sub-Clause 14.14. In the event of any disagreement between the Employer’s Representative and the Contractor on any matter the Employer’s Representative shall issue a final Payment Certificate Operation Service for the agreed amount. If the Contractor is dissatisfied with the amount certified he may refer the matter to the DAB for a decision in accordance with Sub-Clause 20.5 (Obtaining Dispute Adjudication Board’s Decision). The reference to the provision by the Employer of a copy of the Final Payment Certificate appears to be a duplication of the provision of Sub-Clause 1.3 (Communications)

14.16 Cessation of Employer’s Liability

This is a very important Clause in respect of Contractor’s Claims and underlines the necessity for the Contractor to include all matters having a financial impact on the Contract Price in the Final Statement Design Build or the Final Statement Operation Service.

14.17 Currencies of Payment

This Sub-Clause remains essentially as included in Sub-Clause 14.15 of The 2000 Design and Build

14.18 Asset Replacement Fund

This is a new Sub-Clause and the applicability and/or relevance will be better understood in the light of the detailed Employer’s Requirements, Specifications and Conditions of Particular Attention. However, during the Operation Service Period damage to the Employer’s assets by third parties may not always be recorded or properly identified and may require the Asset to be replaced. Liability for such losses needs to be clarified.

14.19 Maintenance Retention Fund

Considering that the Operation Service Period may extend up to twenty or thirty years this Sub-Clause seems to be cumbersome and thus completely unsuitable. Apart from the difficulty of maintaining sufficient and accurate records over such a long period to demonstrate that maintenance has in fact been properly performed it would in fact be virtually impossible for the Contractor to verify the Employer’s records and equally vice versa. Provision should be made in the measurement and interim payment clauses for this issue to be the subject and decision of monthly inspection contemporaneously with the provisions for monthly interim payment. Hence if maintenance work is not performed it cannot be measured and paid.



TERMINATION BY EMPLOYER

15.1 Notice to Correct

15.2 Termination for Contractor’s Default

15.3 Valuation at Date of Termination for Contractors Default

15.4 Payment after Termination for Contractors Default

15.5 Termination for Employer’s Convenience

15.6 Valuation at Date of Termination for Employer’s Convenience

15.7 Payment after Termination for Employer’s Convenience

SUSPENSION AND TERMINATION BY CONTRACTOR

16.1 Contractor’s Entitlement to Suspend Work

16.2 Termination by Contractor

16.3 Cessation of Work and Removal of Contractor’s Equipment

16.4 Payment on Termination



GENERAL RISKS

17.1 Risk Allocation

General Comments

In EIC’s view it is necessary to distinguish risk allocation by reference to these two distinct phases of the project since the risks and importantly the insurance available to mitigate risks differ during these two phases.

As noted by the FIDIC DBO working group, the draft DBO form is rooted in the 1999 Yellow Book. EIC considers the risk allocation for the construction phase contained in the Yellow Book to be equitable. The draft DBO form departs from this basis and the reasons for such departure are not readily apparent. EIC’s detailed comments are set out below.

As a matter of drafting it ought to be unnecessary – and could lead to confusion – to define the Contractor’s Risks. It may be better to only define the Employer’s Risks and then address how such definition affects the allocation of risk pursuant to the indemnities at clauses 17.10 and 17.11 (in respect of third party liability) and within an appropriately drawn care of works provision.

17.2 Employer’s Risks of Loss and/or Damage during the Design-Build Period


17.3 Contractor’s Risks of Loss and/or Damage during the Design-Build Period


It is not apparent whether clause 17.3 is intended to impose obligations for loss and damage to the Works during the Design-Build Period. Clause 17.3 simply refers to: “the Contractor’s Risks for Loss and/or Damage” and then states that the Contractor’s Risks include the care of the Works. This appears to imply that clause 17.3 is intended to impose liabilities for death, personal injury and loss and damage to third party property (public liabilities) and to address loss and damage to the Works during the Design-Build Period. This is potentially very confusing since loss and damage to the Works is expressly dealt with (in a different manner) at clause 17.8 and public liability is dealt with (also in a different manner) at clauses 17.10 to 17.12.

The same issues arise in relation to loss and damage to the Works during the operational period (clause 17.5) when this is compared with the general scheme described in clauses 17.10 to 17.12.

17.4 Employer’s Risks of Loss and/or Damage during the Operation Service Period




17.5 Contractor’s Risks of Loss and/or Damage during the Operation Service Period


It is not apparent whether clause 17.3 is intended to impose obligations for loss and damage to the Works during the Design-Build Period. Clause 17.3 simply refers to: “the Contractor’s Risks for Loss and/or Damage” and then states that the Contractor’s Risks include the care of the Works. This appears to imply that clause 17.3 is intended to impose liabilities for death, personal injury and loss and damage to third party property (public liabilities) and to address loss and damage to the Works during the Design-Build Period. This is potentially very confusing since loss and damage to the Works is expressly dealt with (in a different manner) at clause 17.8 and public liability is dealt with (also in a different manner) at clauses 17.10 to 17.12.

The same issues arise in relation to loss and damage to the Works during the operational period (clause 17.5) when this is compared with the general scheme described in clauses 17.10 to 17.12.

17.6 Unidentified and Unallocated Risks

It would be more apt simply to refer to unallocated risks – the current description of unidentified and unallocated risks is potentially misleading. Risks may be identified during the tender phase (e.g. during negotiations) but not allocated under the contract to either the Contractor or the Employer. If it is necessary for a risk to be both unidentified and unallocated in order for such risk to be dealt with in accordance with clause 17.6, then a risk that has been identified (in the sense described above) but not allocated under the contract would arguably not qualify.

In any event, the DAB will have a difficult task to allocate a risk that is not allocated under the contract. Under common law jurisdictions, a court will not “re-write” a contract for the parties. Without an adequate “test” to define those unallocated risks that are to be borne by the Employer, the DAB may have difficulties in deciding which of those unallocated risks qualify. Since the Contractor would retain its obligation to design, build, complete and operate the Works in accordance with the contract, any risks that the DAB are unable to allocate would be left with the Contractor. The DAB would require an objective test in order to allocate risks. The contract price, the programme requirements, the resources available and the insurance (if any) available in respect of the unallocated risk should be taken into account. Paragraph (d) implies that only one party benefits from the project but, in theory, both parties ought to derive benefits from the project. Accordingly, perhaps the test ought to refer to the relative benefits to each party, taking into account the value to the Employer of the completed project and the contract price and completion obligations assumed by the Contractor (i.e. how quickly the Employer will benefit from an operating facility) since these latter two issues will carry risk for the Contractor.

17.7 Consequences of Employer’s Risks

The Contractor should not be obliged to rectify any loss and damage to property other than the Works. Clearly the Contractor will assume liability (subject to agreed exceptions) for loss and



damage to such third party property, but it is not appropriate for the Contractor to be obliged to undertake repairs to third party property.

17.8 Consequences of Contractor’s Risks

As drafted, the duty to reinstate is not limited to any time period and accordingly could lead, in effect, to a perpetual defects liability period. Furthermore, the reference (at the end of clause 17.8) to the Contractor repairing any loss and damage at its own cost, conflicts with clause 17.7: the Contractor is compensated under clause 17.7 for costs incurred in carrying out any repair works caused by an Employer’s Risk.

Loss and damage to the Works during the operational period ought to be related to the recoveries from the relevant insurance proceeds. In particular see our comments below in respect of clause 19 regarding uninsurable risks.

17.9 Limitation of Liability

17.10 Indemnities by the Contractor

The indemnity for loss and damage to third party property under the Yellow Book is broadly restricted to circumstances that arise out of the contract and where loss or damage caused by the Contractor’s negligence or its wilful act or breach of the contract (see clause 17.1(b) of the Yellow Book). The draft DBO form contains almost identical text, with one small but very significant amendment. Liability for loss and damage to third party property is assumed by the Contractor under clause 17.10 of the draft DBO form if: “loss and damage:

(i) arises out of or in the course of or by reason of the design, execution and completion or operation of the Works, or

(ii) is attributable to any negligence…”

Accordingly, under the draft DBO form, liability for loss and damage to third party property can be assumed for non-negligent acts and omissions.

[Clause 17.10

Whilst clause 17.10 - the Contractor’s indemnity - is restricted to death, personal injury and loss and damage to third party property, the Employer’s indemnity is not so restricted.] [Gentlemen, Francine this is undoubtedly an error but one that works in our favour.]

17.11 Indemnities by the Employer

[Clause 17.11

The reference (in paragraph (g) of clause 17.11) to: “the matters for which liability may be excluded from insurance cover as described in Sub-Clause 19.1” is unclear and would be a fertile ground for disputes. It seems to imply that the Employer indemnifies the Contractor in respect of liabilities that are not covered under any insurance policy. In particular, clause 19.1 understandably states that the Contractor is not obliged to carry insurance for liquidated damages for delay. Does this lead to the anomalous position whereby the Employer deducts liquidated damages, triggering a liability to indemnify the Contractor for the: “losses … in respect of … the matters for which liability may be excluded from insurance cover …” (i.e. the very deduction it has made)? Also excluded from the insurance obligation in clause 19.1 is the



cost of making good defective works. Again, this is commonplace but the wording in clause 17.11(g) seems to mean that the Contractor is indemnified in this regard! Gentlemen, Francine: whilst this anomaly may be to the Contractor’s benefit, it clearly leads to such an absurd position, it is something that we ought to highlight.]

17.12 Shared Indemnities

The basis for shared indemnities at clause 17.12 is flawed.

If the Contractor becomes obliged to indemnify the Employer for, say, bodily injury, clause 17.12 contains no mechanism to reduce the extent of the Contractor’s liability if the Employer has also contributed to such bodily injury. Quite simply, the Employer’s Risks do not contain any reference to bodily injury caused by the Employer’s negligence etc.

Similarly the reference in clause 17.12 to the Contractor’s Risks is misconceived since the Contractor’s Risks do not allocate responsibility for death, personal injury or loss and damage to third party property caused by the Contractor’s negligence – this is achieved by the indemnity under clause 17.10.

The words used at the end of clause 20.3 of the 1987 Red Book contain a very simple

17.13 Risk of Infringement of Intellectual and Industrial Property Rights

EXCEPTIONAL RISKS

18.1 Exceptional Risk

These are broadly the same events that constitute events of force majeure under the Yellow Book (see clause 19 thereof). The text at the end of paragraph (f) of clause 18.1 of the draft DBO form is broadly similar to paragraphs (a) to (d) of clause 19.1 of the Yellow Book. [In fact it is probably a less stringent test to satisfy. What I can only assume to be a drafting error means that this test only applies to paragraph (f) and not to paragraphs (a) to (e). This causes us no problems but the draft DBO form uses the Exceptional Risks not only for purposes comparable to the force majeure provisions of the Yellow Book but also to provide relief from the Contractor’s duty to reinstate loss and damage to the Works (see clause 17.7 of the draft DBO form and the definition – at clause 17.2 - of the Employer’s Risks). If this drafting anomaly is corrected such that the foreseeability applies to all of the risks identified in Clause 18.1 of the draft DBO form, this would constitute a detrimental shift in the balance of risk compared to the Yellow Book - Clause 17.3 of the Yellow Book (the Contractor’s duty to reinstate) includes provisions equivalent to paragraphs (a), (b), (c) and (e) of clause 18.1 of the draft DBO form without any foreseeability test.]

When clause 18.1 of the draft DBO form is compared with clause 17.3 of the Yellow Book (the equivalent provision providing relief from the Contactor’s duty to reinstate loss and damage to the Works), one head of entitlement is missing from the draft DBO form: loss or damage caused by pressure waves caused by aircraft or other devices travelling at sonic or supersonic speed.

18.2 Notice of an Exceptional Risk



18.3 Duty to Minimise Delay

18.4 Consequences of an Exceptional Risk

18.5 An Exceptional Risk Affecting a Subcontractor

18.6 Optional Termination, Payment and Release

18.7 Release from Performance under the Law

INSURANCE

19.1 General Requirements

19.2 Insurances to be provided by the Contractor during the Design-Build Period

19.3 Insurances to be provided by the Contractor during the Operation Service Period

CLAIMS, DISPUTES AND ARBITRATION

20.1 Contractor’s Claims

Sub-Clause 20.1 follows the principles that have been established first by the 1st Edtion 1999 Editions and later by the 2006 MDB Harmonized Edition, i.e. Contractor's Claims are subject to time barring if notice is not given within 28 days of an event or full and detailed particulars are not submitted within 42 days of an event, or in the case of an event having a continuous effect within 28 days of the date that the effects arising from the event cease.

The DBO Sub-Clause 20.1 however extends the language of the previous Editions by setting out explicitly what before were implicit terms of the Sub-Clause thus simplifying the claims procedures and rendering the dispute resolution process easier.

The welcomed changes are:

1. Subparagraph (a) allows that cirmcumstances may exist that justify the late submission of a notice and provides explicit powers to the Dispute Board to rule on the validity of a notice submitted later than 28 days of an event. SubClause 20.1 is no longer a simple "guillotine clause".



2. Subparagraph (c) sets out the same 42 days for submitting detailed particulars but it is no longer a quasi "guillotine" clause. Firstly as for the notice of claim it makes explicit reference to circumstances that may justify the late submission of detailed particulars. Secondly, the subparagraph makes reference to a "fully detailed claim which includes full supporting particulars of the basis of the claim .."

3. Subparagraph (d) requires that the Employer's Representative (ER) give a response on at least the principles of the claim within 42 days. However, the subparagraph lacks the helful term that was added by the MDB Harmonized Edtion to the effect that if the ER fails to reply on the basis of the claim the Contractor may then refer the matter to the Dispute Board.

As a general comment, the DBO document follows the 1999 Editions by using the term "Dispute Adjudication Board" or "DAB". The simplification of this name to "Dispute Board" or "DB" provided by the MDB Harmonized Edition is considered as a step forward, and we suggest that it be followed both in the DBO Edition and in all future editions of the existing suite of FIDIC contracts. The specific reference to "Adjudication" implies that the DB is an adjudicating body and is held to "adjudicate" disputes in the sense that the adjudication process is used in the UK. Users of FIDIC contracts oftern disagree that under existing forms the DB should be used as, or has the powers of, an avoidance tool or should it offer advisory views to the parties. The new DBO Contract should follow the lead of the MDB Edition by redefining the board simply as a "DB"; thus once-and-for-all divorcing itself from implicit terms of "Review" or "Adjudication" that have been used previously in the 1996 supplement and 1999 Editions repectively. The powers of the DB and the effect of any decisions that it renders are set out sufficiently in the DBO Contract. The use of the term, "Adjudication" is superfluous.

20.2 Appointment of the Dispute Adjudication Board

The DBO Edition rewrites Sub-Clause 20.2 and specifies that the DB is to be a standing body constituted at the start of the Contract. This is a welcomed change to the terms of the existing FIDIC Design Build and EPC forms of Contract.

We urge that this change be adopted in future edtions of the Yellow and Silver Books.

The DBO Edition does not include a Draft Appendix (General Conditions of Dispute Board Agreement) and it is expected that there should be no significant changes to the form that is appended to the existing suite of contracts.

20.3 Failure to Agree Dispute Adjudication Board

We have only one comment on this Sub-Clause. The MDB Harmonized Edition added the words, "or fails to approve the member nominated by the other party" to subparagraph (b). This should be added to the DBO Edition and to future editions of the other FIDIC forms.

20.4 Avoidance of Disputes

The DAB's have this power under the procedural rules attached to the 1999 Editions. However the addition of this Sub-Clause removes any doubts that may exist under those contracts and is considered as a step forward as improving user understanding of the functions of the DB process.

The DBO Draft Edition does not include a Draft Annex (Procedural Rules) nor are there any references in this Sub-Clause. We expect that there should be no major changes is the procedural rules that are annexed to the existing suite of Contracts.

20.5 Obtaining Dispute Adjudication Board’s Decision



This Sub-Clause mirrors the language of previous editions. We have no comment other than that the second paragraph may be reworded to include for a single member DB.

"Such reference shall be deemed to have received on the date when it is received by the DB and for a DB of three members when it is received by its chairman."

20.6 Amicable Settlement

This Sub-Clause mirrors that of previous Editions, and there is no comment

20.7 Arbitration

This Sub-Clause mirrors that of previous Editions, and there is no comment.

20.8 Failure to Comply with Dispute Adjudication Board's Decision

This Sub-Clause corrects the errors found in the existing FIDIC suite of contracts and expands on the language of the MDB Harmonized Edition in respect of non-compliance. There is one question in respect of the new language and that is connected with the words, "refer the failure itself to arbitration.. .. for summary .. .., as may be appropriate." What is intended by "for summary"?

20.9 Disputes Arising during the Operation Service Period

We agree in general with the language of this Sub-Clause especially with the required use of the standing DB under the Design Build Period if that DB has not expired under Sub-Clause 20.2.