FIDIC in the Middle East - The Must Knows for Industry Players
The UAE industry has seldom been ignorant to internationally set standards- that in more than one ways.
Originally established as an organization by three founding countries Belgium, France, and Switzerland- today FIDIC, which is an abbreviation for the French acronym “Federation Internationale Des Ingenious Conseils” meaning the International Federation of Consulting Engineers represents an international standard for the construction and consulting industry.
FIDIC is well known for drafting standard form of Conditions of Contract for the worldwide construction industry, particularly in the context of higher value international construction projects, and endorsed by many multilateral development banks (“MDBs”).
The Rainbow Forms:
Until 1999, FIDIC was synonymous with the Red Book (Conditions of Contract for Building and Civil Engineering) and the Yellow Book (Conditions of Contract for Plant and Design-Build- for the electrical and mechanical plant). With complexities surrounding the particular industries, soon FIDIC revised its old model templates and published the ‘Rainbow Suite’ in 1999, which. The Red, Pink, Yellow, Silver, Orange, Gold, White, Green and Blue books are exhaustive and industry specific.
The FIDIC forms apply to a wide range of differing engineering and construction projects; from traditional civil engineering to hi-tech windmills and heavy duty oil and gas process plants.
There are 20 clauses in the revised FIDIC form of contracts. In keeping with the desire for standardization, each of the new books includes General Conditions together with guidance for the preparation of the Particular Conditions, and a Letter of Tender, Contract Agreement, and Dispute Adjudication Agreements.
FIDIC in the UAE:
The FIDIC family of contract templates have gained wider acceptance amongst the UAE construction and consulting industry key players. The Government of Abu Dhabi passed Law Number 21 of 2006 which provides for the standardization of the construction contracts for the projects initiated by the government entities. Accordingly, in 2007, the Abu Dhabi Government under the license from FIDIC prepared two versions of FIDIC contracts-
i) The build only contracts; and
ii) The design contract.
Both the above form was specially modified forms of FIDIC municipality construction contract.
The UAE industry has been slow in accepting the FIDIC 1999 forms, and most contractors continue to use the 1987 forms. The primary reason behind this practice is the misconception that FIDIC contracts do not require inputs from a local lawyer. Reduced liability of engineer in the new contracts, for instance, is a key point substantiated in a ruling of Dubai Courts.
Acceptance of FIDIC module by UAE Courts
Clause 20 of the FIDIC form of contracts deals with claims, disputes, and arbitration. Clause 20.4 notably provides that a conflict between the contracting parties shall first be submitted to a Dispute Adjudication Board (DAB). Subsequently, the dispute is subject to the jurisdiction of the arbitration center.
In a case before the Dubai Courts for ratification of an arbitral award, questions were raised about the enforceability of a FIDIC form of contract and the agreement to arbitrate under the contract because:
i. contract was not executed by the respondent in the case but through an engineer of the respondent
ii. no special power of attorney was issued in favor of the engineer; and
iii. no consent to arbitration was therefore given by respondent and award should be declared null.
In reversing the judgment of the appeal court, the Dubai Court of Cassation (Supreme Court) held that no doubt the contract was executed through an engineer, he was acting in the capacity of respondent’s employee. The court further applied Article 203 of the UAE Civil Procedure Law and stated that parties agreed to arbitration under clause 67 (1) of the general conditions. In this case, the performance of the contract was concluded as the consent to arbitration.
The new form of FIDIC contract rules out situations like above case study to a greater extent as the role of the engineer is now limited, and more liability has been shifted on the employer. The introduction of the DAB also comes as a ray of hope for distressed parties.
Keynote- However frequently used in practice, the necessity of a contract to be tailor-made for a particular region, cannot be ruled out.
Provisions of Law You Should Know!
Article 880 of the UAE Civil Code imposes a joint liability on the contractor and the designer for ten years for the total or partial collapse of a building or for a defect which threatens the stability of the building.
Under Article 473 of the UAE Civil Code, the limitation period for contractual claims in civil matters in the UAE is 15 years from the date the cause of action arises
In Sub-Clauses 9.4(b) and 11.4(c) of both FIDIC Contracts, the Employer has the right to terminate the Contract or reject the Works, if the defect or failure to pass the test deprives the Employer “of substantially the whole benefit of the Works.”