The International Federation of Consulting Engineers ("FIDIC") provides a suite of standard form contracts for use on construction projects. They are the most widely used form of contract on international construction projects and their popularity is owed in part to the World Bank's use of FIDIC contracts on its funded projects. The provisions of the FIDIC suite of contracts were first derived from the Institute of Civil Engineers Conditions of Contract and, with this historical English law background, the provisions are founded in common law. However, the international popularity of these contracts means that they are used, in the standard form and amended, in both common law and civil law jurisdictions.
There are fundamental differences between civil law and common law jurisdictions, and not surprisingly much is written about these differences. In this article, we address a handful of the more general and overarching issues that users should be aware of when using FIDIC contracts in civil law jurisdictions. In doing so, we consider some of the provisions of civil codes which affect the commercial agreement recorded in the construction contract rather than matters such as health and safety and employment which are typically codified in both common and civil law jurisdictions.
The FIDIC suite of contracts
The most commonly used FIDIC contracts include the following:
- The Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer, referred to as "the Red Book".
- The Conditions of Contract for Plant and Design-Build, referred to as "the Yellow Book".
- The Conditions of Contract for EPC/Turnkey Projects, referred to as "the Silver Book".
The abbreviated naming of the standard form contracts stems from the colour of the standard form and the whole suite of contracts is also known as the "Rainbow Suite".
Second editions of the Red, Yellow and Silver Books were published in 2017 – and reprinted with a number of amendments in 2022 – and these editions included an increased focus on dispute avoidance. However, at present, the 1999 editions are more widely used and the references to FIDIC clauses below are to the 1999 Books.
Civil law and FIDIC contracts
The FIDIC standard form contracts, as much as possible, follow the same format in setting out the relationship between the parties and allocating risk. Risk allocation has been approached on a broadly equitable basis, bearing in mind the parties' responsibilities, including responsibility for design.
The common law basis of the FIDIC contracts means that some provisions require further consideration when the contract is going to be used in a civil law jurisdiction. The contracts include provisions which address the parties' obligations and entitlements through the life of a project – from the start of construction to the defects liability period. Many of the matters addressed in the FIDIC contracts are codified in civil law jurisdictions and those civil law provisions can sometimes take precedence over the parties' agreement. Also relevant is the distinction made in many civil law jurisdictions between private and public works contracts. Where this is the case, as it is in (for example) Egypt, one of many jurisdictions in the Middle East where the FIDIC form has provided the basis for the form of its public works contracts, different sets of laws apply to public works contracts, as opposed to private works contracts.
This means that FIDIC users operating in civil law jurisdictions need to be aware that the terms agreed to and recorded in the contract may not always be strictly enforced, and that their risks and liabilities may in fact be different to those which they have agreed. It is therefore always advisable to ensure the standard form is amended to address any such conflicts, so that the parties' agreement is protected and does not lead to unintended consequences because it does not comply with the relevant local law.
When FIDIC is used in a civil code environment, particular attention ought to focus on the standard form provisions relating to delay, defects, variations and termination.
Contractual interpretation
Common law jurisdictions tend to interpret the meaning of a contract with reference to the plain meaning of the words, looking to precedence for guidance. Extrinsic evidence, such as pre-contract negotiations, is usually inadmissible.
A civil code jurisdiction might expressly deal with the matter of contractual interpretation. This could mean that the terms of a contract could be interpreted to mean something other than that which a party more familiar with common law rules of interpretation might expect.
For instance, Egyptian law is based in French law and many of its provisions mirrored in other jurisdictions in the Middle East and Northern Africa ("MENA"). Under the Egyptian Civil Code, a contract should be interpreted with reference to Civil Code principles and Article 150 permits an Egyptian judge to go beyond the literal meaning of the words when interpreting the provisions of a contract. Article 151 requires clauses to be interpreted in favour of the debtor, this means that, for example, a liquidated damages clause could be considered narrowly and in favour of the contractor.
In some jurisdictions, Shari'ah law principles are adopted and very often these are codified into law. Saudi Arabia's recent Civil Transactions Law enacted in June 2023 and in force from 16 December 2023 includes, at Article 720, a list of Shari'ah principles that will apply to civil contracts where there is no relevant statutory provision.
Good faith obligations
There is no general doctrine of good faith under English law, although courts may in some circumstances be willing to imply a duty of good faith in certain long-term contracts. This contrasts with the position in many civil code jurisdictions and, in particular, with those in MENA where the Shari'ah principle of good faith is considered fundamental and requires contracts to performed in compliance with the requirements of good faith. This codification can be seen in Article 95 of Saudi Arabia's Civil Transactions Law which provides that a contract must be performed in accordance with its provisions and "in a manner consistent with the requirements of good faith".
The doctrine of good faith applies to expectations of a parties' behaviour and the manner in which they conduct themselves. Parties engaged under FIDIC contracts should be mindful of the duty when complying with their obligations, including duties to notify the other party of the occurrence of various events and circumstances. In this sense, an employer must take care to act in good faith with respect to the notice provisions under the FIDIC contracts – for example, when notifying the contractor of any Clause 11 defects and when fixing a time for the remedy of those defects. Similarly, a contractor must be mindful of its duty of good faith in administering the contract and be careful to comply with that duty not only when adhering to contractual requirements, such as any notice provisions, but also with respect to liabilities founded outside the contract, including in relation to defects.
It is important to be aware of the breadth of any duty of good faith: Saudi Arabia's new Civil Transactions Law also requires parties to negotiate contracts in good faith (Article 41), which echoes the position under the French Civil Code (Art. 1104), for example.
Delay damages
Parties to a construction contract will usually pre-agree levels of damages that will be payable in the event of delay to completion. That liability will usually be subject to a cap and this is the mechanism provided at Clause 8.7 of the Red, Yellow and Silver books.
However, civil law jurisdictions might restrict the freedom of parties to limit that liability.
Article 390 of the UAE Civil Code, for example, allows parties to agree liquidated damages in the contract. However, this is subject to the court's ability to vary that agreement so that the damages equal the actual loss, which can either decrease or increase the agreed cap under the contract. This means that parties should be aware that the allocation of risk agreed upon could, on application by a party, be altered by the courts or a tribunal. The provision is mandatory and applies to all construction projects undertaken in the UAE.
Similarly, Article 178 of Saudi Arabia's Civil Transactions Law confirms the parties' right to pre-agree damages. However, Article 179 sets out a number of exceptions to this right. First, liquidated damages will not be due at all if it can be proved that there has been no loss (Article 179(1)). Furthermore, as in the UAE and many other civil law jurisdictions, the courts have the ability to adjust liquidated damages both upwards and downwards (Article 179(2) and (3)).
In Saudi Arabia, parties must also be alert to the prohibition on interest payments under Shari'ah law. This means that an agreement to pay damages for a late payment, which would be viewed as interest, may not be enforced.
Defects liability
Clause 11 of the Red, Yellow and Silver Books provides for the contractor's liability for defects. Parties to a FIDIC contract are free to agree the period of time applying to that liability.
In many civil law jurisdictions however, including the UAE, Oman and Saudi Arabia, strict liability is imposed under the civil code. This is called decennial liability and applies where a building or another fixed structure is designed by an architect or engineer and executed by a contractor, both will be jointly and severally liable to indemnify the employer for any partial or total collapse of the building and for serious structural defects. As suggested by its name, decennial liability applies for a period of 10 years from completion.
Decennial liability arises as a matter of public policy and will apply to a construction contract, regardless of any lesser period of liability agreed by parties.
Variations
In order to instruct a variation to the works under the Red, Yellow and Silver Books, Clause 13 requires a contractor to be provided with written notice.
Disputes frequently arise as to whether the instruction is a Variation (as defined) and, if so, what the effect of that variation might be on price or programme. Some civil codes provide rules in relation to variations. Generally, the parties' agreement will be upheld, but sometimes on condition that the duty of good faith is not contravened. This principle could be engaged because a variation fundamentally changes the contract or is so substantial it changes the nature of the parties' agreement.
The omission of work is permitted under the 1999 FIDIC contracts, although it is only under the 2017 editions that an employer is permitted to omit work for the work to then be constructed by others. However, some civil codes contain restrictions when it comes to the omission of work.
Where variations are substantial, parties should also check whether the relevant civil code contains provisions for compensation, either because of a significant descoping or because the variation(s) amount to a termination. In the UAE, for example, Article 895 provides for compensation for a party who suffers losses as a consequence of this sort of cancellation.
Termination rights
The Red, Yellow and Silver Books provide the employer with rights of termination at Clause 15 and the contractor at Clause 16. These contracts do not, however exclude any other rights that might be available to the parties in law.
Whilst courts will tend to uphold parties' agreements, where a contract is a public works contract, the government or state party may have additional rights of termination in law and the contractor may have reduced rights.
Where additional rights to terminate are not mandatory, parties may choose to exclude those rights by including an exclusive remedies clause in the contract. They can then limit termination to the rights expressly provided in the contract.
Force majeure
Clause 19 of the Red, Yellow and Silver Books provides a definition of the term of force majeure. The definition is followed by a non-exhaustive list of events that may give rise to an event of force majeure.
Many civil law codes allow a party to terminate if performance has become impossible. Article 159 of the Egyptian Civil Code, for example, explains that the impossibility must be caused by some external cause that is not within the control of the party whose obligation has become impossible. It is not enough that the obligation has just become difficult to perform.
Similarly, Article 97 of Saudi Arabia's Civil Transactions Law provides that where "exceptional circumstances of a public nature" cause it to be "oppressive" for a party to perform its obligations and there is a risk of "grave loss", that party can apply to the court to have the obligation amended. However, before applying to the court, the obliged party must try to renegotiate the terms of the contract with the other party. Further, Article 125 of the CTR provides that a party: "shall not be liable if it is proven that the damage arose from a cause beyond his control, such as through force majeure, the fault of a third party, or the fault of the affected party, unless otherwise agreed".
Concluding remarks
Parties should therefore check that their FIDIC contract will not be overridden by provisions which exist in the relevant civil code. A mandatory provision could have a significant (and perhaps unexpected) effect, unfavourably changing the allocation of risk. Prior to entering into any FIDIC contract which is either governed by a civil code jurisdiction, or executed in a civil law country, it would be prudent to take external advice on these points.
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