The 2011 MDB Harmonized Major Works (Construction) Contract Conference. Session 3 Employer s and Contractor s Issues

Transcription

1 The 2011 MDB Harmonized Major Works (Construction) Contract Conference Renaissance Brussels Hotel, Brussels, Belgium; January 2011 Session 3 Employer s and Contractor s Issues Pieter G.A. de Bruijn Ballast Nedam : Contracts and Legal Department Head of Contracts EIC: Working Group Africa ; member

2 Introduction Purpose Identify and try to create awaraness of a set of Contractor s Issues that arise in day to day practice of the administration of a FIDIC (MDB) Contract based on experience with a number of financed FIDIC and EDF contracts Address the common interest between MDB s, Employers, Engineers and Contractors to resolve the issue Propose improvements and positive response by the MDB s 2

3 Recurring Contractor s issues Based on the inevitability of scope creep which seems to happen often but especially if the Contract is entered into too early. Contractor s Issues are presented by way of a brief discussion between a Contractor who is a bit of a cynic and a FIDIC Expert who is very knowledgeable. 3

4 Issue 1 The dependance on the determinations role of the Engineer The Contractor-cynic notes that it is a contractual fact of life that Clauses crucial for Contractor are based on the principle that the Engineer..makes fair determinations.. (Clause 3.5) (note 3.5 already greatly improved in the MDB form)..fairly determines.. (Clause 14.6 / 14.13) etc has a critical role in measurement (Cl 12), payment (Cl 14), taking over (Cl10) which leads to Contractor s Issue 1 Contractor is too much dependant on the fairness of the Engineer. Positie voor foto s, etc. 4

5 Issue 1 The dependance on the determinations role of the Engineer The FIDIC experts counter question is: Why is that a Contractor s Issue? He can negotiate with a professional Engineer who is fair and reasonable can t he? (refer eg to Mr Robert Gaitskell s presentation FIDIC User s Conference December 1-2, 2010) 5

6 Issue 2 Employer s procurement of the services of such Engineer The Contractor cynic s reply is... well no., in the world outside the reality is as follows: Engineer s fairness is subjective. Judgement whether such fairness was used is not by Contractor neither by Employer but ultimately by a legal institution. Meanwhile, during ongoing discusisons, Contractor has to continue to comply with his obligations while he waits for his money. which leads to Contractor s Issue 2 Contractor is too dependant on the quality of the services by the Engineer and therefore Employer s procurement of the services of such Engineer 6

7 Impression of procurement of services of an Engineer 7

8 Issue 2 Employer s procurement of the services of such Engineer The FIDIC experts counter question is: Are you not exagerating? and in case the Engineer is unreasonable or not fair in his determinations, surely can Contractor not invoke Clause 16.1 Suspension (or termination) by Contractor? 8

9 Issue 3: Contractor s remedy in case of unfair / unreasonable determinations The Contractor replies... well no., in the world outside it is as follows:..as long as.. - the Engineer issues an Interim Payment Certificate in time (regardless of the fairness of the content) - the Employer pays that amount in time (regardless the fairness of the amount), Clause 16.1 cannot be invoked and is of no practical use as instrument which is Contractor s Issue 3: 9

10 Issue 3: Contractor s remedy in case of unfair / unreasonable determinations The FIDIC expert asks: Well that s still not a Contractor s problem is it? Once a dispute has arisen under a MDB Contract, the Contractor can seek interim relief and refer the issue to the Dispute Board as per Clause 20.4 can t he? 10

11 Issue 4 The DB as instrument for interim relief The Contractor s reply is. well no., in the world outside the reality is as follows: reality 1 reality 2 reality 3 DB boards are frequently written out of the Contract or amended by the Employer and.if that hasn t been done.. The way the DB clause are drafted and recent legal cases lead to conclusion that DB decisions may very well not be enforceable and if they would be.. it takes a very long time to enforce them. (refer eg to Christofer Seppälä s presentation FIDIC User s Conference December 1-2, 2010) which leads to Contractor s Issue 4 11

12 Issue 4 Which interim relief options does Contractor have in case of a dispute? Contractor s Issue 4 Contractor can often not rely on a DB decision as interim relief and is left with 2 options: 1. Enter into an arbitration as per Clause 20.6 which implies waiting for financial relief during probably long lasting litigation period OR 2. Accept financial settlement earlier but at less favourable terms to Contractor which is why Contractor may inflate his claim as he knows it will ultimately be settled at less. 12

13 Summary The cynic concludes that the Contractor s Issues mentioned above will inevitably lead to: Inflated claims by Contractor, Value leakage for all parties and a strained relationship between the Parties and the Engineer. Are there ways to improve things? 13

14 Proposed improvements early MDB involvement. Two proposals, both related to early MDB involvement. Proposal 1 - Recognize the importance of real fairness under e.g. Clause 3.5 and MDB involvement in re-thinking / imposing the way of procurement services of the FIDIC Engineer by the Employer e.g. by introducing key performance criteria FIDIC Engineer based on track record, capabilities, behaviors, etc. - MDB involvement in auditing the governance process during construction. 14

15 Proposed improvements early MDB involvement. Proposal 2 Ensure access for the Parties to a DB procedure with brief decision periods which provides interim relief pending any arbitration on the merits. Obligatory inclusion of DB board procedure with ensured enforceability of DB s decision irrespective of the jurisdiction (imposed by the MDB in the Financing Conditions applicable to the Loan Agreement). 15

16 CONCLUSION For proper working of construction project under a MDB Contract an equal playing field / a certain balance (of instruments) is preferable and it is in the interest of Contractor but also of MDB and Employer that parties can rely on (i) a governance process which enables negotiation in an equal and disciplined form (ii) access to Dispute Board with brief decision periods and decisions which are enforceable (iii) (appointment of) an Engineer with appropriate measurable level of professionalism 16

17 CONCLUSION The MDB environment provides a chance for improvement. The merits of the two proposals will have a positive effect for both Contractor and Employer. Note: Even being a cynic, the Contractor is of the opinion that the MDB Harmonised Edition 2010 is as good as it gets and expresses the hope that other funding agents (e.g. the EC) will consider to adopt this form as their standard form of contract as well. 17

18 CONCLUSION Thank you for the opportunity to present this 18