SEVERAL ARGUMENTS REGARDING THE NECESSITY OF USING FIDIC CONTRACT CLAUSES IN THE EUROPEAN UNION FUNDED PROJECTS – Central and Eastern Europe

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 1. Advantages of the enactment of FIDIC in states who are using EU public money

The FIDIC conditions are recognized globally and are the ones that provide the prerequisites for the proper advancement of contracts signed in construction.

Moreover, in many (EU) states, these contract terms have been used for the implementation of projects financed from European funds for more than two decades.

It is imperative, for many reasons, for the FIDIC contract clauses to be adopted into national legislation: the necessity to assure a unitary practice of the contracting authorities in their contractual relationship with the contractor, the necessity of a better knowledge, from the part of the contracting authority, as well as of the contractors, of the contractual mechanisms, and also the necessity for the alignment of Central and Eastern European states to the contractual instruments used at an international level. The FIDIC conditions are such an instrument that the foreign investors know and accept for the development of their activities.

2. Arguments in favour of the enactment of a normative deed with legal force

With regards to the legal force of the regulatory act which will be used, the way in which the FIDIC rules are transposed into domestic legislation should be chosen with great care.

In some cases, the conditions of the contract could constitute exceptions from other regulatory provisions and should be covered by a regulatory act with the legal force at least equal to these provisions, and not through a low level governmental act, which generally is a regulatory act with lower legal force than that of a statutory deed or law for example.

Hence, for the provisions regarding Provisional Sums, Interim Payment Certificates, Taking over of Works, Dispute Adjucation Board etc. to have full aplicability, they must, at times, derogate from the provisions in local legislation.

This is due to the fact that one extremely important aspect should be understood: the FIDIC contract conditions shall be a rule of law – a normative act with legal force which shall regulate in a unitary way the complex execution of works contracts. This should be the scope of any such endeavour: a set of objectives, generally valid REGULATION provisions.

Whereas, a normative act with legal force which regulates a certain – special – field should have the power to derogate from regulations with a general character which already exists – specialia generalibus derogant.

Moreover, unfortunately, the non-unitary interpretation given in the past to the aplication of FIDIC contract conditions, especially by the audit control organisms is well known. Hence, many decisions taken in the implementation of the contracts, based on FIDIC clauses, have been interpretated as violations of different regulations already existent.

Or, what should be fully understood, as we have shown, is that the field of complex execution of works contracts is a special one, the Public Authorities and the Contractors often being constraint by the necessity of having to adapt to the realities ecountered “on site”.

The procurrement of such complex works cannot be 100% predictible from the point of the launching of a procurrement procedure. And the changes which occur after this point have been always too strictly analized during the verifications/audit missions.

The enactment of FIDIC conditions of contract through an act with legal force and general aplicability for this type of contracts could even  unify and clarify this problem.

3. Considerations regarding eventual criticism

Regarding FIDIC contracts, there has been criticism relating to the use of the term “reasonable” which would be inconsistent with the civil law legislation. The authors of this criticism ignore the fact that in civil law legislation the term “reasonable” has a wide application.

For instance, in the New Romanian Civil Code we find that the term ‘reasonable’ is used 72 times, in the Romanian Civil Procedure Code it is used 7 times, even in the (Romanian) Emergency Government Ordinance no. 34/2006 regarding public procurement and in the Romanian Fiscal Code this term is used. It is a notion to which, with regards to FIDIC contracts, the parties are used, and proving of the reasonable time/claims/cost is always achieved through the use of the substantiation documents (meaning evidence).

If the public procurement contracts would not use the FIDIC anymore, but the usual clauses and only domestic civil law terminology (e.g. works contracts, constructor, work value, building site inspector), would this make up for the natural need to change these contracts during their unfolding? Would this make the projects launched by the public authorities to be better prepared? Evidently, no!

Regardless of the source of financing, for the large projects, of a particular  complexity  (rehabilitation,  modernization/  construction  of  new roads, for example) changes of the project in order to adapt to the reality in the field are inherent. Increase of prices as a result of supplementary works which the constructor is forced to execute (relocation of utilities not known of initially, consolidations due to the earth flows produced by floods, changes of technical standards etc.) naturally appear in this type of contracts.

At least FIDIC offers a generally accepted and clear procedure regarding the possibility to operate such changes and also it provides clear rules, known by all parties from the moment of the signing of the Contract.

Under these circumstances, why would the Central and Eastern European authorities wish to recede from the use of an international registered trademark – such as FIDIC, which would ensure certainty and trust in the quality of the contractual framework used in the region?

FIDIC contracts would ensure the objectivity and transparency which are so necessary in the use of public funds in general and of those non- refundable in particular.

 

Antofie Diana

Construction Lawyer Vice-president ARIC

 

Comments:

The above article can be useful for representatives of the domestic construction, engineering and consulting organizations, intended to or cooperating with foreign partners, particularly Romania and for professionals involved in building of the public policy in areas such as construction, public procurement.

In this case it is necessary to pay attention to the fact that the introduction of the use of the standard forms of the FIDIC contracts in Romania was carried out not just with the support of the Romanian Government and by the Government itself. From this perspective, the experience of implementing of the using of these forms of FIDIC contracts in Romania cannot be called typical for the countries of Central and Eastern Europe.

However, there are some experience of using of the standard forms of contracts elaborated by other agencies and non-governmental organizations. Among them are The International Federation of Asia and Western Pacific Contractor’s Associations (IFAWPCA), The European International Contractors Organization, The Associated General Contractors of America, The Institution of Civil Engineers in London (ICE), and The American Institute of Architects.

There are a number of recommended regulations elaborated by the United Nations, adopted to facilitate the customers (primarily from emerging countries)   for the preparation of construction contracts. 

So, UNECE regularly prepares other documents to facilitate the conclusion of international commercial contracts. This is a variety of the recommendations on international business cycle. Among them there are the Guidelines for the elaboration of the agreements on the international transfer of operational experience and knowledge in mechanic engineering; the Contracting Guidelines on the construction of industrial facilities, the Guidelines on the international contracting on the industrial cooperation; the Guidelines on the international contracting between the parties united for specific project; the Guidelines on the international contracting on the consulting engineering, including some related aspects of the technical support; the Guidelines on the international contracting on the material and technical supplies service, repair and maintenance of industrial and other facilities; the Guidelines on the international contracts on the countertrade, covered in particular the barter transactions; the Guidelines on international compensation agreements.      

All these documents are being used only with the reference to them in the agreement.

The extensive work on the elaboration of the practical guides, guidelines is being held by the United Nations Commission on International Trade Law (UNCITRAL), which was created to enhance the UN’s impact to the process of reduction and elimination of legal barriers to the development of international trade; promoting of the broader participation of the states in existing international conventions; elaboration of new conventions and other documents on International Trade Law; staff training and assistance in the legal field of International Trade. Ukraine is a Member of UNCITRAL.

The following documents to the Commission should be called: UNCITRAL Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works (1988); UNCITRAL Legal Guide on International Countertrade Transactions (1992).

These documents include the information about the forms of commercial transactions, applied in world practice, contracting procedures. In these documents is the information on the problems, which could be encountered during the implementation of any commercial transaction, and were proposed the solutions.

The Credit institutions, financed the construction projects, are elaborating also the standard documentation where were included the typical construction contracts. These include, for example, the World Bank Principles, governing the construction of industrial facilities, the General Conditions of the Contractor and Delivery Agreement, funded by the European Development Fund, the Harmonized Framework of the International Bank for Reconstruction and Development.

Taday the Standards packages were elaborated by the organizations such as The International Chamber of Commerce (ICC), The European Engineering Industries Association Orgalime, The Joint Contracts Tribunal (JCT), The ICE Conditions of Contract (ICE).

The conditions of contracts, which were developed by the above organizations, have the common features:

  • The complex character, which is manifested in the fact that the parties to the contract • customer and contractor are trying to resolve in the agreement all aspects of their relationship (technical documentation, project funding, recruitment, etc.);
  • the tender procedure for the conclusion of contracts;
  • a complicated system of financing, which is usually is carried being out by the attraction of the Bank credits and guarantees.

The main structural elements of such contracts usually are the subject matter of the agreement, price (including payment guarantees), and guarantees of performance by the contractor of contract, the liability of the customer and the contractor, the warranty periods. The Contracts could also include the sections on intellectual property (drawings, documents, and other materials), on the distribution of risk of accidental loss of the object of construction, responsibility for accidents during the production and compensation, liability insurance.

Conditions of the contract are usually providing for the need to obtain to the customer such guarantees:

  • The performance bond that should be obtained for the signing of the contract (the guarantee is paid only upon the request of the customer for breach of contract).
  • The guarantees of the product quality and its adequate supply (banker’s guarantee bond), the provision of which is a necessary condition to receive the funds. This guarantee shall be collected by the customer in case of non-delivery, late delivery or delivery of the defective equipment or materials.

Considering, that that one of the areas of European integration is the adaptation of Ukrainian legislation to the requirements established by the legislation of the European Union, the introduction of the using in Ukraine of the standard forms of contracts are the subject to a thorough study in terms both positive and negative aspects.