Introduction
On 7 May 2019 at the World Tunnelling Congress 2019 - held this year in Naples between 6th and 8th May 2019 - the International Federation of Consulting Engineers (FIDIC) launched its new Conditions of Contract for Underground Works (aptly named “the Emerald Book”).
The Emerald Book - a bespoke standard-form contract that caters to the specificities of the tunnelling industry – now supplements FIDIC’s existing ‘rainbow suite’ of standard form contracts, which are some of the most frequently used in the construction sector.
The Emerald Book provides a series of industry-specific general and particular contractual clauses dealing with the management and control of underground construction projects. As the brainchild of a joint initiative between FIDIC and the International Tunnelling and Underground Space Association (ITA), it should prove to be very successful within the tunnelling industry, which has (until now), had no dedicated standard-form contract of its own.
In the past, when drafting contracts, parties to tunnelling projects have had to make do with the ITA’s own series of reports, recommendations, guidelines and checklists,1 as well as national codes and other standard form contracts, including the FIDIC Yellow Book or Red Book, all requiring a significant level of modification. The unfortunate result is that the tunnelling industry is often rife with contractual disputes.
Specificities of the tunnelling sector: drilling home the need for a new FIDIC
The list of problems facing sub-surface construction projects can often be as long as the tunnels being constructed themselves. This is mainly due to the changeable nature of the key construction material itself and the cause of countless disputes: the ground. Other specificities of tunnelling projects include inherent limited access conditions, the need for specialist equipment and long lead times, the cost consequences of unforeseen circumstances and the impact of often-extensive third-party approvals.
As such, tunnelling projects, more so than any other construction project, require efficient, effective, adaptable and dynamic contractual mechanisms in order to respond to necessary changes required by often-unpredictable ground conditions and behaviour. Directly inspired by the previous works of the ITA, the Emerald Book hopes to provide a comprehensive set of clear contractual measures and mechanisms that do just this.
What the Emerald Book provides
The Emerald Book takes FIDIC’s Yellow Book as a basis, but provides for several new concepts that are peculiar to subsurface construction projects. These include:
- Industry-appropriate risk allocation
Appropriate risk allocation is significantly important in any construction project and can have drastic consequences if not given appropriate forethought. One of the key questions – especially where the works include a substantial volume of subsurface construction – is that of which party (as between the employer and contractor takes the risk of unforeseen ground conditions. Contractors may consider that this should be entirely at the employer’s risk (on the basis that it is best placed to control such risk), whereas only means and methods will fall under the contractor’s responsibility. Such a position is are not necessarily reflected in existing standard form contracts, such as the FIDIC Yellow Book, for example.2 The Emerald Book seeks to resolve this by directing the parties to agree who will be liable for unforeseeable and separately foreseeable site conditions, the owner or contractor, as well as providing extensive provisions regarding disclosure of geological and geotechnical information, revolving notably around the use of a key contractual document; the Geotechnical Baseline Report (GBR). This key document sets out the allocation of risk between contractor and employer for subsurface physical conditions in providing the contractual definition of foreseeable conditions.
The Emerald Book also provide precious guidance on drafting contractual documents, including GBRs.
- Adaptable price and time scheduling
Subsurface construction projects, like all construction projects, require rigorous scheduling. However, as time for completion is largely influenced by ground conditions on projects involving an element of tunnelling, they must also, in true contradictory fashion, be able to accommodate unforeseen events. The Emerald Book provides not only a more flexible mechanism for time for completion that relates directly to ground conditions, but also a more flexible mechanism for remuneration that does the same.
- Industry-appropriate dispute resolution
FIDIC has included its classic multi-tier dispute resolution mechanism found in its other standard-form contracts, which includes the appointment of a standing dispute avoidance / adjudication board (DAAB), as well as ICC arbitration. This should cater perfectly to the tunnelling industry, which by its very nature requires early identification of issues and clear effective procedures for the resolution of disputes.
Outstanding questions
While the addition of the Emerald Book to the existing suite of FIDIC contracts is to be welcomed, there remain several outstanding questions. These include how this new standard form contract will apply to mixed projects that are not exclusively related to subsurface construction, and how, in this case, it will interact with FIDIC’s other standard form contracts.
How Reed Smith can help
Regardless of the benefits the Emerald Book stands to bring to the industry, it should be borne in mind that one size does not fit all; project specificity will always win out over standard-form provisions and risk assessments regarding applicable law will always have to be carried out. With extensive experience working in the construction industry, ranging from providing drafting advice at tender stage (including adapting contracts for tunnelling projects) to involvement in complex dispute resolution procedures, Reed Smith’s Energy and Natural Resources Group can offer valuable assistance and advice regarding all your contractual needs in a variety of jurisdictions.
- Prepared by a series of working groups, covering a wide array of subjects, ranging from guidelines, recommendations and checklists on contractual drafting (see, for example, ITA Report n° 013, ISBN n° 978-2-9700776-9-5 Guidelines on Contractual Aspects of Conventional Tunnelling; ITA Report n° 006 ISBN n° 978-2-9700624-7-9 The ITA Contractual Framework Checklist for Subsurface Construction Contracts) to guidelines on risk management (see, for example, ITA Report Guidelines for tunnelling risk management).
- For an illustration of this, see Obrascon Huarte Lain SA v. Her Majesty's Attorney General for Gibraltar [2015] EWCA Civ 712.
Client Alert 2019-127
*This client alert was republished in the May/June 2019 edition of the Australian Construction Law Newsletter, Issue #186
