FIDIC Silver Book – Claiming for Design Creep

FIDIC Silver Book – Claiming for Design Creep

Employers are increasingly looking for greater financial certainty when seeking large infrastructure projects under EPC or Turnkey contracts. Under these contracts the Contractor is fully responsible for design, construction and management complete so that when the project reaches practical completion, the Employer needs only to ‘turn the key’ and operation of the plant or facility can begin immediately. The whole point is that the Contractor accepts the price risk in return for the freedom to decide over how he delivers the project, provided of course he meets the ‘Employer’s Requirements’.

It can often be the case that Employers want the price certainty that this procurement route offers but also want to retain control over design approval and how the project is actually delivered.

If the Employer attempts to introduce many or costly design improvements under the guise of reviewing the Contractor’s documents against the Employer requirements this can lead to the Contractor claiming ‘Design Creep’.

Sub-Clause 5.2 of the FIDIC Silver Book Conditions of Contract allows the Employer to review the Contractor’s Documents. But the problems arise when the Employer undertakes a design review and makes comments on those Contractors Documents. The Employer may consider that the comments are reasonable and are the Contractors obligation under the Contract, whereas the Contractor may consider them constituting a variation entitling them to additional payment and time.

A Variation is defined in the FIDIC Silver Book as “any change to the Employer’s Requirements or the Works which is instructed or approved as a variation under Clause 13″. Clause 13 may be initiated at any time, “either by an instruction or by a request for the Contractor to submit a proposal”. The Contractor is often put in a difficult position because he must execute each variation unless he promptly gives notice that he cannot implement it because of lack of goods, increased risk to safety or suitability of the Works or to his ability to meet Performance Guarantees.

Obviously the more sketchy the Employer’s Requirements and the Works are described in the contract; the less likely it is that the Employers Comment will be seen as a change to the Employer’s Requirements or to the Works. However, if the Employers Comment does require a distinct change, the Contractor should write to the Employer asking him to confirm whether the comment amounts to an instruction to change the Works under Sub-Clause 13.1.

The Contractor would then  write to the Employer in accordance with Sub-Clause 20.1 [Contractor’s Claims] and request the Employer to agree or determine adjustments to the Contract Price and the Schedule of Payments, proceeding in accordance with sub-clause 3.5 [Determinations].

When Employers Comments are deemed not to amount to a change or variation then this is a more problematic area. The Contractor may choose to argue that the provision under the Conditions of Contract which allow the Employer to comment do not provide that the Employer can comment when the Contractors Documents conform with the Contract or the Employers Comments. Sub-Clause 5.2 only allows the Employer to give notice to the Contractor if a Contractor’s Document fails to comply with the Contract.

There is a difference between the FIDIC Silver and Yellow Books in respect of the requirements approval. Under the Yellow Book the documents are submitted for review and/or for approval (if so specified). Under Silver Book, they are submitted for review only. Thus under Silver Book, the argument can be made far more strongly that the Employer can only issue a notice if the documents don’t comply with the Contract. Under Yellow on the other hand, where a document is specified for approval, the Engineer can give notice of approval with or without comments. This is an important difference and is the reason why “design creep” may well be a bigger problem under the Yellow Book than under Silver. But under both contracts, it is important to remember that the Employer’s scope to review the Contractor’s documents is confined to issuing a notice that the document does not comply with the Contract.

No matter what approach the Contractor adopts, to the extent that the Contractor is making a claim under a FIDIC contract, he will have to comply with the provisions of Sub-Clause 20.1.