Want a fair and balanced contract? Better choose FIDIC!

No single party can bare all of the risk all of the time and unreasonable contract provisions are meaningless when the risk simply cannot be born, says Pinsent Mason’s ROB MORSON.

I have lost count the number of times I have sat in a kickoff meeting for a new project and answered questions along the lines of: Should we be using a standard form of contract? Which standard form are lenders most likely to accept? Which standard form best protects our interests? Which standard form does the market best understand? Which standard form is likely to yield the best value and response from the market?

Some of those questions are easier to answer than others and the one about protecting “our interests” is a loaded question – you doesn’t necessarily protect your own interests, considered holistically, by unreasonably or unfairly shifting risk to others.

In many sectors and markets around the world, FIDIC has become not only the baseline contract but the international language of construction. It’s not unusual for negotiations to be based on comparisons to the FIDIC approach on matters from claim administration to risk allocation.

FIDIC has the ability, directly or indirectly, intentionally, or otherwise, to develop market thinking and approaches. In this context, it matters that its contracts are fair and balanced and that they at the forefront of best practice in built environment procurement and execution. FIDIC’s contracts must strike a balance between meeting current user requirements and driving users forward.

The 2nd Edition of the Rainbow Suite was introduced in 2017, with broad consensus that the new edition was not only fair and balanced in its risk allocation but, equally importantly, fair and balanced in the contract and project administration approach between the employer and the contractor. The market importantly noted the equal treatment of employers and contractors in regard to claims.

One needs to look no further than the increased use of the word “parties” rather than “employer” or “contractor” to appreciate that the same rules and approach regulates both role players more frequently than before.

Project developers and lenders, typically fulfil or significantly influence the employer role and tend to dictate the terms of engagement. If the baseline contract of choice is fair and balanced it is far more likely that projects will be procured and executed optimally. Moving away from an internationally accepted baseline is difficult and the better the baseline, the better it is for all stakeholders.

If the experience of the Covid-19 pandemic has taught us anything, it is that no single party can bare all of the risk all of the time and that unreasonable contract provisions are in the end meaningless when the risk simply cannot be born. And balanced or unfair contracts are also less likely to engender collaborative thinking and solutions when this is most needed.

Through the Golden Principles, FIDIC has sought to direct the market when modifying its contracts. As we face a potential global surge in infrastructure procurement, with many nations speaking of an infrastructure-led economic recovery, we need to sit back as users and appreciate that fair and balanced contracts matter to everyone and that we should all care about that.

Some regarded the 2nd edition of the Rainbow Suite as ahead of its time, or perhaps as trying to drive the market forward too quickly when it was introduced in 2017, but circumstances have shown that this was not the case.

Rob Morson is a finance and projects partner at Pinsent Masons.