On Tuesday 7 May 2019 at the World Tunnel Congress 2019 in Naples, a new form of contract has been published jointly by International Federation of Consulting Engineers (“FIDIC”) and International Tunneling and Underground Space Association; namely, the Emerald Book. This form of contract is designed specifically for tunneling and underground works aiming to set out better risk allocation between the parties based on past yellow book experience.
The Second Edition of the Conditions of Contract for Plant and Design-Build, 2017 published by FIDIC (the Yellow Book 2017), was used as the basis for drafting these General Conditions of Contract. The Sub-Clauses that are new or different from those of the Yellow Book 2017 are listed below at the end of these introductory notes.
The Conditions of Contract for Plant and Design-Build, 2017 Edition, which served as a basis for drafting these General Conditions of Contract, were published by FIDIC as an update of the FIDIC 1999 Conditions of Contract for Plant and Design-Build (Yellow Book), First Edition. The FIDIC 1999 Yellow Book has been in widespread use for nearly two decades. In particular, it has been recognized for, among other things, its principles of balanced risk sharing between the Employer and the Contractor in projects where the Contractor designs and constructs the works, and may provide plant, in accordance with the Employer’s requirements, including any combination of civil, mechanical, electrical and/or construction works.
Setting aside the complexity and variety of unforeseeable parameters e.g. geological matters in the field, there have been constant problems on execution of the underground projects due to unfair risk allocation and disputes between the parties during the execution of the Contract. This brand-new book trying to address fair risk allocation between the Employer and Contractor.
The Emerald Book includes several new concepts in consideration of the risks that are peculiar to underground works. In particular, they address the risk related to subsurface physical conditions which are not possible to assess with sufficient precision in advance of the Contract, and therefore cannot be assigned entirely to the Contractor. Compared to other Works, Underground Works are predominantly characterized by three unique features:
- The method of excavation and ground support are major factors for the successful realization of the project, and therefore part of the Works
- Physical access to the works is often limited to just a few locations or even a single location, which places serious constraints on construction logistics and the environment;
- The land, beneath which the Works are to be constructed, typically belongs to a number of third parties.
It is important that the Employer gives careful consideration to all the above features, both before and during the preparation of the tender documents, because they are critical to the feasibility of successful completion of the Works and tenderers’ ability to meaningfully price the Works.
It appears that the key contents of the Emerald Book are of particular relevance:
- The Geotechnical Baseline Report or (“GBR”) is defined as the single contractual source of risk allocation related to subsurface physical conditions to the Parties. Equally important to the physical conditions of the ground, the GBR addresses the reaction of the ground to excavation and support under the contractually agreed construction methodology.
- All subsurface physical conditions not addressed in the GBR shall be considered Unforeseeable. The risks arising out of the foreseen properties of the ground, obstacles and adverse reaction to the excavation and ground support processes are assigned to the Contractor, as well as the production rates and cost of performing the Works under the same conditions.
- Conversely, the risks arising out of unforeseen physical conditions of the ground, obstacles, and adverse reaction to the excavation and ground support processes are allocated to the Employer, warranting extension of time and/or reimbursement of cost to the Contractor.
Foregoing risk allocation is slightly in favour of the Contractor leaving major risk elements to the Employer.
The Time for Completion of the Works, of a Section or any Milestone may largely depend on the subsurface physical conditions that are encountered during excavation. As the risk related to these conditions is allocated to the Employer, Time for Completion should be adjusted by the variation of these conditions within the limits defined by the GBR, insofar as this variation affects the critical path of the Works, of a Section or any Milestone. In the case that the amount of more onerous conditions encountered is higher than described in the GBR, the Time for Completion should be extended, while in the case that the amount of less onerous conditions is higher than described in the GBR, the Time for Completion should be reduced.
The cost of the Excavation and Lining Works will also largely depend on the subsurface physical conditions and/or ground reaction(s) to such works. These Conditions provide that the Excavation and Lining Works are to be measured and paid for using rates and prices set out in the Bill of Quantities. Under these Conditions it is the Contractor that measures the as-built quantities which are then agreed or determined by the Engineer. All the other Works (for example, ancillary surface works) are to be paid on a lump sum basis.
Due to the typically long duration of underground works and to the high cost of investment in equipment, an important portion of the cost to the contractor such as, depreciation of and interest for equipment, overhead charges etc., is time-related, whilst the remainder of the cost depends on the volume or quantity of the performed works. Hence, the adjustment of Time for Completion (if any) due to the difference between the contractually agreed and the encountered subsurface physical conditions should also lead to an adjustment of the Contractor’s remuneration for time-related charges. The Bill of Quantities for Excavation and Lining Works should therefore distinguish between time-related rate items, quantity-related rate items and fixed rate items for the performance of the Works (Sub-Clauses 13.8.2 and 13.8.3).
Conclusion: The Emerald Book is expected to be widely used in energy, transport and urban infrastructure projects. Although the interests of the parties may vary in each project, the Emerald Book is also expected to be an important guide in relation to the risk allocation for time and cost. The book has been prepared based on yellow book experience and leaving greater risk allocation on the employer’s shoulder. This will leave room that the book will mostly used for the project that is financed by equity or public resources rather than private investment financed by the Lenders.