The Use and Misuse of FIDIC Forms in Poland
The International Construction Law Review, Pt. 3, 2014
29 Pages Posted: 8 Jul 2015
Date Written: July 6, 2015
In recent years, a number of post-communist countries have joined the European Union (“EU”) or are seeking to do so. The new member states are mainly from the CEE region and many have experienced a surge in large investments in infrastructure projects co-financed by the EU, the EIB and the World Bank. According to the Procurement Guidelines of the International and European financing institutions, tenders financed by them are, by definition, open to international competition for projects.
Interestingly, there is however a remarkable difference between the tenders financed by International Financial Institutions and tenders financed by the European Institutions, i.e. EU and EIB, which seems to be at the root of the contractual problems in Poland and in other CEE countries. Whereas the World Bank and other International Financial Institutions that provide co-financing for infrastructure construction projects require well established sample forms of contract for works to be used, the European Institutions impose this condition only with respect to their financial support for so-called “third countries”, i.e. outside the EU For financial support, such as Structural and Cohesion Funds, whereas inside the EU, the EU lawmaker – until recently – had not taken any precautions. The underlying reason for such approach is that well-established local standard forms existed in Western Europe, such as, for example, in Austria ÖNORM B 2110, in Germany, VOB/B, in Denmark, AB 92 and ABT 93, in France and Belgium, CCAG, in Italy, DPR 207/2010, and in the Netherlands, UAV 1989 and 2012, so that the EU lawmaker assumed that such fair and balanced standard forms would also be established in the enlargement countries.
Even before the EU accession, FIDIC standard forms had been introduced all over the CEE region in late 1990’s given the massive amount of international and European financing, on the one hand, and the lack of adequate and fair national standard forms of contract, on the other hand. Under the Phare, Tacis and ISPA programmes the EU and EIB financiers scrutinised beforehand that the FIDIC standard forms, generally the so-called “Red & Yellow Books”, were used in a proper way. FIDIC Forms are international benchmarks for their efficient risk allocation, tradition, respect, fairness and a balanced approach to business.
The authors of FIDIC Forms, have intentionally set the risk allocation in most of the standardised conditions to be fair and balanced, the exception being the FIDIC standard form for privately negotiated EPC Turnkey Projects (“Silver Book”) The balanced approach, as incorporated in the FIDIC standard forms for Construction and Plant and Design-Build (“Red & Yellow Books”) is deemed appropriate in developed countries as giving the best results and lowest transport infrastructure project costs in the long term.
However, employers in CEE region tend to modify the standardised FIDIC risk allocation to the disadvantage of contractors. Some of the most interesting examples are encountered in Poland.
Such modifications of standard risk allocation usually causes problems described for example in the Check List for One Sided Contracts (JICA, 2011), i.e.:
- Bid failure and disruption of project implementation; - Non-participation in the bid by conscientious and capable contractors; - The award of the Contract to a bidder who fails or is incapable of estimating the risks properly; - Poor construction quality and delay to the work due to lack of risk contingency; - Undermining the relationship of mutual trust and respect between the parties; - Unsubstantiated claims from the contractor; - Frequent disputes between the employer and the contractor; - Higher bid prices and/or large discrepancies between the bid and the final price; - In extreme cases the eventual termination of the contract.
In this above document four factors are mentioned which could serve as motives for making a contract one-sided when preparing the Contract Documents: (i) the Employer’s lack of the budget of the construction work; (ii) lack of the Employer’s understanding about the terms and conditions including appropriate allocation of rights and obligations, ability of contract management and sense of ownership; (iii) lack of time and cost required for creating the Contract Documents; and (iv) attention to domestic laws and regulations, and domestic procedures (JICA, 2011).
Keywords: FIDIC, Claim, Construction, Claim Management, Poland
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