7 - FIDIC Silver Book (2017)

FIDIC Silver Book (2017), Practical Law UK Practice Note w-015-1947 (2019)
FIDIC Silver Book (2017)

by Practical Law Construction
Practice notes | Maintained | International, United Kingdom
Scope of this note

Overview of the 2017 Silver Book
Structure of the 2017 Silver Book
Key issues
Applicable laws
Financing
Design responsibility
Fitness for purpose
Fitness for purpose: issues in practice
Ground conditions
Employer's financial arrangements
Completion and taking-over
Taking-over
"Deemed" completion
Tests on Completion
Testing procedure
Instruct further repeat tests (clause 9.4(a))
Rejection of Works and termination (clause 9.4(b))
Rejection of Section and omission (clause 9.4(c))
Issue Taking-Over Certificate (clause 9.4(d))
Extension of the Time for Completion
Concurrent delay
Delay Damages
Performance testing
Performance Damages
Variations
Procedure for instructing a Variation
Omitted work
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Valuation of Variations
Contractor's right to object
Effect on performance security and Employer's financial arrangements
Defects
Defects before taking-over
Defects after taking-over
Remedies for failing to rectify defects or damage after taking-over
Other issues
Performance securities
Parent company guarantee
Performance bond/guarantee
Advance payment bond
Retention
Contract Price and payment
Partially Agreed Final Statement and discharge
Suspension and termination
Liability caps and exclusions
Indirect and consequential loss
Limit on Contractor's liability
Exclusive remedies
Care of the works and indemnities
Responsibility and liability for the care of the works
Indemnities
Exceptional Events
What constitutes an Exceptional Event?
Procedure if an Exceptional Event occurs
Consequences of an Exceptional Event
Interpreting "force majeure" provisions
Insurance
Professional indemnity insurance
Contractor's and Employer's Claims
Time limits and time-bar provisions
Form of notice
Employer's Representative's agreement or determination

Dispute avoidance and resolution

Dispute Avoidance/Adjudication Board (DAAB)
Referring a Dispute to the DAAB
DAAB's decision
Amicable settlement
Arbitration
Other provisions commonly included or amended
Entire agreement
Rights of third parties
Priority of documents
Assignment
This note highlights some of the key issues in the second edition of the FIDIC Silver Book, published in December
2017.
Scope of this note

The Fédération Internationale des Ingénieurs-Conseils or International Federation of Consulting
Engineers (FIDIC) publishes a suite of standard form contracts for international construction and
engineering projects.
FIDIC published the second edition of the Conditions of Contract for EPC/Turnkey Projects (2017 Silver
Book) in December 2017. At the same time, FIDIC published the second edition of the:
• Conditions of Contract for Construction (2017 Red Book).

• Conditions of Contract for Plant and Design-Build (2017 Yellow Book).
The 2017 Silver Book updates the first edition of the Silver Book, which was published in 1999 (1999
Silver Book). There are some significant changes between the 1999 Silver Book and the 2017 Silver
Book. The "stand-out" change in the 2017 suite is how prescriptive it is. It now contains a number of
detailed processes and procedures that set out exactly what is expected of each of the parties and the
consequences if they fail to comply.
This note discusses some of the key issues arising out of the 2017 Silver Book and, in doing so, highlights
some of the key differences between the 2017 and 1999 Silver Books. For more information about the
key changes, see Practice note, FIDIC Red, Yellow and Silver Books, second edition, 2017: key changes.
This note uses the same defined terms as the 2017 Silver Book.
A reference to the:

• "Guidance Notes" is to the "Guidance for the Preparation of Particular Conditions and Annexes"
included within the 2017 Silver Book.
• "Gold Book" is to the Conditions of Contract for Design, Build and Operate Projects (2008
edition).
• "2017 suite" is to the 2017 Red, Yellow and Silver Books.
• "1999 suite" is to the 1999 Red, Yellow and Silver Books.
For more information on the FIDIC suite of contracts generally and the 1999 Silver Book in particular,
see Practice notes:
• FIDIC Forms of Contract.

• FIDIC Silver Book (1999).
Overview of the 2017 Silver Book

The different forms of contract within the FIDIC suite are organised around the extent of design
and other responsibilities assumed by the Employer and the Contractor. The suite is aligned with
common procurement strategies rather than the nature of the construction works. Like its predecessor,
the 2017 Silver Book is stated to be a "turnkey contract". In principle, the Contractor must design,
procure, construct and complete the Works and do whatever is necessary so the Works meet specified
performance criteria and can be operated by the Employer immediately on handover by the Contractor,
simply by "turning a key". Key features of a turnkey contract include:
• A lump sum contract price with limited ability for the Contractor to claim additional amounts.
• A fixed date for completion with limited ability for the Contractor to claim an extension of time.
• Single point responsibility.
• Contractor responsibility for proving performance and reliability of the completed facility.
• A focus on the long-term performance of the asset and its ability to generate revenue.
The 2017 Silver Book is a lump sum contract, which anticipates that interim payments are made as
the work proceeds and are typically based on instalments specified in an agreed payment schedule.
Interim and final payments are notified by the Employer. The 2017 Silver Book adopts a strict two-party
approach and, unlike the 2017 Red and Yellow Books, the Contract is administered by the Employer
and not by a third party engineer.
The Contractor takes the risk of changes in the quantities of work from those that it may have originally
identified but there are various provisions that entitle the Contractor to claim additional money (see
Contract Price and payment).
The 2017 Silver Book retains the same risk allocation as the 1999 Silver Book, allocating more risk to
the Contractor than under the 2017 Red and Yellow Books. As a consequence the Contractor must be
given sufficient time at tender stage to:

• Examine the Employer's Requirements (ERs).

• Verify all relevant information and data.
• Make all necessary investigations to assess the severity of the risks it is taking.
This is particularly true under the Silver Book where the Contractor takes ground condition risk (see
Ground Conditions).
A further consequence of this type of contract is that the Contractor will price the additional risks
allocated to it, which will increase the construction cost and may mean that some projects are not
commercially viable. However, the Employer retains certain risks under the 2017 Silver Book which
may not reflect the traditional approach to turnkey contracting. FIDIC recognises that Employers, in
particular, government agencies, may require special conditions of contract or particular procedures
that differ from the General Conditions. These should be included as Part B Special Provisions (see
Structure of the 2017 Silver Book).
Structure of the 2017 Silver Book

The conditions of contract comprise the General Conditions as may be amended by the Particular
Conditions.
Under the 2017 Silver Book, the Particular Conditions consist of:
• Part A: Contract Data.

• Part B: Special Provisions.
The General Conditions contain provisions that FIDIC considers generally applicable to all projects
unless the Parties expressly opt out of them. Some of the provisions in the General Conditions only apply
if relevant information is included in another contract document. For example, if Delay Damages are to
be capped, this must be stated in the Contract Data. If this information is not included in the Contract
Data then Delay Damages will not be subject to any cap.
The Special Provisions are the bespoke, project-specific amendments that FIDIC considers may be
appropriate in the context of a particular project. The 2017 Silver Book provides detailed guidance
for preparing the Particular Conditions and, in particular, for those drafting Special Provisions. This
includes example wording for certain optional provisions and example forms of the different types of
performance security that may be required for the project in question.
The Guidance Notes also refer to FIDIC's Golden Principles. These are a new feature of the 2017 suite
and comprise five conceptual principles that FIDIC considers are inviolable and sacrosanct. Contract
drafters must take "all due regard" to the principles when amending the General Conditions. For more
information, see Practice note, FIDIC Red, Yellow and Silver Books, second edition, 2017: key changes:
FIDIC's Golden Principles.
The documents that form the Contract under the 2017 Silver Book are:

• The Contract Agreement.

• Any addenda referred to in the Contract Agreement.
• The Contract Conditions (General and Particular).
• The Employer's Requirements.
• The Schedules.
• The Tender.
• The JV Undertaking (if applicable).
• Any other documents listed in the Contract Agreement.
For more information about the order of priority of the Contract documents, see Priority of documents.
Key issues
This note does not address all possible issues that the parties may face when using the 2017 Silver Book.
It highlights some of the key practical, legal and commercial issues that may affect the parties in the
context of English law and, in some areas, suggests how the parties might adapt specific clauses.
Applicable laws
In common with the 1999 Silver Book, it is likely that the 2017 Silver Book will primarily be used on
international projects and even if the law of the contract is stated to be English law, there may still
be mandatory requirements of local law that apply to the project, for example, land law and planning
regulations. The law of the country in which a party is domiciled may also affect the Contract, for
example, by defining the power that a party has to enter into the Contract and formalities regarding its
execution. In addition, the law of countries from which material is sourced or through which material
may be transported to the project site may also be applicable.
On an international project where the governing law of the contract is not English law the parties should
take advice on local law, in particular in relation to the issues highlighted in this note.
Financing
This note also highlights key issues for lenders. There are likely to be various potential sources of finance
for projects of the type that will use the 2017 Silver Book including:
• Large international commercial banks.

• Domestic banks (for example, banks in the Middle East may be able to offer Islamic financing
products for projects in that region).
• International or domestic capital markets (commonly known as project bonds).

• Any "mezzanine" lenders.

• Multilateral institutions.
• Export credit agencies.
• Government grants.
• The project sponsors themselves (through equity contributions and other forms of support,
which may include credit support or a completion guarantee). For more information, see
Practice note, Taking security in project finance transactions: What sort of sponsor support is
provided in a project?
Not all sources of finance are available to every project and the funding solution will depend on the type
of project, its location and prevailing market conditions. In recent years alternative sources of finance,
both in terms of alternative products and a departure from the traditional commercial bank as lender,
have become more prevalent. The traditional role of banks in project financing is also changing because
capital markets are playing an increasingly important role in the funding and refinancing of projects.
Regulatory changes such as increased capital requirements for longer term loans have made access to
traditional sources of long-term project finance from banks and commercial lenders less available and
in some cases, more expensive.
Some commentators cite the rise of the independent financial investor, both primary, secondary and
on a variant of the traditional private equity model as one of the most important recent developments
in project finance. These new investors include private funds, specialist infrastructure or energy funds,
pension funds and sovereign controlled funds.
For projects that are financed from non-bank lenders or that utilise new financing products, there will
be differences in the financing documents and terms offered when compared to traditional commercial
bank lending. However, construction risk remains an important issue and the construction contract
continues to be one of the key project documents. The main concerns relating to the construction
contract for any project financing are:
• The contract price and payment terms, including any provisions that entitle the Contractor to
claim additional amounts.
• The time for completion, including delay liquidated damages (defined in the 2017 Silver Book as
Delay Damages) and any provisions that entitle the Contractor to an extension of time.
• Performance of the completed facility or asset, including the extent to which the Contractor
warrants performance and what remedies are available for performance shortfall, for example,
performance liquidated damages (defined in the 2017 Silver Book as Performance Damages).
Lenders often insist that construction contracts are amended to address their concerns and
requirements. This may include:
• Conditions precedent to financial and commercial close.

• Ensuring that interim payments are in accordance with the particular lender's drawdown
schedule.
• Specifying termination payments.
• Restricting the Contractor's rights to suspend and terminate the Contract.

• Other provisions addressing some of the other issues highlighted in this note.
For more information on financing structures for project finance transactions, see Practice notes,
Financing structures used in project finance transactions and Financing structures used in project
finance transactions: advantages and disadvantages.
For more information about project finance generally, see Graham Vintner and others, Project Finance
(Sweet & Maxwell, 4th edition, 2013).
For more information about alternative financing structures, see Practice note, Types of lending:
alternative finance.
Design responsibility
In common with all construction contracts that are not procured solely on a traditional basis, the extent
of the Contractor's design liability is a key issue in contracts based on the 2017 Silver Book.
The 2017 Silver Book provides that the Contractor:
• Shall execute the Works in accordance with the Contract (clause 4.1). The phrase "execute the
Works", which is new to the 2017 Silver Book, means the design, construction and completion of
the Works and remedying any defects (clause 1.2(j)).
• Is responsible for the design of the Works (clause 5.1).
• Warrants that it, its designers and design Subcontractors have the experience, capability and
competence necessary for the design (clause 5.1).
• Undertakes that the design, execution and the completed Works will be in accordance with
applicable laws, technical standards and regulations (which may be specified in the ERs) and the
Contract documents (clauses 5.3 and 5.4).
• Is obliged to correct any error, omission or other defects in the design, the Contractor's
Documents and the Works at its own risk and cost. If the Employer has previously given a
Notice of No-objection in relation to the relevant Contractor's Documents during the Review
process, it is deemed to have given a Notice stating that the Contractor's Documents are non-
compliant (clause 5.8). The 1999 Silver Book (clause 5.2) expressly states that the Contractor
is not relieved of any of its obligations or responsibilities as a result of the Employer giving
its approval or consent as part of the design review process. This provision is not included in
the 2017 Silver Book as the concept of approval and consent in the Review process has been
removed and replaced with a Notice of No-objection.
• Is deemed to have "scrutinised" the ERs, including any design criteria and calculations before
the Base Date (clause 5.1).
• Is responsible for the accuracy of the ERs and any data or other information provided by the
Employer or third parties, except:
• portions, data and information that the Contract states are "immutable or the
responsibility of the Employer" (clause 5.1(a));

• any definition of the intended purpose of the Works or any part of the Works (clause
5.1(b)) (see Fitness for purpose);
• criteria for the testing and performance of the completed Works (clause 5.1(c)); and
• portions, data and information that cannot be verified by the Contractor, except as
otherwise stated in the Contract (clause 5.1(d)).
This risk allocation is largely the same as under the 1999 Silver Book. While it appears, on its face, to
transfer all design risk to the Contractor in keeping with a "true" turnkey approach, the Employer retains
responsibility for portions of the ERs, data and information identified in clause 5.1(a) to (d). Clause
5.1(a) and (d), in particular, introduce an element of uncertainty as the extent to which design risk is
transferred to the Contractor. For this reason, clause 5.1 is often amended to clarify what Employer-
supplied information can be relied on by the Contractor and precisely what information the Contractor
must verify and take responsibility for.
Fitness for purpose

On all projects where the Contractor has design responsibility for the Works, or a large part of the
Works, a key issue is the extent to which the Contractor "guarantees" that the completed Works will
achieve a particular result, as well as agreeing that the completed Works will comply with the Contract,
applicable law, specified technical standards and regulations and so on. This is generally known as a
"fitness for purpose" obligation and is an absolute obligation. It is often contentious as its effect is that
the Contractor may be liable in circumstances where it has not been negligent.
In the context of fitness for purpose obligations, English law takes a different approach to professionals,
on the one hand, and design and build contractors, on the other. In the absence of an express term to
the contrary, English law implies into a professional appointment a duty to act with reasonable skill and
care (section 13, Supply of Goods and Services Act 1982 (SGSA 1982)). (For more information about the
standard of care in professional appointments, see Practice note, Professional appointments: standard
of care.)
However, in the case of a turnkey contract and in the absence of an express term excluding such an
obligation, English law may imply a fitness for purpose obligation into the contract. In other words,
the contractor is required to produce an end product that achieves the contracted result (Independent
Broadcasting Authority v EMI Electronics Ltd and BICC Construction Ltd [1980] 14 BLR 1). Some
design and build and, to a lesser extent, turnkey contractors object to a "fitness for purpose" obligation
on the basis that:
• It is too onerous.
• They should only be liable if their design is negligent and therefore their design liability should
be the same as that for a professional consultant, namely one of reasonable skill and care.
• They cannot guarantee that the completed works will be suitable for any unspecified purpose.

The third objection is the easiest to understand. A contractor must know what is being asked of it. It
cannot guarantee that the end product will meet any unspecified requirements that the Employer may
have in the future.
However, the first two objections are less clear-cut in the context of a "turnkey" contract. Arguably,
a designer simply provides a professional service, whereas a turnkey contractor provides a complete
"product" for a certain type of use and this is entirely consistent with the traditional risk allocation under
a turnkey contract. The Contractor must design, procure, construct and complete the Works and do
whatever is necessary so the Works meet the Employer's stated requirements and can be operated by
the Employer immediately on handover by the Contractor, simply by "turning a key". The Employer
therefore expects the Contractor to be under an obligation to ensure that the "product" it supplies is of
satisfactory quality and fit for purpose. Some commentators also argue that the difference in approach
is reasonable because turnkey contracts are usually priced on a lump sum basis, and a fitness for
purpose obligation balances against the contractor's self-interest in saving costs and maximising profit
by designing to the minimum acceptable standard.
Express fitness for purpose obligations are common in international construction contracts. Clause 4.1
of the 2017 Silver Book provides:
"When completed, the Works (or Section or major item of Plant, if any) shall be
fit for the purpose(s) for which they are intended as defined and described in the
Employer's Requirements or, where no purpose(s) are so defined and described, fit
for their ordinary purpose(s)."
In contrast with the equivalent provision in the 1999 Silver Book, which simply states that the Works
will be fit for the purpose for which they are intended (as defined in the Contract), the 2017 Silver Book:
• Requires any particular performance parameters that the Works must meet to be stated in the
ERs.
• Makes it clear that to the extent that the particular purpose of an element of the Works is not
defined it must be fit for its ordinary purpose.
However, clause 4.1 applies not only to the Works but also to a Section or major item of Plant and may
therefore be interpreted as imposing a wider fitness for purpose obligation on the Contractor than under
the 1999 Silver Book. It is also backed by an indemnity, although this is subject to the overall cap on the
Contractor's liability (see Limit on Contractor's liability). Clause 17.4 provides that:
"The Contractor shall also indemnify and hold harmless the Employer against all
acts, errors or omissions by the Contractor in carrying out the Contractor's design
obligations that result in the Works (or Section or Part or major item of Plant, if any)
when completed not being fit for the purpose(s) for which they are intended under
Sub-Clause 4.1."

The Contractor may also be required to extend its professional indemnity insurance (PII) to respond
to this fitness for purpose indemnity (clause 19.2.3(b)) (see Professional indemnity insurance). These
are new provisions in the 2017 Silver Book. Many contractors have commented that claims under this
indemnity are uninsurable. Parties will need to take advice from their insurance advisers in this regard.
Therefore, it is critical that the Contract clearly sets out what particular result the completed Works must
achieve. This may seem obvious but issues often arise in the context of "fitness for purpose" obligations
because the required performance criteria are not clearly specified. This is often the result of the parties
negotiating a "solution" (to an overall fitness for purpose obligation) whereby the Contract contains both
reasonable skill and care obligations and absolute obligations, with no indication whether one overrides
the other. In addition, the technical schedules that set out the performance criteria are sometimes not
consistent with other contract documents.
Fitness for purpose: issues in practice

It is a common problem in practice and one with which the courts had to grapple in MT Hojgaard A/
S v E.ON Climate and Renewables UK Robin Rigg East Ltd [2017] UKSC 59. The contractor, MTH,
agreed to design and build offshore wind farm turbine foundations. The technical specification required
the foundations to be designed to ensure that they lasted for 20 years without planned replacement.
The contract also required MTH to comply with an international standard for the design of the turbines
(J101), which (it was subsequently discovered) contained a significant error. That error led to the failure
of the grouted connections with the result that the foundations could not fulfil their intended purpose
for a period of 20 years. MTH was not negligent.
The key issue was whether the contract required MTH not only to comply with J101 but to achieve a
particular result, namely foundations with a service life of 20 years. The Supreme Court held that it
did. In doing so, it overturned the Court of Appeal decision and restored the first instance decision. The
Supreme Court concluded that:
• The "fitness for purpose" obligation in the contract's technical requirements was to be given its
natural meaning and was not inconsistent with other terms of the contract.
• Although each case will turn on its facts, a contractor is "bound by his bargain even though
he can show an unanticipated difficulty or even impossibility in achieving the result
desired" (Cammell Laird and Co Ltd v Manganese Bronze and Brass Co Ltd [1934] AC 402).
For more information, see:
• Legal update, Liability when international standard is incorrect (Supreme Court).

• Blog posts:
• Losing the sympathy vote: Robin Rigg revisited;
• The meaning of fitness for purpose; and
• Fitness for purpose: the case against.

By contrast, in SSE Generation Ltd v Hochtief Solutions AG and another [2018] CSIH 26, the Inner
House, Court of Session, held that the reasonable skill and care limitation did not help the contractor
because, while it exercised reasonable skill and care in its design, it was the implementation of its design
and not the design itself that caused the tunnel to collapse.
For more information, see:
• Legal update, Liability for hydro-electric tunnel collapse (Inner House, Court of Session).
• Blog post, The fine line between design and implementation: scope of NEC Option X15.
While the contracts in question in these cases were not FIDIC contracts, they demonstrate that whether
a reasonable skill and care obligation prevails over other requirements depends on the contract drafting.
In the context of the 2017 Silver Book (as with other turnkey contracts for any major construction
project) best practice dictates that the parties should address the level of the Contractor's design
responsibility up front and ensure that the Contract clearly sets out their respective design
responsibilities. For example:
• If the completed facility is required to meet certain performance criteria, this should be set
out clearly in the General Conditions and the ERs (see Performance testing and Performance
Damages).
• If the design risk is such that the Contractor cannot guarantee certain performance
requirements, the parties must consider how any absolute obligations to comply with specific
technical requirements relate to more general obligations.
• If the Contractor is required to comply with certain technical standards or other technical
requirements and also expressly warrant that the completed Works will achieve a particular
result, the parties should consider whether the warranty will override the duty to comply with
the technical standards and requirements or vice versa.
Ground conditions
The Employer must provide to the Contractor before the Base Date all relevant data in its possession
on the topography of the Site and on subsurface, hydrological, climatic and environmental conditions
at the Site (clause 2.5).
The Contractor:
• Is responsible for verifying and interpreting all the data provided to it under clause 2.5 (clause
4.10).
• Is deemed to have satisfied itself concerning the correctness and sufficiency of the Contract Price
(clause 4.11).
• Is deemed to have obtained all necessary information concerning the risks, contingencies and
other circumstances that may influence or affect the Works (clause 4.12).

• Accepts total responsibility for having foreseen all difficulties and costs of successfully
completing the Works (clause 4.12).
• Is not entitled to claim additional time or money if it encounters any unforeseen difficulties or
costs in completing the Works (clause 4.12).
The Employer has no responsibility for the accuracy, sufficiency or completeness of any data provided
under clause 2.5, except to the extent that the Contract states that the data is "immutable" or the
Employer's responsibility or if it cannot be verified by the Contractor (clauses 2.5 and 5.1). The 2017
Silver Book follows the risk allocation under the 1999 Silver Book in relation to ground conditions,
namely that the Contractor takes ground condition risk. However, the combination of clauses 2.5 and
5.1 maintain the same element of uncertainty as under the 1999 Silver Book concerning the extent of
this risk transfer. This is not entirely consistent with the traditional turnkey approach to risk allocation
and in practice it is likely that this provision will continue to be heavily negotiated by the parties.
Employer's financial arrangements

Clause 2.4 provides that the Employer's arrangements for financing the project shall be set out in the
Contract Data and that the Employer must notify the Contractor, with supporting details if it:
• Intends to make any material change to its financial arrangements.

• Has to make any material change to its financial arrangements because of changes in its
financial situation.
"Material change" means a change that the Employer considers will affect its ability to pay the
outstanding amount of the Contract Price.
The Contractor may request the Employer to provide reasonable evidence that financial arrangements
have been made and are being maintained that will enable it to pay the outstanding Contract Price
amount if the Contractor:
• Receives a Variation instruction priced at more than 10% of the Contract Price or the
accumulated total of all Variations exceeds 30% of the Contract Price.
• Does not receive payment in accordance with the Contract.
• Becomes aware of a material change in the Employer's financial arrangements that has not been
notified to it by the Employer.
The Employer must respond within 28 days after receiving this request, otherwise the Contractor is
entitled to suspend the Works and, ultimately, terminate the Contract if the Employer has still not
provided reasonable evidence within a specified period. For more information about suspending and
terminating under this ground, see Practice note, FIDIC: Suspension and termination under the Red,
Yellow and Silver Books (2017): Suspension and termination by Contractor.
The equivalent provision under the 1999 Silver Book has always been regarded as one of its more
controversial provisions and as not being entirely in keeping with a "true" turnkey approach. While it is
entirely reasonable for a Contractor to seek assurances that it will be paid for carrying out the Works,

particularly if the Employer is a governmental authority and the political situation in the location of
the project is unstable or is likely to change, Employers and their lenders do not like the uncertainty
surrounding the effect of this provision and the draconian consequences of non-compliance. A concern
that the Privy Council decision in NH International (Caribbean) Ltd v National Insurance Property
Development Company Ltd (Trinidad and Tobago) [2015] UKPC 37 did nothing to alleviate. For more
information, see Legal update, Contractor termination and employer set-off under FIDIC Red Book
(Privy Council) and Practice note, FIDIC Yellow Book (1999): Employer's financial arrangements.
Clause 2.4 of the 2017 Silver Book addresses some of this uncertainty by requiring the Employer to set
out its arrangements at the outset in the Contract Data; and providing that the Contractor can only
request evidence of ability to pay in certain circumstances. However, it is still likely to generate debate
about what constitutes a "material change" of financial arrangements and "reasonable evidence" of
ability to pay and the draconian consequences of failing to comply remain the same as under the 1999
Silver Book. As such it is likely to remain one of the more controversial provisions from the Employer's
perspective.
Completion and taking-over

Clause 8.2 requires the Contractor to complete the Works (and any Section) within the relevant Time
for Completion. It refers to clause 10.1 as defining what constitutes "completion" for the purposes of the
Contract (see Taking-over).
This addresses the potentially circular concept of "completion" under the 1999 Silver Book, which
involved reading clauses 8.2 and 10.1 together, both having slightly different requirements for
completion.
Taking-over
There are clearer requirements for taking-over the Works under the 2017 Silver Book. Taking-over
under clause 10.1 occurs when:
• The Works have been completed in accordance with the Contract (including that the Tests on
Completion have been passed) (clause 10.1(a)).
• There are only minor works or defects outstanding that will not substantially affect using the
Works or Section safely for their intended purpose (clause 10.1(i)) (see Defects).
• The Employer has given (or is deemed to have given) a Notice of No-objection to:
• as-built records (clause 5.6); and
• operation and maintenance (O&M) manuals (clause 5.7).
• The Contractor has carried out any required O&M training (clause 10.1(d)).
• A Taking-Over Certificate has been issued or is deemed to have been issued (clause 10.1(e)) (see
also "Deemed" completion).

A Taking-Over Certificate may relate to all of the Works or a Section. Clause 10.2 provides that the
Employer may not take over or use part only of the Works unless the Parties agree otherwise.
Taking-over has several consequences:
• The Contractor's liability for Delay Damages ends (clause 8.8).

• The Defects Notification Period (DNP) for the Works (or Section) starts (clause 1.1.27).
• Responsibility for care of the Works (or Section) passes to the Employer (clause 17.1) (see
Responsibility and liability for the care of the works).
• The maximum amount that can be claimed under the demand guarantee may be reduced (see
Performance securities).
• The Contractor is only required to maintain a reduced level of insurance cover for the Works,
Plant and Materials (clause 19.2.1).
• The Contractor may include the first half of the Retention Money (or relevant percentage in
relation to a Section) in its Statement for the Employer to include in the next interim payment.
• The Contractor can submit its Statement at Completion for payment (clause 14.10).
"Deemed" completion
Clause 10 provides that taking-over the Works, or a Section, is deemed to have occurred if the Employer
fails to issue a Taking-Over Certificate or to reject the Contractor's application within the specified time
period (clause 10.1).
In addition, clause 7.4 (testing by the Contractor) provides that if the Employer fails to attend the Tests
on Completion, the Employer is deemed to have accepted the Contractor's test certificate as accurate.
These provisions are substantially the same as the equivalent provisions under the 1999 Silver Book.
While the well-established prevention principle, at least under English law, means that the Contractor
should not be penalised if the Employer prevents completion, "deeming" completion can leave the
Employer with no, or limited, remedies for delay and or a performance shortfall if the Works do not
subsequently achieve the specified performance criteria. In addition, lenders are unlikely to allow
the Employer to retain this risk (see Tests on Completion, Performance testing and Performance
Damages).
Two of the key features of a turnkey contract are:
• Contractor responsibility for proving performance and reliability of the completed facility.
• Long-term performance of the asset and its ability to generate revenue.
As a result, users may choose to amend clause 10.1 so that, rather than completion being "deemed" to
have occurred, the Contractor is entitled to an extension of time (EOT) and Cost incurred arising from
any delay to taking-over.

For more information on practical completion generally, see Practice note, Practical completion and
Blog post, Completion certificates: what do they certify and what happens if they are wrong?.
Tests on Completion
One of the conditions of "completion" under the 2017 Silver Book is that the Works must pass the Tests
on Completion (see Completion and Taking-Over). The detailed testing requirements for each project
should be set out in the Contract, usually in the ERs. The nature and extent of the Tests on Completion
for a 2017 Silver Book contract depends on the nature of the project and the extent of the Contractor's
role in relation to the project but in common with other turnkey contracts, the testing requirements, in
particular performance testing, are a key element of the Contract.
The 2017 Silver Book provides for performance testing to be carried out after taking-over and for any
damages for performance shortfall (Performance Damages) to be paid at this time. However, it also
anticipates that performance tests may be carried out as part of the Tests on Completion.
Clause 9.1 provides that the Tests on Completion will include:
• Pre-commissioning tests (appropriate inspections and functional tests).

• Commissioning tests including any operational tests specified in the ERs (to demonstrate, in
particular, that the Works can be operated safely and as specified under all available operating
conditions).
• Trial operation to demonstrate reliability, but only to the extent possible under available
operating conditions.
It is during trial operation that the Contractor may notify the Employer that the Works are ready for
performance tests to be carried out to demonstrate that the Works "comply with the performance criteria
specified in the ERs and with the Schedule of Performance Guarantees".
This largely replicates the 1999 Silver Book wording save for the words, "but only to the extent possible
under available operating conditions". However, the effect of this new wording (in both clause 9.1 and
10.3 (Interference with Tests on Completion)) is that the Employer takes the risk that the operating
conditions may be such that performance of the plant cannot be properly tested before taking-over. This
is unlikely to be acceptable to an Employer and any lenders to the project.
The Guidance Notes state that clause 9.1 describes the tests that are typically appropriate for a plant
contract and acknowledges that they may need amending for other types of project. For all turnkey
projects where performance of the completed facility is critical to the success of the project, most
Employers and lenders will require key performance tests to be carried out before taking-over. In other
words, the facility must have been comprehensively tested and achieved minimum performance criteria
before it is regarded as "complete" (see Performance testing).
Testing procedure
Clause 7.4 applies to all tests specified in the Contract. It contains generic provisions relating to:

• Notifying time and place of testing.

• Attending tests.
• Consequences of delaying tests.
• Certifying test results and issuing test certificates.
Clause 9 sets out a more detailed process for testing the Works before completion. This includes
notifying a detailed test programme, Employer's Review of proposed programme, notifying test
readiness, submitting test reports, consequences of delayed tests, re-testing requirements and the
consequences of failing to pass the tests. In particular:
• If the Employer delays Tests on Completion, or particular performance tests cannot be carried
out because the required operating conditions are unavailable, the Contractor is entitled to claim
an EOT and Cost Plus Profit to the extent that it suffers delay or incurs Cost as a result (clauses
9.2 and 10.3).
• If the Contractor delays Tests on Completion, the Employer may give notice requiring the
Contractor to carry out the tests within 21 days. If it fails to do so, the Employer may, after
giving the Contractor a second notice, use its own personnel to proceed with the tests at the
Contractor's risk and cost, and the Contractor is bound by the results (clause 9.2).
• If the Works or Section fail to pass the Tests on Completion, the Employer shall notify the
Contractor if any Plant, Materials, design or workmanship is found to be defective or otherwise
not in accordance with the Contract (see Defects before Taking-Over). Either the Contractor
or the Employer may require the failed tests and Tests on Completion on related work to be
repeated under the same terms and conditions (clause 9.3).
The Employer should bear these provisions in mind when negotiating any cap on Delay
Damages. Delay Damages should continue to run throughout any period of re-testing, otherwise
the Employer may find itself in a period of uncompensated delay at a time when the Contractor's
incentive to complete the Works is significantly reduced (see Delay Damages).
• If the Works fail to pass any repeated Tests on Completion, the Employer has four options. It
may:
• instruct further repeat tests to be carried out (see Instruct further repeat tests (clause
9.4(a)));
• reject the Works and terminate the Contract (see Rejection of Works and termination
(clause 9.4(b)));
• reject the Section if the effect of the failure is that the Section cannot be used for its
intended purpose(s) and treat this as omitted work (see Rejection of Section and omission
(clause 9.4(c))); or
• issue a Taking-Over Certificate (see Issue Taking-Over Certificate (clause 9.4(d))).
Instruct further repeat tests (clause 9.4(a))

It is in the interests of all parties for the Contractor to be given sufficient opportunity to achieve the
Tests on Completion. However, if the Employer instructs the Contractor to carry out further repeat tests
under clause 9.4(a) in circumstances where the cap on Delay Damages has already been reached or will
soon be reached, this will leave the Employer in a period of uncompensated delay. This may cause cash
flow difficulties and is unlikely to be acceptable to lenders. Although the 2017 Silver Book includes a new
termination right for the Employer if Delay Damages are capped out (clause 15.2.1(c)), an Employer is
unlikely to exercise this right if it considers that the Works are close to being completed (see Suspension
and termination). It is usually a remedy of last resort.
In practice, the decision will depend on the particular circumstances of each project, including what
tests failed and whether they are likely to be achieved at the next repeat.
Rejection of Works and termination (clause 9.4(b))

This is a draconian remedy and again is usually a remedy of last resort. The Employer may reject the
Works and terminate the Contract if the failure to pass the repeat tests deprives it of substantially the
whole benefit of the Works.
Unlike the 1999 Silver Book (which also entitles the Employer to reject a Section), clause 9.4(b) of the
2017 Silver Book only allows the Employer to reject the whole of the Works. A defective Section is now
addressed in clause 9.4(c) (see Rejection of Section and omission (clause 9.4(c))).
However, the meaning of "deprive of substantially the whole benefit" is not entirely clear, even as
it applies to the whole of the Works, and is likely to be interpreted differently depending on the
applicable law of the Contract. The 2017 Silver Book potentially misses an opportunity to clarify or
define what is meant by this term. As such an Employer may be reluctant to terminate on this ground.
If the Contractor disputes the termination and the Dispute Avoidance/Adjudication Board (DAAB)
or an arbitral tribunal later decides that the Employer was not entitled to terminate, the financial
consequences will be significant. Under English law, wrongful termination of a legally binding contract
constitutes a repudiatory breach of contract by the terminating party (see Suspension and termination).
Rejection of Section and omission (clause 9.4(c))

This is a new provision in the 2017 Silver Book and entitles the Employer to:
• Reject a Section of the Works if the effect of the failure to pass the Tests on Completion is that
the Section cannot be used for its intended purpose.
• Treat this failure as an omission "as if such omission had been instructed under Sub-Clause
13.3.1 [Variation by Instruction]".
Contrast this with clause 9.4(b) of the 1999 Silver Book, which is difficult to apply in practice as
it relates to a Section of the Works. However, new clause 9.4(c) creates different practical issues:
• The Employer is entitled to reject a Section if it cannot be used for its intended purpose.
However, this does not entirely reflect the "new" wording of clause 4.1, which provides that a
completed Section shall be:

• fit for the purpose for which it is intended as defined and described in the ERs; or
• fit for its ordinary purpose (if not so defined in the ERs).
• It is not entirely clear what benefit the Employer gains from treating a "defective" Section as
omitted work and whether it will be any easier to apply in practice. While clause 13.3.1 expressly
provides for valuing omitted work, it does not set out how to value "omitted" work that has been
performed defectively and it is therefore difficult to see how this applies to a "rejected" Section
(see Omitted work).
• The Contractor has no responsibility for any work that is omitted from its scope.
It is not entirely clear how this provision will work in practice.
If it is simply to enable the Employer to recover all amounts it has paid for the defective Section, arguably
the Contract already provides for this. The Employer could simply request the Employer to issue a
Taking-Over Certificate, in which case it is entitled to payment of Performance Damages or a reduction
in the Contract Price under clause 11.4(b) (see Issue Taking-Over Certificate (clause 9.4(d))).
Alternatively, if it is simply to allow the Employer to take control of (but not take-over) the Section
and employ others to rectify the defects and complete the Section, arguably the Contract also already
provides for this. Where a Section has failed to pass the Tests on Completion, clause 9.3 (retesting)
applies, which cross-refers to clause 7.5 (Defects and rejection), in particular clause 7.5(b), and clause
11.4(a) (failure to remedy Defects) (see Defects before Taking-Over). The requirement for the Parties
to agree that omitted work can be carried out by others expressly does not apply if a Section is rejected
under this provision (clause 13.1).
Treating the rejected Section as omitted Work potentially lets the Contractor "off the hook" in the sense
that it has no responsibility for work "omitted" from its scope or for work carried out by others.
Issue Taking-Over Certificate (clause 9.4(d))

The Employer may issue a Taking-Over Certificate, in which case (under clause 11.4(b)) it is entitled
to claim:
• Performance Damages.
• A reduction in the Contract Price, if there is no Schedule of Performance Guarantees and no
applicable Performance Damages. The Contract Price will be reduced by an amount that is
appropriate to cover the "reduced value to the Employer as a result of this failure" and not
simply the reduced value of the Works.
The 1999 Silver Book also allowed the Employer to take-over in these circumstances with a
corresponding reduction in the Contract Price. However, it was not clear whether this reduction in
Contract Price was, in effect, equivalent to Performance Damages for failure to achieve specified
performance criteria where the Tests on Completion included performance tests. The 2017 Silver Book
clarifies this.

However, the cross-referencing between clauses 9.4(d) and 11.4(b) introduces an element of confusion
concerning the nature of the remedy. While clause 11.4(b) provides that payment of Performance
Damages or a reduction in the Contract Price is "in full satisfaction of this failure only", clause 9.4(d)
provides that in these circumstances:
• The Contractor shall proceed in accordance with all other obligations under the Contract.
• The Employer's entitlement to recover Performance Damages or a reduction in the Contract
Price is without prejudice to any other rights the Employer may have under the Contract or
otherwise.
The reference in clause 11.4(b) to "this failure" may mean the Contractor's failure to rectify defects
or damage as that is the subject matter of clause 11.4. However, the Parties may want to clarify this.
Typically, performance liquidated damages are intended to be an exclusive remedy for shortfall in
specified performance. However, if further performance tests are carried out after taking-over under
clause 12.1 (with related Performance Damages for any performance shortfall under clause 12.4, which
is also stated to be an exclusive remedy), the Parties must consider how this relates to any Performance
Damages payable or reduction in Contract Price under clause 9.4(d).
Depending on the type of project, an Employer and its lenders are generally reluctant to allow taking-
over to occur if performance testing has not been carried out and will usually insist that the key
performance tests, which demonstrate that the completed facility has met minimum performance
criteria, are carried out as part of the Tests on Completion (see Performance testing).
Extension of the Time for Completion

Clause 8.5 is an important clause for the Contractor because it defines the circumstances that entitle it
to an EOT, which brings it relief from Delay Damages under clause 8.8. Under clause 8.5, the Contractor
must demonstrate that the delay event will actually delay completion for the purposes of clause 10.1
and must comply with the notice and other requirements of clause 20.2 (except for a Variation) (see
Contractor's and Employer's Claims).
The Contractor is entitled to claim an EOT if and to the extent that completion is or will be delayed by
the following (where * indicates an event new to the 2017 Silver Book):
• *Employer's delay in or failure to obtain permits (clause 1.12).

• Delayed access to Site (clause 2.1).
• *Unforeseeable co-ordination and co-operation with other contractors on Site (clause 4.6).
• *Changes to access route (clause 4.15).
• Archaeological and geological findings (clause 4.23).
• The Employer delaying or interfering with Tests on Completion (clauses 7.4, 9.2 and 10.3).
• *Remedial work attributable to Employer (clause 7.6).
• *Unforeseeable shortages in personnel, Goods or any Employer Supplied Materials caused by
epidemic or government actions (clause 8.5(c)).

• Any delay, impediment or prevention caused by the Employer, its personnel or other contractors
on Site (clause 8.5(c)).
• A public authority *or private utility in the host country causing Unforeseeable delay or
disruption to the Contractor (clause 8.6).
• The Employer suspending the Works (unless for Contractor default) and or the Contractor
subsequently resuming work (clause 8.10).
• Variations (clause 13.3.1).
• A change in law (clause 13.6).
• The Contractor suspending Works or reducing the rate of work for Employer default including
non-payment or failing to provide evidence of its financial arrangements (clause 16.1).
• *14-day Notice of Employer's default (clause 16.2.2).
• The consequences of events that are at the Employer's risk (clause 17.2).
• An Exceptional Event (an event of Force Majeure under the 1999 Silver Book) (clause 18.4(a)).
The Contractor has no obligation to avoid or mitigate the causes, or length, of any delay. In addition,
the Contractor's entitlement to an extension of time is not conditional on it taking any such mitigating
action. While this is no different from the position under the 2017 Yellow Book, the absence of this
type of provision is more surprising in the context of a turnkey contract. Employers and lenders to the
project, who desire a more traditional turnkey solution, may suggest amendments that provide a more
certain completion date and, ultimately, Contract Price.
This type of provision is often heavily negotiated, as both the Employer and its lenders will be concerned
to avoid any slippage to the Time for Completion and any potential mismatch with the time for
completion under other project documents, such as a concession contract. To this end, clause 8.7 entitles
the Employer to instruct the Contractor to increase its rate of progress (to accelerate), at the Contractor's
risk and cost, if the current rate is too slow to meet the Time for Completion (for reasons other than the
causes listed above that entitle the Contractor to claim an EOT).
Clause 8.7 also makes it clear that any instruction to the Contractor to increase its rate of progress to
reduce any delay resulting from causes that do entitle the Contractor to claim an EOT will be treated as
a Variation instruction under clause 13.3.1. This provision does not appear in the 1999 Silver Book.
Concurrent delay
Clause 8.5 (final paragraph) addresses concurrent delay. This is the first time a FIDIC contract has
expressly dealt with concurrent delay, although it is an issue that users often address by bespoke
amendment.
Clause 8.5 provides that where there is concurrent delay:
"… [t]he Contractor's entitlement to EOT shall be assessed in accordance with the
rules and procedures stated in the Special Provisions (if not stated, as appropriate
taking due regard of all relevant circumstances)."

The Guidance Notes state that the provision has been drafted in this way because a standard approach
has not yet been adopted on an international basis and different rules and procedures may apply
in different jurisdictions. However, it does suggest that the approach adopted by the Society of
Construction Law Delay and Disruption Protocol, 2nd Edition, 2017 (SCL Protocol) is increasingly
being adopted internationally. The SCL Protocol suggests that where a contractor delay event occurs or
has an effect concurrently with an employer delay event:
• The contractor's concurrent delay should not reduce any EOT due.
• To the extent that the contractor incurs additional costs as result of the delay, it should only
recover compensation if it is able to separate the additional costs caused by the employer delay
event from those caused by the contractor delay event. If it would have incurred the additional
costs in any event as a result of the contractor delay event, it is not entitled to recover those
additional costs.
The SCL Protocol gives guidance on the meaning of "concurrent delay" and when concurrent delay
occurs in practice (SCL Protocol, Part B, Guidance on core principles, Section 10).
Parties should note that clause 17.2 (final paragraph) also deals with concurrent delay in the context
of loss or damage to the Works. It provides that where the Contractor suffers delay and or incurs Cost
from rectifying any loss or damage to the Works that was caused by a combination of a Contractor risk
event and an Employer risk event, the Contractor will be entitled to Claim a proportion of EOT and/
or Cost Plus Profit to the extent that the Employer risk event contributed to such delays or Cost. This
clause makes no reference to Special Provisions or the SCL Protocol (see Responsibility and liability
for the care of the works).
For more information on concurrent delay, see Practice note, Delay to construction contracts:
Concurrent delay.
Delay Damages
In common with other standard form construction contracts, the 2017 Silver Book provides that the
Contractor is liable for Delay Damages if it fails to complete the Works within the Time for Completion.
The rate of Delay Damages is set out in the Contract Data.
A key issue generally in relation to delay liquidated damages is the extent to which they are an exclusive
remedy for failing to complete the Works on time. Clause 8.8 expressly provides that Delay Damages
are the only damages due from the Contractor for a failure to achieve completion by the Time for
Completion, other than in the event of termination for Contractor default before completion of the
Works. The parties usually agree a cap on the total amount of Delay Damages payable by the Contractor
(also set out in the Contract Data). In effect, clause 8.8 operates as a limitation on the Contractor's
liability for losses arising from its failure to complete the Works on time.

However, clause 8.8 also provides that the total cap on the Contractor's liability for Delay Damages
does not apply in any case of fraud, gross negligence, deliberate default or reckless misconduct by the
Contractor. This is a new provision.
In Biffa Waste Services Ltd v Maschinenfabrik Ernst Hese GmbH [2008] EWHC 6 (TCC) the employer
(Biffa) argued that there was a distinction between delay caused simply by a breach of the requirement
to complete the works by the specified completion date and delay caused by breach of other obligations
under the construction contract. This meant it was entitled to recover unliquidated damages for delay
where such delay was caused by breach of the contractor's (MEH) other obligations.
Although the contract was not a FIDIC contract, the relevant clause was similar to clause 8.8, providing
that liquidated damages "shall be the only monies due from the contractor for [failure to achieve the
completion date]".
MEH argued that any loss suffered by Biffa as a result of delay was to be compensated under this clause
and that it could not recover damages for delay in excess of the contractual cap on liquidated damages.
The court agreed with MEH. It held that the liquidated damages provision was clearly expressed as a
complete remedy for delayed completion, so Biffa could not recover any additional damages from MEH
for delay other than liquidated damages.
Where a 2017 Silver Book contract is governed by English law, clause 8.8 is likely to be interpreted in
a similar way. For this reason, an employer typically seeks an express right to terminate for prolonged
delay at the point at which any cap on delay liquidated damages is reached so that it does not find
itself in a period of potentially uncompensated delay at a time when a contractor's incentive to complete
the Works may be significantly reduced. The 2017 Silver Book now expressly addresses this concern
by providing an additional termination right for the Employer if the Contractor's liability for Delay
Damages reaches the cap (see Suspension and termination).
Clause 8.8 also makes it clear that the Employer must make a formal claim for Delay Damages. In other
words, it must comply with the notice and other requirements of clause 20.2 (see Contractor's and
Employer's Claims). Under the 1999 Silver Book, Employers typically argue that the claims procedure
(under clause 2.5 of the 1999 Silver Book) should not apply to recovering delay liquidated damages,
which are a defined liquidated amount.
This issue arose in J Murphy and Sons Ltd v Beckton Energy Ltd [2016] EWHC 607 (TCC) in the context
of the 1999 Yellow Book. The Employer amended the contract with the effect that the clause 2.5 "claims"
process did not apply to its claim for delay liquidated damages. (For more information, see Legal update,
Liquidated damages are not subject to employer's claims procedure under amended FIDIC Yellow
Book (TCC) and Blog post, Know what you are dealing with: lessons learned from Murphy v Beckton.)
Clause 9.4 of the 2017 Silver Book now also makes it clear that to the extent that the Employer is entitled
to a reduction of the Contract Price or to recover any amounts from the Contractor if the Works fail to
pass the Tests on Completion (including Performance Damages), it must comply with the notice and
other requirements of clause 20.2.
For more information about liquidated damages generally, see Practice note, liquidated damages in
construction contracts.

Performance testing
For power projects, process plants and other projects where performance of the completed facility is
critical to the success of the project, the performance testing regime, including the performance criteria
the project is required to achieve and the consequences of any performance shortfall, are key elements
of the contract (see Fitness for purpose).
In common with the 1999 Silver Book, the 2017 Silver Book anticipates that performance testing may be
carried out as part of the Tests on Completion and, if this is the case, that the Contractor will be required
to achieve certain performance criteria at that stage (see Tests on Completion). Clause 12.1 also provides
for performance testing to be carried out after taking-over, in other words, when the Contractor has
already handed over the facility to the Employer as "complete". Depending on the particular project,
certain performance tests, such as reliability testing and availability under certain operating conditions,
may have to be carried out after taking-over. However, most Employers and any lenders to the project
will require the main performance tests to be carried out before taking-over to ensure that:
• The facility has been comprehensively tested and achieved minimum performance criteria
before it is regarded as "complete" (see Performance Damages).
• Delay Damages remain payable (subject to any cap) until it has achieved minimum performance
criteria (see Delay Damages).
The Guidance Notes also highlight that in some jurisdictions the applicable law may mandate that
certain tests are carried out before commercial operation.
If the completed Works fail the Tests after Completion, clause 12.4 provides that the Works will be
deemed to have passed the tests if:
• Applicable Performance Damages are set out in the Schedule of Performance Guarantees.
• The Contractor pays this amount during the DNP.
The Guidance Notes advise that the method of calculating the Performance Damages should be defined
in the Schedule of Performance Guarantees, and that minimum acceptable performance criteria should
also be specified. Clause 12.4 also provides that:
• The Employer must comply with the notice and other requirements of clause 20.2 to claim
Performance Damages.
• Payment of Performance Damages is in "full satisfaction" of the failure to pass the Tests after
Completion. This is another reason why the key performance tests should be carried out as part
of the Tests on Completion (see Performance Damages).
The Contractor itself often prefers performance testing to be carried out while it remains responsible
for, and in control of, the Works so that the testing can be carried out by its experienced staff. The 2017
Silver Book provides that the Contractor will carry out any Tests after Completion in the presence of
such of the Employer's and or Contractor's Personnel as the other may request. If the parties adopt
different arrangements then the Contract must be amended to reflect this.

Performance Damages
For a turnkey project where the Contractor is responsible for proving the performance and reliability
of the completed facility, the Contract should include provisions specifying the detailed testing that
will demonstrate that the completed facility meets the Employer's performance requirements, including
testing methodologies and equipment requirements. It should specify what performance tests are to be
carried out as part of the Tests on Completion and what tests, if any, will be carried out after completion.
As with the other "completion" tests, the nature and extent of the performance testing regime will
depend on the type of project. However, in general terms, there are usually two levels of performance
criteria:
• The minimum acceptable performance criteria that must be achieved (often referred to as
"Minimum Performance"). These are absolute requirements.
• The performance criteria that the Contractor "guarantees" will be achieved (often referred to as
"Guaranteed Performance"). These are non-absolute and usually specify an acceptable range
between Minimum Performance and Guaranteed Performance. To the extent the completed
facility fails to achieve Guaranteed Performance but performance is within the specified range,
the Contractor compensates the Employer for this shortfall by paying Performance Damages.
Performance Damages and their method of calculation should be set out in the Contract. It should also
specify the consequences of failing to achieve Minimum Performance. Typically, an Employer may want
the right to reject the completed facility in these circumstances. This accords with the Employer's right
to reject the Works and terminate the Contract if the Works fail to pass the Tests on Completion and
this deprives the Employer of substantially the whole benefit of the Works (see Rejection of Works and
termination (clause 9.4(b))).
However, in practice, it is difficult to see how this can work if performance testing is carried out as
part of the Tests after Completion because, at this stage, taking-over has occurred together with all
the consequences that entails (see Completion and Taking-Over). Ideally, the main performance tests
should be carried out as part of the Tests on Completion. After taking-over, any performance shortfall
can only be compensated by Performance Damages.
If the 2017 Silver Book is used for a project where performance of the completed facility is critical to its
success, an Employer and its lenders are likely to require that:
• Key performance tests are carried out as part of the Tests on Completion, before taking-over,
which means that Delay Damages will remain payable (subject to any cap) until the Works have
achieved minimum performance criteria.
• The consequences of the Works failing to achieve Minimum Performance are clearly set out.
• Performance Damages and their method of calculation are clearly set out.
• The Employer has a right to call for the payment of Performance Damages and accept the facility
(similar in effect to clause 9.4(d)) when Delay Damages are capped out, as an alternative to
terminating the contract under clause 15.2(c).

• Where performance testing is carried out as part of the Tests after Completion, any Performance
Damages (for failing to pass these tests) and their method of calculation are clearly set out.
Variations
Determining whether an item of work is a Variation is rarely straightforward under a contract for a large
complex project and often gives rise to a dispute. This is because it involves determining whether the
Contractor has an obligation to carry out that item of work under the original contract scope, which in
turn involves a complex analysis of relevant factual information and technical data, expert analysis and
other issues such as contract interpretation.
To address this issue and consistent with other changes introduced in the 2017 suite, the 2017 Silver
Book adopts a more formal, prescriptive approach to the procedure for instructing Variations.
Procedure for instructing a Variation

A Variation is "any change to the Employer's Requirements or the Works, which is instructed as a
variation under Clause 13". Clause 13 provides that a Variation can be initiated by the Contractor (under
13.2 (value engineering)) or by the Employer in one of two ways. The Employer may either:
• Instruct a Variation under clause 13.3.1.

• Request a proposal from the Contractor under clause 13.3.2 before instructing a Variation.
For a Variation instruction to be valid it must:
• Be in writing.
• State that it is a Variation instruction.
Under the 1999 Silver Book, the procedure for instructing variations is more flexible and whether
an instruction constitutes a variation depends on its substance rather than its form. For example, an
informal communication may constitute a variation in practice even though the Employer did not intend
it to be one. This means that the Employer has very little certainty concerning the extent of "variations"
until the final account stage and, as a result, no real certainty regarding the out-turn cost.
The more formal procedure under the 2017 Silver Book addresses this issue and reflects the approach
taken in international projects, particularly oil and gas projects and under EPC contracts, where the
Contractor typically takes more design risk. However, it raises a different issue that some commentators
refer to as the impasse problem. In other words, the Contractor will not carry out "instructed" work
without a formal Variation instruction if it considers the instruction constitutes a Variation because it
will not get paid for any additional work without a formal instruction. The Employer will not instruct a
formal Variation because it considers that the Contractor is obliged to carry out the work it has instructed
as part of the original scope.
FIDIC has sought to address this problem in clause 3.4, which provides:

• The Employer's Representative may give an instruction to the Contractor at any time.
• If the instruction does not state that it constitutes a Variation and the Contractor considers that
either of the following apply, it must notify the Employer's Representative immediately, giving
reasons, and not start any work:
• it does constitute a Variation; or
• it does not comply with applicable laws, will reduce the safety of the Works or is technically
impossible.
• The Employer's Representative must respond within seven days after receiving this notice by
confirming, reversing or varying the instruction. If it fails to do so, the instruction is deemed to
have been revoked.
• If the Employer's Representative does respond within the time limit, the Contractor is required
to comply with and be bound by its response.
This provision suggests that the Contractor is obliged to carry out additional work, even if it considers it
is outside the original scope, if the Employer's Representative confirms its original instruction but does
not give a formal Variation instruction.
In these circumstances, presumably the Contractor will have to notify a Claim in accordance with clause
20 (see Contractor's and Employer's Claims). It may be able to rely on "local law" to argue that it
is entitled to payment for this work. For example, under common law, if the Employer insists on the
Contractor carrying out instructed work but refuses to formally instruct a Variation because it considers
the work is within the original scope, the Contractor may be able to argue that there is an implied promise
to pay if it turns out that the instructed work is additional work.
Omitted work
Clauses 13.3.1(c) provides that where a Variation instruction relates to omitted work, the Contractor
may include the "cost" of the omission in its proposal for adjusting the Contract Price. It is not entirely
clear why this provision refers to "cost" as opposed to "Cost" (as that term is defined) or why the amount
to be deducted from the Contract Price is not simply the "price" of the omitted work.
Omitted work may be carried out by others but only if both Parties agree. In this case, the Contractor
is entitled to recover loss of profit and other losses and damages suffered (or to be suffered) as a result
of the omission. Contrast this with clause 13.1 of the 1999 Silver Book, which simply provides that a
variation cannot omit work that is then to be carried out by others.
This is a welcome clarification as disputes about these issues are common in practice.
Valuation of Variations

Parties should note that the 2017 Silver Book now addresses the valuation of Variations. The 1999 Silver
Book is largely silent on how to value the varied Works (including omitted work) and as a result disputes
commonly arise.
In determining the valuation of any Variation, the Employer's Representative is required to derive the
adjustment to the Contract Price from:
• The appropriate rate or price for the item of varied work set out in the Schedule of Rates and
Prices or, in the absence of any such item of work, the rate or price specified for similar work.
The Employer's Representative may decide that a new rate or price is appropriate for an item
of work if no rate or price for this item is specified and no specified rate or price is appropriate
because the work is not sufficiently similar.
• Cost Plus Profit of executing the Works if no Schedule of Rates and Prices is included in the
Contract.
The Parties may decide to incorporate their own mechanism for valuing Variations. The Employer is
now obliged to assess a provisional rate or price until any adjustments to the Contract Price are agreed
or determined.
Contractor's right to object

Clause 13.1 provides that the Contractor may object to a Variation if:
• *The varied work was Unforeseeable having regard to the scope and nature of the Works
described in the Employer's Requirements (clause 13.1(a)).
• It cannot readily obtain the Goods required for the Variation (clause 13.1(b)).
• *It will adversely affect the Contractor's ability to comply with its health and safety obligations
(under clause 4.8) or those relating to protecting the environment (under clause 4.18) (clause
13.1(c)).
• It will have an adverse impact on achieving any of the Performance Guarantees (clause 13.1(d)).
• *It may adversely affect the Contractor's obligation to complete the Works so that they are fit for
their intended purpose under clause 4.1 (clause 13.1(e)).
The grounds of objection marked with * are new to the 2017 Silver Book. The 1999 Silver Book allowed
the Contractor to object on the basis that the Variation would "reduce the safety or suitability of the
Works". This ground is no longer a stand-alone ground under the 2017 Silver Book, although it is
covered off to some extent under clauses 13.1(c) and (e). The ground of objection under clause 13.1(a)
is potentially very wide and may give the Contractor the ability to object to a number of Variation
instructions. Even the Employer cannot "foresee" many of the Variations it may instruct on any given
project. However, it is intended to capture those variations that may fundamentally change the scope
and/or nature of the project.
Interestingly, clause 13.1 does not include any of the grounds on which the Contractor may object to an
instruction under clause 3.4 (see Procedure for instructing a Variation).

Notwithstanding the Contractor's objection, the Employer may confirm the instruction, in which case
clause 13.1 provides that:
"[a]ny instruction so confirmed or varied shall be taken as an instruction under Sub-

Clause 13.3.1 [Variation by instruction]".
It is not entirely clear how this is intended to work in practice.
On one view, it is clear from clause 13.1 that the Contractor is:
"bound by each Variation instructed under Sub-Clause 13.3.1 [Variation by

Instruction] and shall execute the Variation with due expedition and without delay,
unless the Contractor [objects]…"
If the Employer has dismissed the Contractor's objection and confirmed its original Variation
instruction, can the Contractor object all over again? Presumably not, as this would be completely
circular and create a different type of "impasse" problem.
Therefore, if the Contractor still "objects" to the Variation presumably it will have to notify a Claim in
accordance with clause 20 (see Contractor's and Employer's Claims).
A different view is that FIDIC cannot have intended to give the Contractor an ability to object to a
Variation instruction but for that objection to have no "teeth" and for the Employer, in effect, to be able
to ignore the Contractor's objection.
The Parties may wish to amend clause 13.1 to clarify this position.
Effect on performance security and Employer's financial arrangements

The Parties should also be aware of two new provisions that may affect the performance security and
Employer's financial arrangements:
• Where Variations result in an accumulative increase of the Contract Price exceeding 20%, the
Contractor must increase the amount of the Performance Security by "a percentage equal to the
accumulative increase" if requested to do so by the Employer. Similarly, if the Contract Price
decreases by more than 20%, the Contractor may decrease the amount of the Performance
Security, although this is subject to the Employer's prior consent (clause 4.2.1) (see Performance
securities).
• If a Variation instruction has a price greater than 10% of the Contract Price or the accumulative
total amount of all Variations exceeds 30% of the Contract Price, the Contractor may request
the Employer to provide reasonable evidence that financial arrangements have been made so

that the Employer can pay the outstanding balance of the Contract Price. Failure to do so within
28 days of the Contractor's request entitles the Contractor to suspend work and, ultimately, to
terminate the Contract (clause 2.4) (see Employer's financial arrangements).
For more information generally about variations, see Practice note, Variations arising under a
construction contract.
Defects
In common with other construction contracts for major projects, the 2017 Silver Book sets out the
parties' responsibilities and obligations in relation to defects in the Works that occur both before and
after taking-over.
Defects before taking-over

Clauses 7.5 and 7.6 set out the procedure that applies before taking-over where any Plant, Materials,
design or workmanship is found to be defective or otherwise not in accordance with the Contract. These
provisions are more detailed than the equivalent provisions under the 1999 Silver Book. For example:
• The Contractor must promptly submit its proposal for remedying the defect.
• The Employer may Review the proposal and notify the Contractor of the extent to which its
proposal is deficient or give a Notice of No-objection.
• If the Employer notifies the Contractor that its original proposal is deficient, it must promptly
submit a revised proposal for the Employer's Review.
• If the Employer fails to respond to the Contractor's original or revised proposal within 14 days of
receipt it will be deemed to have given a Notice of No-objection.
• If the Contractor fails to submit its proposal or revised proposal promptly or carry out any
proposed remedial work to which the Employer has given or is deemed to have given a Notice of
No-objection, the Employer may:
• instruct the Contractor under clause 7.6(a) or (b) to repair or remedy, or remove and
replace or re-execute any Plant and Materials or other defective or damaged work at its
own cost (clause 7.5(a)).
If the Contractor does not comply with the instruction, the Employer may do the work
itself at the Contractor’s cost.
Parties should note that clause 7.6 does not limit the recovery of cost to reasonable cost
and nor does it state that the Contractor has no responsibility for the work carried out by
others (by contrast with the position where the Employer rejects the defective item, see
next bullet point); or
• reject the defective item and carry out or have the remedial work carried out by others. The
Employer is entitled to recover its reasonable costs in so doing although the Contractor has
no responsibility for this work (clause 7.5(b)).

Users should note that the Employer also has the right to terminate the Contract under clause
15.2.1(d) if the Contractor fails to comply with a Notice of rejection under clause 7.5 or an
instruction under clause 7.6 within the prescribed time period. (This is a new provision in the
2017 Silver Book. It does not appear in the 1999 Silver Book although it is included in the 1999
Red and Yellow Books.)
Defects after taking-over

Clause 11.1 obliges the Contractor to correct any defects outstanding at taking-over and any defects or
damage notified to it during the DNP for the Works or the relevant Section or Part.
Clause 11.2 defines the defects that the Contractor is required to rectify at its risk and cost. These are
defects:
• In Plant, Materials or workmanship not in accordance with the Contract.

• In the design of the Works other than any element of design for which the Employer is
responsible.
• Arising from improper operation and maintenance as a result of matters that are the
Contractor's responsibility, including the Contractor failing to properly train the Employer's
Personnel (clause 5.5), supply as-built drawings (clause 5.6) or supply sufficiently detailed
operation and maintenance manuals (clause 5.7).
• Arising from the Contractor's failure to comply with any other obligation.
The Contractor is also obliged to rectify defects that do not fall into one of these categories. However,
clause 11.2 provides that if the Contractor considers that any remedial work is attributable to a cause
other than those identified above, it must notify the Employer and the Employer's Representative will
agree or determine the cause under clause 3.5. This is potentially quite a lengthy process (see Employer's
Representative's agreement or determination). If the Employer's Representative agrees or determines
that the work is attributable to another cause then the clause 13.3.1 (variation by instruction) procedure
applies (see Procedure for instructing a Variation).
Therefore, the Employer potentially faces a long delay before the defects are rectified. While the intent
and purpose behind this provision appears to be similar to the 1999 Silver Book, there are some changes
that may make its application different in practice.
Clause 11.1 sets out a new procedure where a defect appears or damage occurs during the relevant DNP.
This includes a joint inspection, the Contractor's proposal for remedying the defect or damage and then
the remedial process including the Review procedure and remedies set out in clause 7.5 and potentially
also clause 7.6 (by cross-reference) (see Defects before taking-over). However, clauses 7.5 and 7.6 apply
to defective work discovered before taking-over and this creates some inconsistencies and ambiguities
as it applies to remedial work carried out during the DNP:
• The Contractor's right to compensation if a defect or damage arises from a cause other than the
Contractor's fault is different under clause 11.2 than under clause 7.6. It is not clear which one
would apply.

• If the Contractor fails to carry out any remedial work that the Employer instructs it to do, the
Employer may have this work carried out by others at the Contractor's cost under clause 7.6,
which applies by virtue of the cross-reference in clause 11.1(iii). Clause 11.4 also addresses a
failure to remedy defects, albeit in a slightly different way and this is likely to cause confusion
as it is not entirely clear which provisions apply (see Remedies for failing to rectify defects or
damage after taking-over).
• Clause 7.5 requires the Contractor to carry out any re-testing at its risk and cost whereas clause
11.6 provides that the Employer may carry out any repeat tests and that they will be carried out
at the risk and cost of the party liable for the cost of the remedial work under clause 11.2.
The cross-references between clauses 7 and 11 in relation to rectifying defects is likely to result in
some confusion concerning which provisions apply in each particular case. The Parties may choose to
include separate procedures for defects rectification: one that applies to defects appearing and damage
occurring before taking-over and one that applies after taking-over.
Remedies for failing to rectify defects or damage after taking-over

Clause 11.4 sets out specific remedies if the Contractor fails to remedy any defect or damage within the
required period or by the specified date. The Employer may:
• Engage another contractor to carry out the rectification work and recover its reasonable cost
from the Contractor, but the Contractor has no responsibility for this work. While this is not
an unusual provision in this type of contract, it creates an interface risk for the Employer in
circumstances where the Employer is not at fault (clause 11.4(a)). It is not entirely clear how
this fits with clause 7.6, which may also apply by virtue of the cross-reference in clause 11.1(iii).
Clause 7.6 specifically does not provide that the Contractor has no responsibility for work
carried out by others.
• Accept the damaged or defective work, in which case the Employer is entitled to claim:
• payment of Performance Damages (in full satisfaction of the Contractor's failure) (clause
11.4(b)(i)); or
• if there is no Schedule of Performance Guarantees or no applicable Performance Damages,
a reduction in the Contract Price in an amount reflecting the reduced value to the
Employer of the Works as a result of the Contractor's failure. This is also stated to be in full
satisfaction of the Contractor's failure (clause 11.4(b)(ii)).
This is a slightly unusual provision in the context of a failure to remedy defects or damage as
Performance Damages usually apply where the Works fail to achieve Guaranteed Performance
as part of any performance testing (see Performance Damages). (The 1999 Silver Book simply
refers to the Employer determining a reasonable reduction in the Contract Price in these
circumstances.)
However, the reason for this wording is likely to be because this remedy also applies where the
Works fail to pass the Tests on Completion (which may include a failure to achieve performance
guarantees) by virtue of the cross-reference in clause 9.4(d).
• Treat any part of the Works that cannot be used for its intended purpose(s) because of the
Contractor's failure to remedy and defect or damage as an omission, as if the omission had been

instructed under clause 13.3.1 (variation by instruction) (clause 11.4(c)). This is a new provision
that may also apply where a failure to pass the Tests on Completion means that a Section cannot
be used for its intended purpose (see Rejection of Section and omission (clause 9.4(c))). The
same comments apply. In particular, it is difficult to see how a Section can be rejected at this
stage because taking-over has occurred together with all the consequences this entails (see
Completion and Taking-Over).
• Reject the Works and terminate the Contract with immediate effect if the defect or damage
deprives the Employer of substantially the whole benefit of the Works (clause 11.4(d)). This
is the same remedy as applies if the Works fail to pass the repeated Tests on Completion and
the Employer rejects the Works under clause 9.4(b) (see Rejection of Works and termination
(clause 9.4(b))). The same comments apply and again it is difficult to see how this can work in
practice because, at this stage, taking-over has occurred together with all the consequences that
entails (see Completion and Taking-Over).
The Parties may choose to incorporate bespoke provisions to address a failure to pass Tests on
Completion and a failure to remedy defects and damage following taking-over to avoid any confusion
that may arise from cross-referencing between different parts of the Contract.
Other issues
Other issues that the parties should consider in relation to the defects provisions include:
Duration of the DNP
This should be agreed by the parties and recorded in the Contract Data. The default position is 365 days.
The Employer and its lenders may require a longer period for civil engineering projects or projects with
a substantial civil engineering element.
Extension of DNP
Following taking-over, if and to the extent that the Works, a Section, or a major item of Plant cannot
be used for the purposes for which they are intended because of a defect or damage, the Employer is
entitled to claim an extension of the relevant DNP, if:
• It shall not be extended by more than two years.

• It is attributable to matters that are the Contractor's fault, as set out in clause 11.2(a) to (d).
This is a new provision. The 1999 Silver Book provided for the DNP to be extended regardless of
cause.
The parties should consider whether this is appropriate in the context of their particular project,
especially in a large civil engineering project. In addition, the Employer must comply with the notice
and other requirements of clause 20 (Employer's Claims).

Performance Certificate
The Employer is obliged to issue the Performance Certificate to the Parties and the DAAB within 28 days
after the latest of the expiry dates of the respective DNPs or as soon as the Contractor has completed
and tested the Works, including remedying all defects, and supplying the Contractor Documents. The
Performance Certificate is deemed to constitute the Employer's acceptance of the Works (clause 11.9).
In addition, it triggers payment of the outstanding balance of the Retention Money (unless it has been
bonded) (clause 14.9) and expiry of the Performance Security (clause 4.2).
A new provision in the 2017 Silver Book provides that if the Employer fails to issue the Performance
Certificate within the specified period, it will be deemed to have been issued on the date 28 days after
the date on which it should have been issued.
The Performance Certificate under FIDIC contracts is not stated to be final, binding and conclusive that
the Contractor has satisfactorily performed the Contract. This means that the Employer will be able to
claim against the Contractor for defective work even after the Performance Certificate has been issued,
which may come as a surprise to some Contractors.
Despite this, the Employer and its lenders are unlikely to accept this "deeming" provision, in particular
because if there are outstanding defects or known problems at the end of the DNP, deeming the issue
of the Performance Certificate may mean that the Employer cannot make a claim on the Performance
Security in precisely the circumstances in which a claim is essential.
For more information, see Legal updates, On demand bond halted where underlying contract has
"strong case" for restraint (High Court) and Injunction to prevent call on bond when taking-over
certificate refused (second hearing).
Unfulfilled obligations
Clause 11.10 provides that each Party shall remain liable for fulfilling any obligation that remains
unperformed when the Performance Certificate has been issued. That clause confirms that there is no
contractual time limit on the Contractor’s liability after the Performance Certificate has been issued and
does not cut across applicable statutory limitation periods, such as the six-year (simple contract) and 12-
year (deed) limitation periods under English law or decennial liability (or other mandatory limitation
period) in other jurisdictions.
However, a new provision in the 2017 Silver Book provides that this is limited to two years for Plant
after expiry of the DNP for that Plant except:
• If this is prohibited by law, for example, where the applicable law provides for a mandatory
period of liability.
• In the case of fraud, gross negligence, deliberate default or reckless misconduct.

Performance securities
In common with the 1999 Silver Book, the 2017 Silver Book contemplates that the parties may be
required to provide various securities to protect against non-performance of contractual obligations,
and example forms of these are included as annexes to the standard form.
The 2017 Silver Book contains example forms of:
• Parent company guarantee (annex A).

• Tender security (annex B).
• Performance security - demand guarantee (annex C).
• Performance security - surety bond (annex D).
• Advance payment guarantee (annex E).
• Retention money guarantee (annex F).
• Payment guarantee by Employer (annex G).
Not all forms of security are appropriate for every project and the 2017 Silver Book anticipates that
the security package will be tailored to each specific project. A robust security package is essential on
major projects to cover the risk of events such as delay, breach of contract and insolvency. It is also a
standard lender requirement. The parties do not have to use the example forms, but should check that
any bespoke forms of bond or guarantee are consistent with the Contract.
The nature and extent of the security provided by bonds and guarantees is not always easy for parties
to understand. The terminology can be confusing because the terms "bond" and "guarantee" are often
used interchangeably and yet they have distinct legal meanings in many jurisdictions. In addition,
interpreting and enforcing bonds is particularly dependant on the law applicable to them and the
jurisdictions in which they are used, which often causes problems in practice. The Guidance Notes
expressly acknowledge that the example forms of securities and the related contract provisions must be
reviewed against, and may have to be amended to comply with, the applicable law.
For more information on bonds and guarantees in the context of English law, see Practice note, Bonds,
guarantees and standby credits: overview.
Parent company guarantee

The 2017 Silver Book anticipates that the Contractor may be required to provide a parent company
guarantee, although the General Conditions do not oblige the Contractor to provide this.
The Guidance Notes advise that if the Employer requires a parent company guarantee this should be
stated in the Instructions to Tenderers.
In common with the 1999 Silver Book, the 2017 Silver Book anticipates that the parent company
guarantee will be provided before the Contract is signed but will only take effect when the Contract has
come into effect. It is likely that the Parties will continue to follow their current practice of providing the

parent company guarantee at or around contract signature and including a provision in the Contract to
the effect that payment of the first interim payment is conditional on its provision.
Performance bond/guarantee
The 2017 Silver Book contains two forms of example Performance Security:
• A demand guarantee, which is an on-demand security instrument. It incorporates and is

subject to the Uniform Rules for Demand Guarantees, no 758 (URDG 758) published by the
International Chamber of Commerce (ICC). The URDG contains a set of rules that apply to on-
demand security instruments, including making demands or claims and provisions on governing
law and dispute resolution. For more information, see Practice note, URDG 758.
• A surety bond, which is a conditional bond that operates in a similar way to a guarantee.
The guarantor's liability arises and is conditional on an established default on the part of the
Contractor under the underlying Contract. It incorporates and is subject to the Uniform Rules
for Contract Bonds, no 524 (URCB 524) published by the ICC. Like the URDG, the URCB
contains a set of rules that apply to conditional bonds.
The intention behind incorporating the URDG and URCB into the relevant example forms of securities
is to facilitate a common international standard for securities.
The Parties should also note that:
• Clause 4.2 provides that the Performance Security shall be in the amount and currencies
stated in the Contract Data and that if an amount is not stated then no Performance Security is
required. The effect of this is that a simple error in completing the Contract Data properly may
mean the Contractor is not obliged to provide a performance bond at all. To avoid this, clause
4.2 may be amended to state expressly that the Contractor is obliged to provide, for example, an
on-demand performance bond in an amount equal to an agreed percentage of the Contract Price.
• The Contract anticipates that any Performance Security will remain in place until the Contractor
has completed the Works, remedied any defects, the Performance Certificate has been issued
and the Site has been cleared. If the security instrument contains an expiry date and the
Contractor has not become entitled to receive the Performance Certificate 28 days before the
expiry date, the Contractor is obliged to extend the validity of the bond. This situation may arise
where completion of the Works is delayed or where the DNP has been extended (clause 11.3). If
the Contractor fails to extend the validity of the bond the Employer is entitled to claim the full
amount of the Performance Security before its expiry date to preserve its value (clause 4.2.2(a)).
From the Employer's and its lenders' perspective, it is important that:
• the Contractor does in fact extend the validity of the security instrument when required to
do so; and
• the terms of the security instrument itself are consistent with the requirements of the
Contract.

• Clause 4.2.1 provides that whenever Variations result in an accumulative increase or decrease
of the Contract Price by more than 20% of the Contract Price, the amount of the Performance
Security shall be:
• increased by a percentage equal to the accumulative increase, if the Employer so requests;
or
• decreased by a percentage equal to the accumulative decrease if the Contractor so requests
provided the Employer gives prior consent.
If the Contractor incurs Cost as a result of the Employer's request to increase the Contract Price,
this will be treated as a Variation instruction. This is a new provision.
• Clause 4.2.2 specifies the circumstances that entitle the Employer to make a claim under the
Performance Security. It may only make a claim if the Contractor:
• fails to extend the validity of the security instrument in accordance with the Contract
(clause 4.2.2(a));
• does not pay the Employer an amount due, as agreed, determined by the Employer's
Representative or decided by the DAAB or arbitral tribunal within 42 days of such
agreement, determination or decision (clause 4.2.2(b));
• does not remedy a default within 42 days of a notice requiring it to do so (clause 4.2.2(c));
• acts or fails to act in a way that entitles the Employer to terminate the Contract under
clause 15.2 (termination by Employer) (clause 4.2.2(d)); or
• fails to repair any defective or damaged Plant, return it to Site, reinstall and retest it within
the agreed time period (clause 4.2.2(e)). This is a new provision.
• Some Employers (and their lenders) consider that some of these restrictions frustrate the
purpose of an on-demand security instrument, namely protecting the Employer against the
Contractor's non-performance of its contractual obligations by allowing it to claim an amount
from the bond provider "on demand", without further conditions (except perhaps concerning
the form of demand). In particular, the effect of clause 4.2.2(b) is that for certain Disputes, the
Employer may not be able to call on the bond until the arbitral tribunal has issued an award in
its favour. Where the Contractor is required to provide an on-demand security instrument, an
Employer and its lenders may seek to amend clause 4.2.2(b) and (d) so that the Employer can
make a claim under the Performance Security:
• if the Contractor fails to pay to the Employer any amount due to it under the Contract,
not simply those amounts that have been "determined" by the Employer's Representative,
DAAB or arbitral tribunal; or
• for any other breach of contract by the Contractor that causes the Employer to suffer a
loss and not just those that may entitle the Employer to terminate (see Suspension and
termination).
• On a complex project a Performance Certificate may be issued even though certain obligations or
defects are outstanding and despite the Contract providing otherwise. As a result, the Contract
is sometimes amended to provide that the security instrument will not expire for any pending or
previously notified claims and oblige the Contractor to extend its validity in these circumstances.

Advance payment bond

On a major construction project it is common for the Employer to make an advance payment to the
Contractor for long lead items and mobilisation costs, and for this amount to be bonded. Clause 14.2
provides for this if the amount of the advance payment is set out in the Contract Data. The example
form of "advance payment guarantee" is an on-demand security instrument and, as with the demand
guarantee, is subject to the URDG 758. If an amount is not stated in the Contract Data, clause 14.2 does
not apply.
Clause 14.2 of the 2017 Silver Book is more detailed than the equivalent provision under the 1999 Silver
Book although the process is substantially similar. Two notable changes in the process when compared
with the 1999 Silver Book are that:
• The Employer must make the advance payment within 14 days of receipt of the relevant
documents from the Contractor (clause 14.2.2).
• If the Contractor is required to extend the validity of the advance payment bond, it must
immediately provide to the Employer evidence that it has done so. If the Employer does not
receive this evidence seven days before the expiry date, it is entitled to make a call under
the bond for the amount of the advance payment not yet repaid. This addresses the current
uncertainty for the Employer under the 1999 Silver Book of not knowing whether or when the
Contractor has extended the validity of the bond.
In common with the 1999 Silver Book, the 2017 Silver Book sets out how the advance payment will be
repaid through percentage deductions in interim payments, although the parties are free to agree their
own regime (clause 14.2.3).
Retention
Clause 14.3(iii) provides that an amount for the retention will be deducted from interim payments. The
parties are free to agree the percentage of retention and any limit on Retention Money, which should
be recorded in the Contract Data.
The Guidance Notes include a special provision that allows for the early release of Retention Money if
the Contractor provides appropriate security in a form and from an entity the Employer approves. The
Guidance Notes also advise that a form of retention bond acceptable to the Employer should be included
in the tender documents. The example form of "retention money guarantee" is an on-demand security
instrument but the Employer may only make a claim under it if the Contractor has failed to carry out
its obligations to rectify defects for which it is responsible under the Contract. It cannot be called for
any other Contractor breach.
It is important that any retention bond remains in effect until the Contractor has completed the Works,
remedied any defects, the Performance Certificate has been issued and the Contractor has cleared the
Site. As with the other forms of performance security, the Employer should ensure that it does not let
any retention bond expire before the Performance Certificate has been issued.

Both the advance payment guarantee and the retention money guarantee are subject to URDG 758.
The parties are free to agree that the Retention Money is bonded from the outset of the Contract.
However, they will need to include a special provision to provide for this.
Clause 14.9 provides for release of Retention Money in two tranches:
• 50% when the Taking-Over Certificate has been issued for the whole of the Works and the
Works have passed all specified tests including any Tests after Completion (or, if a Taking-Over
Certificate is issued for a Section, the relevant percentage based on the percentage value of the
Section as stated in the Contract Data).
• The outstanding balance promptly after the latest of the expiry dates of the respective DNPs. If a
Taking-Over Certificate was issued for a Section, again, the relevant percentage.
If the parties agree a different regime for retaining and releasing the Retention Money, this must be
reflected in the Contract by including appropriate special provisions in place of clause 14.9.
Contract Price and payment

Clause 14 addresses the financial aspects of the Contract together with procedures for payment by the
Employer. In many jurisdictions, construction contracts must include specific provisions relating to
payment (for example, the timing of payments, payment terms, remedies for non-payment and interest
on late payments) The parties must take local law advice on these issues.
For more information on payment legislation that applies to construction contracts in the UK, see
Practice notes, Payment in construction contracts: Construction Act 1996 and Interest under the Late
Payment of Commercial Debts (Interest) Act 1998.
The overall payment mechanism under the 2017 Silver Book remains largely unchanged from the 1999
Silver Book. Like its predecessor, the 2017 Silver Book is based on a lump sum price (Contract Price)
and the Contractor takes the risk of changes in cost arising from its design. The price may be payable
in different currencies, which should be stated in the Contract Data. The 2017 Silver Book provides
that the Employer will make interim payments to the Contractor, which may be based on a Schedule of
Payments. This may comprise progress payments, milestone payments, regular monthly payments or a
combination of these. The parties should amend the general conditions by way of special provisions if
some other basis is to be used for determining interim payments.
The Guidance Notes suggest that if the Works consist only of a few different types of operations it may
be appropriate to adopt a simple measurement approach for valuing interim payments. An example
clause for an interim valuation procedure is included.
Clause 4.11 provides that the Contractor is deemed to have satisfied itself concerning the correctness
and sufficiency of the Contract Price.
That clause also provides that, unless the Contract states otherwise, the Contract Price covers all the
Contractor's obligations under the Contract and all things necessary for the proper design, execution
and completion of the Works and remedying defects. In other words, the Contractor takes the risk of

changes in the quantities of work from those which it may have originally identified. However, as with
any construction contract for a major project, there are several provisions that entitle the Contractor to
claim additional Cost and, in some cases, Cost Plus Profit (highlighted in bold):
• *Employer's delay in or failure to obtain permits (clause 1.12).

• Delayed access to Site (clause 2.1).
• *Changes to access route (clause 4.15).
• The discovery of fossils (clause 4.23).
• The Employer delays or interferes with Tests on or after Completion (clauses 7.4,
10.3 and 12.2).
• *Urgent remedial work attributable to Employer (clause 7.6).
• **The Employer suspends the Works (unless for Contractor default) (clause 8.10).
• *Unreasonable delay in access for remedial work during DNP (clause 11.7).
• The Employer instructs the Contractor to search for cause of a defect for which it is
not responsible (clause 11.8).
• Access for the Contractor to investigate the cause of any failure to pass the Tests
after Completion or to make an adjustment is unreasonably delayed or denied
(clause 12.4).
• Variations (clause 13.3).
• *Cost of Variation proposal (clause 13.3.2).
• A change in law (clause 13.6).
• The Contractor suspends the Works for a reason that is the Employer's risk under
clause 16.1, including a failure to provide evidence of its financial arrangements
(clause 16.1).
• *14-day Notice of Employer's default (clause 16.2.2).
• *Protection of life, property or safety of works following termination for
Employer's default or for convenience (clause 16.3).
• *The consequences of loss or damage to the Works or Goods resulting from a
combination of a cause for which the:
• Employer is liable; and
• Contractor is liable.
(Clause 17.2.)
• Certain Exceptional Events (clause 18.4(b)).
In general terms, the Contractor is entitled to recover Cost Plus Profit where the Employer is
blameworthy. Where neither party is at fault, the Contractor is usually only entitled to recover additional
Cost. The 2017 Silver Book includes several new provisions that entitle the Contractor to additional Cost,
or Cost Plus Profit as the case may be (indicated with a *). It also entitles the Contractor to recover Cost
Plus Profit in circumstances where it is only entitled to recover additional Cost under the 1999 Silver
Book (indicated with **).

These provisions are often negotiated and items may be added to or deleted from this list depending on
the type of project, its location and any particular circumstances affecting the project.
The Contractor may also be entitled to claim the following additional amounts:
• Financing charges for delayed payment (clause 14.8).

• Amounts payable on termination (clauses 16.4, 18.5 and 18.6).
• Amounts payable under a contractual indemnity (clauses 4.2.2, 17.3 and 17.5).
Partially Agreed Final Statement and discharge

The process for agreeing and paying the Final Payment is significantly different from the 1999 Silver
Book. Clause 14.11 introduces the concept of a Partially Agreed Final Statement (PAFS) that the
Contractor must issue instead of a Final Statement if:
• The Contractor's draft final Statement includes an estimate of amounts that will become due
after the Performance Certificate is issued, such as estimated amounts for outstanding Claims, a
matter before the DAAB or arbitration.
• The Employer and the Contractor cannot agree some of the amounts in the draft final Statement.
The PAFS must identify separately agreed amounts, the estimated amounts and the amounts that are
not agreed.
Clause 14.12 requires the Contractor to issue a discharge at the same time as submitting a Final
Statement or a PAFS. This is a condition precedent to the Employer making the Final Payment. The
discharge confirms that the total of such Statement:
"… represents full and final settlement of all moneys due to the Contractor under or
in connection with the Contract."
While this may be appropriate if the Contractor submits an agreed Final Statement, a PAFS cannot
represent full and final settlement of all monies due as it includes estimated amounts and amounts that
are expressly not agreed. Although clause 14.12 provides that the discharge can exclude certain items, it
is a limited exclusion that only applies to "any payment that may become due for any Dispute for which
a DAAB proceeding or arbitration is in progress". It does not cover estimated amounts for outstanding
Claims or disagreed amounts.
Clause 14.12 further provides that:
• If the Contractor fails to issue the discharge, it is deemed to have been submitted. This is
unlikely to be acceptable to a Contractor.

• The discharge will take effect when the Employer has:

• paid in full the amount stated in the Final Statement; and
• returned the Performance Security.
The intention appears to be that the discharge will not become effective until the Contractor has received
the final payment. This reflects the position under the 1999 suite, which does not require the Contractor
to submit a discharge if only parts of the draft final statement have been agreed. It is only required to
submit a discharge when it submits the Final Statement.
Clauses 14.7(c)(ii) and 14.12 (second paragraph) also indicate that a discharge is only required to be
submitted with a Final Statement and not a PAFS. However, this is not what the first sentence of clauses
14.12 and 14.13 provides and so the Parties may want to amend the Contract to clarify this.
In addition, the process that applies after the Contractor has submitted a PAFS (or the Employer deems
a draft final Statement to be a PAFS) is not entirely clear. In the absence of a clear process for submitting
a Final Statement following a PAFS, there is a risk that the discharge never takes effect as intended.
For more information about the PAFS process, the payment mechanism generally and the new time-
bar in clause 14.14 (cessation of Employer's liability), see Practice note, FIDIC Red, Yellow and Silver
Books, second edition, 2017: key changes: Payment.
Suspension and termination

Terminating a contract is a serious step. The Employer and the Contractor should consider the
consequences, both practical and legal, before giving a termination notice to the other party. If that
party disputes the termination and the DAAB or an arbitral tribunal later decides that the party was not
entitled to terminate, the financial consequences for that party will be significant. Under English law,
wrongful termination of a legally binding contract constitutes a repudiatory breach of contract by the
terminating party.
Suspension is a less drastic step than termination because it leaves open the possibility of the works
resuming. However, the two are closely related. A party often seeks to suspend performance for a
reason that would also give rise to a right to terminate and a prolonged suspension usually entitles the
"suspending" party to terminate.
A party's right to suspend or terminate under the contract must be distinguished from its right to
suspend or terminate at law. The grounds on which a party may suspend or terminate at law depend on
the governing law of the contract, and are often very narrow.
Under English law, there is no general right to suspend performance of a contract because the
other party is failing to perform its obligations. However, where the works are being carried out in
England, Wales or Scotland, a contractor has a statutory right to suspend performance of the works
for non-payment under section 112 of the Housing Grants, Construction and Regeneration Act 1996
(Construction Act 1996) if the contract in question is a "construction contract", as defined in section 104
of the Construction Act 1996. For this reason, a construction contract often includes express contractual

terms allowing one or other of the parties to suspend performance in certain circumstances. It also sets
out the legal and practical consequences of a suspension, the length of the period of suspension before
termination can occur and what happens if performance resumes following a suspension. (For more
information, see Practice notes, Suspension for non-payment under the Construction Act 1996 and Do
I have a "construction contract"?.)
In common with other standard form construction contracts, the 2017 Silver Book expressly permits
the Employer and the Contractor to suspend performance of the Contract in defined circumstances.
However, it does not exclude any rights either party may have to suspend the Contract under the
applicable law.
Similarly, contractual termination provisions often provide remedies that are greater than or different
from those available under the governing law. The right to terminate under a contract does not
necessarily exclude the right to terminate at law. However, the right to terminate at law may be excluded
where:
• The contract and governing law provide the innocent party with alternative rights that have
different consequences and the innocent party will necessarily have to choose between them.
• The parties have negotiated an exclusive remedies clause, preventing them from relying on
their right to terminate at law (where this is permitted by the governing law) (see Exclusive
remedies).
For more information about terminating a contract under a termination clause and at common law, see
Practice note, Contracts: termination.
The 2017 Silver Book contains detailed provisions regarding:
• Termination by the Employer, both for Contractor default and for convenience (clauses 15.2 and
15.5).
• Termination by the Contractor for Employer default (clause 16.2).
• Termination for a prolonged Exceptional Event (Force Majeure under the 1999 Silver Book)
(clause 18.5).
• Release from performance in circumstances that make performance impossible or unlawful,
which is similar to the English common law doctrine of frustration (clause 18.6).
It does not expressly exclude the right of either party to terminate under the applicable law.
For more information about:
• The changes introduced by the 2017 Silver Book, including the Employer's "new" right to
terminate when the cap on Delay Damages has been reached and the "new" materiality test, see
Practice note, FIDIC Red, Yellow and Silver Books, second edition, 2017: key changes: "New"
termination and suspension events and a materiality test.
• The Parties' rights to suspend or terminate under the 2017 suite, see Practice note, FIDIC:
Suspension and termination under the Red, Yellow and Silver Books (2017).

Liability caps and exclusions

In common with other contracts for major construction projects, the Parties' liability under the Contract
is excluded for certain types of loss and the Contractor's total liability to the Employer under the Contract
is capped. Typically these provisions are heavily negotiated and how they are interpreted is particularly
dependent on the applicable law of the Contract.
Indirect and consequential loss

Clause 1.14 provides that:
"Neither Party shall be liable to the other ... for loss of use of any Works, loss of profit,
loss of any contract or for any indirect or consequential loss or damage ..."
These expressions may be familiar to lawyers in common law jurisdictions but this may not be the case
in civil law jurisdictions where exclusions and limitations on liability are regulated by express provisions
of the relevant Civil Code. Even in common law jurisdictions, the meaning of some of these terms and
expressions can vary and are almost always case-specific. The precise scope of, and types of losses
covered by, indirect and consequential loss clauses has caused difficulties for English lawyers over the
years. As a result, many construction contracts, including those based on a standard form contract such
as the 2017 Silver Book, are amended to include detailed provisions that seek to define what losses
constitute "consequential and indirect" losses, explaining and expanding phrases such as "loss of use"
or "loss of any contract" by giving detailed examples specific to the particular circumstances.
In Transocean Drilling UK Ltd v Providence Resources plc [2016] EWCA Civ 372, the Court of Appeal
confirmed that it will uphold clearly drafted exclusion clauses negotiated between parties of equal
bargaining power and that the language chosen by the parties to express their intentions is particularly
important (see Legal update, Court of Appeal upholds knock-for-knock indemnities in commercial
contract). The clause will be interpreted in the particular context of that contract and, as a result, the
same word or phrase may mean different things in different documents. Where the Contract is governed
by English law, this practice of defining what losses are and are not excluded is likely to continue.
Another key issue in relation to exclusion clauses is the type of loss, if any, that is "carved out" of the
exclusion clause. Clause 1.14 provides that the exclusion of indirect or consequential loss does not apply
to:
• *Delay Damages under clause 8.8.

• * Loss of profit and other losses suffered for omitted work (clause 13.3.1(c)).
• *Termination payments under clause 15.7 following termination for Employer's convenience.
• Termination payments under clause 16.4 following termination for Employer default.
• *Losses arising from an infringement of intellectual and industrial property rights (clause 17.3).

• Indemnity payments under the first paragraph of clause 17.4 and clause 17.5.
The 2017 Silver Book includes several additional carve-outs when compared with the 1999 Silver
Book (marked with a *). However, it does not carve-out the new fitness for purpose indemnity
(see Indemnities). In addition, it still does not carve-out Employer's termination losses following
termination for Contractor default and it is likely that users will amend this provision to ensure that
these terminations losses are expressly carved out of the indirect and consequential loss exclusion, in
the same way as the Contractor's termination losses.
In addition, where Performance Damages are included in the Contract, the Employer and its lenders
will typically seek to carve these out of the indirect and consequential loss exclusion.
Limit on Contractor's liability

Caps on liability are common in international projects and clause 1.14 provides that the "total liability of
the Contractor to the Employer under or in connection with the Contract" will not exceed a maximum
amount (to be stated in the Contract Data). The parties are free to agree the maximum amount,
otherwise the default position is that the Contractor's total liability will not exceed the Contract Price
This is an aggregate cap on the Contractor's liability, but clause 1.14 excludes liability arising under:
• Clause 4.19: using electricity, water, gas and other services available at the Site.
• Clause 4.20: using Employer-Supplied Materials and Employer's Equipment.
• Clause 17.3: indemnity for breach of intellectual and industrial property rights.
• Clause 17.4, first paragraph: indemnities by Contractor. The second paragraph of clause 17.4 is
the new indemnity in favour of the Employer if errors in the Contractor's design result in the
Works not being fit for purpose. This indemnity falls within the overall cap.
The rationale behind these exclusions is that they represent amounts payable to third parties. The
applicable law will also dictate whether, or the extent to which, the parties may exclude or restrict
liability. In many jurisdictions, parties cannot limit or exclude their liability for death, personal injury
or in the case of fraud, as under English law. In some jurisdictions this also extends to gross negligence
or wilful misconduct. Clause 1.14 expressly provides that the liability of the defaulting Party in the case
of fraud, gross negligence, deliberate default or reckless misconduct is excluded from the cap on the
Contractor's liability.
By definition, everything that is not excluded from the cap falls within it. The amount of the cap on
liability and exclusions from the cap are usually heavily negotiated on every construction contract.
However, these must be considered in the context of each individual project, as they will vary between
different sectors and even between different projects in the same sector, depending on the parties'
agreed risk allocation.
Exclusive remedies

An exclusive remedies clause restricts a party's remedies for any breach of contract by the other party to
the remedies set out in their contract, and excludes all other rights of action. Under English law, other
common law remedies may be available to the parties in addition to their contractual remedies, such as
claims in tort or the right to treat a contract as discharged for repudiatory breach. The position will be
similar in other common law jurisdictions, while in civil law jurisdictions additional remedies may be
set out in the Civil Codes, which the parties may or may not be able to contract out of.
In common with the 1999 Silver Book, the 2017 Silver Book does not seek to exclude these rights. In other
words, it does not include an overall exclusive remedies clause, although Delay Damages under clause
8.8 and Performance Damages or, in their absence, a reduction in Contract Price under clause 11.4(b)(i)
and (ii), respectively (failure to remedy Defects) do operate as exclusive remedies in the circumstances
defined by those provisions.
A contractor sometimes seeks to amend the Contract to include an exclusive remedies clause, so that the
Contract defines the boundaries of the Contractor's liability to the Employer. However, the Employer
usually resists this, as the effect of an exclusive remedies clause can be draconian in practice. In Strachan
& Henshaw Ltd v Stein Industrie (UK) Ltd and GEC Alsthom Ltd [1997] EWCA Civ 2940, the Court
of Appeal upheld an exclusive remedies clause even though it meant that the contractual rights of the
wronged party were worthless.
Care of the works and indemnities

Clause 17, dealing with care of the works and indemnities, has been substantially re-ordered and re-
worked from the equivalent provisions under the 1999 Silver Book and is more closely aligned with
FIDIC's approach to the equivalent clause in the Gold Book. FIDIC's stated purpose in doing this was
to adopt a more natural flow from the allocation of contractual risk through issues of responsibility and
liability to indemnity and insurance, so that the risks carried by both the Employer and Contractor can
be clearly identified and allocated. In FIDIC's view, clause 17, together with clauses 18 (see Exceptional
Events) and 19 (see Insurance), now reflects this interaction between risk, responsibility, liability,
indemnity and insurance.
For more information about the changes introduced by the 2017 Red Book, see Practice note, FIDIC
Red, Yellow and Silver Books, second edition, 2017: key changes: Care of the works and indemnities.
Responsibility and liability for the care of the works

The risk allocation for care of the Works is largely the same as under the 1999 Silver Book. However,
key issues that users should be aware of are:
• Clause 17.1 and 17.2 respectively now clearly distinguish between responsibility, and liability,
for the Works. This is deliberate as FIDIC wanted to highlight that these words have different
and distinct meanings. For example, the Contractor has no liability for any loss or damage to the
Works caused by any of the matters set out in clause 17.2(a)-(f) (clause 17.2 events) even if it has
responsibility for the care of the Works at the time the loss or damage occurred. The Employer

may instruct the Contractor to rectify any such loss or damage but this will be at the Employer's
risk and cost. and this will be deemed to be a Variation Instruction. In short:
• A party has responsibility for care of the Works during the period when the Works are
under its control and influence. It is required to rectify any loss or damage during its
period of responsibility but may not be liable for the cost of doing so; and
• A Party may have a legal liability for any loss or damage to the Works at a time when it
does not have responsibility for care of the Works. Liability for any loss or damage may go
beyond the cost of repair.
• The definition of Employer's Risks (used in the 1999 Silver Book) has not survived in the 2017
Silver Book. This is deliberate. Feedback from users of the 1999 suite was that the definition was
confusing and generally misunderstood as limiting the Employer's risks under the Contract to
those identified as Employer's Risks. This was not the intention. Under the 2017 Silver Book,
clause 17.2(a)-(f) sets out those risks for which the Contractor has no liability if and to the extent
they cause damage to the Works, Goods or Contractor's Documents. However, they are much
more extensive than the Employer's Risks under the 1999 Silver Book. The clause 17.2 events
now include:
• interference with any right of way, light, air, water or other easement (other than that
resulting from the Contractor's method of construction), which is the unavoidable result of
executing the Works (also a new risk in 2017 Red and Yellow Books);
• any act or default of the Employer's Personnel or the Employer's other contractors (also a
new risk in 2017 Red and Yellow Books);
• the Employer's use or occupation of any part of the Permanent Works (except as may
be specified in the Contract). This is a strange amendment in a contract that typically
doesn’t allow the Employer to take over part of the Works. While this has always been an
Employer's risk under the Red and Yellow Books, it was not included in the 1999 Silver
Book;
• defects in the Employer's design. It is not clear how this fits with clause 5, which purports
to transfer all design risk to the Contractor. This has always been an Employer's risk under
the Red and Yellow Books (albeit that this risk is now qualified under the 2017 Red and
Yellow Books) but it was not included in the 1999 Silver Book; and
• any operation of the forces of nature (other than those allocated to the Contractor in the
Contract Data) which is Unforeseeable or against which an experienced contractor could
not reasonably have been expected to take adequate preventative measures. Again, while
this has always featured as an Employer's risk under Red and Yellow Books, the 1999 Silver
Book did not include it.
Users of the Silver Book are likely to be surprised by some of these additions. They change
the risk profile of the 2017 Silver Book in the Contractor's favour and do not appear to reflect
the traditional approach to turnkey contracting. For more information on these changes,
see Practice note, FIDIC Red, Yellow and Silver Books, second edition, 2017: key changes:
Responsibility and liability for the care of the works.
• There is a significant overlap between the Contractor’s obligations in respect of its responsibility
and liability for care of the Works under clauses 17.1 and 17.2 and its obligations to rectify
defects and damage under clauses 7 and 11. This is no different under the 1999 Silver Book.

However, clause 17.2 now makes it clear that the Employer will not be liable for any loss or
damage to the Works, Goods or Contractor's Documents caused by an event listed in clause
17.2(a)–(f) if such Works, Goods or Contractor's Documents have already been rejected by the
Engineer under clause 7.5.
If a clause 17.2 event causes loss or damage to the Works, Goods or Contractor's Documents
during the Defects Notification Period, once responsibility for the care of the Works has passed
to the Employer, it is likely that an Employer will rely on its rights under clause 11.1 to instruct
the Contractor to remedy damage to the Works rather than carry out the remedial work itself.
• Clause 17.2(e) provides that the Exceptional Events listed in clause 18.1(a)-(f) (see What
constitutes an Exceptional Event?) are Employer risk events. The clause 18.1 list of Exceptional
Events is expressly stated to be non-exhaustive. In addition, an Exceptional Event does not
arise unless the conditions in clause 18.1(i)–(iv) are satisfied. It is not entirely clear whether the
Employer's risk events comprise:
• the clause 18.1(a)-(f) events on a stand-alone basis;
• the clause 18.1(a)-(f) events subject to the clause 18.1(i)-(iv) conditions; or
• any event that may be an Exceptional Event under clause 18.1.
The Parties may want to clarify this.

• The operation of the forces of nature that are Unforeseeable by the Base Date (clause 17.2(d))
and natural catastrophes (clause 18.1(f)) are both Employer risk events. Under the 1999 Silver
Book, a natural catastrophe was an event of force majeure only, not an Employer's Risk. FIDIC
see these as distinct and separate but in practice, there may be some overlap between them,
which may be significant if the Contractor gives Notice under clause 17.2 rather than clause
18.2. Clause 17.2 is expressly subject to clause 18.4 (Consequences of an Exceptional Event),
which, in itself, is subject to the notice requirements of clause 18.2. However, presumably this
is only intended to apply in circumstances where the Exceptional Event prevents the Contractor
from meeting its obligations as clause 18.2 only requires a Party to give Notice of an Exceptional
Event if it is or will be prevented from performing its contractual obligations.
• There is a new provision that entitles the Contractor to recover a proportion of an EOT and/
or Cost Plus Profit where delays and/or Cost have been caused by a combination of Employer
risk events and Contractor risk events (clause 17.2, final paragraph). Unlike clause 8.5, this
provision makes no reference to determining the Contractor's entitlement to an EOT and or Cost
in accordance with the concurrent delay principles set out in the SCL Protocol (see Concurrent
delay).
Indemnities
Clause 17.3 sets out the indemnities in respect of intellectual and industrial property rights. It is very
similar to the equivalent provision under the 1999 Silver Book but it now:
• Clarifies that a claim under this provision is a third-party claim.

• Expressly includes the other party's legal fees and expenses as part of the indemnified amount.

• Entitles the Contractor to be indemnified by the Employer where any claim alleges an
infringement which is an unavoidable result of it complying with a Variation instruction.
• No longer requires the Contractor to indemnify the Employer where a claim arises from the
proper use of the Works.
Clause 17.4 and 17.5, respectively, set out the Contractor's and Employer's indemnities (previously
clause 17.1 under the 1999 Silver Book). In common with the 1999 Silver Book, these indemnities relate
to injury to persons and damage to property, other than the Works. However, they are more limited
than under the 1999 Silver Book as they now only relate to third party claims.
The other significant change is the new indemnity from the Contractor for a breach of its fitness for
purpose obligation. The indemnity is limited to circumstances where acts, errors or omissions on the
part of the Contractor in carrying out its design obligations result in the Works not being fit for purpose.
It is subject to the overall cap on the Contractor's liability and is not carved out of the consequential
loss exclusion. Despite this, this new indemnity remains one of the more controversial changes in the
2017 suite, not least because the Contractor may also be required to take out professional indemnity
insurance to back up this indemnity (see Professional indemnity insurance).
There are several other changes to the indemnity provisions that are a logical consequence of FIDIC's
desire to adopt a more natural flow from the allocation of risk through issues of responsibility and
liability to indemnity and insurance. For more information, see Practice note, FIDIC Red, Yellow and
Silver Books, second edition, 2017: key changes: Indemnities. Users should ensure that they are fully
familiar with the updated indemnity provisions and understand the extent to which these risks can be
mitigated by insurance.
Exceptional Events
Clause 18 deals with Exceptional Events (previously referred to as Force Majeure). It is substantially
similar to the equivalent provision (clause 19) under the 1999 Silver Book and similar issues are likely
to arise in practice.
What constitutes an Exceptional Event?

An Exceptional Event is widely defined as an exceptional event or circumstance that:
• Is not substantially attributable to a Party.

• Is beyond a Party's control.
• Could not reasonably have been provided against before entering into the Contract.
• Could not reasonably have been avoided or overcome.
Clause 18.1(a)-(f) is a non-exhaustive list of events that may constitute an Exceptional Event.
This type of clause should aim to reduce uncertainty regarding its meaning and its consequences. From
the Employer's perspective, this is likely to mean setting out a list of events that is finite and exhaustive.

However, this is unlikely to be acceptable to the Contractor. The key concern for an Employer is that a
Contractor will seek to obtain the benefit of this type of provision in a situation that is purely commercial
in nature, or could have been avoided by taking reasonable precautions.
For these reasons, parties may seek to define Exceptional Event more tightly and identify those events
which are not Exceptional Events. This may include:
• Insolvency of either Party (including Subcontractors).

• Non-availability of financing or lack of funds.
• Inability to obtain or maintain an adequate labour force.
• Restraints imposed by a governmental authority as a result of acts or omissions of the Party
claiming the benefit of this provision.
• Events that an experienced Contractor could reasonably foresee.
Parties should be aware of clause 18.6, which releases the parties from performance in situations that do
not fit within the strict definition of an Exceptional Event but which make it impossible or unlawful for
either or both Parties to fulfil its contractual obligations. In addition, if the governing law of the Contract
entitles a party to be released from further performance of the Contract in the particular circumstances
that have arisen, clause 18.6 entitles the party seeking relief under this provision to rely on that. The cost
consequences for the Employer are the same as if the Contract was terminated in circumstances where
the Exceptional Event continues for a prolonged period (see Consequences of an Exceptional Event).
For contracts governed by English law, this means that the parties may be able to invoke the common
law doctrine of frustration, although a construction contract is rarely considered to have been frustrated
because that concept is very narrowly defined. A frustrating event is one that:
• Occurs after the contract has been formed.

• Is so fundamental that it is regarded by the law both as striking at the root of the contract and as
entirely beyond what was contemplated by the parties when they entered the contract.
• Is not due to the fault of either party.
• Renders further performance impossible, illegal or makes it radically different from that
contemplated by the parties at the time of the contract.
For more information, see Practice note, Contracts: frustration.
Procedure if an Exceptional Event occurs

Clauses 18.2 and 18.3 set out the procedure to be followed when an Exceptional Event occurs. One of
the requirements is that the Party affected notifies the other Party of:
• The Exceptional Event.

• The obligations that it is prevented from performing.

Notice must be given within 14 days of the date the affected Party becomes aware, or should have become
aware, of the event in question.
Clause 18.2 makes it clear that if a Party fails to give Notice within the prescribed period it will only
be excused performance of the "prevented obligations" from the date the Notice is received by the
other Party. This is different from the 1999 Silver Book and addresses the uncertainty that arises
under that contract concerning whether a failure to give Notice within the prescribed period is a
condition precedent to a successful claim for relief from liability for an event of Force Majeure. For more
information, see Procedure if an Exceptional Event occurs.
Consequences of an Exceptional Event

Both the time and certain costs consequences of an Exceptional Event are allocated to the Employer.
The Contractor is entitled to claim Cost as a result of:
• War hostilities, invasion or act of foreign enemies.

• Other events (in clause 18.1(b) to (e)) if they occur in the country where the site is located.
(Clause 18.4(b).)
This is different from most other standard form construction contracts, which entitle the Contractor to
an EOT if performance is delayed by this type of event but treat the cost consequences as neutral (so
that the risk lies where it falls). This provision is sometimes amended to reflect that approach.
If the Exceptional Event continues for a prolonged period, either Party may give notice to terminate
the Contract. Clause 18.5 defines a prolonged period as either a continuous period of 84 days or
multiple periods that total more than 140 days due to the same Exceptional Event. Termination is
a serious step and a remedy of last resort. It is often in the project's interest to include a provision
extending this prolonged period before termination can take place, but allowing the Contractor to
recover any Cost incurred as a result of this extension. The Contractor's right to terminate will often
be subject to the terms of any direct agreement that it has entered into with lenders to the project or a
governmental authority responsible for promoting the project. In addition, the Employer must ensure
that the Contractor does not have a right to terminate the Contract unless the Employer has a similar
right under related project contracts.
For more information about direct agreements, see Practice note, Direct agreements in a project
finance transaction.
Interpreting "force majeure" provisions

How this type of clause operates in practice depends on the governing law of the contract and how
the clause is drafted; users that routinely amend this type of provision should bear this in mind. The
commercial court and the Court of Appeal have recently interpreted force majeure provisions in the
context of English law. In Seadrill Ghana Operations Ltd v Tullow Ghana Ltd [2018] EWHC 1640
(Comm), in the context of a contract for the hire of an oil rig, one of the issues was whether the force

majeure event had to be the sole cause of the failure to perform. In this case, Tullow's failure to provide
drilling instructions to Seadrill in breach of contract, was caused by two matters; one a force majeure, the
other not. The court concluded that, on a true construction of the "causation requirement" in the force
majeure clause, the force majeure event must be the sole cause of the failure to perform the contractual
obligation. Obiter, the court also found that Tullow failed to exercise its reasonable endeavours to avoid
or circumvent the force majeure as it was contractually obliged to do. Clause 18 of the 2017 Silver Book
contains similar drafting to the relevant clause in Seadrill.
For more information, see Legal update, Early termination not justified under force majeure clause
(High Court) and Blog post, Risky business: Offshore drilling and using force majeure as an exit route.
In Classic Maritime Inc v Limbungan Makmur & Lion Diversified Holdings [2018] EWHC 2389 the
court again considered the need to show causation when claiming force majeure. Limbungan was
contractually obliged to supply Classic with iron ore cargo but when the supplying mine shut down
due to a dam bursting, it claimed force majeure under its contract of affreightment. Classic claimed
significant damages for lost freight charges.
The court found on the facts that Limbungan would not have shipped the cargo even if the dam had not
burst. The causation requirement of the force majeure clause was not therefore met with the result that
Limbungan could not rely on force majeure to excuse its failure to supply cargo and was liable in breach.
The reasoning behind this was that Limbungan failed the “but for” test: the court asked but for the dam
bursting, would Limbungan have shipped? In applying this test, the court distinguished between force
majeure clauses that discharge the contract (a contractual frustration clause), where the "but for" test
does not need to be satisfied; and a force majeure clause that excludes liability for non-performance (an
exception clause) where the “but for test” does apply. It is not entirely clear what the position is where
there is a hybrid clause, as is the case under the 2017 Yellow Book.
However, when it came to assessing damages, the court concluded that Limbungan was not liable for
substantial damages. The court compared the position that Classic was in due to the breach, with the
actual position it would have been in had Limbungan complied with its contractual obligations. Even if
Limbungan had wanted to ship, no cargoes would have shipped because of the dam bursting, excusing
Limbungan’s failure to ship and resulting in a much lower award of damages. This novel approach to
assessing damages largely nullified the court's decision that Limbungan could not rely on the force
majeure provision and is likely to be the subject of further debate.
Perhaps not surprisingly, this decision was appealed on both the causation and quantum aspects. In
Classic Maritime Inc v Limbungan Makmur SDN BHD [2019] EWCA Civ 1102, the Court of Appeal
upheld the trial judge's decision on causation. In doing so, it commented that it was not helpful to import
meanings based on labels of "contractual frustration clauses", "exceptions clauses" and "force majeure
clauses" and that ultimately the effect of the clause is determined by its language. The Court of Appeal
disagreed with the trial judge on quantum and overruled the award of nominal damages. It held that
the award of nominal damages was a distortion of the long-established compensatory principle and that
the judge was wrong to take account of the reason why Limbungan was in breach of its duty to supply
the cargoes. This was an irrelevant consideration in the assessment of damages. For more information,
see Legal update, High Court's award of nominal damages a distortion of compensatory principle
(Court of Appeal).
For more information generally on force majeure provisions and frustration under English law, see
Practice notes, Contracts: force majeure and Contracts: frustration.

Insurance
Clause 19 of the 2017 Silver Book deals with insurance and, together with the associated Contract Data, is
much more prescriptive than its predecessor (clause 18 under the 1999 Silver Book). The main insuring
obligations are now on the Contractor and clause 19 sets out specific requirements in respect of each type
of insurance cover. The Contractor may also be required to effect and maintain professional indemnity
insurance (PII), which is a new requirement (see Professional indemnity insurance).
Insurance is critical in any construction project because of the significant risks that may be encountered.
As a result, the insurance package for the construction phase of a project tends to be complex. Any
lenders to the project will be particularly concerned that the project's exposure to various risks is backed
by appropriate insurance cover and that their interests in the insurances are adequately protected. The
terms and scope of the insurance is generally subject to their approval. This is one of the main ways in
which the Parties can mitigate risk and consequently, it is important that the Parties understand how
the insurance provisions relate to the contractual risk allocation.
It is also important that the Parties take advice on the adequacy of the insurance requirements for
the particular type of project, including whether they comply with local and legal requirements. For
example, an offshore wind farm that may have been procured using a multi-contracting approach
will have different insurance requirements than a ground mounted solar power project built and
commissioned by a single contractor. In the case of the former, it may be more effective for the project
company to put in place a project policy that insures against all construction risks and covers all those
with an insurable interest in the project.
Many typical insurance policies may not match the specific requirements of clause 19. In addition, the
Parties should consider whether:
• Parties other than the Employer and the Contractor, that have an insurable interest in the
project (such as lenders and sub-contractors of any tier) should be insured for their own
separate interests. Lenders will usually insist on this.
• The Employer has existing assets that need to be insured, in particular where the Works form
part of a bigger project.
• Delay in start-up or business interruption insurance is required.
• There are any other lender requirements in terms of the extent of insurance cover or
endorsements on the various policies relating to, for example, a non-vitiation clause, waiver of
subrogation rights or a loss payee clause.
Clause 19.1 also provides that the insurances are the minimum required for the project and that the
Contractor may add other insurances as it "deems prudent" However, in the interests of clarity and
certainty, both Parties should consider the insurance requirements with their respective insurance
brokers and agree the "required" insurances at the outset, including any Lender requirements. This
should be recorded and annexed to the Contract Agreement, as provided by clause 19.1.

Professional indemnity insurance

One of the more controversial new provisions is that the Contractor may be required to effect and
maintain PII in respect of its design obligations and, in particular, for that policy to cover any breach of
the fitness for purpose obligation. Typically, PII policies only provide cover where the Contractor has
been negligent; in other words, it has failed to exercise reasonable skill and care. Many contractors are
concerned that the type of PII policy that it may have a contractual obligation to effect and maintain is
simply not available in the market and clause 19 does not include any of the usual protections where
insurance is not "commercially available".
Contractor's and Employer's Claims

Clause 20 sets out the procedure the Parties must follow to make and substantiate a Claim under
the Contract. It is much more detailed than the equivalent provision under the 1999 Silver Book and,
importantly, now applies to both the Employer and the Contractor. Both Parties are subject to the same
process, including strict time limits for making a Claim:
• For an EOT and additional payment, in the case of the Contractor (Contractor Claims).
• For an extension of the DNP and additional payment (or a reduction in the Contract Price), in
the case of the Employer (Employer Claims).
• For another entitlement or relief "of any kind whatsoever" (but not time or money claims)
including in connection with any instruction, certificate, determination, Notice, opinion or
valuation of the Employer (Other Claims).
For a detailed summary of the procedure under clause 20, see Practice note, FIDIC: Making claims and
resolving disputes under the Red, Yellow and Silver Books (2017): Claims and, in particular, Procedure
for Employer and Contractor Claims.
Time limits and time-bar provisions

The Claims process imposes strict time limits on the Parties but it is important to differentiate between
time limits and time-bars. Time limits are just a limit, or a period of time in which a Party should act.
However, a time-bar, sometimes referred to as a condition precedent clause, is a period of time in which
a Party must act and if it does not do so, it loses certain rights.
The 2017 Silver Book contains five time-bars (as opposed to two under the 1999 Silver Book) in relation
to the Claims and dispute resolution process. If a Party fails to comply with the relevant time period in:
• Notifying an initial Claim, the Claim may be rejected (clause 20.2.1). This time-bar also features
in the 1999 Silver Book in the context of Contractor claims, but unlike the 1999 Silver Book, this
time-bar may be waived by the Employer's Representative in extenuating circumstances.
• Providing a statement of the contractual and or other legal basis as part of its fully detailed
Claim, the Notice of Claim is deemed to have lapsed and is no longer valid (clause 20.2.4).

This is a new time-bar but may be waived by the Employer's Representative in extenuating
circumstances.
• Giving a Notice of Dissatisfaction (NOD) for the Employer's Representative's determination of
a Claim or other matter, the determination becomes final and binding and is deemed accepted
by the Parties (clause 3.5.5). It cannot be referred to the DAAB for a decision. This is a new time-
bar and cannot be waived.
• Referring a dispute to the DAAB after giving or receiving a NOD for the Employer's
Representative's determination, the NOD is deemed to have lapsed and is no longer valid (clause
21.4.1). This is a new time-bar and cannot be waived.
• Giving a NOD for a DAAB decision, the decision becomes final and binding and neither Party is
entitled to start arbitration in relation to that Dispute (clause 21.4.4). This is also a feature of the
1999 Silver Book. It cannot be waived.
The Employer's Representative's ability to waive the first two time-bars listed above is a new concept
in the 2017 Silver Book. When agreeing or determining a Claim, the Employer's Representative must
address whether or not the Notice of Claim is to be treated as a valid Notice taking into account the
details provided by the Parties and why late submission may be justified. For more information, see
Practice note, FIDIC: Making claims and resolving disputes under the Red, Yellow and Silver Books
(2017): Agreement or determination of the Claim (clause 20.2.5).
For more information about the time-bar provisions generally in the 2017 suite, see Practice note,
FIDIC: Making claims and resolving disputes under the Red, Yellow and Silver Books (2017): Time
bar provisions and Blog post, Time bars under FIDIC 2017 – are more notices the answer?.
For more information about the Employer's Representative's agreement or determination of a Claim
under the 2017 Silver Book, see Employer's Representative's agreement or determination.
Form of notice
The 2017 Silver Book is much more prescriptive as to the form of a Notice given under the Contract.
A Notice of Claim must:
• Be in writing (clause 1.3).

• Identify itself as a Notice (clause 1.3(b)).
• Describe the event or circumstance giving rise to the cost, loss, delay or extension of the DNP, as
the case may be (clause 20.2.1).
• Be given as soon as practicable but no later than 28 days after the claiming Party became aware
or should have become aware of the event or circumstance (clause 20.2.1).
• Be given to the Employer's Representative with a copy to the other Party (clauses 1.3 and
20.2.1).
• Be sent in the correct form and mode of delivery, for example, a paper original or an electronic
original as stated in the Contract Data and signed by the person that is authorised to do so
(clause 1.3(a) and (c)).

• Be sent to the recipient's correct address for communications as stated in the Contract Data
(clause 1.3(d)).
It is important that the Parties comply strictly with the requirements for giving a Notice of Claim. If
they fail to do so, this may lead to an otherwise valid claim being rejected for what is essentially an
administrative error.
Employer's Representative's agreement or determination

Unlike the 2017 Red and Yellow Books, the 2017 Silver Book is administered by the Employer and not by
a third party engineer. As a consequence, there are various situations in which the Contract requires the
Employer's Representative to agree or determine a matter between the Employer and the Contractor,
whereas under the 2017 Red and Yellow Books, this responsibility would fall to the third party engineer.
The more detailed provisions of clause 3.7 of the 2017 Yellow and Red Books that apply to the Engineer
determining Claims are materially the same as those that apply to the Employer's Representative under
clause 3.5 of the 2017 Silver Book. This is one of the key changes under the 2017 suite.
Clause 3.5 details the procedure the Employer's Representative must follow in agreeing or determining:
• Time and or money Claims by both the Contractor and the Employer under clause 20.1(a) and
(b).
• Claims for another entitlement or relief (not time or money) under clause 20.1(c).
This is a new provision in the 2017 Silver Book. The Parties can no longer refer this type of
Claim directly to the Dispute Avoidance/Adjudication Board (DAAB) or Dispute Adjudication
Board (DAB) for a decision, as under the 1999 Silver Book. In effect this means that, in
certain circumstances, the Employer's Representative may be making decisions on its own
determinations.
• Any matter that the Contract expressly provides is to be referred to the Employer's
Representative.
See Contractor's and Employer's Claims and Dispute Avoidance/Adjudication Board (DAAB).
Clause 3.5 is a much expanded version of the equivalent provision under the 1999 Silver Book (which
comprised just two paragraphs) and includes several strict time limits and a new time-bar provision (see
What is the effect of an Employer's Representative determination?). The overall effect is to strengthen
the Employer's Representative's jurisdiction in terms of resolving and determining Claims and other
matters referred to it to such an extent that a Dispute does not arise under the Contract unless and until
the clause 3.5 process has been completed (see Dispute avoidance and resolution).
Process for agreeing and determining claims under clause 3.5
This flowchart illustrates the procedure under clause 3.5.

For more information, see Practice note, FIDIC: Making claims and resolving disputes under the Red,
Yellow and Silver Books (2017): Procedure for agreeing or determining Claims and other matters.
Employer's Representative deemed not to act for Employer
Contractors may be concerned about the role and authority of the Employer's Representative,
specifically that it has a dual role, acting both on behalf of the Employer and also as the person
responsible for determining both the Contractor's and Employer's claims under the Contract.
To address this the 2017 Silver Book provides that the Employer's Representative shall determine Claims
rather than the Employer as under the 1999 Silver Book. In addition, the Employer's Representative:
• Shall not be deemed to act for the Employer when agreeing or determining a Claim or other
matters (clause 3.5). This is a new provision.
• Is contractually obliged to reach a fair determination within the prescribed period in absence of
agreement (clause 3.5.2).
• Shall not delegate its authority to act under clause 3.5 (clause 3.2). This is a new provision.
These additional provisions are necessary given the enhanced jurisdiction in terms of resolving and
determining Claims under the 2017 suite.
What if the Employer's Representative fails to make a determination?
If the Employer's Representative does not notify the Parties of its determination within the prescribed
time limit, clause 3.5.3 provides:
• In the case of a Claim, the Employer's Representative is deemed to have given a determination
rejecting the Claim. This will become final and binding on the Parties unless either Party gives a

NOD with the determination within the specified period (see What is the effect of an Employer's
Representative determination?).
• In the case of a matter that the Contract states is to be agreed or determined by the Employer's
Representative, the matter shall be deemed to be a Dispute that either Party may refer to the
DAAB for a decision without the need for a NOD (see Dispute Avoidance/Adjudication Board
(DAAB)).
What is the effect of an Employer's Representative determination?
The Employer's Representative's determination of a Claim is binding on the Parties unless and until it
is revised by the DAAB or the arbitral tribunal (see Dispute avoidance and resolution). However, the
2017 Silver Book introduces a new time-bar provision in relation to any such determination.
Clause 3.5.5 provides that if either Party is dissatisfied with the Employer's Representative's
determination it must give a NOD in the required form within 28 days after receiving Notice of the
determination, otherwise it is deemed to have been accepted by both Parties and is final and binding
on them.
Parties should also note another new time-bar. Clause 21.4.1 provides that where a NOD with the
Employer's Representative's determination has been given or received, if the resulting Dispute is not
referred to the DAAB within 42 days of such NOD, it will be deemed to have lapsed and no longer be valid
(see Referring a Dispute to the DAAB). The combined effect of the two time-bars potentially reduces the
number of Disputes that can be referred to the DAAB and arbitration with the result that the Employer's
Representative's determination becomes a final and binding "decision".
The time-bar provisions are designed to ensure that Claims and Disputes are dealt with as they arise,
rather than being left until the end of the project (see Time limits and time-bar provisions). However,
in practice, their effect may be that Parties routinely issue a NOD for an Employer's Representative's
determination and refer the resulting "Dispute" to the DAAB simply to "preserve" their position while
considering their options.
Dispute avoidance and resolution

The 2017 Silver Book deals with dispute avoidance and resolution separately from the process for
making a Claim. These changes are driven by a renewed focus across the industry on dispute avoidance
and FIDIC's desire to encourage the negotiated settlement of disputes. In particular, it reinforces the
concept that a Claim (asserting an entitlement under the Contract) is not the same as a Dispute (a
disagreement about that entitlement). This is a fundamental ideological change in the 2017 suite.
Indeed, a Dispute does not arise under the 2017 Silver Book unless and until the clause 3.5 process for
the Employer's Representative to agree and determine Claims has been completed, and then only if:

• Either Party gives a NOD in relation to the Employer's Representative's determination (or
deemed determination of a Claim) within the prescribed period (see What is the effect of an
Employer's Representative determination?).
• The Employer's Representative does not notify the Parties of its determination of a matter that
the Contract expressly states is to be determined by it within the prescribed time limit (see What
if the Employer's Representative fails to make a determination?).
Clause 21 provides for a multi-tiered dispute resolution procedure comprising:
• A DAAB decision (clause 21.4) (see Dispute Avoidance/Adjudication Board (DAAB)).

• A NOD with the DAAB decision (clause 21.4.4) (see DAAB's decision).
• Amicable settlement (clause 21.5) (where a NOD has been given) (see Amicable Settlement).
• Arbitration (clause 21.6) (see Arbitration).
Dispute Avoidance/Adjudication Board (DAAB)

Dispute Adjudication Boards were first introduced into the 1999 suite with the primary aim of ensuring
that interim instalments of the Contract Price were promptly paid to the Contractor, even if the
underlying dispute may eventually be finally determined in other proceedings.
In the 2017 Silver Book, the DAAB replaces the DAB. It is immediately apparent from this change that
dispute "avoidance" is central to the clause 21 process. This has led to two fundamental changes:
• The 2017 Silver Book provides for a standing DAAB appointed at the outset of the contract for
the duration of the project (clause 21.1). The 1999 Silver Book provides for an ad hoc DAB.
While a standing DAAB has cost consequences for the Parties, FIDIC's view is that the DAAB
is more likely to achieve early resolution of disputes and therefore represents better value
for money. FIDIC sees the DAAB as an integral part of the management of the contract, with
as much a part to play in preventing disputes as resolving them. Users of FIDIC contracts,
especially in certain jurisdictions such as the Middle East, have traditionally preferred to appoint
dispute boards on an ad hoc basis. FIDIC recognises this and, while it advocates a standing
DAAB, the Guidance Notes provide an alternative clause if the Parties wish to appoint an ad
hoc DAB (which will have no role in dispute "avoidance"). Only time will tell if users will change
their attitude and approach to dispute boards generally and accept FIDIC's preferred standing
DAAB approach.
• The DAAB has a positive role to play in dispute avoidance. Clause 21.3 is a new provision that
requires the DAAB to provide assistance and or informally discuss any issue or disagreement
between the Parties at their joint request. In addition, if the DAAB becomes aware of any issue
or disagreement it may invite the Parties to make a joint request. Although the Parties are not
bound by any advice given by the DAAB at this stage, the early appointment of the DAAB does
at least provide an opportunity for any initial concerns to be raised and potentially dealt with
informally.
Otherwise, clauses 21.1 and 21.2 of the 2017 Silver Book adopt a fairly typical procedure for appointing
the DAAB, depending on whether the Parties chose a one-member or a three-member DAAB.

For a detailed summary of the DAAB process under the 2017 Silver Book and some of the changes from
the 1999 Silver Book, see Practice note, FIDIC: Making claims and resolving disputes under the Red,
Yellow and Silver Books (2017): Dispute Avoidance/Adjudication Board (DAAB).
For more information generally about selecting and appointing dispute board members, see Practice
note, Dispute boards: practice and procedure: Selection and appointment of dispute board members.
Referring a Dispute to the DAAB

Either Party may refer a Dispute to the DAAB for its decision under clause 21.4.1, whether or not any
informal discussions have taken place under clause 21.3 (Avoidance of disputes).
The referral to the DAAB must:
• Be in writing.
• State that it is given under clause 21.4.1.
• Set out the referring Party's case in relation to the Dispute.
• Be copied to the other Party and the Employer's Representative.
• Be made within 42 days of giving or receiving a NOD with the Employer's Representative's
determination (where the matter in the Dispute was initially determined by the Employer's
Representative). If the Dispute is not referred within this time, the NOD will be deemed to have
lapsed and will no longer be valid. This is a new time-bar provision and cannot be waived.
Clause 21.4.1 also states that referring a dispute to the DAAB "interrupts the running of any applicable
statute of limitation or prescription period".
DAAB's decision
The DAAB is required to give a reasoned decision within 84 days of receiving the reference or such
longer period as it may agree with the Parties (clause 21.4.3). If its decision requires payment from one
Party to the other:
• This amount is due immediately and no Statement or Notice is required (clause 21.4.3(i)).
• It may (as part of that decision) require the successful Party to provide security if it reasonably
considers that it will be unable to repay this amount if its decision is reversed by an arbitral
tribunal (clause 21.4.3(ii)).
Following a DAAB decision:
• The decision is binding on the Parties, but is not yet final.

• If either Party is "dissatisfied" with the decision it may give a NOD within 28 days of its receipt.
Similarly, if the DAAB fails to give a decision with the period prescribed in the Contract, either
Party may give a NOD within 28 days after this period has expired.
• The NOD must:
• state that it is a "Notice of Dissatisfaction with the DAAB's Decision"; and
• set out the matter in Dispute and the reasons for dissatisfaction.
The Parties may then refer the Dispute to amicable settlement and, ultimately, to arbitration for
"final" determination (see Amicable Settlement and Arbitration).
• If neither Party gives a NOD in accordance with the Contract, the decision becomes final and
binding at this stage and it cannot be referred to arbitration. This time-bar also features in the
1999 Silver Book. It cannot be waived.
For more information about enforcing a DAAB decision, see Practice note, FIDIC: Making claims and
resolving disputes under the Red, Yellow and Silver Books (2017): Enforcing a DAAB decision.
Amicable settlement
In common with the 1999 Silver Book, an attempt at amicable settlement remains an option under
clause 21.5 of the 2017 Silver Book where a NOD for a DAAB decision has been given in time. However,
the time period for attempting to settle the dispute has been reduced from 56 days to 28 days.
For more information and comment on amicable settlement under the 2017 Silver Book, see Practice
note, FIDIC: Making claims and resolving disputes under the Red, Yellow and Silver Books (2017):
Amicable Settlement.
Arbitration
As is common in international construction contracts, the 2017 Silver Book provides that disputes will be
finally determined by international arbitration. Clause 21.6 provides that disputes will be finally settled
under the Rules of Arbitration of the International Chamber of Commerce (ICC Rules) by one or three
arbitrators appointed in accordance with the ICC Rules. The parties are free to, and often do, choose
different arbitration rules to govern the arbitral process. If they do so, they must make appropriate
amendments to clause 21.6 and may need to designate an institution to appoint the arbitrators or to
administer the arbitration unless the institution is named in the chosen arbitration rules.
• Arbitral proceedings under the 2017 Silver Book, see Practice note, FIDIC: Making claims and
resolving disputes under the Red, Yellow and Silver Books (2017): Arbitration.
• International arbitration generally, see Practice notes, Which laws apply in international
arbitration? and Drafting international arbitration agreements: an overview.

• Different arbitral institutions and a guide to the rules of the leading institutions, see Practice
notes, Which institution and why: a comparison of major international arbitration institutions
and A quick guide to the rules of the leading arbitral institutions.
Other provisions commonly included or amended

This part of the note considers some other provisions of the 2017 Silver Book that the Parties may seek
to include or amend.
Entire agreement
The 2017 Silver Book does not include an entire agreement clause. Under English law, this type of clause
is designed to prevent the parties relying on statements or representations made before executing the
Contract (whether as part of the tender negotiations or otherwise) and arguing that they form part of
the Contract. By agreeing that the Contract comprises the "entire agreement" between them, the parties
agree to exclude any related agreements or collateral contracts concerning the same subject matter.
Where a contract based on the 2017 Silver Book is governed by English law, the Parties may want to
include an entire agreement clause.
There are several cases that provide useful guidance on interpreting entire agreement clauses. For
example, an entire agreement clause that simply provides that the Contract is the entire agreement
between the parties will not be sufficient to exclude liability for any misrepresentations made before the
Contract was signed and which induced one Party to enter into it. In addition, it may not prevent one
Party relying on "estoppel" claims under English law. In other words, one of the parties may succeed
in enforcing a non-contractual understanding or representation on the basis that it has relied on it to
its detriment.
For more information on entire agreement clauses and how to draft them to exclude liability for
misrepresentation and to prevent "estoppel" claims, see Practice note, Contracts: entire agreement
clauses.
Rights of third parties

The 2017 Silver Book does not require the Contractor to provide collateral warranties or direct
agreements to third parties or to grant third parties the right to enforce a term of the Contract. In many
countries rights are granted to third party beneficiaries by legislation. In the UK, the Contracts (Rights
of Third Parties) Act 1999 (Third Party Rights Act 1999) may give a third party the right to enforce a
contractual term if the parties to the contract intended that term to be enforceable by that particular
third party. Parties can contract out of the Third Party Rights Act 1999 if they expressly provide for this
in their contract.
In practice, any lender to the project will require the Contractor, as well as other key project parties,
to enter into a direct agreement with it. Depending on the nature of the project in question, there may

be other third parties, such as governmental authorities, who require the right to enforce the terms of
the Contract.
The Parties will need to include appropriate drafting by way of a Special Provision to address third party
rights.
• Collateral warranties on a construction project, see Practice note, Collateral warranties and
third party rights on construction projects: a quick guide.
• Direct agreements, see Practice note, Direct agreements in a project finance transaction.
Priority of documents
Clause 1.5 lists the contract documents in order of priority as an aid to interpreting the Contract where
there is any conflict, ambiguity or discrepancy. The Particular Conditions take priority over the General
Conditions, which reflects the position under English law that the specifically chosen written word
should take priority over standard wording. While this type of provision can be useful in practice, the
English courts, at least, will read the contract as a whole, giving the words used their natural meaning
and trying to reconcile conflicting provisions before turning to the contractual order of precedence.
They will resort to this only in the case of a clear and irreconcilable discrepancy between the contract
documents.
Documents that are not described in the categories set out in clause 1.5 will automatically fall to the
bottom of the list in the catch-all category of "other documents forming part of the Contract". If there are
particular contract documents that do not fall within the listed categories, the parties should consider
whether to amend clause 1.5 to specifically include these documents higher up the order of priority list.
However, the parties should not rely on this type of provision as a substitute for carefully checking that
the contract documents are consistent with each other before finalising the Contract. Ambiguous and
contradictory pre-contract correspondence, which may be bound into contract documents, often causes
the biggest problem in this regard.
Clause 1.5 should be read in conjunction with clauses 1.2 (interpretation) 1.4 (law and language) and,
in particular clause 1.8 (care and supply of documents), which provides that each Party shall notify
the other if it "becomes aware of an error or defect (whether of a technical nature or otherwise) in a
document which was prepared by (or on behalf of) the Contractor for use in the execution of the Works".
Clause 1.5 provides that the Employer shall issue a clarification or an instruction if it is notified of an
ambiguity or discrepancy in the documents. This may result in a Variation to the Works (clause 3.5).
However, to the extent that the Employer "clarifies" the correct interpretation in relation to the contract
documents, this does not constitute a Variation.
For more information about the English courts' approach to:
• The contractual order of precedence, see Legal update, Declaration on what formed part of
section in NEC3 dispute upheld (Court of Appeal).

• Interpreting a contract that includes potentially conflicting provisions in the contract conditions
and technical specification, see Legal update, Liability when international standard is incorrect
(Supreme Court).
Assignment
Clause 1.7 prohibits either Party from assigning its interest or benefit under the Contract unless prior
approval is obtained from the other Party (at its sole discretion) or the right to any monies due, or to
become due, is assigned as security in favour of a bank or financial institution. Assignment does not
mean the same thing in all jurisdictions. Under English law, assignment transfers the benefit only of
the Contract from one Party to another. It does not transfer the burden of the Contract, which can only
be effected by way of novation.
An Employer usually wants the ability to freely assign the benefit of the Contract, especially given that,
under English law at least, it will retain the burden of its obligations to the Contractor under the Contract
following an assignment. If not freely assignable, an Employer may want flexibility to assign the Contract
to an affiliate or other company within the same group, to lenders by way of security or by way of charge
and to any subsequent owner of the project (if lenders exercise their security and dispose of the project).
Clause 1.7 will need to be amended to reflect this.
By contrast, the Contractor's ability to assign the Contract will remain subject to the Employer's prior
approval. Lenders will usually insist on this. The Parties must make sure that any amendments to the
assignment clause comply with applicable law.
For more information on assignment under English law, see Practice note, Assignment of construction
documents and Blog post, Guilty as charged? Or how to get rights wrong.
END OF DOCUMENT
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Practice Note: Overview

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FIDIC Red, Yellow and Silver Books, second edition, 2017: key changes • Maintained
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(2017) • Maintained
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7 - FIDIC Silver Book (2017)

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FIDIC Silver Book (2017), Practical Law UK Practice Note w-015-1947 (2019)

FIDIC Silver Book (2017)

Practice notes | Maintained | International, United Kingdom

Scope of this note

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Dispute avoidance and resolution

Scope of this note

• Conditions of Contract for Construction (2017 Red Book).

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• FIDIC Forms of Contract.

Overview of the 2017 Silver Book

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• Examine the Employer's Requirements (ERs).

Structure of the 2017 Silver Book

• Part A: Contract Data.

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• The Contract Agreement.

• Large international commercial banks.

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• Any "mezzanine" lenders.

• Conditions precedent to financial and commercial close.

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The 2017 Silver Book provides that the Contractor:

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Fitness for purpose

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Fitness for purpose: issues in practice

For more information, see:

• Legal update, Liability when international standard is incorrect (Supreme Court).

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For more information, see:

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Employer's financial arrangements

• Intends to make any material change to its financial arrangements.

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Completion and taking-over

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Taking-over has several consequences:

• The Contractor's liability for Delay Damages ends (clause 8.8).

Two of the key features of a turnkey contract are:

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Clause 9.1 provides that the Tests on Completion will include:

• Pre-commissioning tests (appropriate inspections and functional tests).

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• Notifying time and place of testing.

Instruct further repeat tests (clause 9.4(a))

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Rejection of Works and termination (clause 9.4(b))

Rejection of Section and omission (clause 9.4(c))

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It is not entirely clear how this provision will work in practice.

Issue Taking-Over Certificate (clause 9.4(d))

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Extension of the Time for Completion

• *Employer's delay in or failure to obtain permits (clause 1.12).

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Clause 8.5 provides that where there is concurrent delay:

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