FIDIC Training - Online Course

Claims under FIDIC

‫المخاطر في عقود المشاريع الهندسية‬

Risk’s Allocation
June 2021 – Lecture # 3

Justice Academy
Author-presenter: Tahseen Saleh
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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

Risk Allocation
The management of claims and the way disputes
arise are closely related to the type of contract and
the risks covered by such contract.

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

Risk Allocation
• Risk is a major factor to be considered during the
management of any project. Risks shall be controlled and
contained if a project is to stand a chance of being
successful.

• Risk is defined as uncertainty of outcome (whether

positive opportunity or negative threat).

• Risk is a combination of the probability, or frequency, of

occurrence of a defined hazard and the magnitude of the
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consequences of occurrence.
Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

Outline
1. Risk Analysis
2. Risk Sharing Principles
3. Risk Sharing Under the Contract
4. Construction Contract Concepts
5. Project risks under the Contract
6. Risks related to type of Contract
7. Balanced Risks
8. Contract Risks in FIDIC
9. Risks and Claim Management by the Engineer
1. Re-measurement Contracts
2. Lump-sum Contracts
10. Slides from previous presentation – Risk Management
4

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

1- Risk Analysis
▪ In deciding the type of contract the following to be
considered:
a) Allocation of the risks inherent in the project,
b) Allocation of the essential functions,
c) Allocation of the management role (in-house one or
external),
d) Method and timing of remuneration for the
Contractor.

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

1- Risk Analysis (Cont’d)

• Ideally, contract should identify the risks and:
a) Allocate risks to a party,
b) Re-allocate risks determined by the applicable law, or
c) Spread risks to third parties.

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

1- Risk Analysis (Cont’d)

• In practice:
a) Applicable law: allocates the risks envisaged in the
Contract to the Contracting parties,
b) Terms of the Contract: affirm allocation or re-allocate
risks or spread them to third parties,
c) Left undefined.

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

1- Risk Analysis (Cont’d)

• If a risk is not allocated to one of the contracting
parties (either by the applicable law or by the
terms of the Contract) then courts will ask the
following when required to adjudicate:
a) Which party can best foresee the risk?
b) Which party can best control the risk?
c) Which party can best bear the risk?
d) Which party most benefits or suffers if the risk
eventuates?
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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

2- Risk Sharing Principles

• Responsibility for risk should be allocated to the party
best able to manage and control the risk.
• Contracts which have a balanced sharing of risks have
the lowest outturn cost for the project.
• If the Employer bears risks, he will have to pay the
financial impacts only if any of those risks eventuate.
• If the Contractor bears risks, he will have to make
allowance for them in his price, whether they
eventuate or not, and the Employer will pay for that
allowance.
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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

3- Risk Sharing Under the Contract

• Allocating risk to the party best able to manage and
control it is not easy (difficult to determine which
party can deal best with a certain risk).
o Contractor best placed to deal with risks of planning and
executing the work.
o Design risks borne by the party responsible for the design.
o Financing risks borne by the party providing the finance.
o Employer takes risks of providing the Site and seeing that it
is available, and usually all risks arising from Site information
and other information contained in the tender documents.
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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

4- Construction Contracts Concepts

• Several risk concepts must be kept in mind:
o Not all undesirable events can be perceived and
identified.
o while risks generally imply undesirable consequences,
sometimes desirable as well as undesirable
consequences occur.
o If a construction facility has a defect, it could be as a
result of a number of circumstances.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

4- Construction Contracts Concepts

• As an example:
If the defect is so severe that it cannot be rectified and
the completed facility cannot fulfill its intended function
and the cause was a defective design, then the party
carrying out the design will bear that risk. Thus, it is
important to define which party will carry out and be
responsible for the design.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

5- Project risks under the Contract

• Mainly insurable risks:
o Risks of loss, damage or injury during the Contract
o Consequences of accidents due to defective design,
defective material and defective workmanship; acts of
God; Fire; Human errors; Failure to take adequate
precautions.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

5- Project risks under the Contract (Cont’d)

• Mainly not insurable risks:
▪ Risks giving financial and / or time loss and impact on
the project:
o Late possession of the Site
o Delay in receipt of necessary information
o Changes in design
o Variations in the original Contract.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

5- Project risks under the Contract (Cont’d)

• Employer when allocating the functions and risks
to the various parties, he should consider:
o Management and method of valuing the works,
o Management and method of paying for work done,
o Whether or not he is prepared to share these risks with
other parties and if so to what extent?

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

6- Risks related to type of Contract

• Several types of Contracts to be considered
depending on the extent of risk accepted:
o Cost-plus or cost-reimbursable – which place almost all
risk on the Employer (at one end of the scale),
o Re-measurement – Risk of incorrect estimates of
quantities on the Employer (bills of quantities and
schedule of rates.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

6- Risks related to type of Contract (Cont’d)

o Lump-sum – risk of incorrect estimates of quantities on
the Contractor (fixed price contracts, limited risk
sharing)
o Target price – many of the risks on the Employer.
o Fixed-price Turnkey – Employer seeks to pass as many
of risks ass possible to the Contractor (at the other end
of the scale).

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

7- Balanced Risks
• Sensible and fair sharing of risks between the
Employer and the Contractor produces over the
long run the lowest final contract prices.

• Considerably lower than for either extremes

above, i.e., reimbursable type versus fixed price,
turn key type.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

8- Contract Risks in FIDIC

• Sub-Clause 17.1 of the 1999 edition [Indemnities] is now
(in the 2017 editions) split into three new Sub-Clauses:
o 17.4 [Indemnities by Contractor]
o 17.5 [Indemnities by Employer], and
o 17.6 [Shared Indemnities]

• Sub-Clause 17.1 [Responsibility for Care of Works]

o the Contractor remains fully responsibility
o After the Taking-Over the responsibility pass to the Employer
and the Contractor remains for any outstanding work.
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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

8- Contract Risks in FIDIC (Cont’d)

• Sub-Clause 17.2 [Liability for Care of Works]
o the Contractor remains liable except for events or acts due
to the Employer or his employees
o Consideration of Exceptional Events under S/C 18.4

• More detailing and elaboration,

• Sub-Clauses {17.1 & 17.2} were under Sub-Clause 17.2

[Contractor’s Care of the Works] in the 1999 edition.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

8- Contract Risks in FIDIC (Cont’d)

• Sub-Clause 17.3 [Intellectual and Industrial Property
Rights]
o This was Sub-Clause 17.5 under the 1999 edition.

• The Employer’s Risks under 17.3 of the 1999 edition is no

more listed under Clause 17. it has reference in Sub-Clause
18.1 [Exceptional Events], subparagraphs (a) to (f). In the
1999 edition used to be mentioned twice in S/Cs 17.3 &
19.1

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

8- Contract Risks in FIDIC (Cont’d)

• Consequences of Employer’s Risks (initially S/C 17.4 of the
1999 edition) became part of 17.2 [Liability for Care of
Works] in the second paragraph and subparagraphs (a) to
(f) therein.

• Limitation of Liability (initially S/C 17.6 of the 1999 edition)

is covered under Sub-Clauses 17.4, 17.5 & 17.6.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Allocation

9- Risks and Claim Management by the

Engineer
• Two main contract types which need detailed
consideration in regards to the management of claims are:
o Re-measurement contracts
o Lump-sum contracts
as implemented in the FIDIC construction (Const.) and
Plant and Design Build (PDB) contracts.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 9 - Risks and Claim Management by the Engineer

9-1 Re-measurement Contracts

• Generally permit the Contractor to claim for additional
time and/or payment if an uninsurable risk event occurs.

• Because the Contractor’s tender does not allow for

uninsurable risks, his tender should relatively be favorable.

• Although the Contractor does not carry out the risk of

changes of quantities, he carries the burden of establishing
valid unit rates applicable to cover a wide range of
quantities.
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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 9 - Risks and Claim Management by the Engineer

9-1 Re-measurement Contracts (Cont’d)

• For an excessive change in quantity for an item, may
reduce the risk to the Contractor by allowing
adjustment:
o Of unit rates
o To Contract Price for changes in cost of materials, etc.
o Adjustment to compensate for changes in legislation
after submission of the Contractor’s tender.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 9 - Risks and Claim Management by the Engineer

9-1 Re-measurement Contracts (Cont’d)

• Since the design is made by or on behalf of the
Employer, and since re-measurement is part of the
Employer’s risks; it is relatively easy for the Employer
to introduce changes to the Works during execution
through Variations.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 9 - Risks and Claim Management by the Engineer

9-2 Lump-sum Contracts

• Contractor usually carries out the detailed design which he
bears its responsibility,

• Contractor have more control on the quantities.

• So, it is more difficult for the Employer to implement

changes during the execution as he must not interfere with
or disturb the design process.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 9 - Risks and Claim Management by the Engineer

9-2 Lump-sum Contracts (Cont’d)

• In most other respects, the possibilities for the Contractor
to claim for additional time and/or payment are similar to
those under a re-measurement contract.

• Lump-sum may or may not be adjustable to compensate

for changes in materials cost, labour, etc.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 9 - Risks and Claim Management by the Engineer

9-2 Lump-sum Contracts (Cont’d)

• One reason for Employer to choose a lump-sum
contract is to have some certainty with respect to the
final Contract Price.
o What could be the other reasons?

• May therefore limit the possibilities for the Contractor

to claim, herby allocating many of the risks to the
Contractor.

• Such a one-sided allocation of risk will inevitably have

an impact on the final Contract Price.
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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks Management

10. Slides from previous presentation – Risk

Management.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risk Management

• Risk is a major factor to be considered during the

management of any project. Risks shall be controlled
and contained if a project is to stand a chance of
being successful.

• Risk is defined as uncertainty of outcome (whether

positive opportunity or negative threat).
• Risk is a combination of the probability, or frequency,
of occurrence of a defined hazard and the magnitude
of the consequences of occurrence.
31

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 1- Risk Management

• Businesses and people can be classed as:

– Risk Averse
– Risk Neutral
– Risk Seeking

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 1- Risk Management

• Risk management is the identification, assessment, and

prioritization of risks (defined in ISO 31000 as the effect
of uncertainty on objectives, whether positive or
negative) followed by coordinated and economical
application of resources to minimize, monitor, and
control the probability and/or impact of unfortunate
events or to maximize the realization of opportunities.

• In other words, the task of risk management is to

manage project’s exposure to risk (that is, the probability
of specific risks occurring and the potential impact if they
33 did occur).

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 1- Risk Management

• Risk Groups
– Risks can be divided into certain groups which
could affect the project:
• Strategic
• Financial
• Operational
• Commercial
• Technical

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 1- Risk Management

• Principles of Risk management

– The International Organization for Standardization
(ISO) identifies the following principles of risk
management
• create value – resources expended to mitigate risk
should be less than the consequence of inaction, or (as
in value engineering), the gain should exceed the pain
• be an integral part of organizational processes
• be part of decision making process
• explicitly address uncertainty and assumptions
• be systematic and structured
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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 1- Risk Management

• Principles of Risk management

• be based on the best available information
• take human factors into account
• be transparent and inclusive
• be dynamic, iterative and responsive to change
• be capable of continual improvement and
enhancement
• be continually or periodically re-assessed

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 1- Risk Management

• How the risk is determined?

– In project management, risk assessment is an integral part
of the risk management plan, studying the probability, the
impact, and the effect of every known risk on the project,
as well as the corrective action to take should that risk
occur.
– This can be made by using certain checklists, using the past
knowledge and records of similar projects, awareness of
customer/ supply chain reactions, market information,
etc.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 1- Risk Management

Risk management process:

• For the most part, these methods and processes consist
of the following elements, performed, more or less, in
the following order.
– identify, characterize threats
– assess the vulnerability of critical assets to specific threats
– determine the risk (i.e. the expected likelihood and
consequences of specific types of attacks on specific
assets)
– identify ways to reduce those risks
– prioritize risk reduction measures based on a strategy
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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 1- Risk Management

• Risk Identification
– It is the process of identifying potential risks which are
about events that, when triggered, cause problems.
Hence, risk identification can start with the source of
problems, or with the problem itself.

• Source analysis - Risk sources may be internal or

external to the system that is the target of risk
management.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 1- Risk Management

• Risk Identification
• Problem analysis - Risks are related to identified threats. For
example: the threat of losing money, the threat of abuse of
confidential information or the threat of accidents and
casualties. The threats may exist with various entities, most
important with shareholders, customers and legislative
bodies such as the government
• The chosen method of identifying risks may depend on
culture, industry practice and compliance. The identification
methods are formed by templates or the development of
templates for identifying source, problem or event.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 1- Risk Management

• Risk Assessment
– Risks must then be assessed as to their potential severity
of impact (generally a negative impact, such as damage or
loss) and to the probability of occurrence
– These quantities can be either simple to measure, in the
case of the value of a lost building, or impossible to know
for sure in the case of the probability of an unlikely event
occurring.
– Therefore, in the assessment process it is critical to make
the best educated decisions in order to properly prioritize
the implementation of the risk management plan.
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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 1- Risk Management

• Risk Assessment
– The fundamental difficulty in risk assessment is
determining the rate of occurrence since statistical
information is not available on all kinds of past incidents
– Risk assessment should produce such information for the
management of the organization that the primary risks are
easy to understand and that the risk management
decisions may be prioritized

42

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 1- Risk Management

• Risk Assessment
– It is the determination of quantitative or qualitative
value of risk related to a concrete situation and a
recognized threat (also called hazard)
• Quantitative risk assessment requires calculations of
two components of risk (R):
– the magnitude of the potential loss (L),
– the probability (p) that the loss will occur

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Tahseen Saleh

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 1- Risk Management

• Risk Assessment
• Quantitative risk assessment includes many factors
such as modeling, chance and probability and other
mathematical approaches.

• Qualitative methods:
The essentially move around the formula:
Probability x consequence

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks in Contracts

2. Employer’s Risks
1. In FIDIC 1987 RB
2. In FIDIC 1999
3. In FIDIC 2017

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Tahseen Saleh

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 2- Employer’s Risks

• Employer’s Risks
• Employer risks are defined under Sub-Clauses:
– 20.4 of the FIDIC 4th edition Red Book form of Contract
– 17.3 of the FIDIC 1999 suite of contracts (Red, Yellow &
Silver) forms of Contract, and
– 17.2 of the FIDIC 2017 suite of contracts (Red, Yellow &
Silver) forms of Contract.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.1 Employer’s Risks – FIDIC 1987 4th edition, Red Book

• Employer’s risk as defined in the FIDIC 4th edition red book

(Sub-Clause 20.4)
– The Employer’s risks are:
(a) war, hostilities (whether the war be declared or not), invasion,
act of foreign enemies;
(b) rebellion, revolution, insurrection, or military or usurped
power, or civil war insofar as it relates to the country in which
the Works are located or countries through which plant must
be transported;
(c) ionising, radiation, or contamination by radio-activity from any
nuclear fuel, or from any nuclear waste, from the combustion
of nuclear fuel, radio-active toxic explosive or other hazardous
properties of any explosive, nuclear assembly or nuclear
component thereof;
(d) Pressure waves caused by aircrafts travelling at sonic or
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supersonic speed;
Tahseen Saleh

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 2.1 Employer’s Risks – FIDIC 1987 4th edition, Red Book

• Employer’s risk as defined in the FIDIC 4th edition red book (Sub-
Clause 20.4)
– The Employer’s risks are (Cont’d):
e) Riot, commotion, or disorder, unless solely restricted to
employees of the Contractor or his subcontractors and arising
from the conduct of the Works,
f) Loss or damage due to the use or occupation by the Employer
of any Section or part of the Permanent Works, except as may
be provided for in the Contract.
g) Loss or damage to the extent that is due to the design of the
Works, other than any part of the design provided by the
Contractor or for which the contractor is responsible, and
h) any operation of the forces of nature against which an
experienced Contractor could not reasonably have been
expected to take precautions.
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 2.1 Employer’s Risks – FIDIC 1987 4th edition, Red Book

• Employer’s risk as defined in the FIDIC 4th edition red

book (Sub-Clause 20.4)

• The risk of war

– Is the Employer responsible for consequences
resulting from the risks of war only in the country
where the works are being carried out or regardless of
where the war occurs in the world?

49
.
Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.1 Employer’s Risks – FIDIC 1987 4th edition, Red Book

• Risks related to design

– The Employer’s risks as defined in paragraph (g) of sub-
clause 20.4 of the FIDIC 4th edition, is extremely wide as it
refers to loss or damage due to the design of works other
than that provided by the Contractor.
– The definition is not restricted to negligent design as it
includes events where damages occur without any fault,
defect, error or omission committed by the designer.
– The wording in the sub-clause 20.4 does not include the
word “solely” previously included in the third edition.
Accordingly, should damage occur to the Works in
circumstances where an error in design is a contributory
factor, then the Contractor is relieved from responsibility
only to the extent that the damage was caused by a design
not provided by him.
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 2.1 Employer’s Risks – FIDIC 1987 4th edition, Red Book

• Special Risks (Clause 65 of the 1987 FIDIC Red Book)

• Sub-Clauses 65.1 & 65.2
The Contractor shall be under no liability whatsoever in consequence
of the special risks referred to in Sub-Clause 65.2, whether by way of
indemnity or otherwise for or in respect of:
(a) destruction of or damage to the Works, save to work condemned
under the provisions of Clause 39 hereof prior to the occurrence of
any of the said special risks
(b) Destruction of or damage to property, whether of the Employer or
third parties or
(c) injury or loss of life

The Works described in sub-clause 65.2 refer to sub-clause 20.4

paragraphs a, c, d, & e in addition to paragraph b which relates to
the country in which the Works are to be executed

51

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.1 Employer’s Risks – FIDIC 1987 4th edition, Red Book

• Special Risks (Clause 65 of the 1987 FIDIC Red Book)

• Sub-Clauses 65.1 & 65.2
– Accordingly, the special risks mentioned in paragraph (b) of
sub-clause 20.4 are only applicable to the country where
the works are to be executed. Other risks such as war,
hostilities, invasion, etc. could be a special risk to the
works wherever they occur in the world if this could have
an impact on such works.
– It is seen that the Contractor shall be under no liability
whatsoever in case of such special risks except for his
defective and faulty works. Where is this mentioned?

52
.
Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.1 Employer’s Risks – FIDIC 1987 4th edition, Red Book

• Special Risks (Clause 65 of the 1987 FIDIC Red Book)

• Consequences of special risks
– What could be the consequences of special risks in terms
of damages, progress of works, increased costs, stoppages
and termination of works, subcontractors , payments,
materials ordered or delivered to site, contractors
machinery, etc.?
– Shall either party give notices to the other party with
respect to the special risks?
– Within how many days such notice be given?
– When the contract can be terminated? And who can
terminate it? The Contractor, the Employer or either of
53
them?
Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.1 Employer’s Risks – FIDIC 1987 4th edition, Red Book

• Special Risks (Clause 65 of the 1987 FIDIC Red Book)

• Consequences of special risks
• Sub-clauses 65.3 to 65.7 deals with the consequences
of the special risks
– Sub-clause 65.3 (Damage to works by special risks)
In brief the Contractor is entitled for all the costs associated with:
• Rectifying any such destruction or damaged works, and
• Replacing or rectifying such material or contractor’s equipment
• Assessment shall be made in accordance with Clause 52
• It is mentioned … “include fair market value thereof as determined
by Engineer.” How do we define the phrase (Fair market value)?

54

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.1 Employer’s Risks – FIDIC 1987 4th edition, Red Book

• Special Risks (Clause 65 of the 1987 FIDIC Red Book)

– Sub-clause 65.4 (Projectiles, Missiles)
Destruction, damage, injury or loss of life caused by the
explosion or impact whenever and wherever occurring
of any mine, bomb, shell, grenade or other projectile
missile, munitions or explosive of war shall be deemed
to be a consequence of the said special risks.

Suppose that after 30 years of the end of the war, a mine

in an old mine field which is the new construction site
of the project exploded and injured two labors and one
55 life was lost? Is this a special risk case in the project?
Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.2 Employer’s Risks – FIDIC 1999 Suite of Contracts

• Employer’s risk as defined in the FIDIC 1999 S/C 17.3

Clause 17 contents
Clause 17 gives the basis for indemnities given by the
Contractor and the Employer (Sub-Clause 17.1), the
Contractor’s care of the Works (Sub Clause 17.2), Employer’s
risks (Sub-Clause 17.3) and their consequences (Sub-Clause
17.4) and the limitation of liability (Sub-Clause 17.6 ).
Intellectual and industrial property risks covered in Sub-Clause
17.5 fall outside normal project risks and can be considered
separately.
.
56

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.2 Employer’s Risks – FIDIC 1999 Suite of Contracts

Clause 17 summary
Clause 17 covers a wide-range of risks and
responsibilities that lead to claims arising out of the
Project which are covered by the indemnities and
insurance.
Sub-clauses cover risk and responsibility, but also other
contractual provisions, including indemnities, limitation
of liability, and the unrelated topic of intellectual and
industrial property rights.
The clause deals first with “Indemnities” , then
“Responsibility” and returns to “Risk” and finally turns to
“Liability”. This illogical sequence has been adjusted in
the 2008 FIDIC DBO Contract and the 2017 new release
of FIDIC suite of Contracts..
57

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.2 Employer’s Risks – FIDIC 1999 Suite of Contracts

17.3: Employer’s Risks - Key issues

Risks for which the Employer is responsible, to the extent
defined in Sub-Clause 17.3, are listed at (a)-(h).
Employer’s risks are:
war, hostilities, invasion; rebellion terrorism, revolution, civil
war, riot; munitions of war, explosive; pressure waves caused
by aircraft; use or occupation by the Employer of any part of
the Permanent Works; design by the Employer of any part;
any unforeseeable adverse operation of the forces of nature.
Disorder or rioting on the part of the Contractor which arose
from the conduct of the Works is not an Employer risk.
58

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.2 Employer’s Risks – FIDIC 1999 Suite of Contracts

• Employer’s risk as defined in the FIDIC 1999 S/C 17.3

– The Employer’s risks are:
(a) war, hostilities (whether the war be declared or not), invasion,
act of foreign enemies;
(b) rebellion, revolution, insurrection, military or usurped power, or
civil war, within the Country,
(c) riot, commotion or disorder within the Country by persons other
than the Contractor’s Personnel and other employees of the
Contractor and Subcontractors;
(d) munitions of war, explosive materials, ionizing radiation or
contamination by radio-activity, except as may be attributable to
the Contractor’s use of such munitions, explosives, radiation or
59
radio-activity,
Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.2 Employer’s Risks – FIDIC 1999 Suite of Contracts

• Employer’s risk as defined in the FIDIC 1999 S/C 17.3

– The Employer’s risks are:
e) pressure waves caused by aircrafts or other aerial
devices travelling at sonic or supersonic speed;
f) use or occupation by the Employer of any part or part of
the Permanent Works, except as may be specified in the
Contract,
g) design of any part of the Works by the Employer’s
Personnel or by others for whom the Employer is
responsible,
h) any operation of the forces of nature which is
Unforeseeable or against which an experienced
contractor could not reasonably have been expected to
have taken adequate preventative precautions.
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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.2 Employer’s Risks – FIDIC 1999 Suite of Contracts

17.4: Consequences of Employer’s Risks - Key issues

If the Contractor suffers loss or damage as a consequence of
any item of Employer risk, then he must give prompt notice to
the Engineer.
Engineer may require the Contractor to remedy the loss or
damage.
Although the Contractor can recover cost in all cases, he is
only entitled to reasonable profit in respect of (f) and (g) of
Sub-Clause 17.3, items which refer to Employer responsibility
and/or fault.

61

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.2 Employer’s Risks – FIDIC 1999 Suite of Contracts

17.4: Consequences of Employer’s Risks (Continued) - Key

issues

Thus, if the Contractor suffers delay or increased cost, he may

be entitled to:
- an extension of time and to recover his Cost (for (a) to (e) of
Sub-Clause 17.3), or
- his costs plus reasonable profit in respect of use of the Works
or design by the Employer ((f) and (g) of Sub-Clause 17.3).

62

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.3 Employer’s Risks – FIDIC 2017 Suite of Contracts

• Employer’s risk as defined in the FIDIC 2017 S/C 17.2

– The Contractor shall have no liability whatsoever, whether

by way of indemnity or otherwise, for loss or damage to
the Works, Goods or Contractor's Documents caused by
any of the following events (except to the extent that such
Works, Goods or Contractor's Documents have been
rejected by the Engineer under Sub-Clause 7.5 [Defects
and Rejection] before the occurrence of any of the
following events):

63

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.3 Employer’s Risks – FIDIC 2017 Suite of Contracts

• Employer’s risk as defined in the FIDIC 2017 S/C 17.2

a) interference, whether temporary or permanent, 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 the execution of the Works in accordance
with the Contract;
b) use or occupation by the Employer of any part of the Permanent
Works, except as may be specified in the Contract.
c) fault, error, defect or omission in any element of the design of the
Works by the Employer or which may be contained in the
Specification and Drawings (and which an experienced contractor
exercising due care would not have discovered when examining
the Site and the specification and Drawings before submitting the
Tender), other than design earned out by the Contractor in
accordance with the Contractor's obligations under the Contract;

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.3 Employer’s Risks – FIDIC 2017 Suite of Contracts

• Employer’s risk as defined in the FIDIC 2017 S/C 17.2

d) 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 have taken adequate preventative
precautions;
e) any of the events or circumstances listed under sub-paragraphs (a)
to (f) of Sub-Clause 18.1 [Exceptional Events]; and/or
f) any act or default of the Employer's Personnel or the Employer's
other contractors.

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Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.3 Employer’s Risks – FIDIC 2017 Suite of Contracts

• Employer’s risk as defined in the FIDIC 2017 S/C 17.2

Subject to Sub-Clause 18.4 [Consequences of an Exceptional

Event], if any of the events described in sub-paragraphs (a) to
(f) above occurs and results in damage to the Works, Goods
or Contractor's Documents the Contractor shall promptly give
a Notice to the Engineer. Thereafter, the Contractor shall
rectify any such loss and/or damage that may arise to the
extent instructed by the Engineer. Such instruction shall be
deemed to have been given under Sub-Clause 13.3.1
[Variation by Instruction].

66

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 2.3 Employer’s Risks – FIDIC 2017 Suite of Contracts

• Employer’s risk as defined in the FIDIC 2017 S/C 17.2

If the loss or damage to the Works or Goods or
Contractor's Documents results from a combination of:
i. any of the events described in sub-paragraphs (a) to (f)
above, and
ii. a cause for which the Contractor is liable,
and the Contractor suffers a delay and/or incurs Cost
from rectifying the loss and/or damage, the Contractor
shall subject to Sub-Clause 20.2 [Claims for Payment
and/or EOT] be entitled to a proportion of EOT and/or
Cost Plus Profit to the extent that any of the above
events have contributed to such delays and/or Cost.
67

Tahseen Saleh

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019

 Risks in Contracts

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• tahseen@olamanagement.com
• +1(519)870 6630
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68

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FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2019