I f a b o n d i s c a l l e d f o r b y t h e c o n t r a c t , t h e C o n t r a c t o r m u s t s u p p l y i t t o
t h e E m p l o y e r a t h i s o w n c o s t w i t h i n 2 8 d a y s o f h i s r e c e i p t o f t h e L e t t e r o f Acceptance, simultaneously informing the Engineer. The amount must be ass t a t e d i n t h e A p p e n d i x a n d t h e f o r m a n d b o n d s m a n m u s t b e a g r e e d b y
t h e Employer.T h e b o n d m u s t b e v a l i d u n t i l t h e i s s u e o f t h e D e f e c t s L i a b i l i t y C e r t i f i c a t e whereupon it must be returned to the Contractor within 14 days.Before claiming on the bond, the Employer must inform the Contractor of the grounds for the claim.Sub-clause 10.1 is a re - worded version of clause 10 of the 3rd Edition. Sub-clauses 10.2 and 10.3 are entirely new.Part II provides two example forms of performance security and provides optionaladditional wording to specify the curre ncy or source of the security. The type of performance guarantee suggested by FIDIC was the subject of scrutiny by theHong Kong Court of Appeal in Tins Industrial v Kono Insurance (1987) 42 BLR 1 1 0 , w h o h e l d t h a t t h e b o n d i s i n d e e d c o n d i t i o n a l o n p r o o f o f b r e a c h
a n d damage.1 0 . 1 I t w o u l d n o r m a l l y b e p r e f e r a b l e f o r b o t h t h e f o r m a n d i n s t i t u t i o n p r o v i d i n g security to be agreed prior to the issue of a Letter of Acceptance. Otherwise, theContractor is given a period of 28 days in which to agree these matters and to n e g o t i a t e w i t h t h e i n s t i t u t i o n a n d p r o v i d e t h e b o n d . F o u r w e e k s w i l l o f t e n b e insufficient for this exercise. More fundamentally, if the Contractor is informedafter the contract has been entered into that the Employer requires the form of b o n d t o b e , f o r e x a m p l e , " o n - d e m a n d " , a g r e e m e n t o n t h e f o r m m a y n e v e r b e a c h i e v e d . A s c o m m e n t e d i n r e l a t i o n t o c l a u s e 9 . 1 ( C o n t r a c t A g r e e m e n t ) , a n agreement to agree something in the future is not readily enforceable in Englishcourts and difficult to enforce under any circumstances. Therefore the Employer runs the risk that if the form is not agreed in advance of the Letter of Acceptance,h e w i l l l o s e h i s r i g h t t o
s e c u r i t y a l t o g e t h e r . I t m a y e v e n b e a r g u a b l e t h a t , a s agreement on an important term has not been achieved, no contract exists at all.As to the
Employer's approval of the institution, clause 1.5 (Notices, consentsetc) states that such approval "shall not unreasonably be withheld or
delayed".Again, a protracted dispute could arise out of whether a refusal of approval wasu nreasonable which would once again endanger the Employer's security. Thesensible course is for the
Employer's requirements and indeed the Contractor's proposed institution, to be defined as far as possible in the tender documents.
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A n e f f e c t i v e s a n c t i o n i s p r o v i d e d b y c l a u s e 6 0 . 2 ( M o n t h l y p a y m e n t s ) w h i c h p r o h i b i t s i n t e r i m c e r t i f i c a t i o n u n t i l t h e p e r f o r m a n c e s e c u r i t y h a s b e e n d u l y provided. The effectiveness of the sanction is negated, however, if the form of theb o n d i s s t i l l t h e s u b j e c t o f d e b a t e w h e n t h e f i r s t i n t e r i m p a y m e n t i s d u e . T h e Engineer may have no power to certify but the Contractor may have no obligationt o p e r f o r m d u e t o t h e a b s e n c e o f a c o n c l u d e d c o n t r a c t . I n E n g l i s h l a w , t h e Contractor would be entitled to be paid a reasonable s um for the work done in the absence of a contract.T h e f o r m s o f s e c u r i t y s e t o u t i n P a r t I I a r e a
p e r f o r m a n c e a n d a s u r e t y b o n d . FIDIC do not encourage the use of on-demand bonds because of the premium that tenderers add to their bids on account of the risk of abuse of such bonds. Asthe English Court of Appeal pointed out in Edward Owen Engineering v BarclaysB a n k ( 1 9 7 7 ) 3 W L R 7 6 4 ; 6 B L R 5 8 , a p r o p e r l y d o c u m e n t e d c a l l o n a n o n - demand bond must be honoured unless there is clear evidence of fraud. Other forms of bond that the Employer may seek include:-- tender or bid bond- advance payment bond- retention money bond- maintenance bond, to ensure compliance with Defects Liability Periodobligations.Other security provided to the Employer under the contract includes: r etention,whereby up to 10% of the value of the work is not paid for by the Employer untilthe project is successfully completed; payment in arrears, whereby the Employer pays for works at least two months after they have been executed; the ability of the Employer to make use of the Contractor's equipment, temporary works andmaterials following the termination of the Contractor's employment under
clause63.1 (Default of Contractor); the right to deduct damages for delay under clause47.1 (Liquidated damages for delay); and the insurance provisions to be found inclauses 21, 23 and 24.1 0 . 2 T h i s c l a u s e c a n n o t o f i t s e l f
i n f l u e n c e t h e t e r m s o f a n e x i s t i n g b o n d b u t i s i n t e n d e d t o b e p a r t o f t h e f o r m t o b e a g r e e d b e t w e e n t h e E m p l o y e r a n d t h e Contractor.In the event of a d efault by the Contractor such that he does not complete theworks, this sub -clause would theoretically require the performance security toremain valid indefinitely. If a performance bond is paid, then it is defunct and, similarly, if the surety either completes the work itself, or by another contractor or pays the amount of the bond, the surety bond will also be
defunct.P e r f o r m a n c e s e c u r i t y i s n o t a v a i l a b l e t o a n E m p l o y e r i n r e s p e c t o f d e f e c t s emerging after the issue of the Defects Liability
Certificate.T h e r e t u r n o f t h e b o n d w i t h i n 2 w e e k s o f t h e i s s u e o f t h e D e f e c t s L i a b i l i t y C e r t i f i c a t e i s p a r t i c u l a r l y i m p o r t a n t i n r e l a t i o n t o o n - d e m a n d b o n d s . I t i s n o t unknown for institutions to consider it necessary for the sake of their reputations
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t o h o n o u r o n -
d e m a n d b o n d s i f t h e y r e m a i n i n t h e h a n d s o f a n E m p l o y e r regardless of a claim by the Contractor that its validity has expired or that it is toolate under the contract to make a claim under it. The attitude may be that theywill not become party to such disputes but will treat the bond as the equivalent toa b a n k e r ' s d r a f t . T h u s , i t i s o n l y b y s e c u r i n g t h e r e t u r n o f t h e b o n d t o t h e institution itself that a Contractor can be sure that no claim will be honoured.1 0 . 3 A g a i n , t h e r e a l s i g n i f i c a n c e o f t h i s c l a u s e i s i n r e l a t i o n t o o n - d e m a n d bonds. Given prior notification, the Contractor will be better placed to attempt toremedy the default, to dissuade the Employer from proceeding or to dissuade theinstitution from honouring the demand by demonstrating, for example, that the b o n d w a s i n v a l i d o r h a d e x p i r e d o r t h a t a n y c l a i m a g a i n s t t h e b o n d w o u l d b e fraudulent. Alternatively, the Contractor could attempt to obtain an injunction toprevent the payment under the bond on such grounds. However, as no period isspecif ied or of necessity to be implied, the Employer is entitled to call the bond immediately upon giving the notice in accordance with clause 68 (Notices).T h e f a i l u r e o f t h e E m p l o y e r t o g i v e t h e r e q u i s i t e n o t i c e w o u l d n o t
n o r m a l l y p r e v e n t p a y m e n t u n d e r t h e b o n d . U n l e s s t h e t e r m s o f t h e b o n d e x p r e s s l y req uired the Employer to provide proof of
notif ication, the payer would not beconcerned with the terms of this sub - clause. Such a failure would amount to abreach of contract on the part of the Employer for which he wo uld be liable
ind a m a g e s . I n t h e c a s e o f a t y p i c a l o n -
d e m a n d b o n d , t h e C o n t r a c t o r w o u l d probably be unable to show any loss as he would not have been able to preventpayment unless one of the exceptional g rounds ref erred to above existed. W ith other forms of security, the bondsman or insurer would consult the Contractor inany event before paying.T h i s s u b - c l a u s e r a i s e s t h e i s s u e o f t h e r e s p e c t i v e r i g h t s a n d l i a b i l i t i e s o f t h e C o n t r a c t o r a n d E m p l o y e r a f t e r t h e E m p l o y e r h a s s u c c e s s f u l l y c a l l e d a n o n - demand bond where either the call was unjustified or the sum thereby recoveredexceeded any loss or damag e incurred by the Employer. T here is no express term dealing with the matter nor does this sub-clause address the matter
directly.Its relevance may be in the support th at it g ives to the arg ument that there is animplied term that the Employer will only call the bond where there has been
ag e n u i n e d e f a u l t a n d w i l l r e p a y t o t h e C o n t r a c t o r a n y s u m r e c e i v e d b y t h e Employer which exceeds the amount of his loss and damag e f lowin g from thedef ault. An arg ument for such an implied term rests on the assumption that the Contractor is bound by agreement with the institution to indemnify the institutionin respect of the sums paid out, as is normally the case.T he terms of clause 67 (Settl ement of Disputes) are wide enoug h in principle tocover a dispute over a bond and the financial consequences of a call upon it. Inthe absence of such an implied term, it would be a very difficult question whether t h e a r b i t r a t o r w o u l d h a v e p o w e r t o m a k e a n a w a r d d i r e c t i n g t h e E m p l o y e r t o repay to the Contractor all or part of the sums paid out by the institution under thebond. See on this the discussion under clause 67.3 (Arbitration).
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The use of the term "default" in this sub-clause reflects the use of that term in thetwo sample bonds in Part II. In this context, the term means any material breachof contract and it is therefore submitted that the use of the term in this clause isnot limited to the defaults listed in clause 63.1 (Default of Contractor). CLAUSE 11 : Information regarding Contract
The Employer is to hand over to the Contractor at tender stage all information inhis possession relevant to the site. The Contractor is responsible for interpretingt h e i n f o r m a t i o n . T h e C o n t r a c t o r w i l l b e t a k e n t o h a v e i n s p e c t e d t h e s i t e a n d examined available information relating to the ground
conditions, weather, thenecessary work and materials and the access and accommodation that he will need. Generally, he will have considered all the risks which may affect his tender.The Contractor will be taken to have based his tender on such information
andinspections.C l a u s e 1 1 i s e s s e n t i a l l y s i m i l a r t o t h e 3 r d E d i t i o n a l t h o u g h " s o f a r a s i s p r a c t i c a b l e " i s n o w q u a l i f i e d b y c o s t a n d t i m e c o n s i d e r a t i o n s a n d , m o r e importantly, the addition of the final sentence means that the Tender is deemed tobe based both on the data and upon the Contractor's inspection and examinationwhereas, under the 3rd Edition, the deeming referred only to the
data.T h i s c l a u s e p r o v i d e s f o r t h e E m p l o y e r t o p r o v i d e " d a t a " a s d i s t i n c t f r o m interpretation. T hus an Employer may be well advised to remove the opinions a n d c o n c l u s i o n s e x p r e s s e d i n t h e r e p o r t s
a n d s u r v e y s t h a t h e o b t a i n s . I f a n incorrect or negligent opinion was passed to the Contractor and he relied upon
it,h e c o u l d w e l l a r g u e u n d e r c l a u s e 1 2 . 2 ( A d v e r s e p h y s i c a l o b s t r u c t i o n s o r c o n d i t i o n s ) t h a t a n y e x p e r i e n c e d C o n t r a c t o r w o u l d a c c e p t t h e v i e w s o f t h e specialist who prepared the report and that therefore the actual conditions couldnot reasonab ly have been foreseen. T he Employer should, howe ver, err on thes i d e o f i n c l u s i o n w h e r e t h e l i n e b e t w e e n d a t a a n d o p i n i o n c a n n o t c l e a r l y b e d r a w n . I f a n E m p l o y e r i s f o u n d t o h a v e w i t h h e l d d a t a , h e w i l l h a v e b e e n i n b reach of contract and the damag es would, in principle, be the difference if anythat the inf ormation would have made to the contract price. Alternatively,
them i s s i n g i n f o r m a t i o n c o u l d a f f e c t w h a t a n e x p e r i e n c e d C o n t r a c t o r c o u l d reasonably have f oreseen within clause 12.2. In this context, see the Fed eralC o u r t o f A u s t r a l i a ' s d e c i s i o n i n P h i l l i p & A n t o n H o m e s v C o m m o n w e a l t h o f Australia (1988) 7 ACLR 39 in which the court held the Employer liable for
them i s l e a d i n g i m p r e s s i o n c r e a t e d b y t h e d o c u m e n t s a b o u t t h e s u b - s u r f a c e conditions and discounted a general disclaimer of responsibility.T his clause clearly shows the difficulty of reconciling the commercial realities of t e n d e r i n g w i t h a d e s i r e t o p l a c e r i s k s u p o n t h e C o n t r a c t o r . I t w o u l d m a k e tendering prohibitively expensive if each tenderer was obliged to conduct his owng r o u n d i n v e s t i g a t i o n s o t h e E m p l o y e r c a r r i e s o u t t h e s u r v e y a n d m a k e s i t available to the tenderers. On the other hand, the tenderers are deemed to haves a t i s f i e d t h e m s e l v e s a s t o t h e f o r m a n d n a t u r e o f t h e s i t e i n c l u d i n g t h e s u b -
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surface conditions. Nevertheless, commercial reality is reflected in that suchinspections and examinations are limited to what is practicable in terms of costand time. This limit of practicability seems to qualify only the obligation for the C o n t r a c t o r t o s a t i s f y h i m s e l f a n d n o t t h e d e e m e d o b l i g a t i o n t o i n s p e c t a n d e x a m i n e : t h i s m a y n o t b e
m a t e r i a l a s t h e l i m i t a t i o n i s r e p e a t e d , s o m e w h a t ambiguously, by the words "subject as above mentioned" in the general
deemedo b l i g a t i o n t o m a k e d u e a l l o w a n c e f o r a l l i n f o r m a t i o n g l e a n e d f r o m s u c h inspections and examinations.The third deeming provision that the tender is based on the Employer's data aswell as on the Contractor's own inspection and examination could g ive rise tocurious results as the Contractor's inspecti on and examination may lead him to c o n c l u s i o n s q u i t e d i f f e r e n t t o t h o s e s u g g e s t e d b y t h e E m p l o y e r ' s d a t a . F o r example, if the data showed the water table to be at a sufficient depth so that
itw o u l d n o t i n t e r f e r e w i t h t h e w o r k s i n a n y w a y , b u t t h e C o n t r a c t o r ' s o w n inf ormation was that the water table was
normally much hig her with the resultthat either the data was incorrect
or reading s were taken at a moment when the water table was unusually low, what is the effect of this provision? If there is anitem for pum ping in the bills, the Contractor is q uite possibly g oing to mak e afortune! Howe ver, he will g et no recovery under clause 12.2 as the conditions c o u l d h a v e
b e e n " r e a s o n a b l y f o r e s e e n b y a n e x p e r i e n c e d
C o n t r a c t o r " . T h e difficulty comes with his entitlement to extension of time. The answer may lie inthe difference between data and interpretation. Any conclusion drawn that thewater table was not a problem could be held be interpretation and thus theresponsibility of the Contractor. In this way, it is possible to reconcile the
tender b e i n g b a s e d b o t h o n t h e d a t a a n d o n t h e C o n t r a c t o r ' s i n s p e c t i o n a n d e x a m i n a t i o n . A f u r t h e r c o n s e q u e n c e o f t h i s d e e m i n g p r o v i s i o n i s t h a t t h e E m p l o y e r w i l l n o t b e a b l e t o a r g u e t h a t t h e C o n t r a c t o r d i d n o t r e l y o n a n y incorrect information supplied under this clause by the Employer.In the absence of an express obligation to provide the data, the common law hasconsiderable difficulty in deciding whether the Employer has any duty in relationto the provision of information and, if so, the extent of that duty. In the SupremeCourt of New South Wales, the matter arose in Dillingham Construction v Downs(1972) 2 NSWLR 49. It was held that a duty of care might exist in pre- contractualneg otiations depending on whether the Employer assumes the task of providing full and accurate information on site conditions and whether the Contractor reliedupon the Employer providing such accurate inf ormation. It was held that therew a s n o g e n e r a l d u t y t o p r o v i d e i n f o r m a t i o n . T h e H i g h C o u r t o f A u s t r a l i a a l s o d i s c u s s e d t h i s i s s u e i n M o r r i s o n -
K n u d s e n I n t e r n a t i o n a l v C o m m o n w e a l t h o f Australia (1972) 46ALJR265; 13 BLR 114.This clause should be read with clause 12.1 (Sufficiency of tender) which
alsos e e k s t o d e e m m a t t e r s t o b e i n c l u d e d i n t h e C o n t r a c t o r ' s t e n d e r . S e e t h e comment ary under that clause for discussion of the extent of the Contractor's obligation to overcome difficulties and complete the works. Page 76 of 264
to
In the 3rd Edition, the tender was deemed to be based only on the Employer'sdata and not expressly the Contractor's inspection and examination. ICE
5thm a k e s t h e s u p p l y o f i n f o r m a t i o n b y t h e E m p l o y e r o p t i o n a l ; w h i l e I C E 6 t h , unbelievably, deems that the Employer has made available all his information onthe site." ( a ) t h e f o r m a n d n a t u r e t h e r e o f , i n c l u d i n g t h e s u b - s u r f a c e c o n d i t i o n s " . S e e clause 12.2 (Adverse physical obstructions or conditions) which places the risk of unforeseeable ground conditions on the Employer. As commented above
andu n d e r c l a u s e 1 2 . 2 , t h e d a t a p r o v i d e d a n d a v a i l a b l e t o t h e C o n t r a c t o r w i l l influence whether the conditions found are held to be unforeseeable."(b) the hydrological and climatic conditions". See clause 44.1
(Extension of timefor completion) where "exceptionally adverse climatic conditions" are grounds for an extension of time. Whilst there is an apparent mismatch in that weather mayb e e x c e p t i o n a l l y a d v e r s e d e s p i t e t h e f a c t t h a t t h e i n f o r m a t i o n i n d i c a t i n g t h e probability of such weather was available to the Contractor at tender stage, this c l a u s e m a y h a v e t h e e f f e c t o f i m p o s i n g a n a d d i t i o n a l r e q u i r e m e n t b e f o r e a n extension of time is granted. For circumstances "fairly to entitle the Contractor toan extension", he must presumably demonstrate that such conditions were not a l l o w e d f o r n o r d e e m e d t o h a v e b e e n a l l o w e d f o r i n h i s t e n d e r a n d t h u s
h i s prog ramme. See also clause 12.2 (Adverse physical obstructions or conditions) and clause 40.1 (Suspension of work) for other references to climatic conditionsand clause 20.4 (Employer's risks) for the phrase "any operation of the forces of nature"."(c) the extent and nature of work and materials...". The purpose of this sub-clause is to forestall claims f or variations under clause 51.1
(Variations) on the grounds that the Contractor did not know that such work was
necessary. This isto be read in conjun ction with clause 8.1 (Contractor's g eneral responsibilities)which requires that "the Contractor shall provide...all other thing s...required...sofar as the necessity for providing the same is specif ied in or is reasonably to be i n f e r r e d f r o m t h e C o n t r a c t " a n d c l a u s e 1 2 . 1 ( S u f f i c i e n c y o f t e n d e r ) . S e e a l s o c l a u s e s 5 5 t o 5 7
( M e a s u r e m e n t ) . T h e s e c l a u s e i n c o m b i n a t i o n m a k e i t v e r y diff icult to arg ue that if a type of work is not covered by the bill of q uantities, a variation should be granted to the Contractor."(d) the means of access to the Site and the accommodation he may req uire".This item is to be read in conjunction with clause 42.1 (Possession of site
anda c c e s s t h e r e t o ) a n d c l a u s e 4 2 . 3 ( W a y l e a v e s a n d f a c i l i t i e s ) . T h e t e r m "accommodation" occurs only here: clause 42.3 was amended for the 4th Editionand "accommodation" was replaced with "facilities". It is necessary to distinguishbetween access which the contract requires the Employer to make available andthe residual obligation upon the Contractor to make his
own arrangements.Part II provides an optional additional clause for
circumstances where the data c a n n o t b e p r o v i d e d w i t h t h e T e n d e r d o c u m e n t s . T h e c l a u s e i s n o t
s t r i c t l y n e c e s s a r y a s t h e p r e s e n t w o r d i n g " m a d e a v a i l a b l e " c o v e r s d a t a o p e n f o r
iInsp e c t i o n a t s p e c i f i e d p l a c e s a s w e l l a s i n f o r m a t i o n p r o v i d e d w i t h T e n d e r documentation.