Practical Law

The FIDIC Client/Consultant Model Services Agreement (fourth edition, 2006) – usually known as the White Book – was a rather frustrating form for lawyers. Happily, the new White Book (fifth edition, 2017) addresses some of the frustrations and is a more balanced starting point.

The form was particularly frustrating for those advising employer clients, who assumed that it would be consistent with the FIDIC construction contracts and therefore was practically plug-and-play with the 1999 Rainbow Suite. This view was often encouraged by consultants who advised a FIDIC procurement route and then proffered the White Book as the appropriate form of contract for their own appointment.

Employers were surprised that it was not consistent and that their liability to the contractor for any poor performance of the engineer, could not be passed on to the party actually responsible. In addition, they were surprised at the sheer volume of amendments required to protect their legitimate interests. “What, then, is the use of a standard form?”, they would ask. A perfectly reasonable question.

Contractors with design responsibility to the employer (under, for example, Yellow Book or Silver Book based contracting arrangements) often incorrectly presumed that the White Book was “back-to-back” with their obligations up the chain and therefore could be used when appointing a design consultancy in its supply chain. These obligations include, by default, an express fitness for purpose warranty. Contractors were often surprised by how exposed they were and that, according to FIDIC, it was inappropriate for a consultant to give the same kind of standard of care warranty as a contractor undertaking design work.

This attachment to the old English common law position seems somewhat antiquated in the context of modern procurement practice.

The Old

Among the worst provisions of the 2006 White Book were:

• Its imposition of a broad obligation on the employer to provide “free of cost all information which may pertain to the Services which the client is able to obtain” so as “not to delay the Consultant in the performance of the Services” with no attempt to limit the scope or put the onus on the consultant to request the information it needs.
• The low threshold standard of care, expressed in the exclusive and applicable to all contractual obligations not just the performance of the services: “…the Consultant shall have no other responsibility than to exercise reasonable skill, care and diligence in the performance of his obligations under the Agreement”.
• The limitation of the consultant’s liabilityfor default under the whole agreement to merely a breach of the (low) standard of care mentioned above.
• The casual inclusion of what common law lawyers would recognise as a net contribution clause.
• A rather narrow copyright licence for the employer to use the consultant’s designs.
• A one-way indemnity (in favour of the consultant) for third party claims.

The New

Happily, the new 2017 White Book addresses some of these issues and is a significantly more balanced and realistic starting point as a result. Interestingly it is evident from the preamble that the appropriate standard of care was a major source of negative feedback on the old version and therefore an issue the working group for the new version had to research thoroughly.

Some of the main positive changes are:

• The copyright licence is now much more thorough and, in distinguishing between “Foreground Intellectual Property” and “Background Intellectual Property”, more accurately reflects what tends to happen in reality with the re-use of standardised details. However, clause 1.7.5 gives the consultant the ability to “revoke any licence” on 7 days’ notice if the employer is in payment default. Whilst the sub-clause is careful to say such default must be for “amounts due under the Agreement”, there is often a legitimate difference between the parties as to whether an amount is due or not. It seems harsh for the consultant to have such a draconian self-help remedy before that question is resolved.
• Information to be provided by the employer is now reactive to the consultant’s request, which addresses the difficulty with the former clause.
• The standard of care warranty is now applicable to the performance of the services, rather than the consultant’s contractual obligations in their entirety (a welcome and wholly appropriate change, recognising that some contractual obligations are absolute) and is expressed as a specialist standard of care. In other words, not just reasonable skill and care but “the reasonable skill care and diligence to be expected from a consultant experienced in the provision of such services for projects of similar size, nature and complexity”.
• There is also a follow-on provision that, so far as is achievable exercising that standard of care, the “Consultant shall perform the Services with a view to satisfying any function and purpose that may be described…”. In theory, it is a nice idea to introduce a requirement for suitability and functionality in design, but it is rather unclear what it is supposed to mean in practice. Contractors should note when appointing designers in their supply chain that whatever “with a view to satisfying” will be taken to mean in reality it seems to fall well short of the fitness for purpose warranty applicable to contractor’s design work in the FIDIC construction contracts. Good luck to whoever argues the point either way.
• Gone is the restricted limitation of all liability for damages to breaches of the diluted standard of care. It is replaced by reciprocal provisions saying that one party is liable to the other for any breach of any provision of the agreement. These seem completely unnecessary, other than, perhaps, to underscore the inappropriateness of the former position.
• The net contribution language still exists, but clients can take comfort from the fact that, in contrast to the previous position, they now have a fighting chance of holding a poorly performing consultant liable for its defaults. Nonetheless, where there is potential joint liability for a loss the client takes the risk of the perpetrators not being around anymore (a real risk in some jurisdictions).

Despite this, there remain some oddities – such as the inclusion of an indemnity from the client to the consultant against claims by the contractor (where the consultant is contract administrator). If, in some legal system somewhere, a contract administrator does owe a contractor a duty of care then why should the client indemnify against it? It is also unhelpful that the duties of independent determiner still do not exactly match the FIDIC clause 3.5 process.

The lack of any provision for avoiding or warning against the use of harmful materials where the consultant is a designer, peer-reviewer or supervisor of works remains. And why have FIDIC gone to the trouble of including a “Time for Completion for the Services”, and the ability to extend it, but without any provision for liquidated damages? Perhaps it is merely a means to introduce the concept of “Exceptional Costs” for the consultant in the event of a prolonged project, thereby giving contractual force to the consultant’s contention that even though the amount of work undertaken remained the same, the consultant is entitled to additional payment for taking longer to do it.

Contractors should remain wary that the 2017 White Book does not pass down their design responsibilities. In fairness there was nothing to indicate that FIDIC ever intended the White Book to be used for that purpose, but, given the brand, it was not unreasonable of many contractors to infer that was the intent.

The verdict

The 2017 White Book is a major step forward and is much more suitable for use by clients than the 2006 version. However, there remain some oddities that both employers and contractors should look out for.