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Hong Kong – The Role Of The Engineer In FIDIC Contracts.

6 June, 2013

 

Historically, the engineer working on complex infrastructure and engineering projects acted not only as designer but procured the workforce and administered payment. Over the years, employers have sought to exercise greater control over the engineer. For example, in the 1960s and 1970s, certain local authorities in London altered contracts so as to require the engineer to make decisions as those local authorities directed. Since then, the role of the engineer has been progressively reduced in most standard form construction contracts and in both private and public sector projects.

 

However, the standard forms produced in 1999 by the Fédération Internationale des Ingénieurs-Conseils, commonly known as the FIDIC forms, retain a residue of the old way of thinking. This is hardly surprising, as FIDIC is comprised of representatives of the engineering profession. In these forms (whose defined terms we have capitalised in the rest of this article), the Engineer is defined as one of the Employer's Personnel. He takes decisions and acts for the Employer. However, under Sub-Clause 3.5, and a number of other places where Sub-Clause 3.5 applies, the Engineer's role is not an agency role but requires him to act in an independent capacity. This has the potential to cause confusion and conflicts, particularly where the Engineer acts as both project manager and independent certifier. This month's "Contract Corner" highlights some of the issues arising when the Engineer operates Sub-Clause 3.5.

 

Sub-Clause 3.5 provides:

 

"Whenever these Conditions provide that the Engineer shall proceed in accordance with this Sub-Clause 3.5 to agree or determine any matter, the Engineer shall consult with each Party in an endeavour to reach agreement. If agreement is not achieved, the Engineer shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances.

 

The Engineer shall give notice to both Parties of each agreement or determination, with supporting particulars. Each Party shall give effect to each agreement or determination unless and until revised under Clause 20 [Claims, Disputes and Arbitration]." (Emphasis added)

 

Surprisingly, given that when trying to reach agreement or make a determination the process adopted by the Engineer is crucial, the Engineer is not given any guidance as to how to perform this role, other than the words of Sub-Clause 3.5. So what principles should guide an Engineer in these circumstances?

 

Having established what the "matter" referred to in Sub-Clause 3.5 is, the Engineer should notify the Parties that he is considering a matter under Sub-Clause 3.5, to put it on record, and also set out the procedure he proposes using in order to try to reach agreement. He should then consult the Parties in an endeavour to help them reach agreement. Is he to do this as agent of the Employer or in an independent capacity? There is little guidance on this, but in the early stages of the operation of this clause at least, it seems fair to say that the Engineer probably should act independently and ought to ask both sides their opinion on the matter. Of course, the Employer may not have an opinion because his project manager – who is also the Engineer – may be the only one capable of giving such an opinion.

 

The way in which the Engineer is to endeavour to reach agreement will differ from case to case. Should he call a meeting? Should he instruct a third party where, for example, the Engineer is responsible for design and the "matter" is a dispute about design? There are various ways to approach these difficult issues but none provides a complete answer. Also, bear in mind that these are problems which arise at the evidence gathering stage and while the Engineer is seeking to reach agreement between the Parties.

 

At the second stage of the operation of Sub-Clause 3.5, when the Engineer must make a determination of the matter, the Engineer must be strictly neutral. This will require him to have an actual and notional division between the functions that he performs as agent of the Employer and those he carries out independently. This will create real practical challenges.

 

The Engineer's determination also has to be fair, which many commentators argue is subtly different from acting "impartially", the word which the pre-1999 FIDIC forms used.

 

The Engineer must also have "due regard of all relevant circumstances". "Due" here means that, if the Engineer takes a decision which is subsequently challenged, at the very least the Engineer needs to have logically worked out, on paper, how he arrived at his decision. For example, he should not ordinarily take into account pre-contract exchanges, although there may be exceptions to this. Also, is the Engineer required to make enquiries beyond asking the Parties for their views? What does "all relevant circumstances" mean? These are issues that the Engineer must address.

 

Given the potential conflicts involved when the Engineer is required to act as an agent of the Employer and in an independent capacity, the Engineer will need to think carefully about the procedure he will adopt when discharging his obligations under Sub-Clause 3.5. He must also take practical steps to manage and organise documents and to explain to the Parties that he has a dual role to fulfil under the Contract. In particular, document management will require very careful thought, planning and, potentially, significant resources. Advice about this on a project by project basis may be necessary.

 

 

For further information, please contact:

 

Timothy Hill, Partner, Hogan Lovells
timothy.hill@hoganlovells.com
 
Damon So, Partner, Hogan Lovells
damon.so@hoganlovells.com
 
 
 

 

 

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