Webinar highlights how FIDIC contracts help navigate effects of rising inflation, goods shortages and war

21 Mar 2023

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The latest event in FIDIC’s 2023 webinar series took place on 21 March and highlighted how FIDIC contracts can help users practically navigate current challenges arising from issues like the effects of rising inflation and shortages of labour and goods following the global pandemic and the war in Ukraine.

The webinar, War in Ukraine and rising inflation - navigating troubled times with FIDIC contracts, sponsored by infrastructure engineering software company Bentley Systems, FIDIC’s 2023 webinar strategic partner, was attended by more than 300 construction professionals from around the world.

A new FIDIC guidance document was also unveiled at the webinar. The guidance memorandum, FIDIC contracts guidance on the effects of inflation and unavailability of goods and labour following the global Covid-19 pandemic and the war in Ukraine, contains a number of scenarios which may arise when dealing with the above issues and outlines of the provisions in FIDIC’s general conditions of contract which might be relevant when adressing these issues.

Speakers at the webinar, which was chaired by Vincent Leloup, chair of the FIDIC contracts committee, included fellow committee members Peter Collie, Adriana Spassova and Mahmoud Abu Hussein.

Welcoming attendees to the event, FIDIC CEO Dr Nelson Ogunshakin, said that the webinar was dealing with a crucial issue for everyone working with FIDIC contracts. “We will be showing you how our contracts can help the industry navigate the troubled and challenging times we are all facing – including the challenge of issues like the effects of rising inflation and shortages of labour and goods following the global pandemic and the war in Ukraine,” he said.

Much-needed guidance for FIDIC contract users

In a video welcome from Canada to attendees, FIDIC vice-president and president-elect Catherine Karakatsanis, said that the new memorandum being launched at the webinar would provide much-needed guidance for FIDIC contract users when addressing issues like rising inflation, supply chain delays and war, that have all had a serious negative impact on the construction industry. “I congratulate and thank the talented and dedicated members of the contracts committee and its chair Vincent Leloup and our special advisers and staff for the important and continuing work that they do.,” she said.

“FIDIC contracts are trusted around the world because they have been developed with the engagement and support of the broad spectrum of the stakeholders which these contracts serve. The guidance we are launching today was developed to assist FIDIC contract users deal with the severe disruptive impact on the construction industry’s global supply chain and the rising costs due to the combination of inflation, including transport costs, scarcity or unavailability of materials and labour, varying Covid policies in different countries and the war in Ukraine,” Karakatsanis explained.

Introducing the event, Vincent Leloup, chair of the FIDIC contracts committee, said that the new guidance being launched by FIDIC outlined ten scenarios showing some of the challenging issues that contract users might encounter and how these might be addressed under the FIDIC contracts. Leloup introduced a poll at the beginning of the webinar, where 89% of attendees revealed that they had encountered issues related to rising inflation on projects in the recent period. Supply chain issues were highlighted by 37% of attendees, with 20% raising the war in Ukraine as having a significant impact on their projects. The poll results underlined the need for the new FIDIC guidance memorandum, which has already been well received.

Leloup also highlighted some of the areas where FIDIC contracts could help address some of the challenges typically faced by contract users and which conditions and provisions to refer to. He also made the point that it was important to look beyond "the four corners of the contract" when trying to address issues and firstly to look at the governing law, especially in civil law countries which, for example as in France, may provide for hardship provisions and secondly, the values and social responsibility matters FIDIC is upholding, as those are always key in resolving problems.

'Exceptional Event' – a defined term in FIDIC contracts

Peter Collie explained some of the scenarios covered by the newly launched guidance memorandum and the relevant contract principles which would cover these issues. Highlighting some of the issues around delays to the supply of rebar (steel bar for reinforcing concrete), especially during and post the Covid pandemic, Collie said an 'Exceptional Event', is defined in the FIDIC contracts and users will need to show that the shortage was caused by the Exceptional Event which delayed or prevented performance of the project and could not reasonably have been avoided or overcome in order to qualify for an extension of time. Alternatively, users may be entitled to an extension of time if they were delayed by a shortage of labour or materials which was unforseeable at the time of tender. He also made the point that local laws might offer some remedy to contract users and these also needed to be considered.

Turning to increased costs due to inflation, Collie said that there was an optional provision in the FIDIC contracts that could allow recompense for rising costs to be allowed for on a monthly basis. It was important to understand that these provisions only offered some relief and were optional, so contractors and employers would be sharing the risk. He also highlighted the need to use dispute boards, the provision of which was included in the FIDIC contracts.

Adriana Spassova gave a short presentation of the summary table in the guidance memorandum which cross-referenced various problem issues to the scenarios in the guidance and to the relevant contractual clauses. Her talk outlined the risk allocation under the FIDIC contracts for major works related to the effects of Covid, inflation and unavailability of goods and contractor’s personnel following the Covid pandemic and the war in Ukraine. She highlighted the contract provisions providing relief to the contractor subject to certain conditions and also stressed the importance of analysing the facts of any specific case and the need to consider the rights and obligations of the parties under the contract, taking into account the legal implications of local governing laws.

Potential relief under contract and at law

Asking whether a contractor’s potential relief was only available under the express provisions of contract or also at law, Mahmoud Abu Hussein gave an overview of the potential relief at law with the differing positions of the civil and common laws and how to seek entitlement. He highlighted some of the FIDIC recommendations to contract parties on how to navigate troubled times, not only with regards to the relevant contractual provisions and mechanisms but also, importantly, with regards to other considerations including the FIDIC Golden Principles, FIDIC values and code of ethics, goodwill and also the parties’ collective social responsibility.

Hussein said it was always good to remember that there were limitations to any relief under the contract or at law and that there were no open-ended guarantees for full recovery of additional inflation cost. Addressing governing law provisions, Hussein said that it was still important to follow the contract and in particular the dispute resolution provisions contained therein. Notwithstanding this, he also urged attendees to foster “good faith” and to look beyond the contract when encountering such extraordinary issues and challenges. Concluding his contribution to the webinar, Hussein said it was important to draw all lessons from current challenges and to be prepared for any eventualities that might arise in future.

As ever, at webinars on FIDIC contracts, there were many questions raised from the floor on a wide range of issues including the importance of building local supply chains, the enduring effects of Covid regulations, how inflation effects purchasing power, rising energy costs, the specific effects of the war in Ukraine, definitions of hardship under common law and the employer’s rights under the FIDIC contract.

Summing up the event, FIDIC CEO Dr Nelson Ogunshakin thanked all the webinar participants for giving such a comprehensive overview of how FIDIC contracts can practically assist users when dealing with issues like the effects of rising inflation, shortages of labour and goods following the global pandemic and also the war in Ukraine.

Click here to find out more about FIDIC’s 2023 webinar series, sponsored by FIDIC’s 2023 webinar strategic partner Bentley Systems.

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