The Emerald Book: the new FIDIC Tunnelling Contract

By Jeremy Glover, Partner, Fenwick Elliott

On 7 May 2019 at the World Tunnelling Congress 2019, in Naples, FIDIC launched a new contract, the Conditions of Contract for Underground Works (“the Emerald Book”). Taking the 2017 Yellow Book as its starting point, the new Emerald Book is a joint initiative between FIDIC and the International Tunnelling and Underground Space Association (“ITA”) which had set up a joint task group back in 2014.

The Introduction to the new Contract identifies three “unique features” of underground work:

“– the method of excavation and ground support are major factors for the successful realization of the project, and therefore part of the Works;

– physical access to the Works is often limited to just a few locations or even a single location, which places serious constraints on construction logistics and the environment;

– the land, beneath which the Works are to be constructed, typically belongs to a number of third parties.”

Laying on top of these three features is the difficulty in predicting, with any certainty, the ground conditions for the entirety of the underground works, meaning that considerable thought had to be given as to how to maintain FIDIC’s fundamental principle of balanced risk sharing and/or allocation.

The Geotechnical Baseline Report and unforeseeable ground conditions

The Emerald Book seeks to deal with the difficulties created by unforeseeable ground conditions primarily through the use of the Geotechnical Baseline Report (“GBR”). This is intended to be the sole source or contractual document that describes the anticipated subsurface conditions that are likely to be encountered during the execution of the Works. The GBR should also define the subsurface condition or ground-related risks between the Employer and the Contractor. Such is the importance of the GBR that Appendix A to the Emerald Book provides guidance as to what the GBR should contain. Further, the Emerald Contract provisions are based on the Employer including a GBR and are not intended for use where the Contractor is to construct the Works in accordance with a detailed design provided by the Employer. 

Two of the other key documents are the Completion Schedule and the Schedules of Baselines. This is a reflection of the fact that the Time for Completion is largely influenced by ground conditions. The Completion Schedule sets out the Time for Completion of the Milestones, which are “based on and consistent with the production rates provided by the Contractor in the Baseline Schedule”. The Schedule of Baselines sets out details of the anticipated activities or items of work which are “consistent with the conditions described in the GBR”. 

The idea is that the Contractor enters production rates and durations for the excavation and lining works corresponding to each drive and/or other area of work, which are deemed to allow for the time the Contractor needs to complete that activity. In defining the duration, the Contractor is expected to take into account: economies of scale, learning curve, availability and deployment of resources, safety requirements, working space, accessibility, and working time.

The definition of “physical conditions” not only includes natural physical conditions, physical obstructions (natural or man-made) and pollutants but also “reactions of the ground to Excavation”, a good example of the contract being tailored to tunnelling works. The excavation works need to be constantly monitored and there is also a requirement that the Contractor submits to the Engineer on a daily basis its interpretations of the subsurface and surface monitoring results.

By new sub-clause 13.8.3, the time allowed for the excavation and lining works in the Completion Schedule and/or the Programme, may be reassessed (and this means reduced or extended) by the Engineer who, when making the reassessment, applies the production rates provided by the Contractor in the Schedule of Baselines. There is a similar approach to cost, with the Emerald Contract providing a flexible mechanism for remuneration according to ground conditions, foreseen and unforeseen.

The idea is that the Employer, who prepares the GBR, takes the risk for unexpected or unforeseeable underground conditions, which is the standard FIDIC Yellow Book approach. However, the Employer, whilst taking the burden of conditions that are worse than predicted, will get to enjoy the benefit if the conditions for the excavation and lining works turn out to be better than anticipated. In other words, if ground conditions actually encountered differ from those set out in the GBR, and the critical path is affected, the Time for Completion will be adjusted: increased if the conditions are worse but shortened if more favourable conditions are encountered.

Dispute avoidance and advance warning 

The Emerald Contract comes some 17 months after the release of the 2017 Second Edition of the Rainbow Suite. Unsurprisingly, it follows the dispute resolution mechanisms found in Clauses 20 and 21.  Further, the use of the GBR, and the efforts taken to provide guidance on how to draft the GBR, should help ensure that the allocation of the risks of underground conditions are as clear as possible, something which should also help avoid and reduce the scope for disputes.

Upon the release of the 2017 Suite, everyone remarked on its size. The contracts almost doubled in length. The Yellow Book General Conditions increased from 63 pages to 119 (or 69 pages to 132 including the DAAB Agreement and Index of Sub-clauses). The Guidance and Annexes increased from 30 pages to 68.  The Emerald Book is even longer. For example, there are now 104 Definitions, an increase of 14. However, that is not so surprising, given the need to make the contract specific to tunnelling and the importance of the GBR to the contractual scheme. 

One of the new definitions comes at sub-clause 1.1.116. However, the introduction of the Contract Risk Register is not something that needs to be unique to tunnelling. Indeed, it could be seen as part of FIDIC’s continued attempts to promote real-time dispute avoidance.

Whilst the idea of the Contract Risk Register is nothing new in itself, it is new to the FIDIC Form.  Here, the need for one suits the demands of the tunnelling contract, including the need to ensure that a close eye is kept on the changing ground conditions and progress. The Contract Risk Register is required to identify both relevant risks, and the actions which are to be taken to avoid or reduce those risks.

Under the Emerald Book scheme, the Contractor must complete and maintain the Contract Risk Register and prepare and maintain the Contract Risk Management Plan to manage and control any risks identified. Both must be regularly updated. Further, regular Contract Risk Management meetings are to be held. Sub-clause 1.16 (b) also requires that the Contractor has procedures in place to ensure that certain actions can be taken. These include issuing advance warning notices under sub-clause 8.4 (which deals with Advance Warning) and/or that meetings are called whenever a “known, probable or uncertain future event” is likely to:

“(a) adversely affect the work of the Contractor’s Personnel;

(b) adversely affect the performance of the Works when completed;

(c) increase the Contract Price; and/or

(d) delay the execution of the Works or a Section or any Milestone.”

Whilst the idea of early warning could be found in the 1999 Form, with sub-clause 8.3 including a requirement for the Contractor to give notice of “specific, probable future events or circumstances which may adversely affect the work”, it was the 2017 Edition that drew firm attention to the importance and potential value to the project of giving early or advance warning. Sub-clause 8.4 imposed a requirement on the Contractor, Employer and Engineer to give early warning of potential problems.  The introduction here of the Contract Risk Register reinforces this further. 

FIDIC: the future

There is no change in the Emerald Book in respect of the references to the FIDIC Golden Principles, which remain part of the guidance listed in the Special Provisions. And whilst the Advisory Notes where the project uses BIM have been modified slightly, in that there are changes to the list of sub-clauses that may be affected by BIM, for subsurface projects there is no real change. The “Technology Guideline” and “Definition of Scope Guideline Specific to BIM” documents are still awaited. 

However, the introduction of the Emerald Book may be seen as timely given the increasing number of infrastructure and energy projects with underground elements.  It also fits in with the gradual expansion of the use of the FIDIC Form globally. FIDIC has recently confirmed that it has agreed a five-year non-exclusive licence for the use of the 2017 Suite of Contracts with the World Bank. The Contracts are also going to be translated into Arabic, Chinese, French, Portuguese and Spanish, a move which will encourage their use. No doubt there will be further new developments soon.

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