Whether the lapse of the 28-day notification period under sub-clause 20.1 of the International Federation of Consulting Engineers (FIDIC) Red and Yellow Books renders the contractor’s claim time-barred has been a point of interest for courts in civil law jurisdictions for years. Polish courts have also not shied away from commenting upon the legal nature of sub-clause 20.1. The legal landscape seemed relatively settled in this regard until March 2017, when the Supreme Court took an unequivocally pro-employer perspective on the matter.
Please Join Us at the Conference and use our Sponsor Discount Code for 20% Savings
We will be sponsoring and presenting at this year’s Global EPC Contract & Risk Management Conference on October 12-13, 2017 at the Millennium Gloucester Hotel in London. We have negotiated a special discount for our clients and contacts on the conference fee.
London partner, Matthew E. Smith will be speaking on the role of insurance and cost reduction in EPC contracts and also moderating the panel on Understanding Contract Compliance with Procurement Strategies and Policies.
Seattle partner, David P. Hattery will be speaking at the panel on Ensuring Subcontractor Buy-In When Preparing and Entering Contracts.
NEC4, the next generation of the NEC suite of contracts, was released on 22 June 2017. It includes significant developments and reflects current best practice throughout the construction industry.
Please join us at our London office for a breakfast briefing on the key changes and what they will mean for you. Even if you are not changing to NEC4 imminently, it may be useful to consider any NEC4 changes you might want to take advantage of now in your current negotiations on the NEC3 forms.
Topics for discussion will include:
- Overview of NEC4 changes – the “big picture”
- Practical implications of programming and time-related changes
- Changes to the payment provisions and the Main Options
- Other key changes and implications of NEC4 going forward
To RSVP, click here.
By Łukasz Gembiś, K&L Gates, Warsaw
In February 2017, the Ministry of Infrastructure and Construction announced the introduction of the “New standards in road construction” aimed primarily at regulating the balanced division of risks in roads construction contracts. Among many changes that have been made to the new model of public procurement contracts in road construction, special attention should be paid to returning – after many years of absence – arbitration as the preferred method of settling disputes between public investors and general contractors in Poland.
By Christoph Mank, K&L Gates, Berlin
As announced last year in our blog post of 6 June 2016, Germany passed an amendment to the German Renewable Energy Act (Erneuerbare-Energien-Gesetz) to implement bidding processes for determining the amount of funding for the generation of electricity from renewable energies.
As mentioned in our earlier post, the German government saw the transition to bidding processes as being a central instrument for attaining two goals: (a) on the one hand, to develop a certain share of renewable energies in the production of electricity as laid down in policy guidelines; and (b) on the other hand, to limit the funding to a level that is economically essential.
The new law came into effect the beginning of 2017, and the new era started with an auction of 1.55 GW. Only very advanced projects that have already been granted approval or received planning permission, and whose commissioning is planned for the period from 2021 to 2024, were qualified to participate in that auction.
The result of the auction was surprising for many market observers: Four bids were able to be accepted, totalling 1,490 megawatts. All successful projects are located in the North Sea. Three of the four successful bids were awarded for zero subsidies, and the highest accepted subsidy by the regulatory authority was 6 ct/kWh, which is 50% below the highest possible maximum subsidy. There were only two large energy companies that were successful in the auction: a German utility with one project and a Danish energy group with three projects.
The thinking behind subsidy-free bids is mainly economy of scale and further development of the technology-in-use on the one hand and expectation of higher market prices for electricity on the other hand.
According to the regulatory authority, the result of the first auction has proven that the decision for a system change was the right one. Furthermore, it has also proven the competitiveness of offshore wind energy, which now claims to raise the regulated capacity for the development of offshore wind farms.
The German Federal Association for Wind Energy (Bundesverband WindEnergie – BWE), an interest group of the entire wind industry, which also includes the organized interests of the onshore wind industry, is more reluctant. According to their statement, it is not clear if state subsidies are just exchanged with group internal subsidies of offshore projects, a strategy which more medium-sized corporations with no public stakeholders may not be able to follow.s the objective of cost efficiency; however, it still remains to be seen whether the system will actually guarantee a further continuous development of wind energy — both offshore and onshore.
FIDIC has long been renowned for its flexible suite of standard forms of contract for use on international construction and engineering projects. FIDIC is the “contract of choice” for international infrastructure and process plant projects, particularly in Eastern Europe, Africa, the Middle East, and Asia.
Two of the key strengths, or attractions, of the FIDIC suite of contracts are, firstly, that they are capable of use across a diverse range of legal systems and, secondly, that they have been pro-actively updated and added to over time to respond to the needs of the industry.
By way of background to this last point, FIDIC produced a core ‘Rainbow Suite’ of 4 contracts in 1999: the Red Book (for Building and Engineering Works), the Yellow Book (Plant and Design-Build), the Silver Book (EPC/Turnkey Projects) and the Green Book (short form contract). Additional forms have subsequently been added to the Rainbow Suite, including the White Book consultant’s appointment in 2006 and the Design-Build-Operate Gold Book form in 2008. In early 2016, FIDIC formed a working group to focus on updating its existing suite of contracts and to add entirely new forms of contract (including sector-specific tunnelling and renewables forms); with intentions to release such new and updated contracts over the course of the next two years.
Following the FIDIC International Contract User’s Conference in December 2016, at which K&L Gates partners, Matthew Smith, Kirk Durrant and Rafal Morek, spoke on trends in amending FIDIC contracts, attendees were able to obtain a copy of the much anticipated “special pre-release version” of the 2nd Edition of the Yellow Book (2017) and the 5th Edition of the White Book (2017).
This Alert provides a high-level overview of the changes which will be made to the Yellow Book, its first update in over 15 years. The 2017 Yellow Book 2nd edition changes are likely to have wide-reaching impact as the Yellow Book remains the most commonly used contract in the Rainbow Suite. Some of these provisions reflect innovations introduced in the Gold Book 2008 which are now being integrated into the new versions of the ‘1999 suite’ (Red, Yellow and Silver) but many other changes are completely new.
One thing that is clear is that the changes are very extensive indeed, both in terms of length and effect, and whether you are an Employer or Contractor or an Engineer or another consultant, it is essential that you are fully aware of these changes when the final versions of the new contracts are issued this year.
In due course we will be releasing more detailed commentaries on the ‘new’ Yellow Book and the other forms which are due for release this year as well as conducting workshops on the use of the new forms. If you are not already on our mailing list and wish to be informed of these, please contact Matthew Smith (firstname.lastname@example.org) or Rich Paciaroni (email@example.com).
By Nita Mistry, K&L Gates , London
In Jawaby Property Investment Ltd v The Interiors Group Ltd  EWHC 557 (TCC), refurbishment works were carried out under a JCT Design and Build Contract, 2011 edition with amendments. The procedure followed for the first six payment applications involved the contractor (“TIG”) emailing a valuation to the employer’s (“JPIL”) agent with supporting documents specified in the contract. The agent would then assess the sum due and issue a payment certificate.
For the seventh payment application, a different approach was taken. TIG provided a valuation that it described as an “initial assessment”. This suggested that it was not firm and final. In addition, the valuation did not value the works beyond 5 January, whereas previous valuations went up to and included valuation of the works up to the due date (8 January). Nevertheless, JPIL’s agent assessed the sum due in the usual way and issued a payment certificate, this time with a negative sum. TIG requested some clarification, to which JPIL’s agent responded by attaching a record of the site visit and valuation assessment. The courts considered whether the “initial assessment” issued by TIG was a valid payment notice and whether the certificate for payment issued by JPIL was a valid pay less notice.
In Poland, for years now we have seen a steady increase in the number of commercial disputes referred to the common courts. According to the information provided in April 2016 by Undersecretary of the Ministry of Infrastructure and Construction, Jerzy Szmit, the value of the claims that contractors brought to the court, or intend to bring, amounted to approximately €2.5 billion, covering 5000 cases (only regarding road construction disputes).
Although the efficiency of the Polish courts has improved in the last few years, the average duration of court proceedings in Poland is still very long. Amicable dispute resolution is one method to deal with the resulting delays (for example by way of conciliation or mediation procedures etc.). However, unfortunately, despite various initiatives to promote such methods by both the Ministry of Justice and the Ministry of Development, government bodies and state budgetary units only occasionally make use of procedures for the amicable settlement of disputes arising under civil law. It appears that the main factor preventing public investors from wider use of such amicable dispute resolution methods is a fear of incurring liability for breach of public finance discipline.
By Christoph Mank, K&L Gates, Berlin
The question of when warranty claims are time-barred according to the German Civil Code, may differ from contract to contract. Often, warranty claims are time-barred two or three years after transfer of risk; however, for construction works, longer periods of four or five years may be applicable, starting with the completion and acceptance of the works.
The civil division of the German Federal Supreme Court (“BGH“), which is ─ inter alia ─ in charge of construction law, had to decide a case recently in which rooftop solar panels were installed subsequently on the roof of an indoor tennis center. Three years ago, another civil division of the BGH ─ which is in charge of the law related to sale and purchase agreements ─ had to decide a very similar case in which rooftop panels were installed on a barn. In the case of 2013, the BGH ruled that warranty claims for the solar panels, which were only delivered and not installed by the vendor, are time-barred two years after delivery. According to that decision, the rooftop solar power station is not a building or a “structure,” which it needs to be considered to qualify for the five-year warranty period. Only the barn is a building, and the solar power system is not relevant for the construction and the continued existence of the building; the solar power system is only used for generating electricity.