FIDIC contracts are widely used in the international Real Estate Projects industry. Much like their national Dutch counterpart, the UAV/UAV-GC contracts, FIDIC contracts consist of General Conditions and Special Conditions regarding project-specific issues. Examples include the industry-recognized FIDIC Red, Silver, Yellow, and Pink Books for various types of construction contracts.
Template contract documents likes FIDIC and UAV/UAV-GC contracts aim to provide a set of pre-determined balanced contract conditions. The challenge with such terms is that balances can shift over time, depending on market conditions, supply and demand, and development of technology that affects what contracting parties find reasonable. Aside from adding project-specific Special Conditions, contracting parties may also decide to apply these changes to the General Conditions.
As most jurisdictions generally believe in the freedom of contract, parties are, in principle, free to deviate from the General Conditions. As a result, in 2019 FIDIC published a set of “Golden Principles” (GPs) regarding deviations to fundamental parts of the General Conditions. These GPs aim to protect the fair and balanced risk/reward allocation of the various FIDIC contracts. In other words: FIDIC views deviations from these GPs as unfair and unbalanced. Of course, FIDIC is not a judicial institution under Dutch law, so contracting parties may still deviate from the GPs. Whether certain deviations from the GPs are indeed unfair and unbalanced will ultimately be determined by the relevant court or arbitration institute, but the GPs can play a crucial role in such proceedings.
Reasonableness and fairness are core tenets of Dutch law. These values are explicitly incorporated in the Dutch Civil Code (par. 6:2, 6:248 DCC), which states that agreements which are unfair or unreasonable can be partially null and void, in order to remedy the unfair or unreasonable part and restore the fair balance between parties.
Applied to industry-specific contracts like construction contracts, this means that Dutch courts and arbitration institutes must determine whether certain contract provisions are unfair or unreasonable. This can be difficult if the court or arbitration institute is not familiar with the practices and commercial drivers of construction projects and related contracts. In these situations, the GPs and whether parties have deviated from the GPs are useful in determining whether certain contractual provisions are unfair or unreasonable.
In today’s dynamic world, in which principals, developers, and contractors face increasing costs of building materials and labor, as well as unforeseen delays in deliveries, we may see a rise in disputes in 2023 relating to the allocation of these risks and the reasonableness and fairness of related contractual provisions.
The GPs may also have an effect beyond FIDIC contracts. Because of their generic and thus widely applicable nature, the principles may also play a role in cases involving another form of contract, like the Dutch UAV/UAV-GC. Courts and arbitration institutes may use the GPs as reference points to determine what is generally deemed to be reasonable and fair in the Real Estate Projects industry, even if another form of contract is used. Contracting parties should take this into account when entering into construction agreements.