THE ALLOCATION OF RISK

IN FIDIC (PART I)

An introduction to the allocation of risk

under FIDIC from a Danish perspective
INTRODUCTION
In any construction project, uncertain events
will likely occur, which will have an effect on the
achievement of the projects’ objectives, such as
time, money and quality. Such uncertain events
in construction projects commonly include un-
expected ground conditions, inadequate plans,
delays, weather conditions, inadequate spec-
ifications, faulty materials or workmanship,
extra work etc. and risks related to such events
should always be foreseen, managed and allo-
cated in the construction contract.

When allocating such risks, the following four

questions are relevant to ask and assess:

• Which party can best foresee the risk?

• Which party can best control the risk and

associated consequences? Silver book in 1999 until the second edition in
• Which party can best bear that risk, e.g. 2017, the provision was renamed from “Force
can a party transfer the risk, e.g. through Majeure” to now “Exceptional Events”. Experi-
insurance? ence had shown that the practical use of “Force
Majeure” was under certain circumstances
• Which party ultimately most suffers or challenging and unclear, as force majeure is a
benefits when the risk eventuates? legal standard with different meanings from
The responses to these questions are reflected jurisdiction to jurisdiction. What constitutes
in FIDIC, and in the below short paper, we will force majeure in the country of the employer,
assess how the Fédération Internationale Des may not constitute force majeure in the coun-
Ingénieurs-Conseils (FIDIC) have decided to al- try of the contractor.
locate the risk between contractor and employ- Consequently, the term “Exceptional Events”
er relating to force majeure, unforeseen ground was implemented and defined as an event or
conditions and change in law1. Focus will be on circumstance which (i) is beyond a party’s
the FIDIC Red (Construction Contract), Yellow control, (ii) the party could not reasonably
(Design and Build) and Silver (Turnkey/EPC) have provided against at contract award and
books2. (iii) having arisen, the party could not reason-
ably have avoided or overcome. This definition
FORCE MAJEURE/ corresponds to the definition of force majeure
under Danish law. Furthermore, a non-exhaus-
EXCEPTIONAL EVENTS tive list of possible Exceptional Events was im-
plemented in Clause 18 stating events such as
An uncertain event, which may arise during a
war, terrorism, riot, strikes, lockout and natural
construction project, and which may have an
catastrophes. It is noted that the list does not
impact on both time, money and quality, is the
include epidemics or pandemics.
force majeure event, which particularly has be-
come relevant following the Covid-19 pandem- If a party can prove that an event constitutes
ic. The allocation of risk related to such force an Exceptional Event, as defined above, and
majeure event is regulated in Clause 18 of the the party in fact and consequently is prevent-
FIDIC Red, Yellow and Silver Book. ed from performing its contractual obligations,
the party is excused performance of its obli-
From the first edition of the Red, Yellow and

1 It is noted that in Part II of our Insight on the allocation of risk in FIDIC, we will also assess FIDIC’s risk
allocation connected to performance guarantee, indemnification and insurance.
2 For further information on the application of the FIDIC Red, Yellow and Silver Book, see https://plesner.
com/speciale/construction%20law/fidic?sc_lang=en

Page 01 | Plesner Insight, The allocation of risk in FIDIC (Part I)

gations, while prevented from doing so. If the the question is, who shall bear the risk of such
affected party is the contractor, the contractor change.
may be entitled to further relief in the form of
Under FIDIC3 , if the costs of the contractor in-
an extension of time and/or, in limited circum-
crease or decrease due to a change in (i) the
stances, additional payment.
laws of the country, in which the works are per-
FIDIC does not deal with the situation, where formed, (ii) the interpretation of such laws, or
the affected party is the employer. Most of (iii) any permit, permission or license obtained
the risks associated with Exceptional Events by the employer or contractor, the contract
are thus allocated to the employer, as a risk he price shall be adjusted. In this respect, “costs”
must bear. However, the contractor’s share of shall be understood as the expenditures rea-
the hardship associated with Exceptional Events sonably incurred by the contractor in perform-
is limited to only being entitled to claim the di- ing the contract.
rect expenditure reasonable incurred in certain
With respect to the delay risk, the contractor
specified events as set out in Clause 18.4(b),
may be entitled to an extension of time, if the
and thus not any indirect costs, such as loss of
contractor can demonstrate that such change
profit. You could say that the risk has been part-
in law has caused a delay.
ly shared.
The majority of the risks associated with a
Compared to Danish construction law, this
change in law are thus allocated to the employ-
can, however, not be seen as a hardship on the
er. However, compared to the 1999 edition, the
contractor, as under the Danish general condi-
2017 edition of the Red, Yellow and Silver book
tions for building and construction works and
has now opened up for the possibility that a
supplies, AB18, the contractor would only be
change in law not only entitles the contractor
entitled to an extension of time in case of force
to an increase of the contract price, but also
majeure, and thus not any compensation.
the employer to a decrease, if the change in law
causes a decrease in the contractor’s costs.

Under Danish construction law, a similar risk al-

location applies in case of change in law.

UNFORESEEN GROUND
CONDITIONS
The risk of unforeseen ground conditions is well
known in the construction industry and the ef-
fects can often be felt in terms of both time and
money. Certain types of work are more likely
to be affected by ground conditions, however,
as most structures have subsoil foundations of
some kind, the principle of unforeseen ground
conditions is generally applicable. Accordingly,
the risk of potential time and cost consequenc-
es should be provided for and considered in
every construction contract.

CHANGE IN LAW In FIDIC Red and Yellow book, the issue of un-
foreseen ground conditions is dealt with under
Under a construction contract, the parties
the heading “Unforeseeable Physical Condi-
must perform their obligations in compliance
tions”4. This term extends to apply to natural
with the applicable laws. If such laws change
physical conditions and physical obstructions
during the term of the construction contract,
(natural or man-made) and pollutants, which

3 Clause 13.6
4 Clause 4.12

Page 02 | Plesner Insight, The allocation of risk in FIDIC (Part I)

the contractor encounters at the site during ex- the effect is that no addition to the contract
ecution of the work, including sub-surface and price is payable7. The delay risks are not nec-
hydrological conditions, but excluding climat- essarily allocated to the contractor, in case of
ic conditions and the effects of those climate unforeseen ground conditions, as an extension
conditions. The physical conditions must be of time under certain circumstances may be en-
“Unforeseeable”, which means that it must not titled.
be reasonably foreseeable by an experienced
Under Danish construction law, similar prin-
contractor by the date 28 days before the latest
ciples apply, in the sense that if a contractor
date for submission of the contractor’s tender5.
can demonstrate that ground conditions are
If the contractor can demonstrate that the unforeseen, and these conditions lead to de-
physical conditions were “Unforeseeable”, and lay and/or increased costs, the contractor may
that the contractor consequently has suffered be granted an extension of time as well as
delay and/or incurred costs, the contractor may compensation for costs. When assessing the
be granted an extension of time as well as com- risk allocation under Danish law, emphasis is,
pensation for costs related to any delay or, if however, put on (i) whether the employer has
appropriate, costs incurred due to the physical fulfilled his duty to loyally disclose information
conditions6. on ground conditions in the tender documents
and (ii) whether the contractor has fulfilled his
The unforeseeability test is decisive for deter-
duty of inspection. If the unforeseen ground
mining the risk allocation for ground condi-
conditions are beyond what a contractor rea-
tions and other physical conditions under the
sonably can expect, when reviewing the tender
FIDIC Red and Yellow book. When applying this
documents, the employer will likely bear the
test, the following three principles must be
risk of such unforeseen ground conditions, thus
considered:
leading to an entitled claim for extension of
1. The test is not what was actually foreseea- time and costs for the contractor.
ble, but what would have reasonably been
foreseeable

2. The foreseeability is not that of the specific

contractor, but of an experienced contrac-
tor

3. The point in time to which the test refers

is the date 28 days before the submission
of the contractor’s tender, meaning that
it must be seen together with the infor-
mation available to the contractor and the
correctness and sufficiency of such infor-
mation.

In FIDIC Sliver book, which concerns EPC/turn-

key, the issue of unforeseen ground conditions
is also dealt with under the heading “Unfore-
seen Physical Conditions”. Compared to the
Red and Yellow book, the Silver book presents
a more thorough ongoing allocation of ground
risk. Under Clause 4.12, the Contractor bears
the risk of unforeseen ground conditions and

5 Clause 1.1.85 in Red book and Clause 1.1.87 in Yellow book

6 Clause 4.12.4
7 Nevertheless, if the unforeseen ground conditions relates to archaeological and geological findings
(Clause 4.23), remedial work (Clause 7.6), variations (Clause 13.3.2), changes in laws (Clause 13.6)
or exceptional events (Clause 18.3), the contractor may be entitled to payment for compensation
for difficulties encountered.

Page 03 | Plesner Insight, The allocation of risk in FIDIC (Part I)

 CONTACT

Read more about

Plesner’s Construction
team at plesner.com

Peter Fogh Niklas Korsgaard Christensen

Attorney-at-Law, Partner Attorney-at-Law, Partner, MBA

pfo@plesner.com nkc@plesner.com
D: +45 36 94 13 59 D: +45 36 94 12 39
M: +45 21 65 09 11 M: +45 30 93 71 35

Anne-Sophie Bundesen Frederik Lenskjold Olsen Frederik Leth Keller

Attorney-at-Law, Director Attorney-at-Law, Manager Attorney-at-Law

atr@plesner.com flo@plesner.com fke@plesner.com

D: +45 36 94 13 33 D: +45 36 94 15 51 D: +45 36 94 13 27
M: +45 29 99 30 13 M: +45 29 99 30 77 M: +45 30 62 59 43

Page 04 | Plesner Insight, The allocation of risk in FIDIC (Part I)

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