【Haichuan EPC】Exploring the Common Challenges of Changes in International Projects
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If we are to talk about the concepts that international engineering professionals most often confuse, “changes” and “claims” are a typical example of such pairs. In the author’s experience, there are mainly two reasons: first, changes and claims do indeed share similarities in form, as both require the contractor to indicate the impact of a certain event on costs and schedule, and they both need written confirmation from the owner ； Secondly, in practice, both require the contractor to grovel and plead for approval from the owner and engineers, with the initiative always in the hands of the owner. Although logically, a change constitutes a new agreement or supplementary contract, implying that the positions of both parties should be relatively equal, in practice abroad it is often difficult to see what the \"institutional advantage\" of changes is for the contractor compared to claims; the difficulty of implementing either is roughly the same. In fact, there are many reasons for this situation, among which the provisions of the contract are the most direct cause. From the perspective of common contract clauses in international engineering, this article explores two frequently discussed topics: the change procedure and the determination of changes, in the hope of providing insights for colleagues in the industry. The differences in the provisions regarding change procedures between the FIDIC and ENAA contract templates are first examined by comparing the provisions on change procedures in the FIDIC (1999) contract, which is most commonly used in international projects, and the ENAA contract widely adopted by international multilateral banks (see Table 1).
The circumstances under which the contractor may refuse a change are shown in Table 1 on the following page. The change procedures under the FIDIC contract series are relatively unfavorable to the contractor, mainly because the employer can instruct the engineer to require the contractor to carry out immediately a certain task that constitutes a change. The 2017 version even added \"without delay\" after the clause from the 1999 version that stated \"The contractor shall comply with and carry out changes\". This poses problems for the contractor: first, the contractor starts working without having finalized the schedule and cost implications, which is unfavorable for future negotiations regarding these aspects ； Second, when there is a dispute over whether a certain task constitutes a change, the owner can directly order the contractor to carry out that task, and later claim that it falls within the scope of the contract. Since FIDIC contracts require contractors to comply with the instructions of the employer’s engineer, the only clause that can be invoked by the contractor to refuse such work is the exception provided in Clause 13.1. The provisions regarding this in the 1999 and 2017 versions of FIDIC contracts (as illustrated in the Yellow Book and Silver Book) are shown in Table 2 on the following page.
Logically, it is unlikely that the owner would voluntarily request the contractor to make changes that could adversely affect the performance or safety of the project; therefore, among the three exceptions listed in the 1999 FIDIC contracts, only clause (1) is typically available to the contractor as a defense. It is important to note that the phrase “cannot readily obtain” in this clause refers not only to the determination of whether such equipment or materials can be acquired, but also implies a requirement regarding timeliness (a point that is sometimes overlooked). If the contractor uses this as a defense against the owner, it can lay the groundwork for requesting a schedule adjustment in the future, even if refusal to make such a change is not possible. Based on the 1999 version of FIDIC, the 2017 version adds Articles (1) and (5) primarily. Article (1) represents an important tool for the contractor; in particular, given the broad definition of “unforeseeable” in the contract’s definitions section – which can be interpreted as “unrelated” or “uncommon in projects of a similar type” – it is a clause that contractors should make use of wisely. In contrast, the ENAA contract specifies that the prerequisites for a change are as follows: 1. The work involved in the change falls within the general scope of the original facility, and it is not unrelated work [similar to Article (1) of the 2017 FIDIC version] ； 2. Technically feasible ； 3. The modified work is compatible with the original facility. It also stipulates that if the total amount of changes requested by the contractor results in a variation of more than 15% in the total contract price, the contractor may refuse such changes. In fact, since the ENAA contract does not have an “instruction” mechanism, the owner cannot directly request the contractor to start work from the beginning; instead, they must begin by asking the contractor to submit change proposals. Therefore, although the owner has the right to issue a “pending confirmation change order” when the two parties fail to reach an agreement on price and timeline, under the ENAA contract the contractor enjoys greater negotiating power and position regarding changes compared to the FIDIC contract.
How to determine whether a homeowner’s certain request constitutes a contract change: In practice, it is common for homeowners to verbally acknowledge that a certain task represents a change, only to find various reasons to deny the existence of such a change after the task is completed； Or refuse to acknowledge the change from the start, and instead issue instructions directly requiring the contractor to proceed with the work. This involves a challenging task in international engineering: the identification of changes. Generally, there are no issues in identifying changes that involve obvious alterations to the scope of work or technical requirements. However, in practice, there are many more complex situations; for example, I am often asked questions at work such as: \"The client has approved the drawings but now requests changes – does this constitute a change?\" ”“If a technical clause in the tender documents and contract is vague, does the owner’s further refinement of requirements during the implementation phase constitute a change? ”“If the contract documents do not include the bid documents, will the employer, during the performance phase, not accept certain technical solutions contained in our bid documents as constituting changes? ”Wait. In fact, the definition of change in contracts is quite simple; for example, the definitions of change in the FIDIC and ENAA contract templates are shown in Table 3.
It is evident that relying solely on the definition of changes in the contract cannot resolve such questions that arise frequently in international projects. For such issues, it is difficult to provide absolute, universal answers; various factors need to be taken into consideration, including: 1. The definition and composition of the \"contract documents\" ； 2. Are the owner’s “new requirements” subjective changes in demands, or are they objective needs to meet the project’s objectives and performance standards? ； 3. Whether the timing of the owner’s “new requirements” is reasonable, such as whether the relevant work has already been carried out and production completed, or it is still in the preliminary design or drawing stage (there are also differences between these two stages) ； 4. Are there any inherent unreasonable or incomplete aspects in the design drawings, bidding documents, technical proposals, etc., submitted by the contractor? ； 5. Specific provisions in the contract regarding the technical standards, industry norms, and laws and regulations that must be complied with ； Whether it is explicitly required to follow the practices of the owner in similar previous projects, etc. Although, overall, the determination of complex changes tends to focus on business and technical aspects, the laws of the host country and previous court decisions are also important factors in making such determinations. For example, regarding the question of whether requiring modifications to approved design drawings constitutes a change, past judicial precedents in our country tend to support such a view. Therefore, for issues regarding the confirmation of complex changes, it is also recommended to consult a lawyer in the country where you are located.
Discussing again the similarities and differences between changes and claims: As mentioned at the beginning of this article, there are similarities between changes and claims, but there are also some differences that need to be taken into account in practice: 1. Claims involve two stages – a claim notification and a claim report – and there are strict time limits; in particular, if the claim notification is not sent within the prescribed time frame, it often means losing the right to file a claim； Changes, on the other hand, are not divided into two phases; and although there are also time limits for submitting proposals in some contracts (such as the 2017 version of FIDIC), these limits are much less strict ； 2. The changed price can include profit ； And claims can only include profits under specific circumstances ； 3. A proposal for changes usually only requires information equivalent to that provided in the bid price ； Claims, on the other hand, require much higher standards regarding contemporaneous records, various types of evidence, and proof of expenses compared to changes. This is actually also one of the reasons why many contractors complete the change work first and then encounter difficulties when trying to file claims regarding it later on. Postscript: The problem of \"difficulty in making changes\" that Chinese contractors commonly face overseas reflects, at a deeper level, the increasing competition in the overseas engineering contracting market in recent years, as well as changes in the power dynamics between owners and contractors. The change procedures currently in use, such as those in the FIDIC contract templates, are designed to prevent contractors from abusing their advantageous negotiating position during the execution of contracts; in fact, these procedures do not reflect the actual power dynamics between the parties in today’s industry. From the contractor’s perspective, the following two suggestions can be referred to. 1. If the owner delays in confirming the changes, or if there are implications for the project timeline and costs, the contractor can submit notices through claims procedures and provide regular updates, thereby keeping pressure on the owner to avoid waiting until the end of the project to raise these issues” ； 2. Based on most current contract templates (including the 2017 version of FIDIC and ENAA), a permanent dispute committee (DB/DAB/DAAB/DRB) has become a standard element in international projects. However, Chinese contractors still lack sufficient awareness of this, often only taking action in a hurry after major disputes arise. Based on my experience, a permanent dispute committee can play a significant positive role in facilitating changes during the project’s execution and resolving claims. It is recommended that one not overlook this contractual provision, and that discussions be held with the client as soon as the contract comes into effect to establish such a dispute committee.
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