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Dredging and Maritime Construction Contracts

Dredging contracts may be based on a variety of local and national regulations. When working internationally the FIDIC contract is the accepted norm.
The FIDIC Form of Contract for Dredging and Reclamation Works, commonly known as the Blue Book was produced by Fédération Internationale des Ingénieurs-Conseils” (FIDIC) or “The International Federation of Consulting Engineers" and the International Association of Dredging Companies (IADC) and has recently (in 2016) been re-issued in a second, revised edition.

Conditions of Contract

Contract conditions are often drafted locally on the basis of national laws, statutes, attitudes and usages. For contractors working domestically these contract conditions are known. Dredging contractors working internationally in countries other than their home country, however, are often faced with other contract conditions. These partially or completely conform to internationally accepted standardised conditions such as the FIDIC Conditions.

History of FIDIC and the Blue Book

In 1999 the International Federation of Consulting Engineers (FIDIC) published four new standard forms of contract, covering the overall construction industry. In the eyes of dredging contractors, the form that was intended to be used for the dredging industry, the so-called Red Book (FIDIC, 1999), created some major problems. It was too large with inconsistent wording and it lacked attention to the special needs of the dredging industry. The International Association of Dredging Companies (IADC) approached FIDIC and in close cooperation the two organisations developed a “Contract for Dredging and Reclamation Works” specifically for the dredging industry, commonly known as the Blue Book. This was thoroughly tested and vetted and published in 2006. After 10 years of use, the FIDIC has issued a second edition adding and improving clauses that had been suggested by those using the Blue Book. Outside of Europe and the United States, almost 80 percent of dredging works use the FIDIC form of contract for major dredging operations.

Important contractual issues

When entering into contracts, the most important issues are: Read more
  • the specifications of the works,
  • the contract price,
  • possible escalations (including the introduction of variations),
  • the completion date, and
  • the allocation of risks and liabilities between the contractor and owner/employer.

Roles of engineer and supervisor

When the tender documents are issued, the contractor should be advised who is to act as engineer or supervisor. Under FIDIC Conditions of Contract, the assumption that the engineer is notionally independent from both the employer and the contractor and must act fairly. Other contract conditions used in the international field allocate the supervisory task to an agent of the employer, which may beg the question of impartiality but is not necessarily a cause for concern. In the event of disputes about a decision of the supervisor, one may enter into mediation, or arbitral or judicial procedures may be taken immediately. In this connection, it is useful to mention that the International Chamber of Commerce (ICC) has developed special rules for an arbitral referee procedure that can be considered more adequate than full arbitral procedures in certain cases.

Soil conditions

Full awareness (or as full as possible) of soil conditions encountered at the site are crucial to the clarity of the contract. Too often information about soil conditions is inadequate and causes problems during the dredging works. Although the contractor bears the risk for the soil conditions and investigation, this presumes that the condition could have reasonably been foreseen and that the information provided was correct and reasonably complete. In the majority of cases, however, the employer and/or advisors bear some responsibility as they have had sufficient time to acquire the essential knowledge of the soil conditions in their project area, more time than contractors will have had generally speaking.

Dredgeability

The assessment of a project’s soil conditions is the most important factor to determine dredgeability, the choice of suitable equipment, production rates and ultimately the associated costs for the dredging works. The basic principle of “adverse physical conditions” is whether or not they are foreseeable and whether or not there is a contract clause that will give the contractor the right to claim for additional time and money in case unforeseeable physical conditions occur, which were not reasonably foreseeable by “an experienced contractor,” the term commonly used by FIDIC.

Allocation of risks

Contract forms, such as the general FIDIC conditions, as well as other standardised contract condition, allocate most of the risks and liabilities of the execution of works to the contractor. The exception may be liability for defects in the design and to a certain degree for deviating soil conditions. Some other exceptions are categorised in the FIDIC conditions namely the “Defined Risks”. Such risks are to be borne by the employer to a certain degree, and different phenomena, such as forces of nature and atomic warfare, are listed as such. In the Form of Contract for Dredging and Reclamation Works, the employer’s and contractor’s liabilities are spelt out in detail.

Completion and acceptance conditions

Completion and acceptance procedures as well as payment arrangements and final account procedures should be defined in detail in the contract. Rules applicable to the submission and return of bank guarantees should be well defined. In the majority of cases the contractor cannot be required to accept any liability for defects in the works after completion. Geophysical attributes such as water currents, siltation and weather may change the works and often cannot be attributed to a shortcoming of the contractor but rather to a possibly defective design. Specific terms and conditions can be agreed in the contract and should be appropriate to the specific dredging operations.

Environmental aspects

Contamination and pollution issues should be attended to by designers, employers and contractors. This will require detailed knowledge of local laws, statutes and of international treaties. The dredging contract should carefully determine the responsibilities, risks and liabilities of each of the parties involved. Methods to avoid pollution and their costs must be budgeted for. Possible indemnifications should be considered as well as possibilities offered by insurance to cover ensuing risks. Environmental Management Plans (EMP) guided by an expert environmental manager could be worthwhile and might be included in the contract.

Insurance for maritime operations

In most dredging contracts, conditions are specified for the insurance of risks for various categories of events causing damages to the parties of the contract or to third parties. This will include the allocation of risks and liabilities between the parties, careful consideration of joint insurance possibilities and their cost. This may offer benefits to both parties.

New provisions in the FIDIC Blue Book 2016

In relation to insurance, experience has shown that employers are not used to the types of insurance maintained in the marine construction industry. The newly issued FIDIC Blue Book (2016) contains an insurance table in the “Contract Data” that clarifies the extent and scope of coverage for each type of insurance. It sets out a default position to identify the party required to take out the respective insurance policies. This feature was clearly lacking in the first edition of the FIDIC Blue Book. The “Notes for Guidance” now also include detailed explanations of the insurance coverage with the view to ensuring that employers can make informed decisions. Another aim was to avoid parties insuring the same risk twice. It is always more cost-effective for a project if an event is covered by one policy only, with the premium being paid by the party best placed to insure that specific risk.

Continuity of Shipping Operations

In the “Continuity of Shipping Operations,” the employer should advise the contractor, prior to commencement of the project, of the normal schedule of navigational activity to be expected. This can then be accounted for in the price or a special provision clause provided and payment made for delay time that could not have been reasonably expected or assessed. The employer should review navigational shipping movements and advise the contractor, so that the contractor can make proper economic use of the dredging equipment and time. The location of the dredging area and possible placement area can influence the type of dredging equipment to be used. Stationary dredging vessels may need to be “spudded” thus avoiding anchor wires interfering with shipping movements. Likewise, if using a cutter suction dredger and placing the dredged material ashore, the use of a sunken pipeline could be necessary to allow vessels to pass unhindered. Prior to commencing operations, it is frequently a statutory requirement that notices to mariners are promulgated to warn shipping and/or the public of the possible location of the dredging vessels and what action they are required to take. Normally the port authority would advise pilots and shipping on VHF radio of any underwater operations or potential hazards.

Other potential interference

Whenever applicable, the contractor should also be informed if there is a possibility during the time the work is being performed that other persons or contractors could be working in the vicinity and that shipping operations will proceed as usual. The contractor should be required, therefore, to plan and conduct operations so they can be done in harmony with, and not unnecessarily interfere with, or endanger shipping and other persons working in the area. All temporary obstructions within the designated work site such as anchors, anchor pontoons, pipelines and the like should be clearly marked and illuminated.

Inspection and Measurement of Operations

The Contractor should be required to furnish such facilities and give such assistance for the inspection as the Engineer may direct, and shall secure for the Engineer and the Inspector free access to all parts of the plant. Transportation should be provided for the dredging Inspector to and from a convenient shore-landing at the beginning and the end of each work period.

Record keeping for claims

The contractor should provide to the engineer or nominated representative, at such times as may be reasonable, sufficient records so that the works may be supervised and monitored. For both the contractor and employer (particularly when operating own plant) to keep accurate and contemporary records of hours worked, locations, quantities removed, delays incurred, and instructions received or given in order that performance can be accurately monitored. In the event of claims arising, sufficient agreed information will then be available for both the contractor and the engineer to fairly resolve any dispute.

Other reasons for record keeping

Record keeping of accurate weather, tidal and current information can help to make an analysis upon completion of the works which can then be compared with the original estimate for the work. This information could be of use when deciding on the timing of future campaigns and/or the type of plant to be used.

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