FIDIC Contracts, subclause 2.4. Duty of the Employer to submit evidence of financial arrangements.

FIDIC Contracts, subclause 2.4. Duty of the Employer to submit reasonable evidence of financial arrangements within 28 days after a request by the Contractor.
Following a number of articles that have commented on a recent case involving, amongst other things, subclause 2.4 of the FIDIC Red Book, [2015] UKPC 37, we want to make some comments and recommendations about the duty of the Employer to submit reasonable evidence of financial arrangements under some of the most common FIDIC contracts.
The evidence should be “reasonable” (a declaration of intention is not enough, nor the mere communication of the existence of funds in the accounts of the Employer). If the Employer doesn’t submit the evidence, the Contractor is entitled to reduce the rate of work, suspend the works and even terminate the Contract according to Clause 16.
This subclause is shared by the Red, Yellow and Silver books. The Green Book doesn´t have one, because it is recommended for “small” works of short duration and relatively non-expensive and problems with payment are not foreseeing.
In the Harmonized Edition of the Multilateral Development Banks (Pink Book), and in the Gold Book, (for Design, Build and Operate Projects), this subclause 2.4 is more favorable to the Contractor, or to the project, if one is focused on the project rather than on the parties. In the Pink Book, and also in the latest versions of the World Bank and the IADB, the Employer´s financial arrangements must be submitted before the Commencement Date, without the Contractor needing to request them. In the Gold Book the financial arrangements are submitted to the contractors taking part in the tendering process before the execution of the contract because the financial arrangements should be part of the document entitled “Financial Memorandum”, which is part of the “Employer´s Requirements”. Employer´s Requirements which, of course, the contractor knows before signing the contract.
Both the Pink Book and the Gold Book maintain the duty of the Employer to submit reasonable evidence, within 28 days of Contractor´s request, that the works are financially covered and that the works can continue until the payment of the Contract Price.
In the United Nations Office for Project Services (UNOPS) contracts based on the Red Book: “Measured Price Construction Contract” and “Lump Sum Construction Contract” this subclause has been deleted.
The contract that the Millennium Challenge Corporation (MCC) uses for Large Works, which includes the General Conditions of the FIDIC Red Book as its General Conditions, modified through its own Particular Conditions, maintains the text of the Red Book, so that the Employer must give evidence within 28 days of a request, adding that the estimated Contract Price has to be agreed and confirmed by the Engineer.
Jurisprudence: NH International (Caribbean) Ltd v National Insurance Property Development Company Ltd (Trinidad and Tobago) [2015] UKPC 37 (6 August 2015). Red Book 1999. Contractor requested reasonable evidence, Employer didn´t gave it reasonable, Contractor reduced the rate of work, suspended and finally terminated the Contract. The Privy Council determined that the Contractor, and the arbitrator, were right.
Recommendations: the new FIDIC Silver Book could introduce the duty to submit reasonable evidence of financial arrangements as in the Gold Book, that is, before execution, moreover when the request for proposals is issued to a limited number of selected contractors. In any case, we note that FIDIC currently asserts that it would be convenient for the Employer to submit reasonable evidence of financial arrangements when calling for proposals. The assurance that the Employer has enough funds earmarked for the project reduces the risk of lack of payment and, therefore, the Contractor can take this fact into account when pricing the works. If this clause is simply deleted, the Contractor could suggest, if negotiation is possible, a different payment guarantee, or value the risk of being fully paid and include it in its offer.
The Employer, above all if it is an institutional employer, should carefully balance its obligations under this subclause and determine what evidence is willing and able to submit within 28 days. If the Employer anticipates that is not going to be able to respond, it should change the subclause to reflect some acceptable guarantee that could submit on time.
Last, but not least, we remind that the request from the Contractor has to be in writing (SC 1.3) and that once requested and received, it is advisable for the Contractor to request a new one only when it is considered that the Contract Price has increased, as it could be the case when a Variation is instructed.
This post is intended to provide a general comment on the subject matter. Specialist advice should be sought about your specific circumstances.