FIDIC

FIDIC

1. Types of Contract

   • Red Book
     • 1999
     • Employer Design
     • The Construction Contract
     • Building and Engineering Works
   • Yellow book
     • Plant
     • Design/Build for Electrical and Mechanical Plan
     • The Plant and Design/Build Contract
     • 1999
   • Silver Book
     • the EPC Contract
     • 1999
   • Green Book
     • A short form contract
   • Pink Book
     • Multilateral Development Bank (MDB) Harmonised
     • Based upon the Red Book
     • Projects funded by banks
   • Blue-Green book
     • Dredging and reclamation works
     • can be adapted for Contractor design
     • 2016
   • Gold Book
     • Design Build Operate (DBO)
     • Plant works
     • Green Field
     • 20 Year period
     • 2008
     • Can be adapted for brown field
   • Purple book
     • Model representative agreement
     • Appointment of second consultant in foreign location
     • 2013
   • White Book
     • Consultancy agreement
     • Between Employer and Consultant
     • Consultant and Sub-consultant
     • 2017
     • Model Joint Venture
       • For unincorporated joint venture

2. Key Characteristics

   • Contract Agreement
     • Formal record of agreement
   • Letter of Acceptance
     • in the Red, Yellow and Gold Books this is defined as ‘the letter of formal acceptance, signed by the employer, of the letter of tender, including any annexed memoranda comprising agreements between and signed by both parties.’
   • Letter of Tender
     • the letter from the contractor that submits its offer for the works in response to the employer's invitation to tender (which also includes the completed appendix to tender (which sets out contract specific information such as the governing law, level of delay damages and currencies of payment)
   • Memoranda annexed to the letter of acceptance or contract agreement
     • Documents recording the agreements made in the post-tender negotiations the rationale behind the memoranda is to assist with resolving any ambiguities which may occur in the other documents to be included in the contract
   • Conditions of contract
     • Set out the core terms of the contract between the parties
     • General
     • Particular
   • Specification
     • Technical requirements
   • Drawings
     • Setting out of design
     • Supplements specifications
   • Employer's Requirements
     • Set out the purpose, scope, design and technical criteria for the works
     • Yellow, Silver & Gold Books
   • Contractor's Proposal
     • Contains the contractor's proposals for the works i.e. the preliminary design for implementation of the employer's requirements
     • Yellow and Gold books
   • Schedules
     • These are defined as those documents 'entitled Schedules completed by the Contractor and submitted with the Letter of Tender, as included in the Contract'. 
     • Red, Yellow and Gold Book
     • BOQ
     • Schedule of Rates
     • Day work schedules
     • Schedule of payment
   • Tender
     • This is equivalent to the letter of tender and the other documents to be submitted with the letter of tender including the contractor's proposals and schedules in the other books
     • Silver book

3. Standard Clauses

   • The FIDIC form of building or works contract (as opposed to services or subcontract) generally has 20 clauses in the general conditions.
   • Clause 1 - General Provisions
     • Clause 1.3
       • Sets out the requirements for notices sent in accordance with the contract
       • Obrascon Huarte Lain SA v Her Majesty's Attorney General for Gibraltar [2014] EWHC 1018 (TCC)
         • The court emphasised the importance of adopting a commercially realistic interpretation of subclause 1.3 (the notice clause) of the Yellow Book. http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/TCC/2014/1028.html&query=obrascon&method=boolean
     • Clause 1.5
       • Priority of Documents
         • The order of priority set out is consistent across the forms. The last category in each of the forms contains '(and any other documents forming part of the contract)'. Parties may need to amend the particular conditions to expressly deal with documents which are not intended to form part of the contract or to ensure that it achieves the level of priority that is intended and should be wary about incorporating other documents into the contract. 
     • Clause 1.13
       • Applicable laws
         • The contract may be subject  to the jurisdiction in which the project is located. The local laws of the country may be such as to render the employer liable for the acts or omissions of the contractor. Subclause 1.13 seeks to address this point. 
   • Clause 2 - The employer
     • Clause 2.4
       • Renders it mandatory upon the employer following request from the contractor to submit: '... reasonable evidence that financial arrangements have been made and are being maintained which will enable the employer to pay the contract price punctually...; [and] if the employer intends to make any material change to his or her financial arrangements, the employer shall give notice to the contractor with detailed particulars.' Failure to submit such evidence provides the contractor with the entitlement to suspend work, 'or reduce the rate of work', unless and until the contractor has received the reasonable evidence. This was an entirely new provision to the 1999 FIDIC form and provides a mechanism whereby the contractor can obtain confirmation that sufficient funding arrangements are in place to enable him to be paid, including if there is a significant change in the size of the project during construction. Most employers will look to delete this provision by way of amendment in the particular conditions.  http://www.bailii.org/cgi-bin/format.cgi?doc=/uk/cases/UKPC/2015/37.html
     • Clause 2.5
       • Second, subclause 2.5 requires the employer to give notice and particulars 'as soon as practicable' to a contractor: '... if the employer considers himself to be entitled to any payment under any clause of these conditions or otherwise in connection with the Contract.' Privy Council also held that the employer’s failure to notify the contractor 'as soon as practicable' under subclause 2.5, where the employer believed it was entitled to payment from the contractor, restricted the employer’s right to make a set-off or cross-claim against the contractor.  However, the restriction did not apply to the employer’s right to make an abatement (which is the common law right to reduce the price or value of work on the grounds that the work is defective or incomplete). http://www.bailii.org/cgi-bin/format.cgi?doc=/uk/cases/UKPC/2015/37.html
   • Clause 3 - The engineer or employer's representative
     • Clause 3 deals with the position of the engineer or employer's representative and provides that, unless otherwise stated: 'Whenver carrying out duties or exercising authoirty, specified in or implied by the Contract, the Engineer shall be deemed to act for the Employer.'
     • Clause 3.5
       • The conditions proviude that the engineer shall proceed in accordance with subclause 3.5 to agree or determine any matter in the following way: '... the Engineer shall consult with each Party in an endeavour to reach agreement. If agreement is not achieved, the engineer shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances.'
   • Clause 4 - The contractor
     • Covers the contractor's general obligations, including the requirements in respect of contractor designed works.  The reference to design changes throught the various FIDIC forms but the obligation in respect of carrying out the works remains substantially the same: 'The Contractor shall design (to the extent specified in the Contract) execute and complete the Works in accordance with the Contract and shall remedy any defects in the Works.' In respect of the works which the contractor is to design, these are to be fit for the purposes for which they are intended as defined in the contract.  Subject to the nature of the works, the parties may agree to an amendment in the particular conditions to reduce the design standard to one of reasonable skill and care. It is important that any documents forming part of the contract (for example the specification or employer's requirements) are consistent with the duty of care set out in the contract and that any design life requirements are set out in the particular conditions. 
     • Clause 4.2
       • Specifies that the contractor shall provide a performance security (the FIDIC form has a number of sample forms of security) where the amount has been specified in the appendix to tender, and the subclause continues with provisions for extending the security. Some protection is afforded to the contractor as the subclause includes an indemnity by the employer in favour of the contractor against damage, loss or expense resulting from a claim under the performance security: '... to the extent to which the employer was not entitlede to make the claim.'
       • The sample FIDIC forms are in an on-demand guarantee form, which is payable upon the submission of identified documentation by the beneficiary. While this may be accepted in some markets, many contractors will resist providing an on-demand guarantee and instead seek to negotiate a conditional form of guarantee which can only be called on in the event of default by the contractor.  Sets out when an employer may make a demand under teh performance security and includes amounts an employer is entitled to if the contract is terminated for contractor default (subclause 4.2(d)). In the English decision in  National Infrastructure Development Company Limited v Banco Santander S.A [2017] EWCA Civ 27 the bank tried to argue that the claim for termination damages could only be made once the amount had been determined by agreement or an award. The Court of Appeal dismissed the argument. 
     • Clause 4.12
       • The contractor is entitled to claim an extension of time and additional cost if it suffers delay or incurs cost due to 'unforeseeable' conditions. 'Unforeseeable' is defined as 'not reasonably foreseeable by an experienced contractor'. In the English decision Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2015] EWCA Civ 712 the Court of Appeal upheld the first instance decision and confirmed that subclause 4.12 requires the contractor at tender stage to make its own independent assessment of the available information and draw upon its own expertise and experience of previous civil engineering projects. It must use this to make its own reasonable assessment of teh physical conditions which it may encounter and cannot simply accept the interpretation of the data as included in the tender documents and say that is all that was foreseeable. 
     • Clause 4.21
       • Provides details of the information required to be inserted by the contractor in the progress reports. The provision of this report is a condition of payment. Under clause 14.3, payment will only be made within 28 days of receipt of the application for payment AND the supporting documents, one of which is the progress report. 
   • Clause 5 - Designer
     • Nominated subcontractors in Red Book
       • Subcontractors selected by the employer but for whom the contractor is still responsible. Nominated subcontractors may be named in the contract or instructed by way of a variation. 
     • Clause 5.2
       • The contractor is not required to employ a nominated subcontractor to which it raises reasonable objections - which can include the nominated subcontractor lacking the necessary competence, resources or financial strength or the subcontract failing to adequately protect the contractor from the nominated subcontractor's failure to perform it's obligations. 
   • Clause 6 - Staff and labour
     • The contractor must not only engage labour and staff, but must also make appropriate welfare arrangements for them. 
   • Clause 7 - Plant, materials and workmanship
     • Includes detail on the inspection and testing procedures and gives the engineer the right of rejections if: '... any Plant, Materials or workmanship is found to be defective or otherwise not in accordance with the Contract'. In the event of rejection, the contractor is obliged to make good the problem to ensure compliance with the contract. 
   • Clause 8 - Commencement, delays and suspension
     • Clause 8.1
       • Requires the contractor to 'proceed with teh Works with due expedition and without delay' and in the English decision Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2015] EWCA Civ 712 the Court of Appeal confirmed that such obligation under subclause 8.1 is not directed to every task on the contractor's to do list, but it is directed to activities which are or may become critical. 
     • Clause 8.3
       • Sets out the manner in which the contractor should provide programmes showing how he proposes to execute the works. For example, the programme must be supported by a report describing the methods which the contractor is to adopt.  Compared to the provisions relating to programme in other forms of contract such as the JCT, this clause is extensive. This is because the programme is designed as a project management device which is revised by the contractor 'whenever the previous programme is inconsistent with actual progress or with the Contractor's obligations.' This compares to the position under JCT where the contractor is only required to update the programme following a 'delaying event'. Under the FIDIC the contractor's role is far more pro-active. 
     • Clause 8.4
       • Extension of time provisions are made clear under subclause 8.4: '... the contractor shall be entitled to an extension of the Time for Completion if and ... to the extent that completion is or will be delayed by any of the following causes ...' Subparagraphs 8.4(a) - (e) set out the clauses that will entitle the contractor to claim an extension of time. In the English decision Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC) provides useful guidance on the inter-relationship between subclause 8.4 and subclause 20.1 which contains a condition precedent to claims for additional time and cost. Contrary to popular understanding, the judge could not see any reason why subclause 20.1 should be construed strictly so that notice would be required even when an event does not immediately effect the completion date. 
     • Clause 8.7
       • Deals with delay or liquidated damages - the level of delay liquidated damages should be set out in the appendix to tender. To be able to levy such damages, the employer must make an application in accordance with subclause 2.5
   • Clause 9 - Tests on completion
     • Sets out the types of tests to be carried out (although it is likely that these will be modified or supplemented in the contract documents) and the steps to be taken if any of the tests failed. 
   • Clause 10 - Taking over
     • The works shall be taken over by the employer when they are: - Completed in accordance with the contract (which includes passing the tests on completion; and - the taking over certificate has been issued Once the contractor has provided the employer with the as-built documents and the operation and maintenance manuals, they are to give 21 days' notice to the employer of when he will be ready to carry out the tests on completion. These tests will determine whether the works are ready to be taken over by the employer. The contractor may apply by notice to the engineer for a taking-over certificate no earlier than 14 days before the works will be in his or her opinion complete and ready for taking over. The engineer shall either issue the taking-over certificate or reject the applicatoin within 28 days of receipt. If the engineer fails to take either step during this period, as long as the works are 'substantially in accordance with the contract', the taking-over certificate shall be deemed to have issued on the last day of the period. 
   • Clause 11 - Defects liability
     • Details the defects process, while the length of the defects notification period will be set out in the appendix to tender. The contractor is liable for the cost of remedying defects and the employer has the right to engage a third party (at the contractor's cost) if the contractor fails to comply with its obligations.  The engineer issues the performance certificate after the expiry of the defects notice period and the contractor has complied with its obligations (including remedying defects) and the performance certificate constitutes acceptance of the works. 
   • Clause 12 - Tests after completion
     • In the Yellow Book, clause 12 provides for tests after completion (as the Yellow Book is a fixed price contract and is designed for use on electrical and mechanical plant projects, a post completion performance regime is appropriate). Clause 12 in the Yellow Book also includes the ability for the employer to apply performance liquidated damages in the event that teh works fail to perform in accordance with the criteria set out in the contract documents. 
     • Measurement in Red Book
       • Clause 12 in the Red Book deals with measurement and evaluation. Measurement is a central feature of clause 12 and is the basis ultimately upon which payment to the contractor is calculated. Someitmes called a 'measure and value' type contract, the arrangements proceed on the basis that the works are to be measured by the Engineer, and those quantities and measured amounts of work are then to be paid for alternatively at the rates and prices in the Contract, or else on the basis of adjusted rates or entirely new rates (if there is no basis for using or altering contract rates for the work).  If a fixed price lump sum contract is required, clause 12 (and consequential clauses) should be deleted and/or amended in the particular conditions. 
   • Clause 13 - Variations and adjustments
     • Clause 13 addresses variations and incorporates adjustments for changes in legislation and in costs. However, if the contractor notifies and inability to obtain goods required to perform the variation, a variation is not binding. Equally, it is not binding in the case of contractor design if the proposed variation would have an adverse impact on safety, suitability or the achievement of performance criteria specified. 
   • Clause 14 - Contract price and payment
     • Sets out the process and timing for payment of the contract price, and, if applicable, any advance payment and retention money. 
   • Clause 15 - Termination by employer
   • Clause 16 - Suspension and termination by contractor
   • Clause 17 - Risk and responsibility
     • Clause 17.6
       • The exclusion of the liability of both contractor and employer: '... for loss of use of any works, loss of profit, loss of any contract or for any indirect or consequential loss or damage which may be suffered by the other party in connection with the contract.' Also Includes a cap on the liability of the contractor to the employer. If the level of the cap is not set out in the particular conditions, it shall be set at the level of the accepted contract amount (the price accepted in the contractor's tender). 
   • Clause 18 - Insurance
   • Clause 19 - Force majeure
     • Deals with force majeure. While most civil codes make provision for force majeure, at common law, force majeure is not a term of art and no provision will be implied in the absence of specific contractual provisions. 
   • Clause 20 - Claims, disputes and arbitration
     • Sets out a multi-tiered dispute resolution procedure.  Provides as follows: - The contractor must notify the engineer of any circumstances giving rise to an entitlement to an extension of time or additional payment as soon as practicable and, in any event, not later than 28 days after the contractor became aware, or should have become aware.  - The contractor must submit its claim for an extension of time or additional payment to the engineer within 42 days of the date on which the contractor became aware or should have become aware of the event giving rise to the claim. The engineer is to then make his or her determination (in the Silver Book , where there is no engineer, the contractor notifies the employer and the employer makes the determination) - If a dispute arises this is referred to a Dispute Adjudication Board (DAB) If either party is dissatisfied with the decision of the DAB, then it can give notice within 28 days failing which the decision becomes final and binding - Following service of the notice of dissatisfaction, the parties are to try and settle the dispute via amicable settlement Finally, if the dispute cannot be amicably settled then it shall be settled by international arbitration. 
     • There have been a number of cases over the last 4 years about DABs under the FIDIC forms including: - The series of Singaporean cases (between 2011 and 2015) involving the enforcement of a non-final DAB decision in a dispute between CRW Joint Operation and PT Perusahaan Gas Negra (Persero) TBK. The 4 decisions have complicated rather than clarified of issue of enforcing a non-final DAB decision and provide 4 possible options to do so. A simple solution is for parties to incorporate FIDIC’s suggested amendments for clause 20 (for contracts other than the Gold Book, which already deals with the issue). (see Standard amendments for more information); - Decision 4A_124/2014 of the Swiss Supreme Court (July 2014) where it was found that the DAB procedure was a condition precedent to arbitration but that the parties did not have to go through it if it would amount to an abuse of process because it appeared futile to the efficient resolution of the dispute and there had been delay in appointing the DAB;- The English decision in Peterborough City Council v Enterprise Managed Services Ltd [2014] EWHC 3193 (TCC) which involved the Silver book where it was held that using an ad hoc DAB was a precondition to being able to bring a claim in court; and - The UK decision of Al Waddan Hotel Ltd v Man Enterprise Sal (Offshore) [2014] EWHC 4796 (TCC), which confirmed that the employer could not take advantage of its failure to appoint a replacement engineer by enforcing the condition precedent that the engineer’s decision is required before a dispute can be referred to arbitration. The case was based on the dispute resolution procedure under the old Red Book (4th edition, 1987), but is relevant for those using the old Red Book (which is still the case in some jurisdictions).
   • Standard amendments
     • Clause 1.2
       • In certain situations the contractor is entitled to additional cost and 'reasonable profit'. As the level of 'reasonable profit' is not defined the parties may prefer to specify the percentage of profit the contractor is entitled to. 
     • Clause 1.14
       • Joint and several liability. Major contracts are usually conducted by a joint venture. If so, detailed requirements should be set out. These may include, parent company guarantees from each member of the joint venture and the appointment of a leader providing a single point of contact for the employer. 
     • Clause 3.1
       • any requirements whereby the engineer needs the employer's approval to take certain action should be spelt out. 
     • Clause 4.8
       • Safety procedures. Where the contractor is sharing the site, everyone's obligations as to safety should be spelt out. 
     • Clause 8.2
       • If the works are to be taken over in stages, these stages must be carefully defined as sections. 
     • Clause 11.10
       • Defects liability. Different laws have different periods of liability. Therefore this clause may mean different things in different jurisdictions. This is a typical example of the care that is needed when working in different jurisdictions with parties who may all themselves come from different jurisdictions. It is essential that everyone takes advise from those working in the relevant jurisdiction so that all obligations are properly understood. Clause 8.7 (liquidated or delay damages) and 19 (force majeure) are further good examples of this.