10/16/2016

Thetop10thingsyouneedtoknowaboutFIDIC

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Thetop10thingsyouneedtoknow...

THE TOP 10 THINGS YOU NEED TO KNOW

ABOUT FIDIC
1. WHAT DOES "FIDIC" STAND FOR
FdrationInternationaleDesIngnieursConseils(fromFrench,theInternationalFederation
ofConsultingEngineers)

2. THE HISTORY OF FIDIC

DAVIDSAVAGE

Foundedin1913bythreecountries,eachwhollyorpartlyfrancophone,specificallyBelgium,
FranceandSwitzerland.Therearenow78MemberAssociationsfromallovertheworld.

Partner

CurrentlylocatedattheWorldTradeCentreinGeneva,Switzerland.Furtherdetailsare
availableatwww.fidic.org.

3. WHAT DOES FIDIC DO?

FIDICisaglobalrepresentativefortheconsultingengineeringindustry,promotingthebusiness
interestsoffirmssupplyingtechnologybasedintellectualservicesforbuiltandnatural
environmentsalike.
FIDICiswellknownforitsworkdraftingstandardformConditionsofContractfortheworldwide
constructionindustry,particularlyinthecontextofhighervalueinternationalconstruction
projects,andisendorsedbymanymultilateraldevelopmentbanks("MDBs").
CompaniesandorganisationsbelongtoFIDICnationalmemberassociationswhichnow
representotherprofessionals,suchasarchitects.FIDICalsohasaffiliatemembersinterested
initswork,suchaslawyersandinsurers.
FIDICorganisesconferences,seminarsandtrainingcoursesand,until2002,FIDICran
FIDICdirect,theInternationalDirectoryofConsultingEngineers,whichisnowrunby
ICONdirect.(seeicondirect.net)

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4. WHAT DOES THE FIDIC SUITE OF CONTRACTS COVER?

Asubstantialamount.In1999,FIDICpublishedacompletelynewsuiteofcontracts,the
'RainbowSuite',variouscontractshavingbeenupdated.Theseinclude:
TheRedBook:ConditionsofContractforConstructionforBuildingandEngineeringWorks
designedbytheEmployer(1stEd1999).
ThePinkBook:HarmonisedRedBook(MDBEdition)ConditionsofContractfor
ConstructionforBuildingandEngineeringWorksdesignedbytheEmployer(Version3
2010)foruseaspartofthestandardbiddingdocumentsbytheMultilateralDevelopment
Banksonly.TheIslamicDevelopmentBankandtheWorldBankworkedwithFIDICin
developingthiscontract.
TheYellowBook:ConditionsofContractforPlantandDesignBuildforelectricaland
mechanicalplant,andforbuildingworks,designedbytheContractor(1stEd1999).
TheSilverBook:ConditionsofContractforEPC/TurnkeyProjects(1stEd1999).
TheOrangeBook:ConditionsofContractforDesignBuildandTurnkey(1stEd1995).
TheGoldBook:DBOContractConditionsforDesign,BuildandOperateProjects(1stEd
2008).

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TheGreenBook:ShortformofContract(1stEd1999).
SubconsultancyAgreement:(1stEd1992)
TheWhiteBook:Client/ConsultantModelServicesAgreement(4thEd2006)
TheBlueGreenBook:DredgersContract(1stEd2006)
ConditionsofSubcontractforConstruction:UsedinconjunctionwiththeRedBookand
ThePinkBook(TestBook2009)

5. WHAT ARE THE MOST POPULAR FORMS & THE FIDIC APPROACH TO RISK
ALLOCATION?
ThemostwellknownformsofFIDICContractareTheRedBook(traditionalconditions),The
YellowBook(D&Bconditions)andTheSilverBook(EPC/turnkeyconditions).
Thecontractstructureisgenerallythesame:
Generalprovisions(Clause1)
TheEmployer,Employer'sAdministrationorEngineer,Contractor,Nominated
SubcontractorsORDesign(Clauses25)
Staffandlabour,Plant,materialsandworkmanship(Clauses67)
Commencement,delaysandsuspension,Testsoncompletion,Employer'stakingover,
DefectsLiability,Testsaftercompletion(Clauses811/12)
MeasurementandEvaluationORVariationsandAdjustments,ContractPriceandPayment
(Clauses1214)
TerminationbyEmployer,SuspensionandTerminationbyContractor(Clauses1516)
RiskandResponsibility(Clause17)
Insurance(Clause18)
ForceMajeure(Clause19)
Claims,DisputesandArbitration(Clause20
The1999RedBookisgloballythemostcommonlyusedstandardformcontractfor
constructionandengineeringworkswheremostoralltheworksaredesignedby,oronbehalf
of,theemployer.
Whenprofilingrisk,FIDIChashistoricallyallocatedriskbasedonwhichpartyisbestplacedto
assumetheriskincontrast,TheSilverbookadoptsamarketpracticeapproach,placingthe
majorityofriskonthecontractor,primarilyincludingdesignanddesigncoordination,alongwith
anyemployerdesign.
WithTheRedBookandTheYellowBook,theemployertakesonriskssuchasunforeseeable
groundconditions,unforeseeableoperationsoftheforcesofnature,forcemajeure(suchas
actsofwar,terrorismandnaturaldisasters)planningandenvironmentalpermits,andchanges
tothelaw.Thepartywhopreparesthedesigntakesontheresponsibilityforitsdefects.

6. TRAPS FOR THE UNWARY: NO. 1 - COMMENCEMENT DATE

AfeatureofTheRedBook1999editionisthereorganisationofvariouscontractualterms,now
followingamorelogicalformat.Accordingly,Clause8nowdealswithalltopicsrelatedto
startingwork,programming,delaysandsuspensionduringthecourseoftheworks.
Clause8.1assertsadefaultCommencementDateof42daysfromthedateonwhichthe
contractorreceivestheLetterofAcceptance,unlessparticularconditionsprovideotherwise.
Theengineergivesthecontractoratleast7daysnoticeoftheCommencementDate.The
contractorcommenceswork"assoonasreasonablypracticable"aftertheCommencement
Date,proceedingwithworks"withdueexpeditionandwithoutdelay".
TheRedBookproceedsontheassumptiontheprojectwillbecompetitivelytenderedandthe
employerwillsendaLetterofAcceptanceinrelationtotheacceptedtender.Whilstthecontract
containsaproformaLetterofTenderthereisnoproformafortheLetterofAcceptance.The
contractassumesthisletter,signedbytheemployer,willequatetounconditionalacceptanceof
atender.Thecontractthereforeassumescontractualrelationsbetweenthepartieshavebeen
createdpriortosigningthecontract,basedontheLetterofAcceptance.
Inpractice,manycontractsarenegotiatedwithnotenderingwhatsoever,orwithsignificant
posttendernegotiations.FIDIChasintroducedtherequirementtoreachagreementandthen
createaLetterofTenderandLetterofAcceptancepriortosigningthecontract,whichis
somewhatnave,anditwouldbepreferabletoincludetheseasagreedtermsinthecontract.
ThecontractcaneasilybeamendedbutitissuggesteditwouldbefarsimplerifFIDICfollowed

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themodelofotherstandardformcontracts,introducingtheCommencementDateasagreed
andthereforeinsertedintothecontractparticulars.
CautionmustbetakenwhendraftingtheLetterofIntent:itiscommonforthislettertomarkthe
beginningofonsiteworks,thoughnegotiationsofminorissueshaveyettobefinaliseditis
thereforecriticalthisletternotbeinterpretedastheLetterofAcceptance,sodraftingmustbe
meticulous.
TheHarmonisedMDBPinkBookrewritesClause8.1,apointofinteresttoconsider.The
amendedclauserecognisesthefollowingconditionsprecedentmustbecompletebeforethe
worksstart:
Contractsignedbybothparties.
Receiptbythecontractorof"reasonableevidenceoftheemployer'sfinancial
arrangements".
Sitepossessiongiventothecontractor.
Provisionofanyadvancepaymentandcorrespondingguarantee/bond.
Theamendedcontractassertsthecontractor'soptiontoterminateifthesemattersarenotdealt
within180daysoftheLetterofAcceptance,introducingadditionalcomplexitytostartingwork
andignoringthepossibilitythatsitepossessionisnotalwaysnecessaryorinfactadvisable
attheoutsetofcontractorworks.
ForthoseusingtheunamendedRedBook,itisimportanttoensureneitherpartyintroduces
additionalornonagreedtermsintoeithertheLetterofTenderortheLetterofAcceptance.The
contentoftheselettersclearlyhascontractualeffect.
Itisalsoimportanttocheckemployerrequirementsandspecificationsinterfacewith
contractualtermsasenvisagedbyFIDIC.Thefollowingclausesrelyeitheronthecontentof
thespecificationorgenerallycrossrefertothespecification:
Definitionof'Employer'sEquipment'(clause1.1.6.3)
Permissionsobtainedbyemployer(clause1.13(a))
Opportunitiesforworksbyothers(clause4.6
Valuesforemissionsanddischarges(clause4.18)
Detailsofemployersequipmentandfreeissuematerials(clause4.19)
Criteriafordesigners(YellowBookclause5.1)
Technicaldocumentstobeincludedincontractorsdocumentsandlanguagefor
contractorsdocuments(YellowBookclause5.2)
Contractorsdocumentstobesubmittedforreviewand/orapproval(YellowBookclause
5.3)
Otherstandardsforcompliance(YellowBookclause5.4)
Trainingtobeprovidedforemployerspersonnel(YellowBookclause5.5)
Numbersandtypesofcopiesofasbuiltdrawings(YellowBookclause5.6)
0&Mmanuals(YellowBookclause5.7)
Arrangementsforstaffandlabour(clause6.1)
Facilitiesforstaffandlabour(clause6.6)
Paymentofroyalties(clause7.8)

7. TRAPS FOR THE UNWARY: NO. 2 - NOTICES: CONDITIONS PRECEDENT

ThemostcontroversialinnovationoftheFIDIC1999RedBookisnotamplificationor
amendmenttotheExtensionofTimeprovisionsbuttherequirementunderClause20.1,which
isaconditionprecedenttoanyclaimforExtensionofTimeorCost.
ReferencetoClause20.1elsewhereinthecontractdemonstratesthatifthecontractorisnot
compliantheforfeitsanyentitlementtoanextensionoftimeorcostirrespectiveofrelevant
circumstances.
Clause20.1statesacontractor
shallgivenoticetotheEngineer,describingtheeventorcircumstancesgivingrisetothe
claim.Thenoticeshallbegivenassoonaspracticable,andnotlaterthan28daysafterthe
Contractorbecameaware,orshouldhavebecomeaware,oftheeventorcircumstance.

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Accordingly,itisabsolutelyclearcontractorsmustprovide,andbealertto,noticesunder
Clause20.1assoonaspossibleandremainsothroughoutthecontract.Theonlyareainwhich
thecontractorisgivenanyleewayiswhereitwasreasonabletoconcludehecouldnothave
beenawareoftheeventorcircumstancegivingrisetotheentitlementtoextratimeand/or
cost.Itissuggestedthataprudentcontractorshouldadoptthepracticeofhavingatleast1
reviewinevery28dayperiodtoassesswhetheranynoticeoughttobegivenundercontract.
Althoughnotaconditionprecedentoftheentitlementtomakeaclaim,Clause20.1requiresthe
contractortokeeprecords,makingthoserecordsavailabletotheengineer.
Within42daysofthecontractorbecomingaware(orshouldhavebecomeawareoftheclaim,or
overalongerperiodiftheengineeragrees,thecontractormustsendafullydetailedclaim
includingsupportingparticulars.Thisclaimwillbetreatedasinterimbutitmustbeupdatedat
monthlyintervals.Thefinalclaimmustbesentwithin28daysaftertheendoftheeffects
resultingfromtheeventorcircumstancethatgaverisetotheclaim.
Therequirementstosubmitthisclaimwithin42daysandtoupdatetheclaimarenotconditions
precedentinthesamewayastheinitialnotice,thoughitisclearfailuretocomplywiththis
requirementwillprejudicethecontractorsposition.
Theengineerhas42daysafterreceivingtheclaimtorespondwithapprovalordisapprovaland
detailedcomments.MonthlypaymentcertificateswillincludetheamountstheEngineer
approveswithintheContractorsclaim.

8. TRAPS FOR THE UNWARY: NO.3 - APPLICATION OF LAWS

WhenusingaFIDICcontract,partiesmustconsiderhow(i)thechosenlawofcontractand(ii)
thelocallawswillaffecttheinterpretationofthetermsofthecontract.Willtherebeaconflict
betweenthecontractualtermsandtheapplicablelaw?Wherenecessary,amendmentsshould
bemade.Forexample:
IfusingtheFIDICcontractintheUAE,theEmiratesCodeforCivilTransactions(brought
intoforceon16December1985byLawNo.5/1985)allowscourtsbroadpowerstochange
thelevelofliquidatedandascertaineddamagesthepartieshaveagreedtounderthe
contract.
Article390oftheCivilTransactionscodeprovides
"(1)Thecontractingpartiesmayfixtheamountofdamagesbyexpresslystatingitin
thecontractorinthesubsequentagreementwithoutprejudicetotheprovisionofthe
law.
(2)TheJudgemayinallcases,upontherequestofoneoftheparties,amendthis
agreementinordertoadjusttheamountofcompensationtotheharmincurred.Any
agreementtothecontraryshallbenullandvoid."
IfusingaFIDICcontractintheUK,thedisputeresolutionprocedureswillnotcomplywith
PartIIoftheHousingGrantsConstructionandRegenerationAct1996"construction
contract",theConstructionActrequiresthecontracttoprovidefortheparties'righttorefer
adisputetoadjudication.Intheabsenceofacompliantterm,theConstructionActwill
imposethestatutoryschemeforadjudicationintothecontract.
IfusingtheFIDICsubcontractintheUK,the'paywhenpaid'clausesfoundwithinthe
subcontractwillbreachtheConstructionAct:TheConstructionActprohibitstheuseof
suchclausesin'constructioncontracts'.
IfEnglishlawisthegoverninglawofcontract,deletionofthe'fitnessforpurpose'clause
maynotbesufficienttoremovetheperformancestandardfromthecontract.UnderEnglish
law,afitnessforpurposeobligationmaybeimpliedunlessthecontractcontainsan
expressalternativestandardintheUK,itiscommonpracticeforconstructioncontractsto
includealowerstandardof'reasonableskill,careanddiligence'.
TheFIDICcontractexcludeseitherparty'srecoveryoflossofprofitandlossofcontract
(saveforcasesoffraud,deliberatedefaultorrecklessmisconduct).UnderEnglishlaw,this
couldmeanthecontractorispotentiallyunabletorecoveritsdirectlossinaclaimfor
damagesforbreachofcontractwheretheemployerhasbreachedthecontractbyomitting
partofthecontractworks.PartiesusingFIDICshouldlookcarefullyatthelimitationon
liabilityclausesandconsiderwhethertheywishtoexcluderecoveryofbothdirectand
indirectlossofprofitclaimsandwhethertheyarepreparedtocapliabilityintheways
proposed.
Additionally,thepartiesshouldconsidertheFIDICclauserelatingtoadjustmentsforchangesin
legislation.
Onepotentialsituationwouldbewheresubstantialpartsoftheplant/equipment/
componentsofthebuildaremanufacturedinanothercountryandthentransportedtothe
project.Themechanisminthecontractfordealingwithanyimpactontheworks(delaysor

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additionalcosts)resultingfromchangesinthelawappliesonlyinrelationtothe'Laws'of
thecountrywheretheprojectislocated.Changesinthelawofanothercountrywhichaffect
theplant/equipment/componentsofthebuildbeingmanufacturedelsewherewillnotbe
caughtunlessbespokedraftingisincludedinthecontract.
Anotherareaofconcernisthenarrowdraftingof'Laws',definedas"allnational(orstate)
legislation,statutes,ordinancesandotherlaws,andregulationsandbylawsofanylegally
constitutedpublicauthority".Thisisnotparticularlybroadandmaynot,forexample,
includeguidancefromtheHealthandSafetyExecutiveortheEnvironmentAgencywhere
thenationallawisEnglish.PartiesshouldconsiderbroadeningthedefinitionofLaws.

9. HOW DO DISPUTE RESOLUTION PROCEDURES WORK UNDER FIDIC

CONTRACTS?
DisputescanbeadjudicatedbyreferraltoaDisputeAdjudicationBoard(DAB).TheDABwill
compriseofoneofthreemembers,thedefaultpositionbeingthree.(Clause20.2)
HowaretheDABmembersappointed?Thecontractmayincludealistofpotentialmembers,
fromwhichtheboardisselected.Ifthreemembers,eachpartynominatesonememberfor
approvalbytheotherparty.Partiesandmembersagreeontheappointmentofthethird
member,whowillbechairman.(Clause20.2)
TheformoftheDABappointmentistheGeneralConditionsofDisputeAdjudicationAgreement,
assetoutinthecontractAppendix,enteredintobythepartiesandthemember,aTriPartite
Agreement(TPA).
CanDABmembersbereplaced?Yes,partiescanagreetoreplaceamemberatanytime,orif
amemberdeclinestoact,dies,resigns,ondisabilityorterminationofamember'sappointment.
WhatistheeffectoftheDABdecision?Thedecisionisbinding,andmustbecompliedwith
immediately,untilrevisedbyamicablesettlementorarbitration.Partiesmustgiveeffecttoit.If
nonoticeofdissatisfactionisserved,itisfinalandbinding.(Clause20.4)
Unlesssettledamicably,anydisputeinrespectofwhichtheDABdecision(ifany)hasnot
becomefinalandbindingshallbefinallysettledbyinternationalarbitration.TheRulesof
ArbitrationoftheInternationalChamberofCommerce(ICCArbitration)applies,withthe
appointmentofthreearbitrators(clause20.6).

AND NO. 10...

WearealwaysdelightedtoprovideyouwithfurtheradviceinrelationtoFIDIC!

ThisarticlewaswrittenbyDavidSavage.
FormoreinformationpleasecontactDavidon+44(0)1483252614or
david.savage@crsblaw.com

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