An Overview of the FIDIC FORMS OF CONTRACT and Contracts Committee Activities

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RICS Singapore Branch
CPD Event 19 June 2012
An Overview of the FIDIC
FORMS OF CONTRACT
and Contracts Committee
Activities
© www.asia-masters.com

Objectives
• Educational and informative
• Identify and prioritise industry issues
• Assess barriers, opportunities and risks
• Identify potential actions (by FIDIC/CC)
• Identify milestones, success factors and
how to assess or measure progress
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Consultancy Agreements
• Client/Consultant Model Services
Agreement, Fourth Edition 2006
• Sub-Consultancy Agreement, First
Edition 1992
• Joint Venture Agreement, First Edition
1992
• Model Representative Agreement, Test
Edition 2004

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The Traditional FIDIC Forms
of Contract
• Conditions of Contract for Works of Civil
Engineering Construction (Red Book)
Fourth Edition 1987
• Conditions of Contract for Electrical and
Mechanical Works including Erection on
Site (Yellow Book) Third Edition 1987

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Basics
• Between Employer and Contractor
• Red Book: payment monthly for work done
• Yellow Book: lump sum on milestones
• Every project is unique
• Guidelines of ’best practice’
• Part I – General Conditions
• Part II – Conditions of Particular Application

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Fair and balanced approach
• Risk is allocated to the party that is best able
to bear and control that risk
• Compensation and time extension allowed
when uncalculated hindrances occur
• ‘Engineer’ whose job is principally to
supervise and monitor the work
– in strict accordance with the Contract to the
satisfaction of the Engineer
– with formal ‘Engineer’s Decision’

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The Orange Book
• Conditions of Contract for Design-Build and
Turnkey (Orange Book) First Edition 1995
• Employer’s Representative
– not required to be impartial
– determine matters fairly, reasonably and in
accordance with the Contract
• Independent dispute adjudication board
• 1996/7 Supplements for use of DAB (R/Y
Books)

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The 1999 Suite of Standard
Conditions of Contract
• Conditions of Contract for Construction - design
by Employer: The Construction Contract (The
New Red Book)
• Conditions of Contract for Plant and Design-Build
- design by Contractor: The Plant and
Design/Build Contract (The New Yellow Book)
• Conditions of Contract for EPC Turnkey Projects:
The EPC/Turnkey Contract (The Silver Book)
• Short Form of Contract: The Short Form (The
Green Book)
• The FIDIC Contracts Guide (2000)

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Principles behind the
1999 Books
• More consistent wording, with improved
clarity; user-friendly format and layout
• Balance between legal precision and
practicability; compatible with both
common and civil law concepts
• ‘Manuals of good engineering practice’
• Prepared by engineers for practical use

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Principles (continued)
• Traditional role of ‘the Engineer’ to
make impartial determinations modified
to reflect current practice (Red and
Yellow Books)
• ‘Employer’s Representative’ introduced:
must be fair and reasonable (Silver and
Green Books)

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• Distinction between the Books is based
on:
–who does the design?
–who bears the risk for change in
quantities?
• EPC (Silver Book) provides for the
Contractor taking almost all risks (new
for FIDIC)
• Short Form (Green Book) deals with the
wide demand for a simpler form of
contract © www.asia-masters.com

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• Work must continue, regardless of
differences: amicable settlement
encouraged
• Strong financial management: detailed
claims procedures must be followed

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General Remarks on
the 1999 Books
• Suitable for both ‘international’ and
domestic use
• A framework adaptable to suit local law
• More definitions: harmonised, except
for the Short Form

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General Remarks (continued)
• General Conditions not applicable can
be disregarded
• Example Particular Conditions are given
• Adjudication precedes arbitration

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The 1999 Red and Yellow Books
• Emphasis changed to party responsible for
design
• 1999 Yellow Book replaced both 1987 Yellow
Book and Orange Book
• Traditional competitive tendering procedures
• Risk sharing is balanced
• All claims, from either Party, have to follow a
strict procedure
• Engineer is no longer stated to be ‘impartial’:
he ‘shall be deemed to act for the Employer’,
except when fair determinations are required

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The 1999 Red Book
• For building and engineering works
designed by the Employer
• Needs of modern multi-discipline
contracts recognised
• Partial Contractor design possible
• Valuation and payment based on
remeasurement of quantities, but lump
sum or cost plus could be used

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1999 Red Book (continued)
• No ‘Clause 67’ Engineer’s decision
• If a dispute arises, reference to DAB
• Dispute resolution procedure is:
adjudication (DAB)>>>amicable
settlement >>>arbitration

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The 1999 Yellow Book
• For E&M plant, and for building and
engineering works, designed by the
Contractor
• Needs of modern multi-discipline
contracts recognised
• Partial Employer design: include in
Employer’s Requirements

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1999 Yellow Book (continued)
• Valuation and payment based on lump
sum with payment plan, but
remeasurement possible
• No ‘Clause 67’ Engineer’s decision
• If a dispute arises, reference to DAB
• Dispute resolution procedure is:
adjudication (DAB)>>>amicable
settlement >>>arbitration

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The Silver Book
(EPCT Contract)
• More certain final price and time required
- balance of risk being changed
- privately financed BOT type
• Contractor asked to cover extra risks
• Employer will have to pay more
• Completely new Book - ‘unbalanced’ risk
• BUT full open acceptance of risk picture
• Starting point for BOT type projects

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The Silver Book (continued)
• The EPCT Contract is suitable for:
particularly E&M and process plant
projects
all types of Employers
civil law jurisdictions
where government employer or private
developer wants a fixed price turnkey
basis and two-party approach
• There is an ‘Introductory Note’ of explanation

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Special Features of the
Silver Book
• Responsibility for design lies with Contractor
• Employer’s Requirements usually a
‘performance specification’ (functional basis)
• Contractor carries out all engineering,
procurement, construction, ready for
operation at the ‘turn of a key’
• No Engineer - instead the Employer
• Lump Sum Contract Price (but adjustments in
limited specified cases)

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Special Features (continued)
• Testing procedures to demonstrate
achievement of specified end result
• Contractor carries majority of risks, so
Employer pays more
• Final price and time should be more certain
• Small number of tenderers with negotiation
• Contractor given freedom to use own
methods
• Has to prove reliability and performance

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Special Features (continued)
• These Conditions are not suitable in the following
circumstances:
if time or information is insufficient before Contract
signature
if considerable work underground or difficult to
inspect
if Employer intends to supervise closely or control
or review
if an intermediary certifies interim payments
where part of the Works is designed by Employer
for public bidding without negotiations
• For such circumstances P&DB should be used
instead

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The Green Book
(Short Form of Contract)
• US$ 500,000 and six months’ duration
• Simple and repetitive works
• All provisions necessary in 15 clauses
• Language uncomplicated and simple
• Balanced risk sharing - no Engineer
• Design by either party - all types of
construction
• Payment on lump sum or any other basis

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Dredging and Reclamation
• Design by Employer or Contractor
• Valuation – all main methods available
• Engineer required to act “fairly” in
accordance with Contract
• No defects liability on dredging
• Special insurance provisions
• Adjudication by DAB, then arbitration

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Red Book MDB Harmonised
Version
• Based on 1999 Red Book
• Incorporates main common changes
normally required by MDBs, e.g.-
audits, labour provisions, corruption
avoidance, dispute settlement
• Use subject to Licence Agreement
between FIDIC and participating banks

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Design, Build and Operate
Projects
• Conditions of Contract for Design, Build
and Operate Projects (Gold Book), First
Edition 2008
• Assumes ~20-year operation period
• Modern approach to risk and insurance
• Employer’s Representative
• Adjudication by DAB, then arbitration

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Subcontracts
• Conditions of Subcontract for
Construction, Test Edition 2009
• Intended for use with 1999 Red Book
• General Conditions – Particular
Conditions
• Annexes require provision of relevant
information

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Protection of the
Environment
• The Contractor shall take all reasonable
steps to protect the environment (both
on and off the Site) and to limit damage
and nuisance to people and property
resulting from pollution, noise and other
results of his operations

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Environment (continued)
• The Contractor shall ensure that
emissions, surface discharge and
effluent from the Contractor’s activities
shall not exceed the values indicated in
the Specification, and shall not exceed
the values prescribed by applicable
Laws

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Project Phases
• Initiation
• Study and Evaluation
• Design Development
• Detailed Design
• Contracts
• Construction, Manufacture, Shipping,
Installation, Testing and Commissioning
• Operations and Maintenance

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Initiation
• The Concept
• The Big Decisions
• Policy
• Major Choices

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Study and Evaluation
• Feasibility
• Alternatives
• Strategy
• Statutory Requirements

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Design Development/
Detailed Design
• Specifications
• Special Requirements
• Approvals
• Inclusion of results/outcomes from earlier
Project Phases

Contracts Committee
• Mandate from Executive Committee
• Members: Christoph Theune/ Zoltán
Záhonyi/Philip Jenkinson
• Special Advisers: Nael Bunni/ Axel Jaeger/
Michael Mortimer-Hawkins/ Chris Seppala/
Chris Wade
• Task Group Leaders and Members
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Contracts Committee Terms of
Reference
• To recommend to the Executive Committee which Conditions of
Contract and related documents should be prepared or updated
by FIDIC
• To assist the Secretariat in establishing Task Groups as
required, to monitor their work at agreed intervals and to carry
out a final review of the documents for submission to the
Executive Committee
• To assist the Secretariat in handling queries on the
interpretation of documents
• To liaise, in conjunction with the Secretariat, with organisations
interested in the FIDIC Conditions of Contract
• To suggest topics and speakers as appropriate for seminars
and workshops
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Current Workload
• TG1 – DBO Form of Contract
• TG2 – Procurement Procedures Guide
• TG4 – Consultancy Agreements
• TG5 – Subcontract Form (Red Book)
• TG6 – Update of 1999 Suite (Yellow Book first)
• TG7 – Update of Dredging Contract (with IADC)
• TG8 – Update of Short Form (Green Book)
• TG9 – YB/SB Subcontract Forms
• TG10 – Tunnelling (proposed, with ITA)
• TG11 – ODB Form of Contract
• Training Courses
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