FIDIC contracts are increasingly being used by the international construction industry all over the world. The FIDIC Conditions of Contract have been adopted by Multi-Lateral Development Banks such as the World Bank, Inter-American Development Bank, and Caribbean Development Bank.
FIDIC contracts are the most widely used standard form of international construction contracts in the world today. Standard FIDIC Design and Build contracts are frequently used in large and small construction projects, and they are appropriate for parties of different nationalities, who speak different languages, and coming from different jurisdictions.
Where did the FIDIC contract originate?
What is the FIDIC contract definition?
In 1957, FIDIC published its first contract, titled The Form of Contract for Works of Civil Engineering Construction. As the title indicates, this first contract was aimed at the Civil Engineering sector, and it quickly became known for the color of its cover, hence being called The Red Book.
It has become common to refer to FIDIC contracts in popular parlance by the color of their covers.
Forms of FIDIC Design and Build Contracts and Their Uses
In 1999, FIDIC published four new editions of forms of contracts:
1. Conditions of Contract for Construction (FIDIC RED BOOK)
The contract for construction includes a set of recommended conditions for building or engineering works, in which the owner is responsible for the majority of the design. However, some civil, mechanical, or electrical works designed by the contractor may be included in the contract work.
Nowadays, many contractors design a significant portion of the work independently, so the contract for construction includes more provisions that apply in such cases.
2. Conditions of Contract for Plant and Design-Build (FIDIC YELLOW BOOK)
The so-called FIDIC Yellow Book is a standard contract in which the contractor performs the design. A Yellow Book contract is also referred to as a Plant and Design-Build contract. The contractor is typically paid in one lump sum. The Yellow Book was first published in 1963, with subsequent revisions.
These contracts include a set of conditions that are appropriate for the provision of electrical and/or mechanical plant, as well as the design and construction of buildings or engineering works. The contractor designs and provides the plants and other works under this contract, which may include any combination of civil, mechanical, electrical construction works as required by the employer.
This type of FIDIC contract is also appropriate for the design and construction of building and engineering works. This contract requires the appointment of an engineer to administer the contract.
3. Conditions of Contract for EPC or Turnkey Projects (FIDIC SILVER BOOK)
Following construction industry trends, significant changes to the original FIDIC contracts were introduced in the 1990s, and the FIDIC Silver Book was published. The Silver Book is used for EPC/Turnkey projects where the Contractor carries the majority of the risks. The contractor is in charge of the design, and payment is usually on a lump-sum basis.
EPC is an abbreviation for engineering, procurement, and construction. This contract is appropriate for Turnkey projects such as power plants, process factories, infrastructure projects, or other development work. Projects under this type of contract have a higher degree of certainty in terms of project cost and completion time.
The contractor is also responsible for the project’s design and execution and the performance guarantees. The contractor handles the engineering, procurement, and construction, resulting in a fully operational facility.
The contractor has more flexibility under this contract to meet the end-user requirements as specified in the contract’s conditions. This type of contract seems to be more profitable to the contractor than typical contracts, and as a result, they are prepared to accept more risks.
4. Short Form of Contract (FIDIC GREEN BOOK)
Less well-known FIDIC contracts include the so-called Green Book, which is a short form contract intended for relatively small projects of a repetitive nature or of short duration where the employer provides the design. According to FIDIC guidelines, USD 500,000 and six months are reasonable capital and duration limits for projects using the Green Book forms.
The short form of contract is appropriate for short-duration or very simple and repetitive construction projects (i.e., small capital value projects). Regardless of who supplies the engineering, this contract can be used for any form of engineering and construction project.
This type of contract may also be appropriate for higher-value contracts, depending on the type of work and circumstances.
The contractor must complete the construction work according to the owner’s design. Contractor-designed civil, mechanical, electrical, and/or construction works may be included in this contract.
5. Typical design and build contract (FIDIC GOLD BOOK)
The Gold Book is another type of FIDIC Contract. The first edition of the Gold Book was published in 2008, and it is based on a standard design and build contract form with the addition of a period of operation and maintenance.
The Gold Book encompasses a diverse range of services. It is intended to last beyond a 20-year period in which the parties intend to extend their cooperation throughout the duration of a project.
6. Form of Contract for Dredging and Reclamation Works (FIDIC BLUE BOOK)
Finally, the less well-known FIDIC Blue Book contract, which was published in 2006, is a type of contract for dredging, reclamation, and ancillary construction work that covers a wide variety of administrative arrangements.
The employer is usually in charge of the design. The most important part of the Blue Book contract is the description of the activity itself, detailed in the work’s specifications, drawings, and design.
What are the employer’s duties under the FIDIC Design and Build Contract?
- Oversight and/or inspection of the works
- Issues of Certificates
- Valuation of Variations
- Assessment, response to and determination of time/money claims
- Monitoring of the Contractor’s program
If the engineer is unduly constrained so that he cannot exercise independent professional judgment, then problems with successful contract management, dispute avoidance and timely completion can be confidently anticipated!
The type of Fidic Design and Build contract chosen by an employer or the parties is determined by the needs of each project, as well as the employer’s interests and preferences regarding who should be in charge of the design. The Red Book is preferable if the employer has more design experience and wishes to play a significant role in the design process. Otherwise, the employer may choose the Yellow Book or another model of the FIDIC Suite.
The Silver Book is usually preferred if there are no significant unknown risks, and the employer prefers to have more security with the price and time.
All FIDIC Design and Build Contracts have certain common features and recognize the need for a balanced approach between the roles and responsibilities of all the parties involved, as well as a balanced allocation and management of risks.
They are all comprised of General Conditions of the Contract (“GCC”), which are deemed to be appropriate in all cases. They are also comprised of Particular Conditions of the Contract (“PCC”), in which the parties can specify project-specific issues on an individual basis.
All FIDIC Design and Build Contracts include rules for adapting agreed-upon contract amounts and rules for the Extension of Time (EOT) for completion and implementing variation procedures. They all require experienced and professional staff, on behalf of the employer and the contractor, including the engineer, who must be independent and impartial.
What is the composition of FIDIC Design and Build Contracts?
FIDIC Design and Build Contracts consist mainly of:
- Contract Agreement;
- Letter of Tender;
- Letter of Acceptance;
- Conditions of Contract;
- Schedules; and
- Dispute Adjudication Agreement.
What are FIDIC General Conditions of the Contract (GCC)?
Part A, or the General Conditions of the Contract, specifies how risk is allocated between the parties. More specifically, it defines each party’s rights and obligations, as well as payment, variation, certification, and dispute resolution procedures. They were created by the FIDIC organization and should not be modified.
Finally, any changes, additions, omissions, or amendments to the General Conditions of the Contract must be made using the Particular Conditions of the Contract.
What are FIDIC Particular Conditions of the Contract (PCC)?
Part B, or Particular Conditions of the Contract, defines conditions that are specific to a project and the country in which the works are executed. They are typically used for additions/omissions and changes to the General Conditions of the Contract. With this in mind, the purpose of the Particular Conditions of the Contract is to define anything that cannot be defined in the General Conditions of the Contract.
However, it is important to note that no provision in the General Conditions of the Contract states that Particular Conditions of the Contract must exist. On the other hand, the author is not aware of any Design and Build FIDIC Contract that has been signed without the inclusion of the Particular Conditions of the Contract.
Disadvantages of FIDIC Design and Build Contracts
However, FIDIC Model Contracts are widely accepted and have various advantages; they appear to cause issues in some situations. The FIDIC Model Contracts have the following disadvantages:
1. Unfamiliarity by Local Contractors
Some local contractors may still be unfamiliar with the FIDIC Model Contracts, which may discourage them from tendering. This can reduce local competition and increase bid time and costs.
2. Limited Judicial Consideration/Precedent
Because FIDIC Model Contracts provide for arbitration, the courts provide little guidance on the intended operation of specific clauses or precedents to follow. This compares to general contracts, which have far more decisions about how various clauses should be applied.
As we all know, each project is unique, and customization is required for each one. To implement contract modifications, they typically shift commercial terms to the contract’s schedules. Moreover, as all technical and legal details are compiled in the contract’s schedules, it becomes an exhausting experience.
How to Resolve Disputes Under FIDIC Contracts?
Many people working in the construction industry today are concerned about how to resolve disputes under FIDIC Design and Build Contracts. The world we live in has seen a significant increase in the number of construction projects, especially within the last decade, as well as an increase in the number of disputes between contractors and other individuals and companies.
One of the biggest issues in any construction dispute is proving that a contract was fully intended by all parties involved. If you go into a construction dispute without knowing anything about contract law, you’re not going to have much success getting a favorable court judgment unless you represent yourself.
Hiring an attorney in this situation might be a good idea. Not only will they be able to represent you in court properly, but they will also know what questions to ask to help your case due to their extensive experience with these types of cases.
An oral contract dispute is one way of resolving disputes under FIDIC Design and Build Contracts. This refers to a situation in which it is uncertain whether one party signed a contract intentionally or unintentionally. If either party can prove that there was an oral contract, then the court will have no choice but to find in favor of the contracting parties.
On the other hand, an oral contract dispute can be hard to prove because an offer may be made in good faith but not carried out. Although some construction disputes may require the construction parties to go to court, oral contract disputes generally lead to an out-of-court settlement.
Mediation is another method for resolving disputes under FIDIC Design and Build Contracts. Mediation is a process where one side hires an independent professional to assist them in reaching an agreement, and all appropriate documents are handed to the mediator. Both parties must have legal representation and appropriate documentation for this to work.
FIDIC Design and Build Contracts have two types of terms and conditions: general conditions and particular conditions. The general conditions are the standard combination of contract provisions.
In contrast, the particular conditions result from negotiations between parties and are intended to modify or delete some of the general conditions. If you are a contractor, pay close attention to the particular conditions because they will reflect the working conditions on the contractual level.