The FIDIC Contracts

A Two - Day Seminar

organised by Cornerstone

Which Form to Use

Nael G. Bunni,, BSc, MSc, PhD, CEng, FICE, FIEI,

FIStructE, FCIArb, FIAE, RConsEI.
Chartered Engineer, Conciliator/Mediator and Registered Chartered Arbitrator
Telephone: +353 1 8391141 Fax: +353 1 8391167
13th & 14th March 2012
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Which Form to Use?

A Comparison of
The Various FIDIC Forms
and
Other Procurement Systems

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 A Brief Outline of FIDIC
„ FIDIC - Federation Internationale des
Ingenieurs - Conseils
„ Founded in 1913 in Ghent , Belgium by the
national associations of consulting engineers
of Belgium, France & Switzerland
„ Has grown to represent associations from
over 84 countries worldwide
„ Secretariat is located in Geneva, Switzerland

Contd./2
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A Brief Outline of FIDIC (contd.)

„ One of the first committees established in 1913 was
the Contract Documents Committee.
„ Its Terms of Reference were:
– To monitor contract documents of interest to consulting
engineers regarding:
» construction of objects or works;
» erection and installation of works;
» maintenance of installations in operation; and
» supply of materials
– To inform contractors, suppliers and officials concerning
contract documents recommended by FIDIC
Contd./3

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 A Brief Outline of FIDIC (contd.)
„ First standard form of contract published in
1957
– It was the first edition of the Red Book for civil
engineering works in the international field
– Since then FIDIC has become known outside the
engineering profession for its standard forms of
contract
„ The Red Book was followed by the Yellow
Book for Electrical and Mechanical Works
including erection on site Contd./4
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A Brief Outline of FIDIC (contd.)

„ Standard Forms & Associated Documentation
– Conditions of Contract for Works of Civil Engineering
Construction (Red Book), 4th Edition, 1987; updated 88 & 92
– Conditions of Contract for Electrical and Mechanical Works
including erection on site (Yellow Book), 3rd Edition, 1987
– Conditions of Contract for Design-
Design-Build and Turnkey (Orange
Book), 1st Edition, 1995
– Conditions of Sub-
Sub-contract for Works of Civil Engineering
Construction, 1st Edition, 1994
– Tendering Procedure, 2nd Edition, 1994
– Client/Consultant - model services Agreement (White Book),
Book)
3rd Edition, 1998; 4th Ed. 2006
– Joint Venture (Consortium) - Agreement, 1st Edition, 1992
– Sub
Sub--consultancy Agreement, 1st Edition, 1992
– Dredging & Reclamation Form of Contract, 1st Edition, 2006

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 A Brief Outline of FIDIC (contd.)
„ First Edition of the Green Book – Short Form of
Contract – Agreement,
g , General Conditions,, Rules
for Adjudication and Notes for Guidance;
„ The 1999 Red Book – Conditions of Contract for
Construction, (for Building and Engineering Works,
Designed by the Employer) – General Conditions,
Guidance for the Preparation of the Particular
Conditions, Forms of Tender, Contract Agreement,
and Dispute Adjudication Agreement, 29,775 words;

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A Brief Outline of FIDIC (contd.)

„ First Edition of a new Yellow Book: Conditions of
Contract for Plant and Design-
Design-Build for Electrical
and Mechanical Plant, and for Building and
Engineering Works, Designed by the Contractor –
General Conditions, Guidance for the Preparation of the
Particular Conditions, Forms of Tender, Contract Agreement
and Dispute Adjudication Agreement, 30,408 words; and

„ First Edition of the Silver Book: Conditions of

Contract for EPC turnkey Projects – General
Conditions, Guidance for the Preparation of the Particular
Conditions, Forms of Tender, Contract Agreement and
Dispute Adjudication Agreement, 26,792 words.
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 Other Developments since 1999
ƒ The Harmonised Multilateral Development
Banks Form of Contract, 1st Ed. 2005, 3rd Ed.
2010
ƒ The Dredging & Reclamation Works, in 2006
ƒ The most important development is the
introduction of the DBO “Gold Book” in 2008
ƒ The FIDIC DBO Guide, December 2011
ƒ The Subcontract Form for the 1999 Red
Book, December 2011
ƒ FIDIC Procurement Procedures Guide, 2011
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Major FIDIC General Conditions of Contract

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 Model Services Agreement
The White Book

Updated
4th Edition - 9.2006

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Comparison of the 1992 & 1999 Forms

Form of Contract Equivalent in the 1999 Forms

Red Book, 4th Ed. 1992 New Red where the DAB is Adhoc & the
Engineer acts as the DAB

Red Book, 4th Ed. With New Red where the DAB is Standing & the
Suppl. 1996 Board is Independent & Impartial

Yellow Book, 3rd Ed. New Yellow, 1999

1988
Orange Book, 1st Ed. New Yellow, 1999
1995
Newly developed Silver Book & Green
Forms Book, 1999

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 Usual contractual arrangements in a construction project

Employer
or Owner

Engineer Contractor

Sub-contractors
Other Suppliers
pp
Consultants
Manufacturers
Direct contract
Indirect relationship

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Aspects to consider when

choosing standard form:
„ The allocation of the essential functions
found in the project and particularly the
design function;
„ The allocation of the risks inherent in the
projects;
„ The allocation of the management role; and
„ The method and timing of remuneration for
the contractor.
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 1. The allocation of the
essential functions found in
the project and particularly
the design function

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The Allocation of Functions

„ The following functions must be allocated to certain
parties:
– Promoter : Initiator of project or Emplo
Employer/Owner
er/O ner
– Financier and his role as:
» Self financing
» A simple lender
» A lender in Build - Transfer
» A lender in Build - Own - Transfer BOT
» A lender in Build - Own - Transfer and Operate BOOT
» A lender in Build - Own - Operate BOO
» A lender in Build - Rent - Transfer BRT
» BLT in leasing rather than renting Contd./2
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The Allocation of Functions (cont.)
– Designer
» Sketch design
» Preliminary design
» Final design
– Manager and coordinator of various design functions
– Contractor
– Sub--contractor, supplier and manufacturer
Sub
– Project Manager** & Safety Controller
– Supervisor
– Certifier
– Adjudicator
– Operator
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2. The allocation off the risks

inherent in the project;

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The Allocation of Risks &Liability
„ Law of contract allocates risks to contracting parties.
„ Standard Forms affirm that allocation or re-
re-allocate
risks to another contracting part or third party.
„ For Civil Engineering Construction the following
concepts must be borne in mind:
– The meaning and significance of “Risk”;
– Not all undesirable events can be perceived and
identified; and
– Whilst risks generally imply undesirable consequences,
in certain circumstances desirable as well as undesirable
consequence may occur
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DEFINITIONS:
z RISK: ‘ The combined effect of the
probability , or frequency, of occurrence of
a defined hazard and the magnitude of the
consequences of the occurrence. ’
– B.S. 4778, 1991.
„Australia/New Zealand Risk Management
Standard AS/NZ 3951: 1995: hazard is
replaced by event, which includes positive
as well as negative consequences.

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 DEFINITIONS:
„ HAZARD: ‘A situation that could
occur during the lifetime of a product,
system or plant that has the potential
for human injury, damage to property,
damage to the environment, or
economic loss’.

„ RISK = “Hazard” x Probability of

occurrence
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Risk & Uncertainty

„ Risk is not uncertainty
– Certainty Risk Uncertainty
( Risk is where there is some control
exercisable by someone )

„ PROBABILITY OF OCCURRENCE : A
statistical term representing the likelihood
of a certain hazard occurring.

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 If risks are not allocated by law or
the terms of the contract then courts
adjudicate using following questions:

„ Which party can best foresee the risk?

„ Which party can best control the risk?
„ Which party can best bear the risk?
„ Which party most benefits or suffers
ultimately if the risk eventuates?

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Shift of Risk & relationship

with Insurance
„ It is impractical to allocate risk to a party
who cannot bear its consequences.
„ A party taking risk usually shifts or
spreads this risk through insurance.
„ See
S fi figure 1 ffor allocation
ll ti off risks
ik
„ See figure 2 for the flow of risks

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 THE FUNCTION OF THE CONTRACT
– “It is a function of a contract to define upon whom
the various risks of an enterprise shall fall, and it
was decided that the Contractor should only price
for those risks which an experienced contractor
could be expected to foresee at the time of tender
tender.. ..
– It is the right and the duty of the Employer to decide and by
his Engineer, to design and specify that which is to be done
without hindrance
hindrance.. It is the duty of the Contractor to do
what the Contract required to be done, as designed and
specified by the Engineer, but, subject to any specific
requirement in the contract, it is his right and duty to decide
the manner in which he will do it.it.
– If there are to be exceptional cases ...............”
...............”
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Flow of Risk into Insurance

„ Duties of the Contracting Parties

Risks in Performance
„
„ Responsibility towards others & self
„ Liability
y ((amount,, period
p & scope)
p )
„ Indemnity
„ Insurance

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 Duties & Obligations are set out
in the Contract
Risks exist
throughout the Contract

Injury
j y or Delay
y in
Damage performance

Non-performance Cost over-run

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Responsibility is
allocated

In accordance with

1.Control of the 2. Ability to 3. Inability to

Risks or influence perform a task accept the Risk
over effect
TO
TO

Design & other Contractor,

Owner Society
Professionals Supplier &
(Employer)
Manufacturer
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 RISKS IN CONSTRUCTION

Identify, Analyse & Allocate Risks to the Parties

Risks of Loss or
D
Damage
g Economic & Time Risks

Go to next
Employer’s Risks Contractor’s Risks
slide
( Specified ) ( All Others )

Required to be Insurable Risks

Uninsurable
insured under the but not required Risks
Contract to be insured

P.I. P.&E.
C.A.R. T.P.L. E. L. Excess D.I.C.
L.
NGB
Copyright

Economic & Time Risks

Employer’s Risks Contractor’s Risks

Delay & Cost Defective Non-

over Run Design Performance

Some insurance Surety

Non-
Delay Patent Defects Performance

Extra Cost Ins.

Latent Defects Surety NGB
Copyrigh

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 Economic & Time Risks

Employer’s Risks Contractor’s Risks

(Specified) (All others)

Clause 8(1) Cl. 12(1) Cl. 13 Cl. 20(4)

(8.1), [4.1] (12.2), [4.12] (13), [19.7] (20.4), [17.3]

Specified through the proviso in Clause 11(1), (12.1), [4.10]

As provided in Cl. 12(1), Cl. 17, Cl. 20(1), Cl. 36 & 39

Cl. 11(2), (12.1), [4.11] (12.2), [4.12] 17, [4.7] (20.1), [17.2] (36&39), [7.1 &7.6]

Numbers in Yellow refer to ICE & Green to FIDIC Red Book, 4th Ed.
Numbers in blue refer to FIDIC New Red Book, 1999 NGB
Copyright

The Unexpected
happens
more frequently
than
you think !

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 Risks

„ Risks may be divided into two

categories
– Loss or damage occurring during the
construction contract
– Financial or commercial
„ See figure 3 for outline of above
risks for a civil engineering contract.
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3. The allocation of the

management role; and
The method and timing of
remuneration for the
contractor

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 Management, Timing & Method
of Remuneration
„ When allocating risks and functions, the
promoter or employer should consider:
– Management and method of valuing work
done and its payment
– Is he prepared to share risks with other
parties
ti
– Extent of such sharing

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Management, Timing & Method of

Remuneration (Contd./3)
„ Categories to consider depending on the
extent
t t off risk
i k accepted:
t d
– Cost
Cost--reimbursable contracts
» May be sub-
sub-divided depending on sums to be
added
– Re
Re--measurement contracts based on unit
rates and prices. May be sub-
sub-divided into:
Bill of quantities & Schedule of rates
– see next slide
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 Management, Timing & Method of
Remuneration (Contd./2)

– Lump sum contracts. May be

subdivided into:
»Fixed price
»No sharing of risks
»Limited sharing

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Roles under FIDIC Standard Forms

„ Promoter/Employer
– Finance and operation of project
„ Engineer
– Design in the Red Book, New & Old
– Supervision
– Certification
– Adjudication in the Old Red & Yellow Books, but with
the DAB elsewhere
„ C t t
Contractor
– Construction
– Design in the New Yellow Book, partly in the Old
Yellow; the Orange Book & the Silver Book
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 Check List for choice of Form of Contract
„ Choice of the type of the project to be procured;
„ Choice of design and whether or not it has an
exclusive
l i nature;
t
„ Checking of how and when payment is made;
„ Certainty and the amount of final cost of the project;
„ Method of tendering;
„ Control duringg construction; and
„ The possibility or probability of having a variation
or change in the works after entering into the
Contract.
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Form of Design Risk Sharing Payment Supervision

Contract Function
Red, 4th Ed. Independent Balanced Re-measurement, Engineer
Engineer monthly statements
Yellow, 3rd Ed. Independent Balanced As per progress, Engineer
Eng. & and set out in
Contractor Preamble
Orange, 1st Ed. Contractor Higher % taken Schedule of Employer’s Rep.
by Contractor payments
st
1999 Red, 1 Ed. Independent Balanced Re-measurement, Engineer
Engineer monthly statements
1999 Yellow, 1st Contractor Higher % taken Lump sum/ Engineer
Ed. by Contractor Schedule of
payments
Silver, 1st Ed. Contractor Extensively by Lump sum/ Employer/
Contractor Schedule of Employer’s Rep.
payments
G ee , 1st Ed.
Green, d. Contractor
Co t acto Reasonable
easo ab e Various
Va ous opt
options,
o s, Employer’s
p oye s Rep.
ep.
balance Monthly statements
White, 4th Ed. Supply of Higher % taken Daily & hourly Employer
Services by Employer basis or lump sum

Table No. 1

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