CONTRACTS AND AGREEMENT
FIDIC’s selection of contracts and agreements.
FIDIC publishes conditions of contract for:
- EPC/Turnkey Projects
- Plant and Design Build Contract (updates Yellow Book and Orange Book
- The Short Form
- Construction Contract & Subcontract (updates the Red Book)
- Works of Civil Engineering Construction (The Red Book)
- Electrical & Mechanical Works (The Yellow Book)
- Design-Build and Turnkey (The Orange Book)
All FIDIC contracts standard conditions of contract between a client/employer and a contractor. The consulting engineer is not a party to these contracts, but plays a role as the employer’s representative to see that the contract is properly carried out.
Additionally, FIDIC publishes a Client/Consultant Model Services Agreement (The White Book), which is the agreement often used by the client when appointing a consultant as his employer’s representative for the above contracts.
This “rainbow” of FIDIC contracts/agreements provides the major portion of the total income from publication sales to FIDIC.
FIDIC’s volunteer committees, who draft nearly all of FIDIC’s documents, are continuously drafting or revising and keeping FIDIC’s publications informative and up-to-date.
OTHER FIDIC PUBLICATIONS
Information for clients, including guides for Quality Based Selection, Tendering Procedures, Consultant Selection and Quality of Construction and other valuable documents about the use of consulting engineers.
Information for consulting engineers, with manuals and guides on topics such as Risk Management, environment, Project Sustainability Management, capacity building, transfer of technology, Quality Management, Business Integrity Management, dispute resolution techniques, insurance, law and other business issues.
FIDIC Statutes and Bylaws.
REPRESENTATION IMPACT
Equally important for FIDIC is the representation and impact of its publications. Most people first learn about the Federation by reading or using its business practice publications and its standard conditions of contract. FIDIC’s image is enhanced by its publication of quality documents.
The most pronounced example of this impact on the Federation’s impact are FIDIC’s Conditions of Contract for Works of Civil Engineering Construction (“The Red Book”, owing to its red cover), now in its fourth edition. Many people call the Red Book “FIDIC” or “the FIDIC”, mistakenly using the Federation’s acronym (taken from its original French name, Fédération Internationale des Ingénieurs-Conseils) for its best known publication, unaware of the Federation, but certainly aware of its Red Book.
This confusion is not surprising, when one considers that the Red Book, now replaced by the Construction Contract, has been used as the general conditions in standard bidding documents of many development banks, including the World Bank. From 2005, the multilateral development banks (MDB) agreed to a MDB-harmonised version of the Construction Contract for incorporation in their standard bidding documents.
FINANCIAL IMPACT
FIDIC’s publications fulfill an important and essential role for the well being of the Federation. Revenues from publication sales account for more then 25% of FIDIC’s income.
FIDIC’s annual income from publications has grown from about SFr. 300,000.- in the late 1980’s to nearly SFr. 1 200,000.- in 2012. This growth in publications sales has allowed FIDIC to reduce the unit rates for membership subscriptions by nearly one-half over the past decade, an important impact when one considers that more than half of FIDIC’s Member Association’s are in developing countries, many of which have weak currencies.
With FIDIC being a non-profit, self-supporting Federation, which neither seeks nor accepts financial support from any other body, the essential role played by its publications sales cannot be over emphasized.
FIDIC has long been renowned for its standard forms of contract for use between employers and contractors on international construction projects, in particular:
- Conditions of Contract for Works of Civil Engineering Construction: The Red Book (1987)
- Conditions of Contract for Electrical and Mechanical Works including Erection on Site: The Yellow Book (1987)
- Conditions of Contract for Design-Build and Turnkey: The Orange Book (1995)
During its past work in updating the Red and Yellow Books, FIDIC has noted that certain projects have fallen outside the scope of the existing Books. Accordingly FIDIC has not only updated the standard forms but has expanded the range, and has – in September 1999 – published a suite of four new Standard Forms of Contract which are suitable for the great majority of construction and plant installation projects around the world.
This 1999 suite comprises:
- Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer: The Construction Contract
- Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (MDB Harmonised Edition) – for bank financed projects only: The MDB Construction Contract
- Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant and for Building and Engineering Works Designed by the Contractor: The Plant and Design-Build Contract
- Conditions of Contract for EPC/Turnkey Projects: The EPC/Turnkey Contract
- Short Form of Contract: The Short Form
- Dredgers Contract (based on the Short Form of Contract): Dredgers Contract
The Books in the 1999 suite are all marked “First Edition 1999” (Test Editions were published in 1998, and while these remain valid for contracts, significant changes were made in some cases)
A. Relatively small value, short construction time or involving simple or repetitive work
- If the price for the contract is relatively small, say under US$ 500,000, or the construction time is short, say less than 6 months, or the work involved is relatively simple or repetitive – dredging work might be a good example:
then consider using the Short Form of Contract, which is a completely new FIDIC Book specially prepared for such projects. - It does not matter whether the design is provided by the Employer (or his Engineer/Architect if he has one) or by the Contractor,
- It does not matter whether the project involves construction, electrical, mechanical, or other engineering work.
B. Larger or more complex projects
1. Is the Employer (or the Engineer) going to do most of the design?
As in traditional projects, e.g., infrastructure, buildings, hydropower, etc., the Employer did nearly all the design (perhaps not construction details, reinforcement, etc.) (The Red Book),
- and the Engineer administered the Contract, monitored the construction work and certified payment
- and the Employer was kept fully informed, could make variations, etc.
- and with payment according to bills of quantities or lump sums for approved work done.
If this is what is wanted – choose the Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (The Construction Contract), which effectively updates and supercedes the existing Red Book from 1987.
In 2005, FIDIC licenced the Multilateral Development Banks (MDB) to use the MDB Harmonised Edition of the Construction Contract for projects funded by the banks. The MDB Construction Contract mainly incorporates Particular Conditions to the Red Book that was used by the World Bank in its Standard Bidding Documents before it and the other MDBs adopted the Harmonised Edition.
2. Is the Contractor going to do most of the design?
As in traditional projects, e.g., electrical and mechanical works, including erection on site (The Yellow Book) the Contractor (or Supplier) did the majority of the design, e.g., the detail design of the plant or equipment, so that the plant met the outline or performance specification prepared by the Employer, and in the relatively more recent design-build and turnkey type projects the Contractor also did the majority of the design, not only of plant projects but also of various infrastructure and other types of projects, and the project was required to fulfil the “Employer’s Requirements”, i.e., an outline or performance specification prepared by the Employer (The Orange Book),
- and the Engineer (Employer’s Representative in the Orange Book) administered the Contract, monitored the manufacture and erection on site or construction work and certified payment,
- and with payment according to achieved milestones generally on a lump sum basis.
If this is what is wanted – choose the Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant and for Building and Engineering Works Designed by the Contractor (Plant and Design-Build Contract) which effectively updates and supercedes both the existing Yellow Book from 1987 and the Orange Book from 1995.
3. Is it a Privately Financed (or Public/Private Financed) Project of BOT or similar type where the Concessionnaire takes total responsibility for the financing, construction and operation of the Project?
Then the Concessionnaire (the “Employer”) probably requires to have a contract with the construction Contractor, i.e., an EPC (Engineer, Procure, Construct) Contract, where the Contractor takes total responsibility for the design and construction of the infrastructure or other facility, and where there is a higher degree of certainty that the agreed contract price and time will not be exceeded,
- and the Employer does not wish to be involved in the day-to-day progress of the work, provided the end result meets the performance criteria he has specified
- and the parties concerned (e.g., sponsors, lenders and the Employer) are willing to see the Contractor paid more for the constructionf the Project in return for the Contractor bearing the extra risks associated with enhanced certainty of final price and time.
If this is what is wanted – choose the Conditions of Contract for EPC/Turnkey Projects (EPC/Turnkey Contract) – the FIDIC Book suitable for this purpose.
C. Also for the EPC/Turnkey Contract
1. Is it a Process Plant or a Power Plant (or a factory or similar) where the Employer – who provides the finance – wishes to implement the Project on a Fixed-Price Turnkey Basis?
Then the Employer wishes the Contractor to take total responsibility for the design and construction of the process or power facility and hand it over ready to operate “at the turn of a key”,
- and the Employer wishes a higher degree of certainty that the agreed contract price and time will not be exceeded
- and the Employer wishes – or is used to – the Project being organised on a strictly two party approach, i.e. without an “Engineer” being involved
- and the Employer does not wish to be involved in the day-to-day progress of the construction work, provided the end result meets the performance criteria he has specified
- and the Employer is willing to pay more for the construction of his Project (than would be the case if the Conditions of Contract for Plant and Design-Build were used) in return for the Contractor bearing the extra risks associated with enhanced certainty of final price and time.
If this is what is wanted – choose the Conditions of Contract for EPC/Turnkey Projects (EPC/Turnkey Contract).
2. Is it an Infrastructure Project (e.g., road, rail link, bridge, water or sewage treatment plant, transmission line, even dam or hydropower plant) or similar where the Employer – who provides the finance – wishes to implement the Project on a Fixed-Price Turnkey Basis?
Then the Employer wishes the Contractor to take total responsibility for the design and construction of the infrastructure facility,
- and the Employer wishes a higher degree of certainty that the agreed contract price and time will not be exceeded, except that if underground works in uncertain or difficult ground conditions are likely then the risk of unforeseen ground conditions should be borne by the Employer (and the provisions of the Plant and Design-Build Conditions in this respect – Sub-Clause 4.12 – would be appropriate),
- and the Employer wishes – or is used to – the Project being organised on a strictly two party approach, i.e. without an “Engineer” being involved
- and the Employer does not wish to be involved in the day-to-day progress of the construction work, provided the end result meets the performance criteria he has specified,
- and the Employer is willing to pay more for the construction of his Project (than would be the case if the Conditions of Contract for Plant and Design-Build were used) in return for the Contractor bearing the extra risks associated with enhanced certainty of final price and time.
If this is what is wanted – choose the Conditions of Contract for EPC/Turnkey Projects (EPC/Turnkey Contract).
3. Is it a Building Project where the Employer wishes to have his building(s) constructed on a Fixed-Price Turnkey Basis generally complete with all furniture, fittings and equipment?
As for 2 above
In the case of a building or building development Project, the Employer or his Architect may have done some or most of the design, but – with suitable modification regarding design responsibility – the Conditions of Contract for EPC/Turnkey Projects (EPCTurnkey Contract) may be chosen.
D. Reconstruction or Refurbishment or another type of Project
Check Questions A1, B1 and B2 above or Questions C1 – C3 if applicable, and make your choice accordingly.
AAShirgurkar&Associates 