FIDIC Conditions Of Contract Overview Of NEW FIDIC

FIDIC 2011 ConferenceWorkshop 4FIDIC Contracts(Update on New Documents)An Overview of the FIDICFORMS OF CONTRACTand Contracts Committee Philip JenkinsonTuesday, 04 October 2011, 14.00 – 15.30

Annual Conference 2011Contracts WorkshopAn Overview of the FIDICFORMS OF CONTRACTand Contracts CommitteeActivitiesPhilip JenkinsonChair of the FIDIC Contracts CommitteePrincipal Consultant ATKINS2

Objectives Educational and informativeIdentify and prioritise industry issuesAssess barriers, opportunities and risksIdentify potential actions (by FIDIC/CC)Identify milestones, success factors andhow to assess or measure progress3

Consultancy Agreements Client/Consultant Model ServicesAgreement, Fourth Edition 2006 Sub-Consultancy Agreement, FirstEdition 1992 Joint Venture Agreement, First Edition1992 Model Representative Agreement, TestEdition 20044

The Traditional FIDIC Formsof Contract Conditions of Contract for Works of CivilEngineering Construction (Red Book)Fourth Edition 1987 Conditions of Contract for Electrical andMechanical Works including Erection onSite (Yellow Book) Third Edition 19875

Basics Between Employer and Contractor Red Book: payment monthly for work done Yellow Book: lump sum on milestones Every project is uniqueGuidelines of ’best practice’Part I – General ConditionsPart II – Conditions of Particular Application6

Fair and balanced approach Risk is allocated to the party that is best ableto bear and control that risk Compensation and time extension allowedwhen uncalculated hindrances occur ‘Engineer’ whose job is principally tosupervise and monitor the work– in strict accordance with the Contract to thesatisfaction of the Engineer– with formal ‘Engineer’s Decision’7

The Orange Book Conditions of Contract for Design-Build andTurnkey (Orange Book) First Edition 1995 Employer’s Representative– not required to be impartial– determine matters fairly, reasonably and inaccordance with the Contract Independent dispute adjudication board 1996/7 Supplements for use of DAB (R/YBooks)8

The 1999 Suite of StandardConditions of Contract Conditions of Contract for Construction - designby Employer: The Construction Contract (TheNew Red Book) Conditions of Contract for Plant and Design-Build- design by Contractor: The Plant andDesign/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 (TheGreen Book) The FIDIC Contracts Guide (2000)9

Principles behind the1999 Books More consistent wording, with improvedclarity; user-friendly format and layout Balance between legal precision andpracticability; compatible with bothcommon and civil law concepts ‘Manuals of good engineering practice’ Prepared by engineers for practical use10

Principles (continued) Traditional role of ‘the Engineer’ tomake impartial determinations modifiedto reflect current practice (Red andYellow Books) ‘Employer’s Representative’ introduced:must be fair and reasonable (Silver andGreen Books)11

Principles (continued) Distinction between the Books is basedon:– who does the design?– who bears the risk for change inquantities? EPC (Silver Book) provides for theContractor taking almost all risks (newfor FIDIC) Short Form (Green Book) deals with thewide demand for a simpler form of12contract

Principles (continued) Work must continue, regardless ofdifferences: amicable settlementencouraged Strong financial management: detailedclaims procedures must be followed13

General Remarks onthe 1999 Books Suitable for both ‘international’ anddomestic use A framework adaptable to suit local law More definitions: harmonised, except forthe Short Form14

General Remarks (continued) General Conditions not applicable canbe disregarded Example Particular Conditions are given Adjudication precedes arbitration15

The 1999 Red and Yellow Books Emphasis changed to party responsible fordesign 1999 Yellow Book replaced both 1987 YellowBook and Orange Book Traditional competitive tendering procedures Risk sharing is balanced All claims, from either Party, have to follow astrict procedure Engineer is no longer stated to be ‘impartial’:he ‘shall be deemed to act for the Employer’,except when fair determinations are required16

The 1999 Red Book For building and engineering worksdesigned by the Employer Needs of modern multi-disciplinecontracts recognised Partial Contractor design possible Valuation and payment based onremeasurement of quantities, but lumpsum or cost plus could be used17

1999 Red Book (continued) No ‘Clause 67’ Engineer’s decision If a dispute arises, reference to DAB Dispute resolution procedure is:adjudication (DAB) amicablesettlement arbitration18

The 1999 Yellow Book For E&M plant, and for building andengineering works, designed by theContractor Needs of modern multi-disciplinecontracts recognised Partial Employer design: include inEmployer’s Requirements19

1999 Yellow Book (continued) Valuation and payment based on lumpsum with payment plan, butremeasurement possible No ‘Clause 67’ Engineer’s decision If a dispute arises, reference to DAB Dispute resolution procedure is:adjudication (DAB) amicablesettlement arbitration20

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 projects21

The Silver Book (continued) The EPCT Contract is suitable for:¾particularly E&M and process plantprojects¾all types of Employers¾civil law jurisdictions¾where government employer or privatedeveloper wants a fixed price turnkeybasis and two-party approach There is an ‘Introductory Note’ of explanation22

Special Features of theSilver Book Responsibility for design lies with Contractor Employer’s Requirements usually a‘performance specification’ (functional basis) Contractor carries out all engineering,procurement, construction, ready foroperation at the ‘turn of a key’ No Engineer - instead the Employer Lump Sum Contract Price (but adjustments inlimited specified cases)23

Special Features (continued) Testing procedures to demonstrateachievement of specified end result Contractor carries majority of risks, soEmployer pays more Final price and time should be more certain Small number of tenderers with negotiation Contractor given freedom to use ownmethods Has to prove reliability and performance24

Special Features (continued) These Conditions are not suitable in the followingcircumstances:¾ if time or information is insufficient before Contractsignature¾ if considerable work underground or difficult toinspect¾ if Employer intends to supervise closely or controlor review¾ if an intermediary certifies interim payments¾ where part of the Works is designed by Employer¾ for public bidding without negotiations For such circumstances P&DB should be usedinstead25

The Green Book(Short Form of Contract) US 500,000 and six months’ durationSimple and repetitive worksAll provisions necessary in 15 clausesLanguage uncomplicated and simpleBalanced risk sharing - no EngineerDesign by either party - all types ofconstruction Payment on lump sum or any other basis26

Dredging and Reclamation Design by Employer or Contractor Valuation – all main methods available Engineer required to act “fairly” inaccordance with Contract No defects liability on dredging Special insurance provisions Adjudication by DAB, then arbitration27

Red Book MDB HarmonisedVersion Based on 1999 Red Book Incorporates main common changesnormally required by MDBs, e.g.- audits,labour provisions, corruption avoidance,dispute settlement Use subject to Licence Agreementbetween FIDIC and participating banks28

Design, Build and OperateProjects Conditions of Contract for Design, Buildand Operate Projects (Gold Book), FirstEdition 2008 Assumes 20-year operation period Modern approach to risk and insurance Employer’s Representative Adjudication by DAB, then arbitration29

Subcontracts Conditions of Subcontract forConstruction, Test Edition 2009 Intended for use with 1999 Red Book General Conditions – ParticularConditions Annexes require provision of relevantinformation30

Protection of theEnvironment The Contractor shall take all reasonablesteps to protect the environment (bothon and off the Site) and to limit damageand nuisance to people and propertyresulting from pollution, noise and otherresults of his operations31

Environment (continued) The Contractor shall ensure thatemissions, surface discharge andeffluent from the Contractor’s activitiesshall not exceed the values indicated inthe Specification, and shall not exceedthe values prescribed by applicableLaws32

Project Phases InitiationStudy and EvaluationDesign DevelopmentDetailed DesignContractsConstruction, Manufacture, Shipping,Installation, Testing and Commissioning Operations and Maintenance33

Initiation The Concept The Big Decisions Policy Major Choices34

Study and Evaluation Feasibility Alternatives Strategy Statutory Requirements35

Design Development/Detailed Design Specifications Special Requirements Approvals Inclusion of results/outcomes from earlierProject Phases36

Contracts Committee Mandate from Executive Committee Members: Christoph Theune/ ZoltánZáhonyi/Philip Jenkinson Special Advisers: Nael Bunni/ Axel Jaeger/Michael Mortimer-Hawkins/ Chris Seppala/Chris Wade Task Group Leaders and Members37

Contracts Committee Terms ofReference To recommend to the Executive Committee which Conditions ofContract and related documents should be prepared or updatedby FIDICTo assist the Secretariat in establishing Task Groups asrequired, to monitor their work at agreed intervals and to carryout a final review of the documents for submission to theExecutive CommitteeTo assist the Secretariat in handling queries on theinterpretation of documentsTo liaise, in conjunction with the Secretariat, with organisationsinterested in the FIDIC Conditions of ContractTo suggest topics and speakers as appropriate for seminarsand workshops38

Current Workload TG1 – DBO Form of ContractTG2 – Procurement Procedures GuideTG4 – Consultancy AgreementsTG5 – 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 FormsTG10 – Tunnelling (proposed, with ITA)TG11 – ODB Form of ContractTraining Courses39

Short Form of Contract: The Short Form (The Green Book) The FIDIC Contracts Guide (2000) 10. Principles behind the 1999 Books More consistent wording, with improved clarity; user-friendly format and layout Balance between