What is FIDIC?
FIDIC is the French acronym that stands for the Fédération Internationale des Ingénieurs-Conseils (in English, the International Federation of Consulting Engineers (Shnookal 5). The organisation was founded in Switzerland in 1913. Since then, the organisation have come up with a number of standard conditions for construction contracts. At present, FIDIC includes 86 member associations from around the world. The major goal of the organisation is to promote interests of consulting engineering companies. The contracts have been developed by professionals from 15 countries (Shnookal 9). These people have extensive experience in civil and common law and they have applied it to development of the templates that are used globally.
Brief Historic Background
The first edition of the FIDIC Suite of Contracts was published in 1957. The document was entitled “Conditions of Contract (International) for Works of Civil Engineering Construction” (Shnookal 5). The standard conditions were developed for civil engineering works. The parties were the contractor who carried out construction and an independent consulting engineer who developed a design and acted on behalf of the Employer. This contract template was called the red book as it has a red cover. It is noteworthy that FIDIC contract templates are still called books.
There were several editions of the Construction contract (1967, 1973, 1977, 1987, 1992, 1999) (Shnookal 5). It is necessary to note that each edition reflected the trends that occurred in the sphere of construction. Thus, the 1963 edition included a contract template for electrical, mechanical works as well as installation and commissioning of the plant (Shnookal 6). Prior to that time, the FIDIC contracts did not have references to this type of works. The new contract template entitled “the Contract for Plant and Design-Build” was called a yellow book.
Researchers note that 1973 edition was especially valuable as it “took advantage of UK jurisprudence” and was very helpful in the international arena (Shnookal 6). The next important edition was entitled “the FIDIC Conditions of Contract for Design-Build and Turnkey” and called the orange book (Shnookal 6). In 1999, a new edition of this contract template was issued and it was called the silver book. This new edition was more up-to-date and the contractor was responsible for engineering, procurement and construction. In 1999, the Short Form of Contract was published and it was called the green book. Finally, in 2007, the contract template under the title “The Conditions of Contract for Design, Build and Operate Projects” was published and it was called the gold book. In the 2000s, the White Book, the Blue Book and the Pink Book were also published. Notably, first editions of the FIDIC contracts included 60 clauses whereas the latest one contains only 20 clauses (Köksal 141). This is a reflection of the organisation’s willingness to make the templates simply, user-friendly and effective.
Apart from these major contract templates, the organisation also develops and publishes numerous guidelines (in most common world languages) that help people employ the contracts. The organisation has made several editions of the contract templates making them more and more user-friendly. The organisation also launches numerous workshops and trainings for people, which is beneficial for those who are involved in construction projects (Shnookal 10). Importantly, one of major features of the FIDIC contract is that the conditions cannot be amended unless a specific agreement is issued. The parties should agree on the amended conditions. Interestingly, the organisation have published the MDB Edition that includes most common amendments that have been negotiated repeatedly. Thus, companies (operating or located in certain countries) have a specific guideline where most efficient conditions are highlighted. This makes each FIDIC contract applicable in the international operations since companies have particular standards and guidelines to rely on.
Major Features of the FIDIC Contracts
It is necessary to add that terminology is very important and parties should try to avoid including terms that are not in the initial contract (especially without providing a good definition). There have been cases when one of the parties included a new term and the costs of the contract increase. For instance, two parties used the Red Contract and the Contractor was required to develop “working drawings” (qtd. in Robinson 3). The Contractor deemed that the term stood for some drafts that could be used for their purposes only while the Employer wished to “extend the responsibility of the Contractor” and make them improve the design provided by the Employer (Robinson 3). As a result, the completion of the project was delayed and the Employer had to pay additional payment to the Contractor. Clearly, this case shows that parties will benefit if they use only terms used in the standard form, or, if a new terms has to be added, it will be clearly defined.
Major differences between the FIDIC contracts are determined by the type of the project delivery. The contracts pay special attention to allocation of risks and responsibilities. For instance, the Construction Contract implies that the design is performed by the Employer, while other templates hold it that the design is completed by the Contractor. The Turnkey Projects Contract is quite peculiar as the Contractor is responsible for development of the fully operational design and the Contractor has to take “most of the risk in design and construction” (Shnookal 8). As has been mentioned above, the most recent editions contain 20 clauses. Out of these, 17 are very similar in all types of contracts with difference concerning some conditions and three clauses are very different.
The FIDIC suit contracts are all the contracts mentioned above that were developed in 1999. One of major features of the suit is that the contract is written in plain English. Shnookal stresses that the contract is not a set of conditions that can be take broadly but a “framework of the relationship between the parties” (The Employer, the Contractor and the Engineer) (10). The researcher also emphasises that the contracts include “project management procedures essential for the efficient execution of the Works” (Shnookal 10). It is important that the contracts include certain terms that are important for following the schedule.
The general format of the FIDIC contracts is standard. There are general conditions, the part with guidelines to develop Particular Conditions (including information on bonds, securities and guarantees common for any international project). There is also the part that goes under the title Forms (Contract Agreement, Letter of Tender). As has been mentioned above, the FIDIC contracts tend to be user-friendly and, hence, there are timelines concerning major events of the contract, payment procedures as well as certain guidance on disputes and arbitration. At the same time, the contracts have significant differences as they are aimed to suit different projects.
Major Features of Contracts
The Red Book
At this point, it is possible to consider some features of the contracts of the suit. Thus, the Red Book is commonly used for projects that imply that the Employer (or the engineer who acts on behalf of the Employer) is responsible for design. At that, the Contractor can be responsible for designing some elements. The Engineer administers and approves the works, determines extension of time and certifies payments. Payments depend on the work done and the rates identified in the Bill of Quantities. The Contractor can be financially secured as the Contractor can require that the Employer should provide evidence that it has the necessary sum to pay. Importantly, risks are shared by the Parties. For example, the Employer takes the risk of “operation of the forces of nature” (qtd. in Battrick and Duggan 4). According to the Red Book, the Employer has to take the risk of accuracy of the quantities. At the same time, the Contractor is responsible for ensuring adequate price of quantities. These conditions are especially common for construction projects.
The Yellow Book
The Yellow Book has its peculiarities as well. One of the most distinctive features is that the Contractor is responsible for development of the design while the Employer (or the engineer acting on his behalf) can provide design of certain elements. Similar to the Red Book, the Engineer administers and approves the Works as well as certifies payments and determines extensions if necessary. Payments are determined in the Lump Sum price. Importantly, schedule is very important in this kind of contract and the Contractor has to complete certain elements of works within specific terms. Testing is much more complicated than in the case of the Red Book. It is clear that the Yellow Book is more suitable for process plants. It is necessary to add that the risk balance as well as the Contractor’s financial security is similar to the ones in the Red Book. Thus, both contract templates provide a “balanced view of risk sharing” (Battrick and Duggan 4). For instance, the Contractor can avoid including risks that are hard to estimate and the Employer pays only in cases if certain risks arise. It is clear that these contracts cannot guarantee that the price of the contract does not change and the Employer may have to pay more than it has been planned.
The Silver Book
Unlike the two contracts mentioned above, the Silver Book provides more guarantees to the Parties. In this contract, the risks are unbalanced as the Contractor has to deal with most risks. Notably, these risks are very specific in every country and the Works are performed in accordance with detailed but brief specifications. The Employer takes only a few risks related to Force Majeure, wars and so on. However, the Contractor bears most risks and this often leads to the final price of the contract. The Employer bears only a few risks but has to pay more for the Works than in the contracts mentioned above. Apart from this peculiarity of the Silver Book, it has certain distinctive features. The Contractor is totally responsible for design liability. The Contractor completes the entire range of the Works since the turnkey project means that the facility can operate after completion of the Works. An Engineer is not required for this type of contract and the Employer can simply have its representative (called Employers’ Representative). As far as payments are concerned, they are similar to the conditions of the Yellow Book. Battrick and Duggan note that the Employer has to carefully choose between the Yellow and Silver books as the former implies larger price (5). The researchers also add that if the Employer cannot supervise completion of works or the period for tender is very short, it is better to choose the Yellow Book. Although The Employer will take more risks, it will also get e better price and more opportunities to supervise the works implementation.
The Green Book
The Green Book or Short Form of Contract was aimed to meet the needs of parties involved in simpler projects that required shorter period of time. Unlike the rest of the contracts, this one includes 15 clauses only. The clauses are also short. Again, there is no Engineer and the Employer may have a representative. The payment can be provided in two different ways: a lump sum and on remeasured basis. Clearly, smaller companies and companies working on simpler projects will benefit from using this contract template, as it is not overloaded with numerous details that are essential in the case with complicated constructions.
The White Book
The White Book (which was published in 2006) is an agreement between the Engineer and a Consultant. This agreement is mostly used at such stages of the projects as the design stage, contract administration and pre-investment studies. The agreement is rather flexible and user-friendly. It is noteworthy that the contract ensures certain financial security of the Consultant who can ask for some evidence that the Contractor has the necessary finance to pay for the services provided. This contract template is quite simple and short.
The Blue Book
The Blue Book was published in 2006. This contract template was developed for implementation of projects involving reclamation and dredging. This type of works is very specific and, hence, the contract is valuable for companies completing such works. It is very flexible and user-friendly. The Engineer is present in this contract though the design can be provided by the Employer or the Contractor. The contract’s flexibility is especially vivid in payment procedures as there are several options: remeasurement, lump sum, cost plus and so on. Some most distinctive features of the contract template are as follows. The contractor has to provide notices related to the claim during 28 days. There is a list of “defined risks” that are associated with compensations (Battrick and Duggan 9). Therefore, the risks are shared between the Parties.
The Pink Book
The Pink Book was published in 2010 and it is mainly based on the Red Book (or rather the versions of amended Red Book). The contract template is suitable for projects where fund lending is present. Battrick and Duggan note that the projects carried out with the use of this contract template are infrastructure projects (9). Major lenders in that case are The World Bank, African Development Bank, the European Bank of Reconstruction and Development. Peculiarities of this contract include the right of the representative of the lender to audit records of the Contractor as well as supervise the works completion. Again, the Employer has to provide some evidence that it is able to pay fully and within the necessary terms. It is noteworthy that the works will not start until the Employer proves that there is the necessary funding and there is the agreed advance payment. There is also a clause concerning dealing with “corrupt and fraudulent practices” (Battrick and Duggan 10). The Parties can terminate the contract under certain circumstances.
The Gold Book
The Gold Book is one of the most remarkable as it is aimed at meeting needs of companies involved in such projects as water supply infrastructure construction. This contract has balanced risk allocation and the Parties are encouraged to be responsible. The Contractor designs, builds, operates and maintains the facility for twenty years. Payments are provided on the basis of a lump sum. At that, all terms and conditions are provided in the contract. The Employer can deduct 5% of payments during operation and maintenance period if some issues occur. According to the contractor, inspection of the lender as well as joint inspection of the parties have to be carried out within particular period. Battrick and Duggan stress that this is a sophisticated contract, which encourages the Contractor to provide high-quality services and make sure that the facility operates effectively (12). It is possible to add that each contract is suitable for a particular project and the parties can choose the most efficient one.
Benefits of the FIDIC Contracts
It has been acknowledged that the FIDIC contracts are beneficial as they provide standards, which can be seen as an advantage in completing international projects. As has been mentioned above, the FIDIC contracts are written in plain English with the use of certain number of terms, which are clearly defined. Hence, the companies are not running the risk to violate conditions due to their misunderstanding of terms. At that, the cost can be reduced, as rendering is not necessary since the contracts can be used in many projects (Shnookal 11). The company working with these contracts acquires a valuable experience that is utilised in future projects. Besides, the standard contracts that have been tried and effectively utilised can be employed with little negotiation, which saves a lot of time. Finally, the standard contracts have transparent interpretation and in case of certain legal issues, decisions can be made much faster. There are particular conditions highlighted in the contracts when the Parties may go to the court or address certain regulatory bodies. It is also important to add that numerous agreements and guidelines help the Parties to implement the projects effectively.
In conclusion, it is possible to note that the FIDIC suit of contracts can be regarded as the basis of effective construction projects. The contracts address issues companies involved in construction usually face. The contracts help the companies escape from numerous pitfalls associated with certain project. The contract do not simply provide a legal basis of the project but also help in development of proper procedures. The standard contract templates, which have only a few amendments, enable companies to operate globally. At the same time, companies have to make sure they choose the right contract template that is the most suitable for their project. Otherwise, the Parties can have certain issues and the project can be completed with delays and violations. At the same time, the FIDIC provides numerous guidelines that help companies to choose the most suitable contract or agreement. It is also important to note that the organisation never stops elaborating new contracts that meet the needs of modern companies and the modern society.
Battrick, Paul and Phil Duggan. The Rainbow Suit: The 1999 FIDIC Suite. n.d. Web.
Köksal, Tunay. “FIDIC Conditions of Contract as a Model for an International Construction Contract.” International Journal of Humanities and Social Science 1.8 (2011): 140-157. Print.
Robinson, Michael D. A Contractor’s Guide to the FIDIC Conditions of Contract. Oxford: John Wiley & Sons, 2011. Print.
Shnookal, Toby. Standard Form Contracting; The Role for FIDIC Contracts Domestically and Internationally. 2010. Web.