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The FIDIC Contracts & Construction Law

A presentation

to

The British University in Dubai by

Nael G. Bunni,

BSc, MSc, PhD, CEng, FICE, FIEI,

FIStructE, FCIArb, FIAE, RConsEI

.

Chartered Engineer, Conciliator/Mediator and Registered Chartered Arbitrator

Part 1

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Synopsis

The FIDIC identity;

A survey of the FIDIC Forms of Contract and their distinguishing features and characteristics;

The role of the Engineer and how it compares with the term “Project Manager”;

The framework of contractual and legal arrangements on a FIDIC Construction Contract;

The role of insurance in the construction contract;

The unique feature of seeking to provide for a specific remedy in the event of any breach of the terms of the Contract; &

The procedure set for claims and dispute resolution.

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The FIDIC identity

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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The FIDIC identity

(Contd/2)

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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The FIDIC identity

(Contd/3)

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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The FIDIC identity

(Contd/4)

Standard Forms & Associated Documentation

Conditions of Contract for Works of Civil Engineering

Construction (Red Book), 4th Edition, 1987; updated in 88 & 92

Conditions of Contract for Electrical and Mechanical Works including erection on site (Yellow Book), 3rd Edition, 1987

Conditions of Contract for Design-Build and Turnkey (Orange

Book), 1st Edition, 1995

Conditions of Sub-contract for Works of Civil Engineering

Construction, 1st Edition, 1994

Tendering Procedure, 2nd Edition, 1994

Client/Consultant - model services Agreement (White Book), 3rd

Edition, 1998; 4 th

Ed. 2006

Joint Venture (Consortium) - Agreement, 1st Edition, 1992

Sub-consultancy Agreement, 1st Edition, 1992

Dredging & Reclamation Form of Contract, 1st Edition, 2006

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The FIDIC identity

(Contd/5)

First Edition of the Green Book – Short Form of

Contract – Agreement, 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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The FIDIC identity

(Contd/6)

First Edition of a new Yellow Book: Conditions of

Contract for Plant and 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

The Harmonised Multilateral

Development Banks Form of Contract,

1 st

Ed. 2005, 3 rd

Ed. 2010

The Dredging & Reclamation Works, 1 st

Ed. in 2006

The most important development is the introduction of the “Gold Book” in 2009

The Test Ed. of The Subcontract Form for the 1999 Red Book, published in

December 09

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The Harmonised MDB Form

MDB: The Harmonised Multilateral

Development Banks Form of Contract, 2005;

Intended for MDB funded projects;

FIDIC retains copyright & Management;

Based on the 1999 Red Book, which remains

FIDIC’s recommended Form, but amended shifting many risks to the Contractor, including the reduced Authority of Engineer;

The 3 rd

Ed. was issued in 2010

Many changes: for example. Cl. 20.

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The DBO Form:

Design, Build & Operate

The Gold Book deals with:

Design, Build and Operate (DBO) Projects.

It is based on and developed from the 1999 Yellow

Book.

It is intended for projects where the employer wishes the contractor not only to design and construct a facility, but also to continue and operate and maintain that facility for a long number of years.

Examples of Projects: Water treatment plants,

Power generation plants and manufacturing or process facilities, and motorways/highway projects

.

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Comparison of the 1999 Forms with previous major forms

Form of Contract Equivalent in the New Forms

Red Book, 4 th

Ed. 1992

Red Book, 4 th

Ed. With

Suppl. 1996

New Red where the DAB is Adhoc & the

Engineer acts as the DAB

New Red where the DAB is Standing & the

Board is Independent & Impartial

New Yellow, 1999 Yellow Book, 3 rd

Ed.

1988

Orange Book, 1 st

Ed.

1995

Newly developed

Forms

New Yellow, 1999

Silver Book & Green

Book, 1999

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Usual contractual arrangements in a construction project

Employer or Owner

Engineer

Contractor

Sub-contractors

Other

Consultants

Suppliers

Manufacturers

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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 Employer/Owner

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

Project Manager** & Safety Controller

Supervisor

Certifier

Adjudicator

Operator

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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

Contractor

Construction

Design in the New Yellow Book, partly in the Old

Yellow; the Orange Book & the Silver Book

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The Role & Functions of the Engineer

(a)

The Completion of a skilful design incl.:

preparation of drawings; drafting specification for materials & workmanship;

preparation of a bill of quantities .

(b) The preparation of tender & contract documents and advising on the selection of a contractor.

(c) The supervision & quality control of work on site.

(d) The administration of the contract & evaluation

& certification of the work carried out .

(e) Adjudication of disputes .

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The different roles Red Book 1992

Pre - construction Stage [ Steps (a) & (b) ] :

The Engineer acts as an advisor & consultant.

Construction Stage [ Steps (c) & (d) ] :

The Engineer acts as an Agent of the Owner.

Construction Stage [ Step (e) ] :

The Engineer acts as an independent , impartial & neutral professional. (under the

1999 Red Book: only when specifically stated)

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The Engineer as a designer

The shape, form and dimensions of the project

The function & performance

The selection of the materials & workmanship

The production of documents

Projection of cost

Establishing timing & sequence of construction

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The Engineer as the Employer’s Agent

Implementing & augmenting the design

Quality control

Administration and management

Pro-active duties

Re-active duties

Passive duties

Cost accountancy & certification

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The Engineer as a supervisor

To supervise, inspect, oversee, or monitor :

Compliance with specified quality

Progress in accordance with the planned Programme

Budget control as in the cost plan

Compliance with safety & other control requirements

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The Engineer as a certifier

Valuation of work done & Payments to the

Contractor (Cl. 60);

(Cl. 12);

Issue Taking - Over Certificate (Cl. 48);

(Cl. 14);

Date of Completion (Cl. 49);

(Cl. 8);

Payments to nominated sub-contractor (Cl. 59);

(Cl. 5);

Issue Final Certificate (Cl. 60.8);

(Cl. 14.13);

Defects Liability Certificate (Cl. 62.1);

(Cl. 14);

Valuation of work done, etc. in case of

Termination (Cl. 63.2);

(Cl. 15).

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The Engineer as an adjudicator under the 1992 Red Book

Dispute Reference to the Engineer

[84 days for the Engineer to make a decision]

The Engineer gives notice of his decision in writing

[70 days for Emp. or Cont. to disagree & give notice of intention to commence arbitration]

If notice of intention to commence arbitration is given, then attempt amicable settlement (56 days)

[If no settlement, arbitration may then commence. Place, no. of arbitrators & language may be inserted]

ICC Rules apply unless stated otherwise in Part II

[ Extreme care must be taken in amending this clause]

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Impartial or fair –Red 1992 – Clause 2.6

The Engineer to Act Impartially

2.6 Wherever, under the Contract, the Engineer is required to exercise his discretion by:

(a) giving his decision, opinion or consent,

(b) expressing his satisfaction or approval,

(c) determining value, or

(d) otherwise taking action which may affect the rights and obligations of the

Employer or the Contractor he shall exercise such discretion impartially within the terms of the Contract and having regard to all the circumstances.

…………

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Impartial or fair –Red 1999 – 3.1

3.1 Engineer’s Duties and Authority

………….. . The Engineer may exercise (his) authority ……. as specified in or necessarily to be implied from the Contract. ………………..

Except as otherwise stated in these Conditions:

(a) whenever carrying out duties or exercising authority, specified in or implied by the Contract, the Engineer shall be deemed to act for the

Employer;

(b) the Engineer has no authority to relieve either

Party of any duties, obligations or responsibilities under the Contract; and

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Impartial or fair –Red 1999 – 3.1

(c) any approval, check, certificate, consent, examination, inspection, instruction, notice, proposal, request, test, or similar act by the Engineer

(including absence of disapproval) shall not relieve the Contractor from any responsibility he has under the

Contract, including responsibility for errors, omissions, discrepancies and non-compliances.

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Impartial or fair –Red 1999 – 3.5

Determinations 3.5

Whenever these Conditions provide that the Engineer shall proceed in accordance with this Sub-Clause 3.5 to agree or determine any matter, the Engineer shall consult with each Party in an endeavour to reach agreement. If agreement is not achieved, the Engineer shall make a fair determination in accordance with the

Contract, taking due regard of all relevant circumstances.

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2. The allocation of 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-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:

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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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

Extent of such sharing

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Management, Timing & Method of

Remuneration

(Contd./3)

Categories to consider depending on the extent of risk accepted:

Cost-reimbursable contracts

»

May be sub-divided depending on sums to be added

Re-measurement contracts based on unit rates and prices. May be 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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