06/10/2015
When commencing engineering or construction work involving various international jurisdictions, one of the most confusing elements of the project can be the international contracts used to construct and manage the venture.
It is imperative that business owners, project managers and in-house counsel understand the basics of international contracts, to protect their business interests and investor capital.
The foremost contracts for international engineering and construction work projects are FIDIC contracts. FIDIC stands for Fédération Internationale Des Ingénieurs-Conseils, which means the international federation of consulting engineers. It was started in 1913 by France, Belgium and Switzerland. The United Kingdom joined the Federation in 1949. FIDIC is headquartered in Switzerland and now boasts of membership from over 60 different countries.
FIDIC Contracts – The Basics
Traditionally, FIDIC contracts are known by the colour of their cover.
The contracts that are currently used are:
Red Book (1999)
The Red Book provides conditions of contract for construction works where the design is carried out by the Employer. It is not suitable in situations where most of the design is carried out by the contractor.
This Red Book includes example forms for the Letter of Tender, the Appendix to Tender (providing a check-list of the subclauses which refer to it), the Contract Agreement, and a Dispute Adjudication Agreement.
Green Book (1999)
The Green Book is ideal for construction projects of a smaller capital value. It is likely to be most suited fairly simple or repetitive work or work of short duration without the need for specialist sub-contracts.
Yellow Book (1999)
This is the contract to use when the design work is being carried out by the contractor.
Orange Book (1995)
The Orange book was published in 1995 to provide a design and build option to the then current FIDIC suite. The Orange Book is intended for use on turnkey contracts, meaning the Employer's requirements usually include the provision of a fully-equipped facility, ready for operation at the turn of a key.
Silver Book (1999)
The Silver Book is suitable for use on process, power and private infrastructure projects where a Contractor is to take on full responsibility for the design and execution of a project. Risks for completion to time, cost and quality all rest on the Contractor and so the Silver Book is only suitable for use with experienced Contractors familiar with sophisticated risk management techniques.
DBO Contract (2008)
Under the DBO contract, the Contractor has no responsibility for either financing a project or its ultimate commercial success. It combines a design-build obligation with a long-term operation commitment.
Red Book (MDB edition) (2005)
As part of their standard bidding documents the Multilateral Development Banks (MDBs) require their borrowers or aid recipients to adopt the FIDIC Conditions of Contract. The FIDIC MDB edition of the Red Book simplifies the use of the FIDIC contract for the MDBs, their borrowers and others involved with project procurement, such as consulting engineers, contractors and contract lawyers.
How the FIDIC Contracts Are Set Out
FIDIC contracts are generally divided into two parts:
- General conditions of the contract in Part 1, e.g., rights and obligations of each party, procedure for payment, variation, certification and dispute resolution.
- Conditions of particular application in Part II, e.g., the language of the contract, choice of law, the name of the person or firm appointed to act as Engineer or Employers representative for the project among other terms
In most FIDIC forms, there is a default hierarchy for the documents forming the contract. The order of priority is as stated below and in the event of inconsistency the first on the list takes precedence:
1. The Contract Agreement
2. The Letter of Acceptance (this is the formal acceptance of the contractor's tender and marks the formation of the contract)
3. The Letter of Tender
4. Part II – the conditions of particular application
5. Part I – general conditions of contract
6. The Specification and Drawings (Red Book), The Employer’s Requirements (Yellow Book), the Schedules (Red and Yellow Books)
7. Further documents (if any), listed in the Contract Agreement or the Letter of Acceptance.
Parties can rearrange the priority of documents or stipulate that no priority or order of hierarchy will apply to the contract. This can be done in Part II of the contract.
Resolving Disputes
At present, FIDIC contracts contain multi-faceted disputes resolution clauses. However, most of the books are now 16 years old and are due to be updated. One commentator stated in a recent article that, “It is likely that FIDIC will shift the emphasis from dispute resolution to dispute prevention. This will probably result in more proactive project management and early warnings (perhaps including a definition of ‘Notice’, as already provided in the Gold Book.”
Want To Know More About FIDIC Contracts?
At Fisher Scoggins Waters, our solicitors are experts in international contracts and FIDIC forms. To find out more about how we can help you understand these often complex contracts, please phone our London office on 0207 993 6960.