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Finding Your Footing in FIDIC

2023-04-25

Finding Your Footing in FIDIC

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  1. Introduction 

Construction industry is reputed to be more risky than other businesses because of the complexity of coordinating various activities. Each project is unique with different means and methods, techniques and procedures. A project’s success is when it meets time, cost and quality targets. However, there is always the risk of time and budget overruns which leads disputes and financial losses. 

It therefore behooves anyone dealing with a construction contract to have a clear understanding of the FIDIC Standard Forms of Contract. This article will give a brief overview of what FIDIC Contracts entail.

  1. What is the meaning of FIDIC?

FIDIC (Fédération Internationale Des Ingénieurs-Counseils) stands for the International Federation of Consulting Engineers which was founded in 1913 in Geneva, Switzerland. As the name suggests, it is an international professional organization consisting of consulting engineers. 

  1. What is the purpose of FIDIC?

The purpose of establishing FIDIC is to promote and establish the consulting engineering industry’s strategic goals on behalf of Member Associations and disseminate information and resources of interest to its members. Currently, the FIDIC membership covers 100 countries.

The main importance of FIDIC is that it publishes international standard form of contracts for Owners, Consultants, Sub-consultants, joint ventures and representatives, together with related materials such as standard prequalification forms for the satisfactory execution of the different types of projects in the construction and engineering industry.

  1. FIDIC Contracts

The main purpose of the FIDIC model contract is to regulate questions such as: definition of the contractual relationship between the parties; who bears the risk during the construction process, who prepares the design, who undertakes management of the contract, etc.

FIDIC contracts are differentiated by the color of their cover in which the rules and regulations of the contracts are provided. The colors are as follows:

NO.FIDIC CONTRACTTYPE
Red BookThe Red Book is the most widely used form of contract throughout the world.  It is drafted for the use of building and engineering works where the employer provides the design. However, the works may include some of the contracts designed civil mechanical and construction works.
Pink BookThis is also known as Conditions for Construction MDB Harmonized Edition. The 1st edition was released in 2005 and amended in 2006. It is for use on projects that are funded by certain Multilateral Development Banks (MDBS).
Yellow BookThis is  recommended for use when building an electrical and/or mechanical plant and building and engineering works designed by the Contractor. The Contractor designs and provides, in accordance with the Employer’s requirements, plant and/or other works, which may include any combination of civil, mechanical, electrical, and/or construction works.
Silver BookThis is applicable for international major turnkey projects, with the idea that responsibility for all work (engineering, procurement, and construction (EPC)) is to be taken by the Contractor who completes the finished product ready for operation (at the “turn of the key”). The silver book is recommended where:-There is a high decree of certainty of final price and completion time is required; and The contractor takes responsibility for the design and execution of the project. 
Green BookThis Green Book is recommended for engineering and building works of relatively small capital value. However, depending on the type of work and the circumstances, the Green Book may be suitable for contracts of considerably greater value. They are considered most suitable for simple or repetitive work or work of short duration without the need for specialist subcontracts. This form may also be suitable for contracts which include, or wholly comprise, contractor-designed civil engineering, building, mechanical, and/or electrical works.
Gold BookThis is a standard form of contract where the design is made by the Contractor and he therefore assumes the responsibility for the construction and operation of the works. 
Blue BookThis is a standard form of contract for dredging and reclamation works.
White BookThis is a form of contract for professional services offered by consulting engineers.
  1. Features of FIDIC Contracts.

All FIDIC Contracts are divided into parts consisting of General Conditions and Particular Conditions.

The General Conditions regulate the relationship between the parties to the contract. They contain clauses on rights and obligations of both parties, payment procedures, dispute resolution etc.

The Particular Conditions on the other hand are specific to the geological and socio-economic conditions at the place of work. They are mainly used to define clauses that are not contained in the General Conditions.

  1. Hierarchy of documents in FIDIC Contracts

In FIDIC Contracts, there is a default hierarchy for the documents that form the contract in the following order of priority:

  1. The Contract Agreement;
  2. The Letter of Acceptance;
  3. The Letter of Tender;
  4. Part II – The Particular Conditions of Contract;
  5. Part I – The General Conditions of contract;
  6. The Specification and Drawings; 
  7. Further documents (if any), listed in the Contract Agreement or in the Letter of Acceptance.

Parties can however elect to state that no order of precedence will apply to the contract. This is usually done in part II of the contract. 

  1. Conclusion 

The choice of the right contract model is determined through evaluation of all aspects of the project, including the responsible party for carrying out the design, risk allocation, project’s duration and capital amount. In subsequent articles. we will delve into some of the critical clauses. 

Disclaimer: This article is not a legal opinion but is meant for general understanding of the topic. Our experienced arbitration practitioners will be at hand to tailor-make  a dispute resolution clause that can stand the test of time

Daniel Musyoka and Karen Muthee