18CMT23 - CONTRACT LAWS

AND REGULATIONS

NAME : G.Poovizhi

ROLL NO. : 18CMR014

CLASS : M.E – CE&M (Year I)

FIDIC contracts
The NBS Contracts and Law Survey indicates that one of the areas that participants found
difficult in international projects was the use of unfamiliar contract forms. This article by
Koko Udom, former Head of Contacts and Law at NBS, briefly introduces the FIDIC
contracts which are reputed as the leading contracts in international engineering and
construction projects.

FIDIC is a French language acronym for Fédération Internationale Des Ingénieurs-Conseils,

which means the international federation of consulting engineers. It was started in 1913 by
the trio of 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.

Over the years, FIDIC has become famous for its secondary activity of producing standard
form contracts for the construction and engineering industry.

FIDIC published its first contract, titled The Form of contract for works of Civil Engineering
construction, in 1957. As the title indicated, this first contract was aimed at the Civil
Engineering sector and it soon became known for the colour of its cover, and thus, The Red
Book.

It has become the tradition that FIDIC contracts are known in popular parlance by the colour
of their cover.

This first contract by FIDIC was undertaken jointly with the International federation of
Building and Public works. FIDIC’s concerted effort at achieving broad consultation and
acceptance of its contract forms has seen subsequent editions of its contracts being ratified by
the International Federation of Asian and Western Pacific Contractors Association,
Associated General Contractors of America and the Inter-American Federation of the
Construction Industry, Multilateral Development Banks among others. Because of the broad
support it enjoys, FIDIC contracts are the foremost contracts in international construction.

FIDIC contract forms

Over the years FIDIC has consistently improved on its contracts. The organisation has added
new forms of contract, replaced previous ones and updated important terms. The table below
gives a brief overview of FIDIC contracts to date:

FIDIC
Year released Notes
contract
The (old) First published in 1957, the These contracts were aimed at the civil
Red Book fourth and final edition was engineering sector, as differentiated from the
published in 1987, with a mechanical/electrical engineering sector.
supplement added in 1996.
The (old) First published in 1967 with These contracts were aimed at the
Yellow the third and last edition in mechanical/electrical engineering sector.
FIDIC
Year released Notes
contract
Book 1987.
The The first and only edition of This was the first design and build contract
Orange this contract was released in released by FIDIC.
Book 1995.
The (new) Released in 1999. The Red Book is suitable for contracts that the
Red Book majority of design rests with the Employer.
The (new) Released in 1999. The Yellow Book is suitable for contracts that
Yellow the contractor has the majority of the design
Book responsibility.
The Silver Released in 1999. The Silver Book is for turnkey projects. This
Book contract places significant risks on the
contractor. The contractor is also responsible
for the majority of the design.
The Pink First published 2005 – an This is an adaptation of The Red Book created
Book amended version was to fit the purposes of Multilateral Development
published 2006, with a further Banks.
edition in June 2010.
The Gold Released in 2008. This is FIDIC’s first Design-build and operate
Book contract.

Other contracts in the FIDIC family include the FIDIC sub-contract, The Blue Book, which is
concerned with dredging and reclamation works, and The White Book, which is for the
engagement of consultants by Employers.

General features of FIDIC contracts

Although the FIDIC family covers a wide range of contracts, there are some common
features:

Presentation

FIDIC is usually divided in two parts: Part I consisting of the general conditions and Part II
concerning the conditions of particular application (including guidelines for the preparation
of Part II clauses). Part I contains the general terms of the contract, such issues as rights and
obligations of each party, procedure for payment, variation, certification and dispute
resolution.

Part II of the contract is the conditions of particular application and is to be used to introduce
project specific clauses, such as 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. The Appendix usually contains sample of documents to be used for the
procurement process.
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 in the Letter of Acceptance.

The parties are allowed to 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.

Dispute resolution

FIDIC contracts adopt a multi-tier dispute resolution process. The emphasis in recent years
has been on the amicable settlement of disputes. The process usually provides as a first step,
for disputes to be submitted for adjudication before an Engineer or a Dispute Board. If one
(or both) of the parties is dissatisfied, a period is allowed for amicable settlement. If the
parties are not able to settle the dispute during the ‘amicable settlement’ period, the final
stage is to proceed to arbitration. FIDIC contracts provide as a default position that the
arbitration rules of the International Chambers of Commerce should apply in the arbitration
of disputes arising from the contract.

Bias for English law

The first sets of FIDIC contracts were based on English law principles. This bias was so
strong, that in commenting on the FIDIC Red Book, first edition, Ian Duncan Wallace QC put
it lightly thus:

“As a general comment, it is difficult to escape the conclusion that at least one primary object in
preparing the present international contract was to depart as little as humanly possible from the
English conditions.”

Since 1957, future FIDIC contracts have successfully incorporated the principles of other
legal systems especially the civil law system. However, the basic framework of English law
principles has survived. For instance, provisions relating to liquidated damages have been
maintained.

CONTRACT DOCUMENTS

The National Building Code (2006) defines contract documents as including the following:

i. Contract drawings and specifications prepared by registered architects and registered

engineers;
ii. Priced bill of quantities prepared by a registered quantity surveyor;

iii. Construction programme, project quality management plan, project health and safety plan
prepared by a registered builder;

iv. Conditions of contract;

v. All risk insurance for the building works, personnel and equipment.

Contract Drawings:

The contract drawings include the architectural drawings, the structural/geotechnical

engineering drawings and the building services engineering drawings. These drawings
provide information regarding the arrangement of spaces, structural components, electrical
and mechanical installations.

Specifications:

This amplifies the information given in the contract drawings and bill of quantities. It
describes in details the work to be executed under the contract and the nature and quality of
materials, components and workmanship.

Priced Bill of Quantities:

A priced Bill of Quantities is a Bill of Quantities that has its rate and amount column filled by
a contractor. A Bill of Quantities consists of a schedule of items of work to be carried out
under the contract with quantities entered against each item, prepared in accordance with the
Standard Method of Measurement of Building Works (Seeley and Winfield, 2005)

Construction programme:

This is a document that is prepared in order that the project participants may have a thorough
appreciation of the work involved, to allow the site production team to sort out its main
constituent and decide how, in what order and at what time to do them; and to ensure
adequate co-ordination of the labour, materials and machinery requirements (Bamisile, 2004)

Project Quality Management Plan:

The Project Quality Management Plan defines the various quality related activities and
procedures which will be implemented on the project. It sets down requirements, gives
guidelines, provides information and indicates to appropriate personnel, the procedures to be
followed with respect to the Project Quality Management Plan. A sample outline of the
Project Quality Management Plan is referred in the appendix.

Project Health and Safety Plan:

The Project Health and Safety Plan is a document developed to secure the health, safety and
welfare of persons who will work or visit the site. It was also developed to control the
emission of toxic substances into the atmosphere and control the keeping and use of
substances that might be hazardous to health. An outline of the Project Health and Safety
Plan is contained in the appendix.

Conditions of Contract:

The conditions of contract define the terms, under which the work is to be undertaken, the
relationship between the client, architect and contractor, the duties of the architect and
contractors, and the terms of payment (Seeley and Winfield, 2005)

All Risk Insurance:

This is a contract document that is developed and shows that all the personnel and equipment
associated with a construction project has been insured against loss or damage. By insurance,
all the risks associated with personnel and equipment in a construction project is transferred
to a third party.

Contract documents for construction

See also Contractual documents for a list of documents that are commonly required by or
referred to in a construction contract.

Traditional contract
The contract documents set out the obligations and responsibilities of the parties to the
contract. On a traditionally-procured, fully-designed construction project, the contract
documents for suppliers such as the main contractor are likely to include:

 Article of agreement and conditions of contract, for completing as a simple contract (or as a
deed).
 Working drawings.
 Bills of quantities.
 Specifications.
 Schedules of work.
 Perhaps an information release schedule. Consultants can be reluctant to produce
information release schedules because of concerns about being held to the dates on the
schedule (even where the progress of construction does not require information when the
information release schedule proposes it). Failure to keep to the dates set out in the
information release schedule may then be a matter for which the contractor can claim an
extension of time and loss and/or expense.
 A schedule of tender adjustments or clarifications negotiated and agreed after the receipt of
tenders and prior to the signing of the contract.
 The requirement for the contractor to provide a performance bond and to obtain collateral
warranties from any sub-contractors or suppliers.

Both client and contractor should engross the contract by witnessed signatures prior to
commencement of work. In practice the administrative effort of collating all necessary
paperwork can be overtaken by the desire to begin construction. In such circumstances it
becomes harder to sort out any disputes as to the content. There have been cases where the
courts have had to interpret an implied contract when the contract has remained unsigned.

Design and build

On design and build projects, the contract documents may comprise:

 The articles of agreement and conditions of contract.

 The employer's requirements.
 The contractor's proposals.
 The contract sum analysis.
 Possibly bills of quantities (for some or all of the design).

Building information modelling

On projects that adopt building information modelling (BIM), the contract documents may
also include:

 A model enabling amendment introducing a BIM protocol as part of the contract documents.
 A BIM protocol, which establishes specific obligations, liabilities and limitations on the use of
building information models and can be used by clients to mandate particular working
practices.
 Employer's information requirements, which define information that the employer wishes to
procure to ensure that the design is developed in accordance with their needs and that they
are able to operate the completed development effectively and efficiently. Suppliers
respond to the employer's information requirements with a BIM execution plan.

Click here to see a diagram showing the relationship between contractual documents for
BIM.

NEC3
The contract documentation under NEC contracts comprises:

 The form of agreement.

 Conditions of contract.
 Contract data.
 Prices, activities schedules, bill of quantities.
 Works information.
 Site information.

Pre-contract meeting
A pre-contract meeting is likely to take place after the contractor has been appointed. This is
an opportunity to for the project team to meet (perhaps for the first time) and to plan their
activities. The minutes of the pre-contract meeting may form part of contract documents (for
all procurement routes) subject to the agreement of both parties.