Chapter 12

12.1 FIDIC expansion

The conditions of contract prepared by the Fédération Internationale des Ingénieurs-Conseils (International Federation of Consulting Engineers, FIDIC) are nowadays the most widely used sample forms of contracts for construction projects. These sample documents are known as the ‘International Best Practice Documents’ and are enjoying ever growing popularity. This is mainly thanks to significant international lenders who demand generally accepted and proven ‘rules of the game’ in their construction projects. One of the advantages of FIDIC forms is that the user is presented with a complete toolbox of documents. Without these, successful realization of a project would be practically impossible. The documents include a variety of samples and templates ranging from tender forms right up to dispute adjudication issues. Commentary, explanations and user instructions can also be found in individual FIDIC forms.

12.2 FIDIC

The International Federation of Consulting Engineers was founded in France in 1913 and is based in Geneva, Switzerland. Following its initial establishment, the organization expanded rapidly thanks to new membership from around the world. FIDIC is a non-government organization recognized by the United Nations, by major global banks, the European Commission and other international institutions. FIDIC was set up to support and promote the overall interests of its member associations. The organization’s growth peaked in the post-WWII era when it started expanding at such a rate that it now unites associations from almost 100 countries on all continents.

The first sample, Conditions of Contract for Works of Civil Engineering Construction were released in 1957. This sample gave rise to the tradition of the ‘FIDIC Red Book’. Due to ever-advancing technological developments in the construction industry, it became clear that contractual conditions would become redundant over time and would need to be revised. In 1999 the latest and the most used volume entitled the ‘First Edition’ came into existence with its Red, Yellow and Silver Books. These are the terms most often used by construction practitioners though the official abbreviations are CONS, P&DB and EPC. To distinguish the 1999 forms from the older versions they are sometimes referred to as the ‘New Red, Yellow and Silver Books’.

According to FIDIC Statutes and By-Laws (October 2011), the Federation’s objectives are:

  1. to represent the consulting engineering industry globally;
  2. to enhance the image of consulting engineers;
  3. to be the leading authority on issues relating to business practice;
  4. to promote the development of a global and viable consulting engineering industry;
  5. to promote quality;
  6. to actively promote conformance to a code of ethics and to business integrity;
  7. to promote commitment to sustainable development.

12.3 FIDIC’s influence on the construction industry

In recent years, FIDIC has experienced growth in its influence on the construction industry worldwide. With the spread of globalization, international organizations are looking for a uniform set of construction project standards independent of countries and governments. Such organizations include the World Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank, the African Development Bank and the Islamic Development Bank. Various other organizations are cooperating with FIDIC to develop broad, worldwide standards of business practice, ranging from the International Standards Organization, the International Labour Organization and others such as Transparency International or the United Nations Environment Program. Close cooperation with the above-mentioned organizations (and others) is helping the development of widely used best practice standards, not only for consulting engineers, but for the wider construction industry and business in general. Clearly defined, well-known and globally recognized standards are helping to reduce various costs and to develop a predictable legal and business environment. This applies not only to countries in the developing world, but to countries of the developed world as well. FIDIC promotes its objectives through annual meetings and conferences. The first was held in London in 1988 with cities in South-East Asia, the Middle America and North America added to the FIDIC annual program in recent years. Moreover, about 100 training events are held annually worldwide.

12.4 FIDIC membership

The nature and type of organizations who are FIDIC members are diverse. They range from individual members from independent countries to regional federations and broader member associations. For example, the African members of FIDIC associate themselves with the Group of Africa Member Associations (GAMA) with its FIDIC Regional Office in Dar-es-Salaam, Tanzania. Members from the Asia Pacific region are associated with the Asia-Pacific Group (ASPAC). The most important and influential members of FIDIC are regional federations, such the Pan American Federation of Consultants (FEPAC) and the European Federation of Engineering Consultancy Associations (EFCA). The latter closely cooperates with FIDIC in various areas and with international governmental and non-governmental organizations and individual states.

Aware of the growing popularity and support for its activities, FIDIC organizes a number of training events to help local businesses expand globally and to spread FIDIC values. These activities have culminated in the development of the Business Practice Training Manual which is applicable in both the developed and developing world. Moreover, the organization of International Training Programmes (in cooperation with member associations) is ongoing. FIDIC also accredits trainers and training suppliers through its Accredited Trainer and Development Programme. Online training courses are available directly from FIDIC.

FIDIC training is focused on hard skills (such as the mastering of contract conditions and their use) and soft skills (such as the development of managerial skills) required for successful project implementation. The former includes courses on Professional Services Agreements, Practical Use of FIDIC Contracts, Claims and Dispute Resolution, Dispute Adjudication Boards and Contract Management. The latter comprises courses such as Business Development, Business Administration, Risk Management, Quality Management, Business Integrity Management and Project Sustainability Management.

12.5 Networking activities

FIDIC influence goes beyond the formalities of international best business practice and commercial relationships. FIDIC’s informal (but significant) influence on the opinions of global leaders and decision-makers is, arguably, even more important. Numerous meetings and events help FIDIC participants from across the globe to build specific professional communities, spread ideas and exchange valuable contacts. Networking and gatherings of consulting engineers, clients, contractors and other professionals are crucial to promoting FIDIC values. Therefore, these events are strongly supported by the organization.

FIDIC currently presents the most common form of contract in large construction projects. These include monumental nation-building efforts such as the re-building of Libya after the Arab Spring revolution, the development of an independent Timor-Leste and the building of infrastructure for the FIFA World Cup in Qatar in 2022.

FIDIC is currently involved in a vast field of global activity. Such worldwide presence and influence also bring with it substantial responsibility and related commitments. Therefore, FIDIC representatives and members decided to use their organizational capabilities to promote values of sustainable development. Consultants participating in development and infrastructure projects can (and are encouraged to) use their experience and knowledge directly in cooperation with project investors and clients. Using valuable know-how from the beginning of every project to realization helps make it more effective and sustainable in every aspect.

12.5.1 Translations and local use of FIDIC forms

The FIDIC official position on copyright, modifications and translations is that FIDIC discourages modification of the information and services it supplies, and only in exceptional circumstances will authorize modification, reproduction or incorporation elsewhere. Permission to quote from, incorporate, reproduce or copy all or part of a FIDIC publication, including documents, conditions of contract, web pages and similar supports for information, should be addressed to the FIDIC Secretariat, which will decide upon appropriate terms. A licence to prepare a modified publication will be agreed to under certain conditions. Specifically, the modified publication must be for internal purposes only, and not be published or distributed commercially. Under conditions which it will determine at its own discretion in each case and for a suitable consideration (usually, in the form of a licence fee), FIDIC may agree to let other parties (normally, a Member Association) to make translations and publish the translated publication. Conversely, translating FIDIC publications or publishing such translations without FIDIC’s duly obtained agreement is unlawful and may be sanctioned. The general principles under which FIDIC may grant such agreements and which should be used when interpreting any licence given, are set out in guidance notes and a sample form of contract that are available from the FIDIC Secretariat. FIDIC will not authorize translations; in particular, FIDIC will not make any engagement or assume any liability concerning their completeness or correctness or adequacy for any purpose. Any such engagement or liability lies with the translator or the publisher of the translated document.

There are official translations of CONS available, for example, in Arabic, Bahasa, Bosnian, Chinese, Estonian, French, Japanese, Latvian, Polish, Portuguese, Romanian, Russian, Slovak, Spanish, and Vietnamese. P&DB is also available in Hungarian.

CONS and P&DB are extensively used for domestic projects, for example, in Poland, Slovakia, the Czech Republic, Hungary, Bulgaria, Romania, Croatia, and Serbia. There are several translations of FIDIC forms in Poland, one of them prepared by SIDIR (Stowarzyszenie Inżynierów Doradców i Rzeczoznawców, in English: Consulting Engineers and Experts Association).

To meet the public procurement needs in Estonia, the EAACEC (the Estonian Association of Architectural and Consulting Engineering Companies) have translated, among others, CONS and P&DB, both frequently used there.

According to HELLASCO (the Hellenic Association of Consulting Firms), there are no Greek translations. The same applies to Sweden, as reported by STD (the Swedish Federation of Consulting Engineers and Architects), Holland according to ONRI (the Dutch Association of Consulting Engineers), and Denmark as per FRI (Foreningen af Rådgivende Ingeniører). FIDIC forms are used in those countries only on international projects. Local forms of contracts have long been used there to meet the needs of local construction projects. Also according to ACE (the Association of Consulting Engineers), the FIDIC forms are not used in the UK, except on international projects. In the United Kingdom, the NEC is used (the New Engineering Contract) and JCT (Joint Contracts Tribunal), like VOB (Vergabe- und Vertragsordnung für Bauleistungen) in Germany.

According to USIC (Union Suisse des Sociétés d’Ingénieurs-Conseils), there are no local Swiss translations and the FIDIC forms do not enjoy much popularity in Switzerland, with the contracting processes varying from canton to canton. However, the ASINCE (Asociación Española de Empresas de Ingeniería, Consultoría y Servicios Tecnológicos) of Spain has its own translation.

As advised by ACEA (the Association of Consulting Engineers of Australia), the FIDIC forms are used in Australia in public projects financed by banks.

As reported by SAACE (the South African Association of Consulting Engineers), English-language FIDIC documents are extensively used in South Africa, having a long tradition there.

As per ACEZ (the Association of Consulting Engineers of Zambia), the FIDIC forms are not used to any great extent in Zambia, nor are any standard conditions. But there is, at the moment, a drive to extend and draw up some local versions of them.

FIDIC forms are widely used even in China, mainly in support of the projects funded by the World Bank, the Asian Development Bank and by other international agencies.

12.6 FIDIC forms of contract

At present, the most popular FIDIC sample conditions of contract are those published in the 1999 First Edition. In particular:

  1. Conditions of Contract for Construction (abbreviated as ‘CONS’ or the ‘Red Book’), being the conditions with well-balanced risk allocation and intended for projects where the risks associated with the design are to be borne mainly by the employer. CONS are the contractual conditions for the General Contracting (GC) delivery method. It is common in such arrangements that the employer (their designer) prepares a detailed design including the bill of quantities, specifications and drawings for the purpose of the tender (terms of reference). The contractor evaluates the rates and prices of the tender bill of quantities. Works are measured on the basis of actually completed works, using the fixed rates and prices. Contract administration is done by the Engineer.
  2. Conditions of Contract for Plant and Design-Build (abbreviated as P&DB or the ‘Yellow Book’), being the conditions with well-balanced risk allocation and intended for use in Design-Build (DB) projects where risks associated with design are to be borne mainly by the contractor. Unlike CONS, P&DB does not use the employer’s detailed design for the purpose of the tender (terms of reference). These come from the ‘Employer’s Requirements’ which define, above all, the purpose, scope, standard, performance and other criteria, depending on the employer’s expectations and priorities. The employer’s requirements are not assumed to contain exhaustive details. The contractor shall prepare their proposal based on the employer’s requirements to become part of the contract. Even though the contract price is taken as a lump sum price, it may be subject to modifications through variations and claims raised for additional payments and extensions of time. Contract administration is done by the Engineer.
  3. Conditions of Contract for EPC/Turnkey Projects (Engineer, Procure and Construct, abbreviated as EPC or EPCT or the ‘Silver Book’) are intended for DB projects where most of the risks are allocated to the contractor. These risks are typically associated with design, site conditions and complications affecting time and price. This form is recommended where entire investment sets (such as nuclear power plants) are to be contracted out and where the requirement is to secure, more reliably, total price and completion time. It also applies to EPC that the price is taken as a lump sum. Works are not measured, but they can become subject to modification through variations and a limited number of claims raised for additional payment and extensions of time. Contract administration is done by the employer or their representative.

It is necessary to be able to distinguish between P&DB and EPC conditions. FIDIC discusses cases and circumstances when it is recommended applying P&DB conditions in practice. These are as follows:

  • Insufficient time or information for bidders to scrutinize and check the employer’s requirements or for them to carry out their own designs, risk assessment studies and estimations.
  • If construction will involve substantial underground work or will take place in other areas which bidders cannot inspect.
  • If the employer intends to closely supervise or control the contractor’s work, or to review most of the design.
  • If the amount of each interim payment is to be certified by a contract administrator or other intermediary.

FIDIC has published many other forms of contract and documents including the Short form of Contract or the ‘Green Book’. These are contractual conditions intended for construction works which are of small value or straightforward. Furthermore, there are the ‘Conditions of Subcontract for Construction’, i.e. a Construction Subcontract, issued by FIDIC in 2009 for use in combination with CONS.

For DB projects where an operation period is needed, FIDIC prepared Conditions of Contract for Design, Build and Operate Projects (abbreviated as DBO or the ‘Gold Book’) in 2008 (First Edition). This form reflects the trend that contractors not only construct but also maintain and operate the facility for some time.

FIDIC has also published a Client/Consultant Model Services Agreement in the fourth edition in 2006 (the ‘White Book’) and the Model Representative Agreement in the first edition in 2013 (the ‘Purple Book’).

The terms of the Model Representative Agreement are intended for consultants wishing to enter into a contract with a representative to provide representative services.

12.7 The structure of the contract under FIDIC forms

The main structure of the contract is defined in Sub-Clause 1.5 (1999 Edition). Documents forming part of the contract are to be taken as mutually explanatory of one another. For the purposes of interpretation, the weights of the individual documents are determined in this Sub-Clause. If any ambiguity or discrepancy is found in the documents, the engineer shall issue any necessary clarification or instruction. The specific parts and details as found in particular forms are described below.

12.7.1 Particular conditions

FIDIC recommends that their forms be subdivided into general and particular sections. In the ‘particular section’, there should be provisions in respect of the specifics of a particular project, employer, lender or of a given governing law. The general section should be left unchanged. This approach (i.e. the use of two separate sections) is practical and purposeful because it is quite obvious how the general part within a particular tender may have been changed. As an annex to individual forms, FIDIC forms include elaborated guidelines for preparing these particular conditions, giving comments and instructions (including alternative wordings) on how to modify the individual articles of the general part.

Supplementing CONS and P&DB, other practical information appears in a specific document called the ‘Appendix to Tender’, namely:

  • Name and address of the employer
  • Name and address of the contractor
  • Name and address of the engineer
  • Time for completion
  • Defects notification period
  • Systems of electronic transmission
  • Governing law
  • Official language
  • Language for communications
  • Time for access to the site
  • Amount of performance security
  • Normal working hours
  • Lump sum for delay damages
  • Provisional sums
  • Adjustment for changes in costs
  • Total advance payment
  • Number and timing of instalments
  • Currencies and their fluctuation
  • Percentages of retention
  • Currency of payment
  • Insurance policy submission dates
  • Dispute Adjudication Board

Some other items are facultative. There is no Appendix to tender under EPC.

12.7.2 Employer’s requirements

As per P&DB and EPC, the contractor is, in principle, responsible for the design, workmanship and sequencing of the works. When completed, the work must meet its intended purpose as required by contract—namely, the employer’s requirements and the contractor’s proposal. Under EPC, the contractor’s position is more complicated, as the employer’s requirements are considered to have been ‘scrutinized’ in detail by the contractor prior to base date (Sub-Clause 5.1). Exceptions to this rule are described in the same Sub-Clause. With P&DB, the contractor is under less pressure, being allowed to notify the engineer of an error in the employer’s requirements, with potential claims for an additional payment or extensions of time for completion.

According to Sub-Clause, ‘Employer’s Requirements’ means the document entitled ‘Employer’s Requirements’, as included in the contract. Any additions and/or modifications to such a document must be in accordance with the contract. The contract must specify the purpose, scope and/or design and technical criteria for the works. The employer’s requirements shall specify the parts of the works to be designed by the contractor, and the criteria its design must meet. For example, the dimensions, shape, technical specifications and standards. Particular methods of construction should not form a part of the employer’s requirements. They should remain within the responsibilities of the contractor who shall then submit them, in compliance with Sub-Clause 8.3, as a part of its time schedule. The purpose of this procedure is to allow the engineer to have oversight of the construction processes and to minimize the possibility of their actions adversely affecting the intended purpose of the works.

Employers often use excessively detailed designs as part of the terms of reference, thus restricting the contractor’s options to propose alternative solutions and sometimes better methods of realization, even though the design-build concept works best with less detailed Employer’s Requirements. Nevertheless, it is vital for the Employer’s Requirements to clearly define the standards of material, workmanship, aesthetic/functional requirements, performance and other criteria.

The Employer’s Requirements constitute one of the most important documents to form part of the contract, and it is the responsibility of the employer to make sure the document is complete in all respects when the tender documents are sent out to bidders. In this document the employer gives their precise requirements for the completed works, including all matters in the various clauses of the contract which makes reference to the Employer’s Requirements, and all matters which they wishes to include, even if not covered in the general conditions. In particular, the employer must clearly state the purpose of the works so that the contractor can ensure the works are ‘fit for the purposes for which the works are intended’ (FIDIC, 2011a).

12.7.3 Contractor’s proposal

Contractor’s Proposal’ means the document entitled ‘Proposal’, which the contractor submits with the Letter of Tender, as included in the contract (Sub-Clause P&DB). Such a document may include the contractor’s preliminary design. With EPC, the contractor’s design is an expected part of the contractor’s Letter of Tender. Stipulating the priority of the documents, Sub-Clause 1.5 requires the contractor’s proposal be located behind the employer’s requirements.

The purpose of the contractor’s proposal is to provide the employer with a detailed description of how the contractor intends to perform the works in compliance with the contract and employer’s requirements.

12.7.4 Drawings

Drawings constitute a fundamental part of the contract whenever CONS is used. According to Sub-Clause, ‘Drawings’ mean the drawings of the works, as included in the contract and any additional and modified drawings issued or approved by (or on behalf of) the employer in accordance with the contract. As per Sub-Clause 1.9 of CONS, if the contractor suffers delay and/or incurs costs as a result of a failure of the engineer to issue the notified drawing or instruction within a reasonable time, the contractor may notify its claim for additional payment and/or extension of time for completion.

12.7.5 Bill of quantities and specifications

According to Sub-Clause, ‘Bill of Quantities’ is the document so named (if any) located in the schedules. According to the Dictionary of Construction Terms (Tolson, 2012), the bill of quantities is:

[A] written document which provides a detailed description of the quantity and quality of the works to be carried out on a project broken down into sections. They are typically prepared in accordance with an agreed standard method of measurement, and their principal purpose is to enable the contractor to prepare his tender sum. The contractor provides either a specific price for each item listed, or alternatively a rate for a quantity of work or materials.

The specifications are defined in Sub-Clause of CONS as the document entitled ‘Specifications’, as included in the contract, and any additions and modifications to the specification in accordance with the contract. Such a document specifies the works.

As per Sub-Clause 12.2 (b), the method of measurement shall be in accordance with the bill of quantities or other applicable schedules. To avoid disputes between the parties, it is recommended that the method used to prepare the bill of quantities is published. In the case of CONS, it is vital that the employer prepares the basic design for the tender. The specifications and bill of quantities should, therefore, allow the contractor to confidently offer a price covering the full scope of necessary works to be done.

When using CONS, the employer should be aware of the fact that the bid price (the accepted contract amount) will be modified to match changes in the amount of works necessary to be done (as under individual items of the bill of quantities) based on the certification and re-measurement made by the engineer.

12.8 Conditions of Contract for Construction (CONS)—1999 Red Book

The Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (‘CONS’), or the ‘Red Book’ are the most frequently used of all the FIDIC forms. The abbreviation is a derivative of the word ‘construction’.

Even today, previous versions of this book are still used in practice, for example, the fourth edition (1987) Red Book. This book is significantly out of date and its use is no longer recommended. The CONS were revised and re-published in 2005, 2006 and 2010. Practitioners may come across the ‘CONS MDB’ often referred to as the ‘Pink Book’.

12.8.1 Structure of CONS

A contract agreement on its own is a very simple document and usually only deals with the price and content of the contractual relationship. Much of the detail is contained in attachments referred to in the contract agreement. The hierarchy in respect of the legal weight and priority of these attachments are interpreted in accordance with Sub-Clause 1.5.

The documents forming the contract are to be taken as mutually explanatory of one another. For the purposes of interpretation, the priority of the documents shall be in accordance with the following sequence:

  1. the Contract Agreement (if any)
  2. the Letter of Acceptance
  3. the Letter of Tender
  4. the Particular Conditions
  5. the General Conditions
  6. the Specifications
  7. the Drawings
  8. the Schedules and any other documents forming part of the Contract.

If an ambiguity or discrepancy is found in the documents, the engineer shall issue any necessary clarifications or instructions.

In their general section, the CONS (the same as P&DB and EPC) make use of a clearly structured compilation of 20 chapters. These chapters are further broken down into Sub-Clauses. The first chapter contains general provisions and definitions. Chapters 2–5 define the participants and explain the status of the employer, the engineer, the contractor and the nominated subcontractors. Chapter 6 deals with the working conditions of the staff and labour in general (including labour law), health and safety. Chapter 7 addresses performance in respect of the plants and materials (including quality control); in Chapters 8–11, solutions for realization aspects are discussed, in particular those dealing with commencement, delays, suspensions of work, tests on completion, taking over of the works and defects liability issues. Contract price, variations and payment conditions are dealt with in Chapters 12–14. Chapters 15 and 16 deal with termination of the contract and suspension of works. Chapters 17–19 include key provisions regarding risk allocation in connection with insurance and force majeure. The last chapters deal with claims, disputes and arbitration when CONS include all necessary documents for the appointment of the Dispute Adjudication Board, including procedural rules.

The particular conditions contain guidance for their preparation, followed by sample documents such as a letter of tender, an appendix to tender, contract agreement, performance security and guarantees for advance payment and to remedy defects and an ADR clause (dispute adjudication agreement).

The contract agreement includes specifications and drawings where CONS is used.