Last Updated on September 20, 2022 by Admin
The global real estate and construction industries have experienced rapid growth in recent years. As the dangers to the parties increase, initiatives are getting more widespread and imaginative and calling for more skill.
Because of this, engineers, contractors, and builders are searching for international forms of contracts to use on their projects. These contracts will provide a clear description of the parties rights and obligations as well as the extent of the work to be done. FIDIC contracts serve as sample contracts for these types of projects.
FIDIC contracts serve as standards in the international sphere for agreements in the building and installation industry. The International Federation of Consulting Engineers, also known as FIDIC (from its French name Fédération Internationale des Ingénieurs-Conseils), founded in 1915 by three European states, is the organization that created these contracts (Belgium, France, and Switzerland).
Regarding construction agreements, FIDIC’s primary goal was to develop standardized contracts that could be utilized for a variety of construction and installation projects, keeping in mind that, in essence, building any project everywhere in the world is built upon the same fundamental ideas (leaving aside the technical and geographical specificities).
These standard agreements result from decades of building and installation project experience and serve as documentation that fairly balances the interests of all parties.
Table of Contents
What is FIDIC?
Those who handle contracts in the architectural, engineering, construction, and operations (AECO) sector will probably encounter FIDIC contracts at some point. These contract agreements, developed by the International Federation of Consulting Engineers (FIDIC), are widely utilized throughout the world’s AECO sector and are regarded as the international standard.
Fédération Internationale des Ingénieurs – Conseils, also known as FIDIC, is the official name of the International Federation of Consulting Engineers. Over 100 nations are currently members, dating back to its founding in Belgium in 1913. Located at the World Trade Center in Geneva, Switzerland right now. The FIDIC series of contract templates is what makes this worldwide standard organization for consulting engineering and construction the most well-known.
For the benefit of its members, FIDIC’s main objectives are to publicize information and resources that will be of interest to them, as well as to promote and carry out the strategic goals of the consulting engineering business. FIDIC harmonizes contracts often used in the global engineering and construction business, mainly for higher-value international construction projects that numerous multilateral development banks approve.
It publishes agreements for clients, consultants, sub-consultants, and joint ventures along with related materials like standard pre-qualification forms, performance guarantee forms, letters of acceptance, etc. It also publishes legal contracts for construction, infrastructure, EPC/Turnkey projects, consultancy services, etc.
Key objectives of FIDIC
Promoting solid and efficient engineering project management is one of FIDIC’s primary goals. The FIDIC’s further goals are as follows:
- Offer standard contract forms and other pertinent paperwork to consulting engineers, such as a standard pre-qualification form, a performance assurance form, a letter of acceptance, etc.
- To create and advance best practices for consulting engineering in order to address problems pertaining to consulting engineering.
- Offer the resources consulting engineers require for a stronger public image and reputation.
- Encourage and aid in the growth of thriving consulting engineering businesses on a global scale. This is necessary for the industry to uphold best practices and consistently high-quality services.
- Promote and strengthen the FIDIC forms of contract’s position as the industry standard.
- Develop and enhance FIDIC’s publishing and training initiatives to raise awareness of and respect for the group.
- Encourage and support the growth of young professionals in the consulting engineering sector, as they are the sector’s future.
What are the FIDIC forms of Contract?
In the global consulting engineering sector, FIDIC is well known for creating standard contracts (referred to as “FIDIC Model Contracts”). Over time, it has made continual improvements to its agreements. The major goals of the FIDIC Model Contracts are to establish the parties’ contractual connection and equitably share the risks among them.
For a variety of tasks, the FIDIC Model Contracts are written. They are separated based on the color of the document’s cover, which contains information about the contracts’ laws and regulations.
Construction contract terms for building and engineering projects. This is for the fairly typical job duties that the employer primarily created. In all projects where the Employer provides the design, using the classic procurement method of Design, Bid, and Build, the FIDIC Red Book is the standard and most often used construction contract form. The Contractor is compensated for the precise amounts of work completed on a measurement basis. Based on projected quantities, the acceptable Contract Amount was determined. Since its initial publication in 1957, The Red Book has undergone tremendous change.
Contract terms for building and engineering projects and design-build for electrical and mechanical equipment. The building, engineering, and design of the plant are the contractor’s responsibility. The employer might still be compelled to carry some design, though. The so-called FIDIC Yellow Book, the second form of FIDIC Contract, is a primary contract where the Contractor is in charge of the design. Another name for the Yellow Book is a Plant or Design-Build contract. The Contractor often receives a lump sum payment. The Yellow Book was first released in 1963 and has since changed.
Contractual clauses for use in engineering and construction projects with low capital costs or quick construction schedules. This is the contract’s abbreviated form. It is primarily utilized for straightforward, routine jobs with brief durations. The so-called Green Book, a short form contract designed for relatively small projects of a repetitive character or short duration where the Employer provides the design, is one of the less well-known FIDIC contracts. According to FIDIC rules, USD 500,000 and 6 months are regarded as realistic capital and time constraints for projects using Green Book formats.
Conditions of agreements for using engineering and construction projects created by the employer. the initiatives supported by a few MDBs, which include international organizations like the World Bank. The so-called Multilateral Development Bank (“MDB”) Pink Book, created to be used for development projects supported by the Bank, is essentially an addendum to the Red Book issued in 2005. The 2010 Pink Book superseded the 2005 and 2007 Pink Books.
Contract terms for EPC/Turnkey Projects The contractor manages the engineering, procurement, and construction duties up until the delivery of a finished facility that is fully furnished, operationally tested, and equipped. The FIDIC Silver Book was released and considerable amendments to the original FIDIC contracts were adopted in the 1990s, following advances in the construction sector. For EPC/Turnkey projects where the Contractor is responsible for the majority of the risks, the silver book is employed. The Contractor completes the design, and payment is often made in one flat sum.
Contract terms for the project’s design, construction, and operation. It suggests a long-term commitment on the part of the contractor and presents a fresh, distinctive method of procurement. The so-called Gold Book is a different type of FIDIC contract. The first edition of the Gold Book, which was released in 2008, is based on a standard design and build contract form with an addition of a time for operation and maintenance. The Gold Book covers an extensive range of various services and is meant to last longer than 20 years in cases when the parties want to continue working together throughout the course of a project.
dredging and reclamation contract structure. The sole worldwide contracting standard format was created especially for the dredging sector. The last option is the less popular “FIDIC Blue Book contract,” published in 2006, and is a type of contract for dredging, reclamation, and related construction work with a wide range of administrative arrangements. The design is typically the employer’s responsibility, and the most crucial section of the Blue Book contract is the description of the activity itself, which is thoroughly laid out in the job’s requirements, plans, and designs.
FIDIC client/consultant service contract model. One of the most frequently utilized types of professional services contracts globally is The White Book, which is a significant component of the FIDIC family. Another significant and well-known component of the FIDIC Suite is the Client/Consultant Model Services Agreement, sometimes known as the FIDIC White Book. One of the most frequently utilized types of professional services contracts globally, the most recent version was released in 2017 and is still in use today. Along with the White Book, a second edition of the Sub-Consultancy Agreement has been removed.
Standard Features of FIDIC contracts
There are some aspects that all FIDIC Contracts share, and they all acknowledge the need for a balanced approach to the duties and obligations of the parties involved, as well as a balanced allocation and management of risks. All of them are made up of General Conditions of the Contract (“GCC”), which are thought to be appropriate in any circumstance, and Particular Conditions of the Contract (“PCC”), in which the parties can individually describe project-specific difficulties.
Regulations for the modification of the agreed-upon contract amounts, rules for the extension of the completion deadline, and rules for variation procedures are also included in all FIDIC Contracts. They all call for knowledgeable personnel, both on the part of the Employer and the Contractor, as well as the Engineer, who must be unbiased and independent.
- FIDIC General Conditions of the Contract (GCC)
The division of risk between the Parties is outlined in Part A, the General Conditions of the Contract. It specifies each Party’s rights and obligations in greater detail, as well as the processes for payments, variations, certifications, dispute resolution, etc. The FIDIC organization published them, thus they shouldn’t be changed. In conclusion, the Particular Conditions of the Contract should be used for any modifications, additions, or omissions to the General Conditions of the Contract.
- FIDIC Particular Conditions of the Contract (PCC)
First, Part B or Particular Conditions of the Contract establishes conditions unique to a Project and the country where the services are performed. They are typically used to modify and add to the general conditions of a contract. Keeping this in mind, the Particular Conditions of the Contract define everything that the General Conditions of the Contract could not.
It is crucial to note that the General Conditions of the Contract do not mention the requirement for Particular Conditions of the Contract to exist. On the other hand, the author is unaware of any FIDIC contract that has been signed without the contract’s particular conditions.
Why is a hierarchy of documents essential in FIDIC?
All of the Contract’s components should be read together, and FIDIC clarifies that they were designed to be self-explanatory. The General Conditions of the Contract, however, offer a default hierarchy for the papers making up the Contract if there is a disagreement between the information provided. The hierarchy’s principal goal is to give documents precedence depending on the time of their creation while allowing parties to limit or omit specific elements of previously generated documents.
For instance, the priority order for contract documents is as follows in the FIDIC Red Book 1999:
- the Contract Agreement (if any),
- the Letter of Acceptance (this is the formal acceptance of the contractor’s tender and usually presents the point in time when Contractual Parties enter into the Contract, but this depends on the local regulations),
- the Letter of Tender,
- the Particular Conditions of the Contract,
- the General Conditions of the Contract,
- the Specification,
- the Drawings, and
- the Schedules and any other documents forming part of the Contract
Golden Principles of FIDIC
The GCC modifications, according to FIDIC, are modifying their contracts to the point where they can no longer be recognized as FIDIC contracts. The FIDIC Model Contracts were created to retain the standardization in the agreement. To prohibit changing or eliminating any general criteria, FIDIC created five golden principles (referred to as the “FIDIC Golden Principles”).
These are the FIDIC Golden Rules.
- All contract parties must fulfill their duties, rights, obligations, roles, and responsibilities in a manner that is usually consistent with the implied terms of the agreement and appropriate for the project’s needs.
- Clearly and explicitly written specific conditions are required.
- The specific circumstances must not alter the general conditions’ specified allocation of risk and reward.
- All deadlines outlined in the agreement for contract parties to fulfill their obligations must be of a reasonable length of time.
- As a prerequisite to arbitration, all formal disagreements must be submitted to a dispute avoidance/adjudication board (or DAB, as applicable) for a temporary ruling.
Advantages of FIDIC in the construction industry
Due to its many benefits, the FIDIC Model Contracts are frequently used in the construction sector. The following are some benefits of employing FIDIC Model Contracts:
- An international standard
An absolute international standard is FIDIC. As a result, contractors all across the world are familiar with and accept the FIDIC Model Contracts.
- Focus on Projects
The process of executing a new contract requires the parties to start from scratch, which takes time from hiring attorneys through the actual execution of the contract. The parties can effectively control risk and concentrate only on the project by employing the FIDIC Model Contracts.
- Price competition
Due to the expanded offer lists and increasing price rivalry among tenderers, the FIDIC Model Contracts are used by the majority of contractors globally. In the end, it offers value for the money.
- Reduced time and cost bid
The discussion and negotiations about the contract’s terms and conditions will move more quickly because the FIDIC Model Contracts are ready-to-use documents. Because the specialists are not required, the project will take less time and cost less money.
- Different kinds of Contracts
As was already said, the FIDIC Model Contracts are separated into several color books, and the parties can select the contracts based on factors like the type of construction, scope and scale of the project, intended use of the agreement, and identities of the parties. The appropriate book for a particular project type, covering the many terms and conditions unique to the project, can be chosen by the parties.
- Useful clauses
Practical terms like the scope of work, rights and obligations, and liabilities of the parties are covered because the FIDIC Model Contracts are already designed to be used on significant projects.
Up to 20 different languages, including popular ones like Chinese, Japanese, Indonesian, French, and Spanish, are included in the publication of the FIDIC Model Contracts. Therefore, there will be a reduction in the expense of translating contracts into the other party’s native tongue.
Most global banks, including Multilateral Development Banks, use FIDIC Model Contracts, which makes it simpler to get the bank’s approval for the contracts.
- Less Risk of Conflicts
A thorough explanation of the FIDIC Model Contracts and each clause’s specific provision can be found in the FIDIC handbook, various FIDIC publications, and published papers. This indicates that the parties are less likely to disagree and engage in conflict.
- Neutral contracts
Another benefit is that the FIDIC Model Contracts are impartial and fair. It strikes a balance between the parties’ obligations and responsibilities because neither party’s interests were protected during the drafting process.
- The Success Ratio
The parties will feel more confident since the FIDIC Model Contracts are widely used and approved and are simpler to use. This is important because these contracts have a big impact on the effectiveness and success of the projects.
Disadvantages of FIDIC in the construction industry
Although FIDIC Model Contracts are frequently used and have several benefits, there are times when they seem to cause problems. Here are a few drawbacks of the FIDIC Model Contracts:
- Local contractors’ unfamiliarity
Local contractors may be discouraged from competing due to their lack of familiarity with the FIDIC Model Contracts, which would reduce local competition and raise the time and cost of their bids.
- Limited Judicial Consideration and Priority
Due to the arbitration provisions in FIDIC Model Contracts, the Courts have not provided many directions on how specific clauses are intended to operate or what precedents should be followed. Compared to ordinary contracts, where there are many more decisions made regarding applying certain clauses.
Every project requires personalization because, as we all know, every project is unique. They frequently move commercial terms to the contract timetable to effect adjustments. Additionally, it becomes tiresome because all of the technical and legal information is compiled in the contract schedules.
Although the Engineer plays a key part in the FIDIC approach, SITE POSSESSION, SITE SECURITY, and CARE OF THE WORKS should be handled DIFFERENTLY in Projects where multiple Contractors may be given portions (packages) of the construction PROJECT. There are consequential COORDINATION ASPECTS. Handling the administrative and coordination parts of construction might require SPECIAL EXPERTISE. As a result, TWO PROFESSIONAL ENGINEERING CONSULTANTS MAY COMPLETE THE ENGINEER’S ROLE: CONSTRUCTION & TECHNICAL SUPERVISION MANAGER.
Finally, it should be noted that the FIDIC Model Contracts are designed for large construction projects and have been successfully applied by contractors worldwide on thousands of projects. Numerous advantages are offered, increasing the project’s chances of success. These facts support the obvious conclusion that the FIDIC Contracts should be adopted as the default starting point for all construction contracts worldwide, including significant international contractor participation.