Dispute Boards

Madrid, Spain
11 December 2013
Michael Polkinghorne
December 2013

White & Case LLP, Paris

WWW.EngineeringManagement.info
 A. International Construction Contracts

A. Introduction To The FIDIC Contracts (1999 Edition)

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 A. Introduction To The FIDIC Contracts (1999 Edition)

FIDIC
FIDIC stands for the “Fédération Internationale des
Ingénieurs-Conseils” and is the French acronym for the
international federation of national associations of
independent consulting engineers. FIDIC was founded in
Belgium in 1913. The objectives of forming the federation
were (and I believe are today):

“ to promote … the professional interests of the member

associations and to disseminate information of interest
to members of its component national associations. ”

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 A. Introduction To The FIDIC Contracts (1999 Edition)

The FIDIC “Red Book”

In 1957 FIDIC published the first edition of its Conditions of

Contract for Works of Civil Engineering Construction, which
came to be known as the “Red Book”.

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 A. Introduction To The FIDIC Contracts (1999 Edition)

The FIDIC “Yellow Book”

In 1963, FIDIC published the first edition of its Conditions of

Contract for Electrical and Mechanical Works suitable for use
in contracts between an employer (owner) and contractor for
the supply and erection of plant and machinery. As its covers
were yellow, it came to be known as the “Yellow Book”.

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 A. Introduction To The FIDIC Contracts (1999 Edition)

(Engineer hired, paid by and has

contract with Employer
Employer Engineer

Engineer’s Dual Role:

(1) Employer’s agent in some
cases
(2) Duty to act impartially between
Employer and Contractor in
other cases
Contractor

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 A. Introduction To The FIDIC Contracts (1999 Edition)

The Current (1999) Red Book – Basic Features

1. Suitable for all civil works projects where main responsibility

for design lies with Employer (or his Engineer).
2. Some design may, of course, be carried out by Contractor.
3. Administration of Contract and supervision by Engineer.
4. Approval of work, payment and claims certified by Engineer.
5. Work done is measured, payment according to Bill of
Quantities.
6. Option for payment on lump sum basis.
7. Balanced / fair risk-sharing.

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 A. Introduction To The FIDIC Contracts (1999 Edition)
The Current (1999) Yellow Book – Basic Features

1. Suitable for all types of projects where main responsibility for

design lies with Contractor.
2. Recommended for the provision of electrical and/or
mechanical plant, and for the design and execution of
building or engineering works.
3. Some design may be carried out by Employer or his
Engineer.
4. Employer provides “Employer’s Requirements” to which
Contractor designs.
5. Administration of Contract and supervision by Engineer.

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 A. Introduction To The FIDIC Contracts (1999 Edition)

… continued

6. Approval of work, payment and claims certified by Engineer.

7. Lump sum “Contract Price” with payment usually based on
schedule of payments.
8. More extensive testing procedures than for “New Red Book”,
including “Tests after Completion”.
9. Balanced / fair risk-sharing.

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 A. Introduction To The FIDIC Contracts (1999 Edition)
Reasons for a New (1999) Contract for EPC Turnkey Projects
(the “Silver Book”)

1. Increased use of two-party approach, without Engineer.

2. Increased sophistication, improved education and experience in
developing countries – hence reduced need for an intermediary like
an Engineer.
3. Increase in privately-financed projects, like BOT, where customary
for design and construction to be governed by an EPC Contract.
4. As a result of increase in privately-financed projects, increased
emphasis on risk allocation.
5. In privately-financed projects, desire of lenders to place majority of
risk on Contractor.

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 A. Introduction To The FIDIC Contracts (1999 Edition)

The Silver (EPC / Turnkey) Book – Basic Features

1. Responsibility for design lies solely with Contractor.

2. Employer provides “Employer’s Requirements” to which
Contractor designs – Employer’s Requirements usually
“performance specification”-type.
3. Contractor carries out all engineering, procurement, construction
providing a fully-equipped facility, ready for operation at “the turn
of a key”
4. No Engineer – instead it is the Employer who may appoint an
Employer’s Representative.

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 A. Introduction To The FIDIC Contracts (1999 Edition)

… continued

5. Lump sum “Contract Price” with payment usually based on

schedule of payments.
6. Extensive testing procedures, including “Tests after
Completion”.
7. Contractor takes majority of risks, Employer pays more to
cover such risks.
8. Final price and time of completion are intended to be more
certain.

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 A. Introduction To The FIDIC Contracts (1999 Edition)
General Structure and Organization of the
Red, Yellow and Silver Books

1. General Conditions, comprising clauses that are believed will apply

generally to most contracts (previously called “Part I”),
2. Guidance for the Preparation of Particular Conditions, which will
supplement or modify the General Conditions (they also include as
annexes seven forms of security or guarantee) (previously called
“Part II”), and
3. Form of Letter of Tender, Contract Agreement and Dispute Adjudication
Agreement (the Red and Yellow Books also contain an Appendix to
Tender form to be attached to the Letter of Tender).

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 A. Introduction To The FIDIC Contracts (1999 Edition)

Sub-Clause 3.1 [Engineer’s Duties and Authority] and

Sub-Clause 3.5 [Determinations] Of Red/Yellow Books

“Except as otherwise stated in these Conditions:

(a) whenever carrying out duties or exercising authority, specified in or

implied by the Contract, the Engineer shall be deemed to act for the
Employer;” [Emphasis added]

(b) “Whenever these Conditions provide that the Engineer shall proceed
in accordance with this Sub-Clause 3.5 to agree or determine any
matter, the Engineer shall consult with each Party in an endeavour
to reach agreement. If agreement is not achieved, the Engineer
shall make a fair determination in accordance with the Contract,
taking due regard of all relevant circumstances.” [Emphasis added]

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 A. Introduction To The FIDIC Contracts (1999 Edition)
Typical Sequence of Principal Events During Contract for Construction

Issue of Submission Issue of the Letter 8.1 Com- 10.1 Issue of 11.9 Issue of
the Tender of the of Acceptance mencement Taking-Over Performance
Documents Tender Date Certificate Certificate

Defects Notification Period3

8.2 Time For Completion1
Base
Date

Delay attributable
to the Contractor
<21d
28d 28d
11 Notifying of
defects …

4.2 Return
Tender Period of the
9.1 Tests on2
4.2 Issue of the Completion . . . Perform-
Performance Remedying of ance
Security defects … Security

1. The Time for Completion is to be stated (in the Appendix to Tender) as a number of days, to which is added any extensions of time under Sub-Clause 8.4.
2. In order to indicate the sequence of events, the above diagram is based upon the example of the Contractor failing to comply with Sub-Clause 8.2.
3. The Defects Notification Period is to be stated (in the Appendix to Tender) as a number of days, to which is added any extensions under Sub-Clause 11.3.

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