Contract Conditions

FIDIC
International Construction
Contract
 FIDIC
Conditions of Contract
for Construction
 International Standard Conditions
of Contract
 There are different standard conditions of contract
developed by certain institutions or recommended by
International Financing or Development Institutions;
 Standard Conditions of Contract developed by FIDIC:

• Conditions of Contract for Civil Engineering Works ( Red Book);

• Conditions of Contract for Electrical & Mechanical Works ( Yellow Book);

• Conditions of Sub-Contract for Works of Civil Engineering Construction;

• Conditions of Contract for Design-Build & Turnkey ( Orange Book);

• Conditions of Contract for Consultancy Services ( White Book);

• The Sub-Consultancy Agreement;

• Others;
Standard Conditions of Contract developed by other international institutions:

 By European Union ( through the European Development Fund (EDF);

 General Regulations for Works, Supply & Service Contracts financed by the EDF;

 General Conditions for Works Contracts financed by EDF;

 General Conditions for Supply Contracts financed by EDF;

 General Conditions for Service Contracts financed by EDF;

 By the African Development Bank/Fund ( it applies for the procurement of Works, Goods & Services);

 By the World Bank. These are Standard Bidding Documents for the procurement works of civil engineering
construction.

 By UNICTRAL to be used for the procurement of Goods, Construction & Services Contract. It is rather a model, on
which basis any country to develop a suitable LAW.

 By other institutions;
 Fourth Edition.
Part I-General Conditions
 Recommended for general use for the purpose of
construction of Civil Engineering Works where
tenders are invited on an international basis.
 Can be used on domestic contracts, with minor
modifications.
 The version in English is considered as the official
and authentic text for the purpose of translation.
 Linked to Part II-Conditions of Particular Application
(Contract Specific).
 FIDIC
AN INTRODUCTION
 Founded in 1913
 Expanded in 1945 to include 40 national associations
 Published first Conditions of Contract in 1957
 In 2007 has 74 member associations and over 1.0M
members
 Headquarters in Switzerland
 Web Site : www.fidic.org
 FIDIC
AN INTRODUCTION

 Pre 1957 – no internationally recognised

contract conditions
 First “red book” based on UK ICE conditions
 FIDIC has international committees to
improve contracts
 FIDIC Documents
 Old “rainbow books” needed revision
 Changes within International Projects &
Contracting
 Standardisation
 Clauses to meet current practice
 Update “Engineer”
 Introduce “Dispute Board”
 Contract Documents 1999
 Conditions of Contract for Construction (Red
Book)
 Conditions of Contract for Plant & Design
Build (Yellow Book)
 Conditions of Contract for EPC Turnkey
Projects (Silver Book)
 Short Form of Contracts (Green Book)
RISK
 FIDIC RISK DIAGRAM

RED BOOK - YELLOW BOOK - SILVER BOOK

Increased Employer’s Increased Contractor’s

Risk and Increased Risk and Increased
Design Control Project Price
Design Certainty Time & Cost Certainty
Scope / Cost of Change
 CONTRACTUAL RISKS

 All contracts contain risks

 FIDIC allocates responsibilities
 Key Requirement:
o Understand General Conditions
o Understand Particular Conditions
o Set out responsibilities
 Contract Selection
Basic Principles – Red Book

 Design by Employer
 Works to be Re-Measured
 Employer appoints Engineer
 Engineer can vary the works – but not change
the Contract
 Engineer’s “Determinations” Cl.3.5
 DB appointed within 21 days
 FIDIC Document Usage
Conditions of Contract for Construction

 Works designed by Employer or Engineer

 Contractor Constructs in accordance with
designs provided
 May include some design elements
 Contract Selection
Basic Principles – Red Book

 Additional Documents – Cl.1.5 Priority

 Importance of Particular Conditions
 PCC priority over GC
 PCC provides all relevant conditions and Law
 Contradictions between documents
 BoQ – re-measured works
 Outline
1. Introduction
 Acronym, Purpose, Development, Definition, Content
2. Definition and Interpretation
 Stakeholders, Contract Documents, Time, Finance,
Construction Works, Expressions and Notices
3. Contract Documents
 Language, Law, Priority, Custody and Supply
4. Obligation and Default
 General, Employer, Contractor, Engineer
 Outline
5. Construction Works
 Resources, Commencement and Delays, Assignment and Sub
Contracting, Nominated Subcontractors, Temporary works and
materials
6. Measurement, Certification and Payment
 Measurement, Certification, Provisional Sum or Quantity,
Payments
7. Alterations and Claims
 Additions and Omissions or Variations
 Claims, Delays, Changes in Cost and Legislations
8. Contract Securities & Settlement of Disputes
 Remedies, Special Risks, Surities, Defect Liabilities
 Engineer’s Decision, Amicable Settlement, Arbitration
 Introduction
Acronym
Federation Internationale Des Ingenieurs – Conseils
International Federation of Consulting Engineers
Purpose
General Use for ICB/T; Subject to minor modification
for LCB/T for Construction Works
Content
Conditions of Contract: General & Particular; Contract
Agreement; Tender Form with Appendix
 Introduction Cont’d
Conditions of Contract (CoCs)
is the Administrative law applicable to the contract
that defines the terms and securities required to
bind the contracting parties legally!

Standard CoCs are meant for uniformity and use of built up

past experiences!
Special CoCs are meant for particular project requirements!
Clauses in both CoCs shall be the same!
 Introduction Cont’d
Conditions of Contracts
Sources

 M/BLDOs  Business Asson’s  Professional Asson’s

WB, ADB, EC/U, etc Contractors, Civil Engineers, Architects,
Consultants Construction Management

Donors’ Interest
Business Interest Professional Interest

 Public Authorities
Public and / or
Public Works Bodies,
Public Financiers Government Interest
 Introduction Cont’d
Development
Design Bid Build (DBB): Red Book

Employer Design Build (DB): Silver Book

AE Consultant
Contractor
Build Operate
Employer
Contractor
Transfer (BOT): Orange Book

Employer, CM Consultant, Contractor

 Conditions of Contract
 Definitions and Interpretations
 Stakeholders: Employer, Contractor, Subcontractor,
Engineer & Engineer’s Representative
 Contract Document: Contract, Specification, Tender,
Drawings, Bill of Quantities, Letter of Acceptance,
Contract Agreement, Appendix to Tender
 Time: Commencement date, Time for Completion,
Tests on Completion, Day, Taking-Over Certificate
 Finance: Contract Price, Retention Money, Interim and
Final Payment Certificates, Cost, Foreign Currency
 Construction Works: Works, Permanent Works, Plant,
Temporary Works, Contractor’s Equipment, Section,
Site
 Conditions of Contract Cont’d

 Definitions and Interpretations Cont’d

 Expressions and Notices: Headings and Margin Notes,
Notices, Consents, Approvals, Certificates and
Determinations  In writing, Words
 persons or parties  Firms & Corporations
 Singular  Plural
 Conditions of Contract Cont’d

 Contract Documents
 Languages and Law
 Priority of Contract Documents
 Custody and Supply of Drawings and Documents
 Contractors involvement as partial Engineer
 Conditions of Contract Cont’d
 Obligations and Defaults
 General Obligations
 No obligation to insure Employer’s Risk other than riot,
commission or disorder solely restricted by employee of
the site; loss or damage due to use or occupation by the
Employer and the design of the works
 Conditions of Contract Cont’d
 Obligations and Defaults Cont’d
 Engineer and Engineer’s Representative
 Duties, Authority, Delegation and Appointment of Assistants
 Impartiality during decisions, opinion, consent, approval, value
determination
 Fully responsible for the design and specification of Permanent
works and temporary works if not the responsibility of the
Contractor
 Determine extension of time or additional costs due to
 Obstructions or conditions that can not be foreseeable
 Conditions of Contract Cont’d
 Obligations and Defaults Cont’d
 Engineer and Engineer’s Representative – cont’d
 Prepare forms a details on which contractors can submit their
programs and cash flow and payment estimates
 Provide consent on the submitted program, cash flow and
payment estimates
 Its liberty to object and require the removal of undesirable
resources including superintendence
 Conditions of Contract Cont’d
 Rights, Obligations Remedial Rights and Defaults
 Contractor’s Obligations
 Providing all resources for completing the construction works
subject to approval by the engineer
 Notify error, omission, fault or other defects in the contract
documents
 Fully responsible for adequacy, stability and safety of all site
operations and methods of constructions
 Enter into Contract Agreement
 Provide Performance Security valid until the completion of
works including remedies of defects with in 28 days after the
receipt of Letter of Acceptance
 Shall inspect and examine the site and be satisfied prior to the
submission of his tender
 Conditions of Contract Cont’d
 Contractor’s Obligations – cont’d
 Execute and complete the works (including remedies) in
accordance with the contract to the satisfaction of the
Engineer
 Submit program including cash flow and payment estimates
within …. (time) after Letter of Acceptance and whenever
required in accordance to the Engineer Forms and requests
 Consent by the Engineer on submitted programs and cash
flow and payment estimates shall not relieve the contractor
any of his duties and or responsibilities under the contract
 Responsible for the accurate setting out of all works and the
provision of required instruments, appliances and labor
 Conditions of Contract Cont’d
 Obligations and Defaults Cont’d
 Contractor’s Obligations – cont’d
 Responsible for the safety, security and protection of the
Environment under its contract
 Responsible to rectify loss or damage during under its care
 Insure works together with materials and plant for full
replacement cost including profit + 15 %; construction
equipments for a sum to replace them in the joint names of the
contractor and the employer; and third party insurance using
cross liabilities
 Indemnify the Employer against all losses and claims for
damage to persons and property under the contract except
caused by the Employer or accepted risks
 Compliance with statutes and regulations
 Indemnify the employer from patent rights and royalties claims
 Conditions of Contract Cont’d
 Obligations and Defaults Cont’d
 Contractor’s Obligations – cont’d
 Indemnify the employer from patent rights, royalties,
interference with traffic and adjoining properties and damages
to roads claims
 Keeping the site clear of unnecessary obstructions and
Clearing of site after taking-over certification
 Conditions of Contract Cont’d
 Employer’s Obligation
 Shall made available such data on hydrological and Sub-Surface
conditions prior to the submission of tender
 Claim on performance security shall be after notification of the
default to the contractor
 No Claim on performance security after the issuance of defects
liability certificate
 Responsible for the safety, security and protection of the
Environment under its involvement
 Employer’s risk include
 War, hostilities, invasion, act of foreign enemies
 Rebellion, Revolution, Insurrection, or military or usurped power, or
civil war
 Riot, Commotion or Disorder unless it is contractor’s responsibility
 Conditions of Contract Cont’d
 Employer’s Obligation
 Loss or damage due to use or occupation by the Employer; or due to
the design of works
 Unexpected weather and force of nature
 Others such as ionizing radiations, contamination by radio active
nuclear fuel, any explosives, pressure waves etc
 Indemnify the contractor against all losses and claims for damage
to persons and property by the Employer or accepted risks
 Any thing of value discovered on the site is the sole property of the
Employer
 Conditions of Contract Cont’d
 Employer’s Default (69)
 Failing to pay payments within 28 days after expiry of time for
payment; the contractor can suspend work and subsequently
terminate after giving 28 days of notice
 Interfering or Obstructing or Refusing required approval and
certificate
 Bankruptcy, Liquidation, and Notifying failure to comply with
contractual obligation
 Contractor leave the site after 14 days of such events
 Employer is obliged to pay as per the conditions set out in
terminations of contract.
 Suspension and Termination due to Employer defaults are
compensable to the contractor including interest
 Conditions of Contract Cont’d
 Construction Works
 Resources
 Labor and Workmanship
 The Contractor shall arrange on his own for engaging labor, their
payments and other requirements as per the contract
 Schedule for labor and their ability for good workmanship require
Engineers approval
 Material, Equipment, Tools and Plants
 Schedules and their contribution for Quality requires Engineers
inspection and approval
 Engineer can remove improper Work, Materials, Equipments and
Plants
 Employer assists contractors for Customs, Licensing & Returning
requirements
 Finance
 Cost incurred for resources, their testing and samples shall be born by
the contractor
 Conditions of Contract Cont’d
 Construction Works Cont’d
 Covering up and Uncovering of Works (38.1 & 2)
 No parts of the works shall be covered prior to Engineers Approval
and be executed other than agreed time in the contract
 Uncovering will be made if necessary but cost depends on
contractual obligations
 Commencement and Delays (41 - 48)
 Commencement date = …. Days + Letter of Acceptance
 Commencement date can depend on possession of site or rights of
way
 Completion date = Commencement date + Contract Time +
Justified delay
 Failure to give possession imply extension of time and
compensation in cost
 28 days for notice and 28 days for detail presentation of claim are
required for delay justification
 Conditions of Contract Cont’d
 Construction Works Cont’d
 Assignment and Sub Contracting (3 - 4)
 The Contractor can not subcontract the whole of the Works.
 The Contractor require prior consent from the engineer to subcontract
part of the works
 Consent by the Engineer will not relive contractor’s liability or
obligation as per the contract
 The Contractor can not assign the contract or any part thereof, or any
benefit or interest therein or there under, otherwise than by its bankers
and insurers.
 Temporary Works & Materials (54)
 Temporary works and materials for the execution of works shall be
provided by the contractor and the same can not be removed from the
site without the Engineer’s consent.
 The Employer is not liable for temporary works and materials
provided by the contractor.
 Conditions of Contract Cont’d
 Construction Works Cont’d
 Nominated Sub Contractors (59)
 Subcontractors approved by the Engineer or the Employer is
Nominated Sub Contractor
 Contractor can reasonably object to Nomination of Sub
Contractor
 Design requirements during construction shall be stated
expressly for subcontracting and shall be nominated
 Payment for such works can be paid to the contractor against
reasonable proof of payment to nominated subcontractor; if the
contractor fail to supply such proof, the employer shall pay the
nominated subcontractor based on Engineer's certification and
will be deducted from Contractor
 Conditions of Contract Cont’d
 Measurement, Certificate and Payment
 Measurement (55 - 56)
 Quantities in the BOQ are estimates
 The Engineer shall measure and determine the works
 Lump Sum, Provisional Sum (57 - 58)
 Breakdown for the Lump Sum items shall be presented within 28
days after receipt of the letter of acceptance subject to approval by
the Engineer
 The Contractor is entitled for the amounts in respect of the work
assigned in the provisional sum subject to instructions and
approvals by the Engineer.
 Certificates and Payments (60 - 62)
 Monthly Statements shall be submitted including values for
permanent works, resources on site, invoices, adjustment & claim
requests.
 Conditions of Contract Cont’d
 Measurement, Certificate and Payment Cont’d
 Engineer within 28 days deliver the interim payment due to the
contractor considering retention, deductions, minimum amount of
interim payment, and performance security validity.
 Half the retention money will be released upon taking-over
certificate of the whole works and the other half upon expiry of the
defects liability period
 The Engineer may by any Interim Payment Certificate make
correction or modification
 Within 84 days after taking-over of certificates, the contractor shall
submit documents considering the final value of all works
including estimates due to him shown separately
 Within 56 days after the issue of the defects Liability Certificate,
the contractor shall submit documents considering the final value of
all works
 If closing of account caused disputes between the Engineer and the
Contractor, then interim payment will be certified for agreed
amount and settled according to clause 67
 Conditions of Contract Cont’d
 Measurement, Certificate and Payment Cont’d
 Final Statement stating the discharge conforming final settlement of
all payments shall be submitted by the contractor subject to
approval by the Engineer within 28 days
 The Employer shall pay to the contractor within 28 days for interim
payment certificates and within 56 days for Final Payment
Certificate after approval and delivery by the Engineer to the
Employer
 All Works shall be approved only by defects liability certificate
 Contract remains valid between the Employer and the Contractor
for that part not approved by the defects liability certificate
 Conditions of Contract Cont’d
 Alterations and Claims
 Additions and Omissions
 The Engineer instructs the contractor to carry out excess in
quantities and additional works; omit any works; change
requirements, levels, lines, positions and dimensions but could not
invalidate the contract
 All variations except excess in quantities require instruction from
the Engineer to carryout
 Variations shall be valued at Cost Breakdowns set out in the
contract or fixed by the Engineer. If the contractor disagree, the
Engineer will certify variations with provisional rates.
 In cases where rates are other than contract rates, the Contractor or
the Engineer shall notice their intentions to claim or vary within 14
days after variation instructions are given
 Conditions of Contract Cont’d
 Alterations and Claims Cont’d
 Additions and Omissions
 Daywork basis variation instructions shall be rated accordingly
provided quotations are agreed upon and executed accordingly and
invoices are presented
 Claims
 Procedure (53)
 Contractor shall notify his intention to claim within 28 days
after event arises and keep all contemporary records and
permit the engineer to inspect them and present detailed
particulars to substantiate the claim within 28 days after
notice is provided
 Approved claim will be paid in any interim payment following
the approval
 If disagreement arises, it will be considered as dispute
 Conditions of Contract Cont’d
 Alterations and Claims Cont’d
 Notices (68)
 Notices, Certificates or Instructions to the latest addresses by
post. Cable, telex or fax
 Delays (44)
 In the event of any cause of delay that entitle the contractor
time extension, the contractor shall follow the procedure for
claim outlined before
 Changes in Cost and Legislations (70)
 Rise or Fall in the cost of Labor and/or materials or any other
matter affecting the cost of the works shall be compensated
 Basic Rates are 28 days prior to submission of latest tender
 Conditions of Contract Cont’d
 Settlement of Disputes
 Engineer’s Decision
 In cases of disputes, it shall first be referred in writing to the Engineer, and
after 84 days the Engineer shall notify his decision
 Until disputes are settled, all parties shall comply to the contract conditions
 Disagreement on Engineer’s decision or failure to give decision shall be
notified within 7 days intention for Arbitration, if not the given decision
shall be final and binding
 Amicable Settlement
 Parties in dispute can use amicable settlement to resolve dispute prior to
the commencement of Arbitration provided that Arbitration may be
commenced after 56 days of notice for arbitration
 Arbitration
 Rules of Conciliation and Arbitration of the International Chamber of
Commerce is applied and Arbitrators can endorse or negate Engineer’s
decision
 Conditions of Contract Cont’d
 Contractual Securities
 Remedies (63)
 If Contractor’s default is certified by the Engineer, the Employer after
giving 14 days notice enter to the site, terminate contract without reliving
contractual obligations, and complete the works using contractor’s
resources on site
 Engineer shall determine all costs due to the contractor and register
resources thereof on the site
 Payment due to this will be after defect liability of works
 Performance Security (10.1)
 The Contractor shall provide Performance Security from his own cost
within 28 days after receipt of the Letter of Acceptance
 Performance Security is valid until the completion of contract
 No claim shall be made on the performance security after Defect Liability
Certificate is issued
 Prior to making claim, the Employer shall give notice on the contractor’s
default
 Conditions of Contract Cont’d
 Contractual Securities Cont’d
 Retention Money (60.2)
 Payments are subjected to retentions of which half will be released after
Taking Over Certificate and the Other Half after Defect Liability
Certificate
 Insurance (21 – 24)
 Adequacy, Amount, Terms for Works, Resources, Third Party
 Remedy on failure to insure, Responsibility for amounts not covered
 Engineer’s Certification, Notice and Authority
 Liquidated Damage and Change in Costs and Legislations
 Defect Liability Period and Remedying of defects (49 - 50)
 Priority of Contract Documents
 Special Risks