Exploring Popular FIDIC Contract Types
Red Book (Construction Contract)
1999 Edition: Used for building and engineering works where the design is provided by the Employer. It includes detailed provisions for the role of the Engineer.
2017 Edition: Updates the 1999 edition with more detailed procedures for contract management and dispute resolution.
Yellow Book (Plant and Design-Build Contract)
1999 Edition: Suitable for projects where the Contractor is responsible for both the design and construction. It is often used for mechanical and electrical works.
2017 Edition: Enhances the 1999 edition with clearer risk allocation and more comprehensive contract administration procedures.
Silver Book (EPC/Turnkey Contract)
1999 Edition: Designed for turnkey projects where the Contractor assumes significant risk and responsibility for the design and construction. It is often used for large-scale infrastructure projects.
2017 Edition: Provides more detailed guidance on risk management and contract administration, building on the 1999 edition.
How do FIDIC Contracts Work?
FIDIC contracts are comprehensive agreements comprising several components: general, special, and particular conditions. The general conditions set the standard terms applicable to all contracts, providing a consistent framework across different projects. Special conditions tailor the contract to the specific project, allowing for necessary adjustments to meet unique project requirements. Particular conditions delve into detailed aspects such as project scope, timeline, and costs, ensuring that all specifics are clearly outlined and agreed upon.
These contracts also feature mechanisms designed to handle changes and disputes effectively. The variation clause allows for project modifications, accommodating changes in scope or design without disrupting the overall contract. Additionally, a structured claims procedure is included to address potential entitlements to additional payment or extension of time, ensuring that such issues are managed reasonably and efficiently, thus maintaining project momentum and avoiding escalation to legal conflicts.
Layout & Hierarchy of FIDIC Contracts
The hierarchy of documents within FIDIC contracts is crucial for resolving any conflicts that may arise between different contract documents. The default order of priority ensures clarity and consistency, determining which document takes precedence in case of conflicting terms. The default hierarchy is as follows (1 most important, 7 least):
- Contract Agreement
- Letter of Acceptance
- Letter of Tender
- Part II - Special Conditions of Contract
- Part I - General Conditions of Contract
- Specifications
- Bill of Quantities
The Red Book, officially titled "Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer," is ideal for projects where the employer designs the works. This contract provides a clear framework for the administration of construction projects, ensuring that roles and responsibilities are well-defined.
Exploring the FIDIC Red Book
Key features of the Red Book include:
Design by Employer: The employer is responsible for most design work, ensuring clarity in role allocation and responsibilities.
Payment Terms: Payments are typically made based on measurements from a bill of quantities, with an option for lump sum payments. This approach provides flexibility in managing project costs.
Role of the Engineer: The engineer plays a pivotal role in the contract, issuing instructions, certifying payments, and determining completion. The engineer acts as the decisive party in the administration of the contract.
Dispute Resolution: If the engineer needs to determine a matter or settle a claim and the employer and contractor do not accept the determination, the issue may then be referred to the dispute adjudication board for resolution.
Exploring the FIDIC Yellow Book
The Yellow Book, also known as "Conditions of Contract for Plant and Design Build," is tailored for projects where the contractor takes on most of the design and construction responsibilities.
Key features of the Yellow Book include:
Design by Contractor: The contractor is responsible for the project's design and construction, making this contract suitable for design-build projects.
Risk Allocation: The 1999 edition offered a balanced approach to risk, while the 2017 update shifted more risk to the contractor. The contractor must be well-equipped to manage design and construction risks.
Role of the Engineer: The engineer is central in administering the contract. The engineer is responsible for issuing instructions, certifying payments, and determining completion.
Payment Terms: Interim payments are made as work progresses, typically based on instalments as per the agreed schedule. This provides a steady cash flow for the contractor.
Advance Warning: The 2017 edition introduced an early warning mechanism called "Advance Warning”, requiring the employer, contractor and engineer to warn each other whenever one becomes aware of a potential event or circumstance that may have an adverse effect on the project, also underlying the renewed importance of using
early warning FIDIC contract management software.
Exploring FIDIC Silver Book
The Silver Book, known as "Conditions of Contract for EPC/Turnkey Projects," is designed for projects where the contractor assumes full responsibility for the design and execution. This contract is particularly suitable for large-scale projects such as process, power, and private infrastructure projects where cost certainty is crucial.
Key features of the Silver Book include:
Full Responsibility by Contractor: The contractor is responsible for the project's design and construction, providing the employer with greater cost certainty. This includes assuming risks typically borne by the employer in other contract types.
No Role for an Engineer: Unlike other FIDIC contracts, the Silver Book does not include a reference to an engineer. This reflects the employer's reduced influence on engineering aspects, focusing more on validating end performance and the ease of operation, maintenance, and spares.
Risk Transfer: The contractor assumes significant risks, including ground conditions and the accuracy of the employer’s requirements. However, certain risks, including those related to war, terrorism, and force majeure, remain with the employer.
Cost Certainty: This contract provides higher cost certainty than other FIDIC contracts, making it suitable for projects where financial stability is critical. The Silver Book approach helps mitigate the risk of financial failure of the construction project, which could jeopardise the entire venture.
