Built Intelligence

FIDIC UPDATE 2020 by Sean Gibbs

FIDIC UPDATE 2020 by Sean Gibbs

The Fédération Internationale des Ingénieurs Conseils (FIDIC), or to use its title in English, the International Federation of Consulting Engineers has published its contracts for the international construction industry since 1957. The first publication in 1957 was called The Form of contract for works of Civil Engineering construction and it soon became known for the colour of its cover, and thus, The Red Book. Since 1957 FIDIC have regularly reviewed and updated the various forms of contract and subcontract they produce, and most are known by the colour of their cover.

FIDIC is renowned for its international standard forms of contract for use on national and international construction projects; publishing standard forms of contracts for works and agreements for clients, consultants, sub-consultants, joint ventures, and representatives. FIDIC also publishes various business practice documents such as policy papers, guidelines and training manuals. These documents cover a range of issues including risk management, project sustainability management, environment, integrity management, dispute resolution techniques and insurance and a number of guides for quality-based selection, procurement and tendering procedures.

The FIDIC forms of contract have come to be the most common standard form of contract used internationally and due to this and their perceived balance of risk have been adopted by the Multilateral development banks as part of their standard bidding documents and approved construction contracts.

In 2019 FIDIC secured a major agreement with The World Bank (WB), and InterAmerican Development Bank (IDB) that will see the regional funding organisations adopt the use of FIDIC standard contracts for the next five years.

The six FIDIC contract documents covered by the FIDIC/World Bank agreement are as follows:

  • Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (“Red book”), Second edition 2017;
  • Conditions of Contract for Plant & Design-Build for Electrical & Mechanical Plant & for Building & Engineering Works Designed by the Contractor (“Yellow book”), Second edition 2017;
  • Conditions of Contract for EPC Turnkey Projects (“Silver book”), Second Edition, 2017);
  • Client/Consultant Model Services Agreement (“White book”), Fifth Edition 2017;
  • Conditions of Contract for Design, Build and Operate Projects (“Gold book”) First Edition 2008; and
  • The Short Form of Contract (“Green book”), First Edition 1999.

Since then lots of the other Multilateral development banks have reached formal agreement with FIDIC including Caribbean Development Bank, European Bank for Reconstruction and Development, Asian Infrastructure Investment Bank and the African Development Bank Group.

As regular readers of the Civil Engineering Surveyor Journal will be aware the standard forms produced by FIDIC have grown in the last 12 months with the launch of the Emerald Book First Edition 2019, or to give it the formal title the First Edition of the Conditions of Contract for Underground Works and the Conditions of Subcontract for Plant and Design-Build First Edition 2019 (Yellow Book Subcontract).

In order to update and review the forms of contract and other supporting publications FIDIC have committees. The FIDIC Contracts Committee (CC) (“the Committee”) is a working committee of FIDIC appointed by the FIDIC Board, whose primary functions are to:

  • Identify and anticipate market needs, strategically position FIDIC and develop FIDIC’s approach to contracts.
  • Develop FIDIC’s value proposition for identified needs and potential FIDIC solutions.
  • Act as custodian of the FIDIC Golden Principles to maintain the ongoing integrity and effectiveness of FIDIC Contracts.
  • Develop and update the FIDIC Suite of Contracts and related documents.
  • Advocate and guide best practice in FIDIC Contracts across the global engineering and construction industry.
  • Provide an expert resource for FIDIC on the FIDIC contracts and agreements.
  • Advise the FIDIC Board and Secretariat on all aspects of FIDIC Contracts in the Consulting Engineering industry.

Current members are drawn from across the globe and include Vincent Leloup from France who chairs the committee, Des Barry from Ireland, Adam Bialachowski from Poland, Deryl L. Earsom from USA, Siobhan Fahey from Ireland, Zoltán Záhonyi from Hungary, Kiri Parr from Australia, Matthias Neuenschwander from Switzerland, Peter Collie from the United Kingdom and  Husni Madi from Jordan.

In spite of the Coronavirus pandemic FIDIC still hope to release the following guides and contracts in the third and fourth quarters of 2020.

  1. FIDIC Guide for 2017 Rainbow Suite - anticipated release Q3 2020
  2. FIDIC Short form of contract update (Green book) – Q3 2020
  3. Side by side Comparison between 1999 vs 2017 Yellow and Red – Q2 2020
  4. Bronze book – ODBO form of Contract – Q4 – 2020

Whilst the guides will assist users to transition from using the 1999 forms of the Rainbow Suites to the 2017 forms it is the two forms of contract that will grab the most interest from users.

The update to the Green Book, FIDIC’s short from of contract has been long awaited. The Short Form of Contract 1st Ed the 1999 Green Book is now some 21 years old. It was recommended for engineering and building work of relatively small capital value. However, depending on the type of work and the circumstances, the Conditions may be suitable for contracts of considerably greater value. They are considered most likely to be suitable for fairly simple or repetitive work or work of short duration without the need for specialist sub-contracts.

It has been designed as a straightforward and flexible document which may be used for all types of engineering work with a variety of administrative arrangements, including all essential commercial provisions. Under the usual arrangements for this type of contract, the Contractor constructs the Works in accordance with design provided by the Employer or by his representative (if any. However, this form may also be suitable for contracts which include, or wholly comprise, contractor-designed civil engineering, building, mechanical and/or electrical works. In addition, the Employer has a choice of valuation methods. 

The intention is that all necessary information should be provided in the Appendix to the Agreement, the latter incorporating the tenderer's offer and its acceptance in one simple document. The General Conditions are expected to cover the majority of contracts. Nevertheless, users will be able to introduce Particular Conditions if they wish, to cater for special cases or circumstances. The General Conditions and the Particular Conditions will together comprise the Conditions governing the rights and obligations of the parties.

The new Bronze book is an Operate-Design-Build-Operate (ODBO) contract for upgrading existing facilities. Prior to this there was a Design Build Operate contract, Conditions of Contract for Design, Build and Operate Projects, 1st Edition 2008 the 2008 Gold Book. The Gold Book was recognised as not being suitable for upgrading existing facilities and it was intended by FIDIC to produce an ODBO from and this has taken a considerable period to reach the point where it can be released to the market.

The Bronze Book needs to cater for a situation where the Contractor takes over an existing facility of possible doubtful condition, as it is difficult for the Contractor to know what will, or will not, need replacing. Therefore, the Bronze Book will need to require the Contractor to examine the “existing facility” as best he can so he can make his assessment of design and replacement requirements prior to submitting his tender. However it is recognized that there will be parts of the facility which he cannot inspect for various reasons, and to keep everything on a ‘level playing field’ for comparing bids, the Bronze Book is expected to allow  the Employer to list out the assets which the Contractor cannot be expected to inspect and thus will not have been taken into account in his design. In this way, all tenderers are starting out on a common base line and should assist with receiving comparable bids and reduce bidding Contractors pricing the unknown risk. If after contract award the design has to be changed due to the condition of a listed asset including the possible need to provide asset replacements, then this will be a Variation entitling the Contractor to additional payment.

Court cases on FIDIC are not that common given that disputes are escalated to a dispute board usually then arbitration but 2019 and 2020 saw four cases that will be on interest on how the terms of the FIDIC contracts are interpreted and applied by the courts.

The Supreme Court of Namibia gave judgement in the case of Zillion Investment Holding (Pty) Ltd v Salz-Gossow (Pty) Ltd (SA 17/2017) [2019] NASC 10 (17 April 2019); (Case No. SA 17/2017). Here the court had to consider the FIDIC Red 1999, 1st Ed. 1999 as amended by the parties, Clause 20.4 concerning DAB terms in the Contract were unaltered. The DAB awarded Salz-Gossow an amount of money, but Zillion submitted a NOD after the DAB's decision and did not pay as ordered. The dispute  between the parties progressed through the courts until it reached the Supreme Court where it was held that Zillion's financial position was such that it had never been unable to pay the amount determined by the DAB and upheld the DAB decision.

The South African courts decided the case of 2019 Joint Venture Between Aveng (Africa) Pty Ltd and Strabag International GmbH v South African National Roads Agency Soc Ltd and Another (8331/19) [2019] ZAGPPHC 97; [2019] 3 All SA 186 (GP) in 2019. This case concerned the FIDIC Red Book 1999, 1st Ed. 1999. ASJV provided SANRAL with Performance Guarantees. During the course of the project the parties agreed to suspend the Works due to violent protests enacted by a local radical group. Eventually ASJV delivered a notice of termination for having been prevented from executing the works for a continuous period of 84 days by reason of force majeure. ASJV also requested that SANRAL undertake not to make a demand on the PG without giving 14 days notice as they were only allowed to make a demand under the provisions of Clause 4.2 of the Contract. The Court held on the evidence before it that the protests did not constitute force majeure. Accordingly, SANRAL was justified in accepting ASJV's actions as repudiatory and presenting the PG for payment.

In 2020 the Technology and Construction Court, England and Wales decided the case of PBS Energo AS v Bester Generation UK Ltd [2020] EWHC 223 (TCC), which concerned the FIDIC Silver Book 1999, as amended by the parties. The Technology and Construction Court rejected a sub-contractor’s claim that it had been entitled to terminate a sub-contract based on the FIDIC Silver Book 1999, instead finding that it was the main contractor that had been entitled to terminate due to abandonment of the works by the sub-contractor. In reaching its conclusion, the court made various findings in relation to (among other things) responsibility for ground conditions, implied terms relating to performance security, whether the rejection of a valid extension of time (EOT) claim amounted to a material breach, the prevention principle in the context of abandonment of the works and whether the right to liquidated damages survived termination.  

FIDIC has been setting the global standards for fair and balanced contracts that are accepted by funders, employers, consultants, contractors and subcontractors and the issue of improved, updated and new contracts is to be welcomed by the industry.

About the author

Sean Sullivan Gibbs BSc. LLB(Hon) PG Dip Arb, PG Dip Bar,  LLM, MICE, AFICHEME, FRICS, FCIOB, FCICES is a director with Hanscomb Intercontinental Ltd. Hanscomb Intercontinental provide expert advisory and expert witness services to the onshore and offshore construction, engineering and shipbuilding industries in the United Kingdom and internationally from offices in London, Hong Kong, Johannesburg and New York.

Sean serves on the CICES Contract and Disputes Resolution Committee and is a Committee Member of the South West and South Wales branch of the CICES.

He can be contacted by email sean.gibbs@hanscombintercontinental.co.uk or telephone +44 (0)20 3287 8518

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