ACCEPTANCE OF FIDIC STANDARD CONTRACT IN AN ASIAN COUNTRY: A SURVEY IN THAILAND

Kongkoon Tochaiwat1 and Visuth Chovichien2
1

Lecturer, Faculty of Architecture and Planning, Thammasat University, Thailand

2

Associcate Professor, Faculty of Engineering, Chulalongkorn University, Thailand

ABSTRACT: The objective of this paper is to address the contract management issues and the guidelines for modifying the contract clauses to enhance efficient contract management of a FIDIC(1999) standard contract : the “Conditions of Contract for Construction for Building and Engineering Works Design by the Employer(First Edition)” in Asian developing countries by using Thailand as a case study. The study was done by reviewing related documents, analyzing basic issues, assessing the effect of each basic issue as to the contract management efficiency and establishing the guidelines for modifying the contract clauses. There are 13 issues, which can be divided into 4 groups, i.e. quality-related, cost-related, time-related and right-and-duty-related contract issues, to be realized in modifying the Construction Contract(1999). The three most important issues that affect the contract administration efficiency are 1) the absence of time-limits for engineer to execute his duties of determination 2) the engineer’s right to authorise major variation without the employer’s consent and 3) the

contradiction of the engineer’s roles in contract administration. Some guidelines are recommended for modifying the contract clauses.

KEYWORDS: Construction Contract, Construction Management, Contract Management, FIDIC, Standard Contract, Thai Construction Industry

They help drafters to save lots of time and cost. They normally came from the well-known international organizations such as the Fédération Internationale des Ingénieurs-Conseils(FIDIC). Up to now.INTRODUCTION Standard Contracts have many advantages. standard contracts became popular in the construction industries worldwide. they are widely accepted. the Institution of Civil Engineers (ICE). the American Institute of Architects (AIA). They have stood the test of time in respect of legal acceptance and are periodically reviewed and revised so that they remain current. the Associated General Contractors of America (AGC). many standard contracts have been invented. laws and regulations and traditions of the country it apply. Davis. it doesn’t mean that they can be used in every country without any problem. RESEARCH OBJECTIVES AND METHODOLOGY . Some modifications of contract are required to enhance suitability to the construction industry. Furthermore. 1986) Since the above advantages of using the standard contracts. the Engineers’ Joint Contract Documents Committee (EJCDC). Although standard contracts were designed to be flexible enough to use in all countries.(Richard O. and the Joint Contracts Tribunal (JCT).

1) comparing the provisions in the Construction Contract(First Edition) with Thailand’s principles of law and contract management practices. The study was done by : 1) reviewing related documents.e. . i.The objective of this paper is to address the main contract management contract issues and to establish the guidelines to enhance more contract management efficiency of the FIDIC’s “Conditions of Contract for Construction for Building and Engineering Works Design by the Employer(First Edition: 1999)” or “The Construction Contract(1999)” in Thai construction industry. This step was done by processing 82 questionnaires collected from the parties related with the contract administration process. 2. 2) analyzing basic contract issues by 2.2) comparing the contract issues of the Thailand’s public standard contract prepared by the Prime Minister Office(1992) discussed in the former studies with the provisions of the Construction Contract(First Edition). 3) assessing the effect of each basic contract issues collected to the contract management efficiency. The provisions that are similar with the inappropriate one in the Thai public contract are the basic contract issues. These can be shown by the Vein-Euler’s Diagram in figure 1.3) additional basic contract issues are collected by interviewing the experts and by the open-ended question in questionnaire. 2.

The two-rounded modified Delphi technique was used to arrive at common opinions among each respondent group. each correspondent would receive another questionnaire that showed the average effect. . his former answer & the corresponding percentile. the engineers and the contractors. three-hundred correspondents received the questionnaire asking about their personal information and their opinion about each basic contract issues by using Likert Scale of 0 to 4 which the scale “1” represented that the correspondent agree that the basic contract issue have no effect to the contract management efficiency whereas the scale “4” represented the opposite meaning. If the correspondent answered the extreme scales(0 or 4). Analyzing the basic contract issues of the Construction Contract(1999) 4) analyzing and establishing some guidelines to modified the contract clauses to avoid the inefficiency caused by the main issues and to enhance the efficiency of contract management. After processing the data from the first-rounded questionnaire survey. The data from the second-rounded questionnaire survey are then processed to find the main issues of the contract. supporting & objection reasons. he must also specify the reason why he selects these maximum/minimum extreme scales. Then.2 1 เงือ ่ นไขสั ญญาด้ านคุณภาพทีจ ่ ะเกิดปัญหาในการนํามาใช้ ในประเทศไทย the employers. At the first round. the correspondents were requested to answer the same questions concerning the basic issues again. Provisions Appropriate to Thailand Construction Contract(1999) 2 1 Thailand’s Public Contract(1992) Provisions Cause the Basic Issued FIGURE 1.

I. In the projects which receive a loan from the international source such as Asian Development Bank(ADB). It is necessary for the public agencies to use the standard contract drafted by Office of the Prime Minister in their construction projects. Thai Contractors Association(TCA). It can also be expected that the international contract will have more important roles in Thai construction industry.T. Office of the Prime . The Engineering Institute of Thailand(E. and the Fédération Internationale des Ingénieurs-Conseils(FIDIC) are used for this purpose. But in the private project.I. Many standard forms of contract prepared by both local organizations and international organizations such as the Thai Contractors Association(TCA). There are many Thai versions of the Red Book(1987) translated by many organizations from both local organizations and international organizations i. the Association of Siamese Architect.FIDIC CONTRACT AND THAILAND’S CONSTRUCTION INDUSTRY Thai construction industry will probably open more to foreign contractors because of the GATT agreement. They are accepted among many construction project owners. one in the FIDIC contract series used in the civil engineering construction work. engineers and contractors of their effective in contract management process and their justice. The Engineering Institute of Thailand(E. Therefore. World Bank or Overseas Economic Cooperation Fund(OECF) must employ the international standard contract such as FIDIC’s contract.). has been widely used in Thai construction industry for a long time.e. The Red Book(1987). it is the employer’s consultants who normally prepare the construction contracts.).T.

Minister and even from FIDIC itself. Sombat Tipyananukul(1993) studied about the legal problems concerning the dispute resolution clause under a FIDIC contract. Jaroonpan Tisavipat. The other forms of FIDIC contract such as the Orange Book. THE MAIN CONTRACT ISSUES AND THE CONTRACT MODIFICATION GUIDELINES From the study. it can be used more efficient if these contract issues are alleviated. This means that even the Construction Contract(1999) is suitable for the application in Thailand. state-enterprises and private companies. Prathumrat Thaksaseranee and Assawin Singhajareon(1998) investigated the applications of FIDIC contract for construction projects in Thailand employed by public agencies. In addition. the majority of the contract issues of the Construction Contract(1999) in Thai construction industry are occurred from the difference between Thailand’s construction industry and the standard construction industry based in FIDIC contract. Kongkoon Tochaiwat(2001) studied the applicability in Thai construction industry of the “Construction Contract(1999)”. They can be classified into 4 categories: two quality-related contract issues. Chaiporn Jaroensin(2000) examined the attitude of contract managers towards the degree of importance of FIDIC contract. one time- . There are 13 issues found in the application of the Construction Contract(1999) in Thai construction industry. three cost-related contract issues. the new version of the Red Book. There are some researches about FIDIC application in Thai construction industry done by many researchers in Thailand. The new versions of contracts modified in 1999 are used increasingly. the Yellow Book have also been used in Thailand.

TABLE 1. 3 4 There are some contradictions of the engineer’s roles in the contract. Table 1 shows all of 13 contract issues with their categories and ranks. Quality-related Right-and-duty related Right-and-duty related Right-and-duty related Right-and-duty related Categories (3) Time-related Quality-related . Contract issues of the Construction Contract(1999) in Thailand. Rank (1) 1 2 Description (2) Time limits for Engineer to perform his duties are not determined. 6 Contract determines “ICC Rules of Arbitration” as a rule for performing arbitration. Employer’s duties to control their personnel in order to conform to the regulations and to keep the site clean do not clearly stated. Requirement of employer’s consent before major variation order by Engineer is not determined. 7 Contractor shall not be responsible for the foreseeable deficiencies within the contract documents. 5 Dispute Adjudication Board must be appointed by FIDIC’s President in case of the failure to appoint by employer and contractor.related contract issue and seven right-and-duty-related contract issues.

This may lead to disputes between the parties since the engineer may sometimes not understand the employer’s requirement about the work to be varied absolutely. Contract determines “Net Actual Quantity” as the method in works measurement. Cost-related QUALITY-RELATED CONTRACT ISSUES 1. Categories (3) Right-and-duty related 9 The rate of advance payment deductions seems too high and does not reflect the amount contractor received. Right-and-duty related 11 12 Contractor’s right to objection or refuse the major changes is not determined.1). Cost-related 10 Contract does not determined contractor’s duties to assessment of the safety and performance that will be affected from the variation order of the engineer. Right-and-duty related Cost-related 13 The things equivalent to liquidated damages are not determined. Many respondents in the questionnaire .Rank (1) 8 Description (2) Contract does not determined efficient dispute resolution method between contractors. The requirement of the employer’s consent before major variation order by the engineer is not determined(Sub-Clause 13.

Furthermore. These contractor’s responsibilities will make the contractor perform his duties with high level of attention and lead to the good results to the construction process. . Furthermore.survey agree that the engineer should ask the employer for his consent before order the necessary variation because the employer is the person who pay for and who use the works. the contractor should help the engineer to check the correctness and the constructability of the documents because he generally have so much the knowledge and experience in construction that he can realize what problem will happen in the construction process. The problem involves the right of the engineer to order the major variation can be protected by determining in the contract the requirement of employer’s consents for major variation and the clear definition of the major variation that require the consent from the employer before the engineer can order variation. this requirement helps the contractor to be sure about the variation order and his right to receive the payment of the vary works. This clause differs from Thai law. The contractor’s responsibilities for any damages caused by any foreseeable deficiencies in the contract documents are not defined. 2. The contractor has responsibilities to check the correctness and the constructability of the contract documents and help the employer to protect the foreseeable damages. From Sub-Clause 4. contractor shall not be responsible for the design or specification of the works.1 of The Construction Contract(1999). Clause 591 of Thailand’s Civil and Commercial Code(CCC) determine that contractor shall be responsible for the damage occurs from the foreseeable deficiencies.

COST-RELATED CONTRACT ISSUES 1. Finally. the amount deducted for the repayment of advance payment should be related with the prepaid amount. Actually. there should be the clause determining the contractor’s responsibilities for the damages caused by any foreseeable deficiencies in the contract. the deduction rate is usually determined equal to the rate of advance payment paid to the contractor. determining the same rate of the advance payment paid to and the deduction from the contractor will enhance t he convenience in calculating the payment. In Sub-Clause 14. The rate of advance payment deductions determined in the contract seems too high and does not reflect the amount contractor received. This enhances the justice between both parties and the efficiency in contract management process. This makes the advance payment reflect the progress of the works because it will completely repaid in the final payment. The higher the advance payment the contractor receives.To avoid the problem concerning the contractor’s responsibilities mentioned above. the higher the repayment rate of advance payment he must bear. In Thai practice.2 of the Construction Contract(1999). the monthly payment to the contractor shall be deducted at the rate of one quarter(25%) until the advance payment has been repaid. especially at the end of the project duration. . The contractor may encounter the financial problems if the deduction rate is too high while the employer must bear high risk if the deduction rate is too low.

there are some standard of measurements prepared by both government agency and engineering private organization used for measuring quantities of works such as the Standard Method of Measurement approved by the Council of Ministers in 1994(B. 2537) and the Standard Method of Measurement published by Engineering Institute of Thailand(E. In Thailand.) should be adopted instead of the Net Actual Quantity method.The contract should be modified by determining the suitable repayment rate of advance payment deducted from the contractor. From this method of works measurement. the estimator shall calculate the work quantities in detail. low time-and-cost consuming and the unity of the quantities measured. The contract’s clause about the method of works measurement should be modified.2537) or the Standard Method of Measurement of the Engineering Institute of Thailand(E.T. The appropriate rate should not be both too high and too low. it should reflect the progress of works and vary with the amount contractor received for advance payment.T.E. The standard method of works measurement in the decision of the Council of Ministers in 1994 (B.).I. Contract determines the “Net Actual Quantity” method to be used in works measurement. 2.E. Questionnaire result showed that people involve with the construction process in Thailand mostly prefer these local standard methods of measurement to the net actual quantity method because of their high level of convenience. .I. Furthermore.

This will alleviate the confusing. the delay and the disputes occurred from the said issue. In the other hand. approving the samples. Without the time limits performing these duties. The things equivalent to the liquidated damage are not determined. the engineer may cause the delay to the . The requirement of these things always occurs when the employer wants his contractor to pay off the liquidated damage with anything besides the money (the contractor may lack of money and the employer want to forfeit the contractor’s equipment without any litigation). it was voted by the parties involved to be the most important problem affecting the contract management efficiency. the delay of the project closeout and the chance that the contractor discard the works remaining at the end of the project duration. To determine the liquidate-damage equivalent will be benefit to both the employer and the contractor. The lack of the contract condition determining the things equivalent to the liquidated damage or the method to approve such things may lead to the disputes. The contract should determine what can be used to pay off the liquidated damage instead of money or how to approve of these things. TIME-RELATED CONTRACT ISSUES Although the problem of the lack of time limits for engineer to perform his duties is the only one problem of the application of the Construction Contract(1999) in Thailand. determining the claims. This problem cover many clauses in Construction Contract(1999) concerning the engineer’s duties such as the duty of issuing instruction to the contractor. it can occurs in the public projects when the contractor want to pay off the liquidate damage with anything besides the money to the employer.3.

RIGHT-AND-DUTY-RELATED CONTRACT ISSUES 1. employer’s representative and impartial professional. the contract also assigns some duties that require impartiality to engineer. This means that the employer will pay for the engineer’s salary as well as will responsible for some of the engineer’s actions. There are some contradictions of the engineer’s roles in the contract. in case the engineer cannot complete his duty within the said time limits unavoidably. The engineer’s roles in the said clause seem like he is the employer’s representative. delays. The time limits for the engineer to perform his duties should be clearly stated in the contract. Sub-Clause 1. However. Furthermore. Both of the roles. He shall also approve the works and the samples of material prepared by the contractor and shall issue any clarification or instruction if the ambiguity or the discrepancy occurs in the contract documents. These time limits will help every party concerned in planning their time-schedule with more accuracy. the deceit conducted by the engineer about the time to perform his duties shall be alleviated. variations.construction and the disputes between the parties. Can the engineer make a . The engineer shall make a fair determination of the time and cost related to the payments. as determined in sub-clause 2.1 of the Construction Contract(1999) explicitly shows that the engineer is one of the employer’s personnel. should also be clearly determined.3. some procedures to extend these time limits. are contradict and may cause to some problems in contract management. claims and termination of contract. Furthermore.

including the employer. From sub-clause 2. which the contractor is required under the safety procedures and to protect of the environment. it differ from the general construction contract in details and suitable to be used in the different situation. to approve and to issue clarification of the ambiguity or discrepancy of contract documents. Although some form of contracts such as the turnkey contract do not have engineer’s contradiction roles problem. Every party. These duties are important and should be determined in the contract. The employer’s duties to control their personnel in order to conform to the regulations and to keep the site clean do not clearly stated. more than twenty percents of the work value? This problem should be alleviated to enhance the justice between two parties and to make the contract management mechanism work as it is designed.fair determination that make his employer bear the high increased cost.3 of the Construction Contract(1999). the employer has duties to control his personnel to take action similar to those. 2. the problems . In many cases. should take part in conforming the regulations concern and keeping construction site clean. the engineer. It is very difficult to absolutely eliminate the problem of the contradiction roles of the engineer in the contract because it still necessary to have the employer’s representative to control the performance of the contractor whereas it still also necessary to have impartial party to determine. for example. the duties to control his personnel to conform to the regulations and to keep the site clean do not clearly determined. However. The employer should supervise the overall plan of the project by his representative.

In case of failure to appoint DAB member by any party. Dispute Adjudication Board(DAB) is a board assign by both employer and contractor to settle the disputes occurred from the construction of works before they are referred to the arbitration process. The duties to control the employer’s personnel to conform the regulations related the construction of works and to keep the site clean should be determined in the contract obviously. The international authorities such as. Appointment of DAB by the qualified person whom the parties rely on or who have the long experience in construction process and in disputes settlement is probably less time-and-cost consumed and more suitable for settlement of the disputes in local project. international authorities are sometimes required. This can enhance the time-and-cost efficiency to the contract management process. FIDIC ’s . 3. This clause will enhance the safety to the construction project and help the project can be completed within the budget and schedule planned. especially in case such the qualified local person is unavailable. However.happened in the site caused by the actions of the personnel of the employer whom the contractor never could control such as the engineer. Dispute Adjudication Board member must be appointed by FIDIC’s president in case of employer’s and contractor’s failure to appoint. the other employer’s contractor and the other employees. Using DAB can save the cost and time required in disputes settlement by arbitration. This may be considered non-necessary. Contract should recommend both parties to name the qualified person who is easy to be available during the construction duration the right to assign the members of the DAB in case of failure to do so by both parties. Construction Contract(1999) stated that the member should be assigned by FIDIC’s president or his assigned representative.

for the settlement of the construction disputes. In case those conflicts occur. contract should determine the rules of arbitration determine in the country’s law such as the Ministry of Justice’s rule for settling the disputes arisen. From sub-clause 20.6 of the Construction Contract(1999). Even though the ICC Rules of Arbitration are widely accepted for their efficiency and their justice. it seems to have some differences with the Thai Arbitration Act 1987 on the certain issues. there still have the uncertainty to the answer of the question what extent do the ICC Rules have to conform to the Thai Arbitration Act 1987(Sombat Tipyananukul. To avoid the conflicts between the international rules of arbitration and the law cover the arbitration process. .president. Contract determines “ICC Rules of Arbitration” as a rule for performing arbitration. Contract should determine the rules of arbitration prepared by Ministry of Justice for the arbitration process instead of the ICC’s Rules of Arbitration. should be required only in the international project with high technologies or high complexity of contract management process that it is difficult to find the qualified person from local organization. rules of arbitration prepared by Ministry of Justice are usually determined by the condition of contract. rules of arbitration prepared by the International Chamber of Commerce(ICC) is determined to be used in the arbitration of the disputes arisen from the construction of works. 4. using the local rules of arbitration seems more economic and more convenience than the international one. Furthermore.1993). In Thailand.

Except that the amicable settlement can settle the disputes. the contract should determine the right to settle the disputes to the employer or his representative. The construction sometimes involves with two or more contractors. disputes are difficult to avoid.5. To reduce the time-and-cost consumed in settle the disputes between contractors. This may make the delay to the work and may cost both parties very much. there are also many respondents agree that the settlement method used should focus on the fact. the engineer. Therefore. Contract does not determine the efficient dispute resolution method between contractors. litigation is the next process parties shall use. The survey result showed that many respondents agree that the contract should determine the clause involving how to settle the disputes arisen among contractors in order to avoid the question of the engineer’s responsibility to settle the disputes happened. This problem can be diminished by determining right of the employer or the engineer to settle the disputes occur among contractors or determine the other potential processes for settle the said disputes. or should determine the other efficient way to settle the said disputes. These contractors must use the same area and share the resources to fulfill their different objectives. the productivity of the works more than the words determined in the contract. Furthermore. . the engineer. the Dispute Adjudication Board(DAB) process or the arbitration process cannot be applied when disputes between these contractors happen. There is no clause in contract that clearly stated that the contractors agree to use the nonlitigious solution for the disputes arisen among them. The dispute resolution process determined in clause 20 of the Construction Contract focus only on the disputes between the contractor and the employer or his representative. So.

the major changes may cause the damages to the contractor. the contractor shall assess the work changed. From sub-clause 13. If the quantities of work change enormously. But the other important effects to the work such as the safety or the environmental impact are not included. Contractor’s right to object or refuse the major changes is not determined. Contract does not determine the contractor’s duty to assessment of the safety and performance will be affected from the variation order of the engineer. For examples. 7. This problem can be solved by determined the contractor’s duties to assess the safety and environmental impact that will be affected from the variation order of the engineer.3 of the Construction Contract. the contractor should have the rights to object or refuse . Safety and environmental impact are very important to the success of the construction projects. The contract should contain the clause involving these points in order to help the engineer to make a suitable decision. the contractor may find some problems. Even the engineer’s right to order variation has advantage of enhancing the project flexibility in solving the difficult situations the works may coped to and the variation of works seems difficult to avoid in construction project. He may also find the problems in complying with the contract conditions of another new project he is employed. Since the contractor set some assumptions about the work quantities when he decide to bid for the works. the variation and the necessary modification of the programme affected from the variation the engineer will order and request him to assess. he may lack of some resources that are important to finish the work on time. in the contract obviously. In these cases.6. The contractor should make the work to meet the employer’s goal as much as he can. if the engineer request the contractor to do so.

the contract should determine the rights of the contractor to object or refuse the major change order issued by the engineer if he can give the rational reason. there are 13 contract issues should be corrected to enhance the efficiency in contract management process. Therefore. From the sub-clause 157 of Thailand’s Civil and Commercial Code(CCC).the major changes ordered by the engineer in order to be justice. time-related contract issue and right-and-dutyrelated contract issue. To alleviate this contract issue.e. The three most important contract issues that effect the contract administration efficiency are 1) . From the study in Thailand. if the contractor had set some assumption before bid for the work and the engineer thereafter issue the major change order unforeseeably. CONCLUSION AND FUTURE RESEARCH Even though the Construction Contract(1999) prepared by the Fédération Internationale des IngénieursConseils(FIDIC) are prepared for using in almost countries worldwide. the contractor should have the rights to object or refuse the said change order. the legal act performed by the debtor’s misunderstands in the important properties of the person or the thing is voidable. there may be some contract clauses should be modified before its implementation. quality-related contract issue. These contract issues occurred from the difference between Thailand’s construction industry and the standard construction industry based in the contract and can be classified into 4 categories i. cost-related contract issue.

For example. Bangkok. Thailand. P. O. [6] Jervis. (1999). REFERENCES [1] Davis. 2 (2). M. It is recommended to be studied in further researches. (1988). 2) the engineer’s right to order major variation without employer’s consent and 3)the contradiction of engineer’s roles in contract administration. To enhance the efficiency in contract management process. P. [4] Murdoch. Advantages of Standard Contract Forms. Journal of Management in Engineering. (1986). (2000). 79-90.” Master of Civil Engineering. Second Edition. J.the absence of time limits for engineer to execute his duties of determination. Bangkok. Conditions of Contract for Construction. R. First Edition. There is no perfect solution to solve the problem of contradiction of engineer’s roles in this form of contract now. some clauses in the contract should be modified. & Levin. C. Thailand. . “Analysis of Construction Contracts in Thailand. APPENDIX. Construction Contracts : Law and Management. Master of Engineering. [3] Kompayak. So. Lausanne: FIDIC. Construction Law. King Mongkut’s University of Technology Thonburi. New York : McGraw-Hill Publishing. Contract Administration Procedures in the Thai Construction Industry. Asian Institute of Technology. [5] Jaroensin. London: E&FN SPON. B. contract should determine the engineer’s time limits to perform his duties and should determine the requirement of employer’s consent for the major variation order. [2] Fédération International des Ingénieurs Conseils [FIDIC] (1999). (1996).

Sangpoom. Thailand.Tipyananukul. Bangkok.” Master of Civil Engineering. King Mongkut’s University of Technology Thonburi. “Legal Problem Concerning the Dispute Resolution Clause under a FIDIC Contract. “A Study of FIDIC Contract Applicability in Thai Construction Industry. “Application of Condition of Contract for Work of Civil Engineering Construction. Tisavipat. Kongkoon(2001). Thaksaseranee. Prathumrat.” Master of Laws Department of Law Faculty of Law Chulalongkorn University. Bangkok. Thailand.” Bachelor of Civil Engineering. Jaroonpan. Chulalongkorn University. Assawin(1998). . Thailand. Sombat(1993). Tochaiwat. Bangkok.

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