FIDIC EPC Turnkey Contract

Type/Clase : Guide de redaction / Users’s guide / Guías de redacción
Source/Procedencia : European International Contractors
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Date de publication : 01/03/2000

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EIC Contractor’s Guide
to
the FIDIC Conditions of Contract
for
EPC Turnkey Projects
Foreword
FIDIC and EIC have held many constructive discussions since the September 1997 draft of
the Conditions of Contract for EPC Turnkey Projects (known as the Silver Book) was issued.
As a result of these discussions and those held with other interested parties, the first edition
of the Silver Book has incorporated some improvements by comparison with the original
draft. To EIC however, the Silver Book represents such a significant departure from FIDIC's
traditional approach to the contractual and risk sharing relationship that has prevailed over
the years between Employer and Contractor that EIC has decided to take the unusual step
of publishing a contractor's guide to the Silver Book. Contractors often take comfort from the
fact that a contract is to be carried out under FIDIC terms and conditions but this will
certainly not be the case where the Silver Book is used. The purpose of this guide is to
highlight the potential risks and pitfalls.
It is FIDIC's view that the individual nature of the turnkey project invariably requires a fair
degree of flexibility on the part of Employer and Contractor and extensive negotiations are
essential prior to contract signature and they offer the Silver Book as a good starting point
for negotiation. EIC does not share this view and in the preparation of this guide, EIC has
tried to highlight for contractors, particularly those who may be confronted with this form of
turnkey contract for the first time, some of the more important issues to be addressed in bid
preparation and client discussions.
EIC wishes to make it clear that this document is not exhaustive and is intended for
guidance only. Expert legal advice should always be obtained before submitting an offer or
making any commitment to enter into a contract. Neither EIC nor the authors of this
document accept any responsibility or liability in respect of any use made by any person or
entity of this document or its contents which is and shall remain entirely at the user's risk.
To ensure that this Guide provides the maximum benefit, we would like to receive comments
from EIC member companies on its usefulness and relevance. We would particularly like to
hear about any contracts which have been put out to tender under the Silver Book. All
communications should be sent to the EIC Secretariat in Berlin.
EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects.
Acknowledgements
EIC would like to thank the FIDIC Contracts Committee for the time they devoted to
explaining the philosophy behind the publication of the Silver Book and for listening patiently
to our arguments. We would also like to thank the Organisme de Liaison Industries
Metalliques Europeennes (ORGALIME) and Mr Robert Akenhead QC for the important
contributions they made in reviewing the final draft of this Guide and recommending
improvements.
EIC would also like to express its appreciation of the work carried out by members of the the
Conditions of Contract Working Group who produced this Guide: Lidia Amadio, Astaldi;
Louise Axton-Wilkins, Costain; Eric Eggink, Ballast Nedam; John Fenwick, Amec; Dr
Joachim Goedel, Hochtief; Frank Kennedy (Chairman), Carillion; Andrew Lee, Balfour
Beatty; Agne Sandberg, Skanska; Charles Shankland, Eiffage. Thanks also to the Working
Group's secretary Frank Kehlenbach and Martin Carrey of Carillion.
4
Executive Summary
In their Introductory Note to the Silver Book, FIDIC describe the benefits to the Employer of
turnkey project execution and state that passing responsibility for designing and constructing
the works to the Contractor will relieve the Employer of responsibility for close supervision of
the design and construction processes. FIDIC also maintain that there will be an increased
certainty of the final price and fewer disputes if the Contractor assumes responsibility for the
wide range of risks set out in the Silver Book. Regrettably, EIC cannot endorse this view
and believe that the Silver Book falls a long way short of meeting the objectives which FIDIC
set down for it.
Contractors accept that, by choosing a turnkey approach, Employers can reasonably expect
the Contract to transfer as much risk as practicable to the Contractor, offer a high degree of
certainty on the final price, facilitate the speedy completion of the Works and, in the event of
dispute, provide for their rapid resolution. Contractors on their part, are quite prepared to
contract on a turnkey basis and accept additional risk, provided that risks can be identified,
priced and managed, design and construction of the works is free of disruptive interference
and disputes are resolved quickly and equitably.
In a number of important respects, the Silver Book does not adequately satisfy the
respective aspirations of Employer and Contractor and its failure to do so is best illustrated
by consideration of those matters that most commonly give rise to disputes in turnkey
projects;
.inadequate definition of the scope of work,
.disruption of the design and construction process,
.inequitable allocation of risk and
.claims and dispute resolution.
Definition of the scope of the works
It is stating the obvious to say that an offer to work on a fixed lump sum basis can only be
made if the Works are sufficiently well defined. This requires an adequate preliminary
design, comprehensive technical specifications and clear and unambiguous performance
criteria. The Contractor will carry out the majority of these tasks in a turnkey project.
However, it is essential that the Employer fully understands and accepts what is on offer and
the required clarity of understanding will only be achieved through detailed and lengthy
negotiation between employer and contractor. Manifestly, this cannot possibly be achieved
during the tender period with all bidders and, until such time as agreement has been
reached, any offer should remain conditional.
The obligations placed upon contractors by the Silver Book are onerous, whereas the
Employer's most significant responsibility is limited to providing a definition of the intended
purposes of the Works and setting criteria for testing and performance. The Employer is not
even responsible for the accuracy of the "Employer's Requirements"! The Contractor is
required to make all necessary investigations, verify relevant information and carry out
design in sufficient detail to price the Works. Such demands, combined with the allocation of
risks to the Contractor which may be impossible to predict or cost accurately, may make it
impossible for the Contractor to establish precisely the full scope and extent of his liability.
In particular, it will be practically impossible for the Contractor to fully comply with all of these
obligations during the tender period especially the full verification of the Employer's
Requirements and the development of a fully detailed design. Contractors must decide
EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects
5
whether it will be feasible to clarify all of these matters following tender submission and prior
to the signature of a binding contract. In most circumstances, contractors will be well
advised to submit an appropriately conditioned offer which makes it clear that a full and
binding offer will only be made (to the extent that this is practically possible) following
extensive and conclusive negotiations.
Arguably I the submission of a qualified bid might lead to disqualification of the Contractor's
tender despite FIDIC's recommendation in their Introductory Note that it should be used as a
starting point for negotiations. Clarification of the Employer's position on qualified tenders
should be established before any decision is made to submit a bid.
In many instances, clauses in the Silver Book are in direct conflict with the obligations placed
on Contractors. Not only is the obligation to define the scope of the Works loosely defined, it
is also subject to reviews by the Employer who has the same power to interfere through
instructions, approvals, variations and determinations as the Engineer in a conventional
construct only contract. Paradoxically, should any Employer exercise his right to interfere in
this way it will inevitably undermine FIDIC's primary objective, certainty of the final price.
Disruption of the design and construction process
Only the Employer can make the choice of a turnkey contract and should only do so if he
has confidence in the competence, resources and experience of his potential Contractor. To
achieve this level of confidence demands a serious and comprehensive pre-qualification and
tendering process aimed at selecting the best contractor for the project. Thereafter, there
can be no justification for detailed supervision and interference and clearly specified
monitoring at defined milestone events should be perfectly adequate. For a Contractor to
enter into a contract of fixed time and price his obligations must also be fixed and once the
contract is signed, the Employer should not be able to unilaterally impose his will on the
design and construction process.
The extent to which the Employer might disrupt the design and construction process is the
most fundamental area of concern for contractors working on turnkey projects. FIDIC would
appear to accept this important principle by stating in the Introductory Note to the Silver
Book,
"the Employer should exercise limited control over and should

in general not interfere with the Contractor's work".
Consequently, in the event that the Employer orders the Contractor to design or construct all
or part of the works in a particular way, then the Employer must accept full responsibility for
the consequences of his actions. Should the Contractor be responsible for the achievement
of any Performance Criteria then the Contractor must have the right to refuse an instruction,
which, in his opinion, is likely to have an adverse effect on the achievement of the
Performance Criteria.
Allocation of risks and responsibilities
EIC accept that Contractors will bear considerably more risk under a turnkey contract
compared to that of a conventional construct only contract but EIC cannot accept the extent
to which Silver Book goes in attempting to make the Contractor responsible for almost every
eventuality however unforeseeable. EIC believe that the Employer cannot pass liability for
all risks to the Contractor and any contract signed under the Silver Book should clearly
EJC Contractor's Guide to the FJDIC Conditions of Contract for EPC Turnkey Projects
6
define where liability lies to ensure that contractors are in a position to accurately identify,
price and manage those risks which are to be their responsibility.
The Contractor must be especially alert to uninsurable risks, risks that are completely out
with his control or risks that are likely to increase as. a consequence of the actions of the
Employer or third parties. Contractors should also be wary of those clauses, which, as
drafted, could leave the Contractor at the mercy of an unscrupulous Employer.
However, it is probable that the greatest challenge and consequently the greatest risk will be
the difficulty of checking and confirming the accuracy or adequacy of the information and
data supplied by the Employer. Contractors who accept contracts under the Silver Book are
responsible for the accuracy and correctness of all information and data regardless of its
source. Contractors are advised to take particular care with clauses dealing with the
definition of fitness for purpose and liability for unforeseeable difficulties and adverse
physical conditions.
Claims and disputes management
Despite FIDIC's claims to the contrary the Silver Book is likely to give rise to disputes
between the Parties unless several of its provisions are modified during negotiation. In
particular due to the time constraints placed on the Contractor to submit a notice of an
intention to claim are impractical and the sanctions for non-compliance are unreasonably
punitive. By contrast the Employer is neither required to observe similar time limits nor
suffer any sanction provided he gives notice as soon as practicable. This is yet another
example of an inequitable contract.
The Contractor should only be required to advise the Employer of an intention to claim as
soon as reasonably practicable and there should be no time deadline after which the
contractor would lose his rights. This should also apply to the procedure to be followed
where details of the claim are to be submitted. Events may have a continuing effect and it is
not always possible to establish the final effect resulting from an event until later.
A comparison of FIDIC's Conditions of Contract for Plant and Design-Build (the

Yellow Book) and EPC Turnkey Projects (the Silver Book)
If further evidence is required to demonstrate EIC's concerns regarding the Silver Book the
following comparison of these two books highlights how far FIDIC have departed from their
normal fair-handed and equitable distribution of risk and responsibility. Consequently the
Yellow Book provides a useful source of reference when drafting an alternative allocation of
risk and design responsibility. It is also extremely important to remember and to point out to
clients at every opportunity that FIDIC is well aware of the fact that the Silver Book is highly
unsuitable for certain types of turnkey projects. FIDIC makes this clear in the Introductory
Note to the First Edition by stating that it IS not suitable in the following circumstances and
that the Yellow Book should be used:
- If there is insufficient time or information for tenderers to scrutinise and check the
Employer's Requirements or to carry out the necessary designs, risk assessment studies
and estimating (taking particular account of Sub-Clauses 4.12 [Unforeseeable Difficulties]
and 5.1 [General Design Obligations])
- If construction will involve substantial work underground or work in other areas which
tenderers cannot inspect.
- If the Employer intends to supervise closely or control the Contractor's work, or to review
most of the construction drawings.
If the amount of each interim payment is to be determined by an official or other
intermediary .
EIC consider that the following circumstances could be added to the list;
- Where part of the design is made by the Employer and is binding on the Contractor -see
also comments on Sub-Clause 5.1 [General Design Obligations] in this Guide.
- In competitive bidding without negotiations.
As a final word the principal differences between the Yellow and Silver Books are worth
highlighting:
It should be noted however, that the above only describes the overall responsibilities of the
parties and that important exceptions apply in each particular case.
Comments on a number of individual clauses follow and deal with the matters referred to
above in greater detail. Where considered appropriate comparative references are made to
the Yellow Book.
EIC Contractor's Guide to the FIOIC Conditions of Contract for EPC Turnkey Projects.
.
8
General Provisions
1.4 Provides that "The Contract shall be governed by the law of

the Country (or other jurisdiction) stated in the Particular
Law and
Conditions". The Contractor should be aware that under
Language certain Civil Law jurisdictions some Silver Book conditions may
be considered unfair trade terms and therefore inapplicable.
Also there may be mandatory laws which cannot be over ridden
by the Contract.
1.9 Obligates both Parties to treat the details of the Contract as

confidential. If the Contractor's design contains data which is
Confidentiality commercially sensitive and which he does not wish to be placed
in the public domain, the second sentence of this Sub-Clause,
referring to restrictions on publication or disclosure of
particulars, should also be an obligation on the Employer.
1.13 The Contractor shall comply with all applicable laws. However
the responsibility for obtaining permits, licenses or approvals is
Compliance
not entirely clear when Sub-Clauses 1.13 (a) and (b) are
with Laws
compared:
Sub-Clause 1.13 (a) provides that "the Employer shall have

obtained (or shall obtain) the planning, zoning or similar
permission for the Permanent Works". Sub-Clause 1.13 (b)
states that "the Contractor shall... ...obtain all permits,
licences and approvals, as required by the Laws in relation
to the design, execution and completion of the Works and
the remedying of any defects".
Responsibility for obtaining permissions is ambiguous and

should be clarified. For instance, what are "similar permissions"
for which the Employer is responsible pursuant to Sub-Clause
1.13 (a) and how do they fit with the Contractor's obligations
under Sub-Clause 1.13 (b)?
Ideally, the Contract should include a detailed schedule of the

permits required and should identify the responsible Party. In
the event that the Contractor is responsible, then the Employer,
under Sub-Clause 2.2(b)(e) [Permits, Licences and Approvals]
"shall (where he is in a position to do so) provide
reasonable assistance to the Contractor", Consequently,
any delay in the issue of permits caused by the Employer's
failure should entitle the Contractor to an extension of time in
accordance with Sub-Clauses 8.4 [Extension of Time for
Completion] and 8.5 [Delays Caused by Authorities].
In particular, those permits that are required to allow the project

to be developed at the Site of the Works should be specifically
identified in the Contract as being the responsibility of the
Employer.
1
9
1.14 Where the Contracting Party is a joint venture or consortium,

this Sub-Clause requires that, the parties to such joint venture
Joint and
or consortium must be jointly and severally liable to the
Several Liability
Employer.
Conversely, should the Employer consist of two or more legal

entities then, in such a case the obligation should be reciprocal.
2
2.3 This Sub-Clause relates to the Employer's obligations in respect
of his personnel and contractors employed directly by him. It
Employer's should be noted that there is no express obligation on the
Personnel
Employer to secure generally that his other contractors co-
operate with the Contractor other than in the respects
identified.
The effects of any delay or disruption caused by the Employer's

personnel and contractors are dealt with under Sub-Clause 8.4
(c) [Extension of Time for Completion] which provides only for
granting a time extension for such events. There is no provision
in the Contract to recompense the Contractor for the
consequential cost of delay and disruption caused by such
events. Contractors should carefully consider the possible
effects of such events in light of the obligation under Sub-
Clause 4.12 [Unforeseeable Difficulties] where the Contractor is
deemed to have foreseen all difficulties and costs of
successfully completing the Works.
2.4 FIDIC recognises the need for the Contractor to be satisfied that
the Employer has the necessary financial strength to undertake
Employer's his obligations under the Contract. This Sub-Clause requires
Financial that "the Employer shall submit, within 28 days after
Arrangements receiving any request from the Contractor, reasonable
evidence that financial arrangements have been made and
are being maintained which will enable the Employer to pay
the Contract Price".
This is a crucial obligation on the Employer, particularly where

funding is being provided by third parties. Fundamentally, the
Contractor should have the right to refuse to undertake any
Variation if he believes that the available funding is insufficient
to cover the varied Works. (See also comments in respect of
Sub-Clause 13.1 [Right to Vary]).
The Contractor should also have a right to be made aware of

any terms, conditions or step-in rights that exist in any
agreement between the Employer and his Lenders. If any
direct agreement with regard to the project is to be made
between the Lenders and the Contractor then the terms and
conditions of such an agreement should be provided to the
Contractor prior to signature of Contract.
A powerful sanction is available to the Contractor should the
10
Employer fail to furnish reasonable evidence. The Contractor is
entitled to suspend the work or terminate the Contract under
Sub-Clauses 16.1 [Contractor's Entitlement to Suspend Work]
and 16.2 [Termination by Contractor]. However, what
constitutes "reasonable evidence" is undefined and the
Contractor should establish this prior to submitting a tender.
Failure to do so could prejudice any attempt to obtain more
detailed information during the currency of the Contract, for
example in the event of a major Variation being instructed.
Contractors should give due consideration to the risk associated

with continuing to work during the 28 day period available to the
Employer to provide the required evidence and the further
extended notice periods required to comply with the suspension
and termination provisions.
2.5 This Sub-Clause offers some protection to the Contractor and
obligates the Employer to follow a given procedure if he

Employer's "considers
and/or to any himself
extension to of
be theentitled
Defects to Notification
any payment Period".
Claims
The Employer must notify the Contractor ''as soon as

practicable" and give particulars of his claim, after which the
Parties may agree the claim or failing which the Employer may
then make a determination in accordance with Sub-Clause 3.5
[Determinations].
The provisions of this Sub-Clause are also mandatory in the

event that the Employer wishes "to set off against or make
any deduction from an amount due to the Contractor".
A provision entitling the Contractor to claim against the

Employer is found in Sub-Clause 20.1 [Contractor's Claims], but
is much more onerous on the Contractor compared with Sub-
Clause 2.5. (See comments under Sub-Clause 20.1).
3
3.1 The Employer is completely free to appoint any person to act as
the Employer's Representative and/or to revoke any such
The Employer's
appointment. Invariably it will be important for the Contractor to
Representative establish whether that representative will be an independent
Consulting Engineer or a member of the Employer's personnel.
It is also important for the Contractor to be aware of the exact
nature of the duties and authority assigned to the
representative( s).
Contractors should appreciate a fundamental difference

between a two Party contract such as the Silver Book and
traditional FIDIC forms of contract. Under the Silver Book, the
Employer's Representative acts directly for the Employer and is
only responsible for looking after his interests. This is
particularly relevant when compared to the role traditionally
carried out by the Engineer which required the exercise of
EIC Contractors Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects.
discretion and impartiality even when fulfilling the role of
Employer's Representative.
Contractors should also take note that the powers of the

Employers Representative are potentially very comprehensive.
"Unless and until the Employer notifies the Contractor
otherwise, the Employer's Representative shall be deemed
to have the full authority of the Employer under the
Contract, except in respect of Clause 15 [Termination by
Employer]".
3.2 The Employer or the Employer's Representative may delegate

powers to assistants. The power to delegate authority to these
Other
third persons is very broad, and the Contractor should be alert
Employer's to the possible confusion and interference that might arise if too
Personnel
many assistants are appointed. The Contractor is entitled to
receive a copy of the written delegation which describes clearly
the role of the assistant or the like and the delegation does not
become effective until received by the Contractor.
3.4 This Sub-Clause is very specific in terms of what constitutes an

instruction under the project and requires that "Each instruction
Instructions
shall be given in writing and shall state the obligations to
which it relates ". Contractors should ensure that all
instructions comply with these requirements and should note that
verbal instructions would appear to have no validity under the
Contract.
3.5 Notwithstanding the fact that FIDIC has drafted the Silver Book
as a two-party contract, the Employer is given the unilateral
Determinations
right under this Sub-Clause to determine matters in respect of a
broad range of matters. The thinking behind this was
presumably to ensure that decisions are taken when required to
minimise delay. The Employer has such rights in respect of the
Sub-Clauses listed below.
2.1 [Right of Access to the Site];

2.5 [Employer's Claims];
4.19 [Electricity, Water and Gas];
4.20 [Employer's Equipment and Free-issue Materials];
4.24 [Fossils];
7.4 [Testing];
8.9 [Consequences of Suspension];
9.4 [Failure to Pass Tests on Completion];
10.3 [Interference with Tests on Completion];
11.4 [Failure to Remedy Defects];
11.8 [Contractor to Search];
12.2 [Delayed Tests];
12.4 [Failure to Pass Tests after Completion];
13.3 [Varia,tion Procedure];
13.7 [Adjustments for Changes in Legislation];
14.4 [Schedule of Payments];
15.3 [Valuation at Date of Termination];
16.1 [Contractor's Entitlement to Suspend Work];
Erc Contractor's Guide to the FIDI.C Conditions of Contract tor EPC Turnkey Projects
12
17.4 [Consequences of Employer's Risks];
19.4 [Consequences of Force Majeure];
20.1 [Contractor's Claims].
It may seem strange that one of the parties has the right to
make determinations regarding the respective rights of the
parties. This was normally reserved for the truly impartial
engineer -a rare bird nowadays. However, the Contractor is
not obliged to give effect to the determination provided he gives
notice of his dissatisfaction within 14 days in which case the
determination is not binding.
The fact that the Employer has the right to make a

determination is not necessarily against the interests of the
Contractor. If no agreement is achieved and the Employer fails
to make a fair determination then this will be a breach of
Contract and the Contractor may refer the matter to the
Disputes Adjudication Board.
No time limit is placed upon the Parties reaching agreement and

the Sub-Clause does not define a period in which the Employer
is required to make a determination. It is suggested that a time
limit of 28 days should be imposed on the Employer to reach
agreement with the Contractor and that a further 14 days are
provided for making a determination upon failure to reach
agreement.
The Contractor must be aware that the Sub-Clause places no

obligation of the Employer to label his decision a determination.
Conversely, the Contractor is required to "give notice, to the
Employer, of his dissatisfaction with a determination within
14 days of receiving it". Consequently in cases of dispute as
to whether a communication was a determination or otherwise it
would be very unusual and grossly unfair for the Contractor lose
his rights simply as a result of a failure to comply with the
obligation to notify. However, every effort should be made to
avoid dispute by establishing whether a communication from the
Employer constitutes a determination or not. Avoidance of
doubt is the safest way of ensuring that there is no loss of
entitlement through any failure to lodge the required notice.
4 The Contractor
Clauses 4 [The Contractor] and Clause 5 [Design] set out the

principal obligations and risks which are to be carried by the
Contractor and both are much more onerous than any imposed
by previous FIDIC Conditions of Contract. These two clauses
interact with each other on a number of very important issues and
should be studied together to ensure that the extent of a
contractor's potential exposure is fully understood. The principal
matters in Clause 4 which justify meticulous analysis and prudent
appraisal are:
-Fitness for purpose, Sub-Clause 4.1 [Contractor's General
EIC Contractor's Guide to the FIDIC Conditions of Contract for EPC Turnkey Project
Obligations] ,
- Nominated subcontractors, Sub-Clause 4.5 [Nominated
Subcontractors],
- Setting out, Sub-Clause 4.7 [Setting Out],
- Site Data, Sub-Clause 4. 10 [Site Data],
-
Unforeseen difficulties, Sub-Clause 4.12 [Unforeseen
Difficulties].
4.1 Fitness for purpose obligations are of particular concern where a

contract is carried out under jurisdictions based on English Law or
Contractor's
Common Law. It may be less of an issue under other
General
jurisdictions where fitness for purpose obligations have been
Obligations common practice for many years. However the issues discussed
below are relevant to both situations.
According to this Sub-Clause, "When completed, the Works

shall be fit for the purposes for which the Works are
intended as defined in the Contract".
Under Sub-Clause 5.1 (b) [General Design Obligations] the

Employer is responsible for the correctness of the definition of
intended purpose. Immediately however, we must consider the
wider implications of Sub-Clause 5.1, which requires the
Contractor to satisfy himself as to the accuracy of the Employer's
Requirements. Contractors must therefore ensure that the
definition is clear and unambiguous and that it is not open to re-
interpretation at a later date. If a satisfactory definition is not
available prior to tender submission then it would be prudent in
almost all circumstances to prepare a definition acceptable to
both Parties prior to contract signature. Failure to do so could
lead to dispute later.
With regard to the full extent of the obligation to design for fitness
for purpose it may not be possible to pass the full liability on to
any third party design consultant appointed by contractors.
Current practice is for consultants to accept only an obligation to
design with "reasonable skill and care" because insurance to
cover the risk associated with fitness for purpose is not presently
universally available and is a particular. problem for British
consultants.
In a perfect world, it should be obvious to all concerned that

contractors cannot, within their lump sum price, be responsible for
providing everything that an Employer later claims that he
understood to be included. In reality, some Employers will
choose to use the Silver Book for that very reason. An
unscrupulous Employer could argue that the Contractor is
responsible for an omission and refuse to issue a variation order.
The Contractor's only protection against this type of behaviour is
to prepare and agree as comprehensive and as detailed a
schedule, as it is possible to prepare, setting out exactly what it is
that is being provided.
Failure of the Works to be fit for purpose carries punitive
EIC Contractors Guide to the FIDICConditions of Contract tor EPC Turnkey Projects.
14
sanctions limited only by the terms of Sub-Clause 17.6 [Limitation

of Liability].
4.5 The concept of an Employer nominating a subcontractor is

hardly compatible with the obligations of the Contractor in a
Nominated Sub-
Turnkey Contract. Whilst this Sub-Clause does contain a
Contractors
provision for the Contractor to "raise reasonable
objection...with supporting particulars", it does not convey
an absolute right to reject a nomination. Manifestly, it is
impossible to comply with such a requirement where the
Contractor's concerns arise, say, from the relationships that are
perceived to exist between the Nominated Subcontractor and
either the Employer or his advisers. Contractors would be well
advised to avoid or re-negotiate the terms of any contract that
envisages such an arrangement.
In the event that the Employer instructs the employment of a

particular subcontractor despite the Contractor's reasonable
objections then the Contractor will have a very strong case
against the Employer to recover all of his costs arising from the
default of the Subcontractor.
4.6 This Sub-Clause spells out the obligations of the Contractor.

However, there is no equivalent or corresponding obligation on
Co-operation the Employer to secure that his directly employed "other
contractors" co-ordinate or co-operate with the Contractor. In
most contracts, but especially those where the Employer intends
to place significant other contracts, it would be prudent to ensure
that the Employer assumes clear and reciprocal obligations.
4.7 Taken at face value, the obligations under this Sub-Clause would
appear to be fair and reasonable and in accordance with normal
Setting Out
practice. "The Contractor shall set out the Works...and shall
be responsible for the correct positioning of all parts of the
Works, and shall rectify any error". However, Sub-Clause 5.1
[General Design Obligations], which deals with the Contractor's
design obligations, makes the Contractor responsible for the
accuracy of the information provided by the Employer! There are
some exceptions to this general requirement, but they are at
best, limited and somewhat confusing in their application. Two
courses of action are open to contractors:
-If practicable, check the setting out data prior to
submission of the tender, or
-Clarify the basis of the offer and propose that the
Employer retain responsibility under Sub-Clause 5.1.
The question of responsibility for data is discussed more

extensively under Sub-Clause 4.10 [Site Data] and Clause 5
[Design].
4.10 The obligations and risks to consider under this Sub-Clause are
essentially similar to, but much more wide-ranging than, those
Site Data
identified above under Sub-Clause 4.7[Setting Out]. "The
Employer shall have no responsibility for the accuracy,
sufficiency or completeness of such data, except as stated in
15
Sub-Clause 5.1 [General Design Obligations]." Put simply,

whatever the source, the Contractor is responsible for verifying
data. In particular, the Contractor is responsible for verifying and
interpreting all data on subsurface and hydrological conditions,
including environmental aspects. Such obligations are extremely
onerous. The precise extent to which the exceptions offered
under Sub-Clause 5.1 are actually applicable to the data supplied
to the Contractor is debatable and it is recommended that the
terms of the exceptions on offer in each individual contract be
carefully scrutinised.
Significantly, the disclaimer covers any information provided

during the performance of the Works. Consequently the
Contractor cannot rely on information provided by the Employer
during the execution of the Contract and must always therefore
establish its veracity unless the Employer retains liability under
Sub-Clause 5.1 [General Design Obligations].
FIDIC recognise that, under certain circumstances, it will be

impossible for contractors to comply with these obligations and
propose a way out of this particular dilemma. They suggest, in
the Introductory Note, that the Silver Book is not suitable for use
where "there is insufficient time or information for tenderers
to scrutinise and check the Employer's Requirements or for
them to carry out their designs, risk assessment studies and
estimating". FIDIC go on to state that, if contractors believe that
such a situation pertains then they are advised to draw the
Employers attention to FIDIC's own recommendation which is to
suggest a suitable alternative form of contract e.g. the Yellow
Book! Instead of admitting that the Silver Book is inadequate on
this important issue and amending it, they leave the Employer
and the Contractor to choose a totally different form of contract at
such a late stage in the implementation process that their
proposal cannot be considered a credible alternative! Inevitably,
it must be concluded that FIDIC have opted out and ducked the
task of solving a difficult problem of their own making.
4.12 The language used in this Sub-Clause is uncompromising in the

extreme and its scope and application are much more wide-
Unforeseeable
ranging than any previous clause covering unforeseen conditions.
Difficulties
The consequential effects of all unforeseen difficulties are passed
to the Contractor, "Except as otherwise stated in the
Contract". Sub-Clause 4.12 (b) requires the Contractor to
foresee and allow in the price for every eventuality however
unforeseeable! Presumably this is intended to include events that
are completely out with the control of the Contractor. It is difficult
to imagine a clause which would be more threatening to
contractors and which would leave them more open to
unscrupulous Employers who could allege that any difficulty,
however inconceivable at tender stage, could be laid at the
Contractor's door under this Sub-Clause. Contractors should
beware!
EIC Contractor's Guide to the FIDIC Conditions of Contract tor EPC Turnkey Projects.
16
On certain projects there could well be an inconsistency between
4.15
this Sub-Clause and Sub-Clause 2.1 [Right of Access to Site]
Access Route
which requires the Employer to give the Contractor the "right of
access" to the site. A matter to be clarified pre-contract.
The requirements of this Sub-Clause are unnecessarily detailed

4.21
and over prescriptive. Contractors would be well advised to
Progress
agree at tender stage a more appropriate format for the particular
Reports
contract.
5
A number of references have already been made to Clause 5,
largely because it deals with the responsibility of the respective
parties for the basic data, and it is for that same reason that it is
considered to be one of the most important in the Silver Book. As
has already been explained, Clause 5 [Design] establishes the
fundamental and crucial principle that the Contractor has wide
responsibility for the correctness of the Employer's Requirements
and there are only limited and inadequately defined exceptions to
this principle. It is in the Contractor's interest to make all
proposed exceptions clear and precise.
5.1 This is a complex Sub-Clause with many potential pitfalls for the
unwary and it is well worth having a further look at the major
General Design
disclaimer it contains. "The Employer shall not be responsible
Obligations for any error, inaccuracy or omission of any kind in the
Employer's Requirements as originally included in the
Contract". The problem created by this statement is particularly
evident when considering the important matter of the Employer's
responsibility for design criteria. This would normally be the
Employer's responsibility, yet the Silver Book fails to establish this
as a fundamental principle and this should be covered by the
exceptions provided for in this Sub-Clause.
The Sub-Clause is equally vague on the likely content of the

Employer's Requirements. The whole case for producing a
turnkey form of contract such as the Silver Book was based on
the thinking that the Contractor must comply with the Employer's
Requirements and carry all risks in doing so. Yet the only
indication in the Silver Book of what the Employer's Requirements
might be or what they might contain is contained in the Guidance
Notes. According to FIDIC they are to be specifically prepared
project by project by "suitably-qualified engineers", no doubt
taking many months to do so! Notwithstanding all of these
considerations, the Contractor is expected, prior to submission of
the Tender, to check the Employer's Requirements and to verify
his design criteria and calculations. To do this properly and
establish a high degree of confidence in the Employer's data
would be an enormous undertaking.
Design criteria encompass many and varied technical matters

that include amongst other things, quality standards, process
design, capacity, design life and, in the case of process and
power plants, equipment specifications. The Contractor must not
17
only establish whether the design criteria are factually correct but
must also establish whether they are adequate to achieve the
desired performance and intended purpose, all in the limited time
available during the tender period! Inevitably, it will be prudent for
contractors to establish their own design criteria to ensure
compatibility with their own design and to make this an integral
part of the offer, even where design criteria have been provided
by the Employer.
Employers are likely to insist that performance criteria and

definitions of intended purpose be complied with even if the
technical specification fails to produce satisfactory compliance.
Contractors must understand therefore that the Employer's
definition of intended purpose and his required performance
criteria will invariably take precedence over detailed technical
specifications.
Paradoxically, it could well be that in situations where the

performance criteria are vague or are difficult to measure, then a
statement of and compliance with a detailed technical
specification could be a more appropriate safeguard.
Whilst there is no specific declaration to limit the Contractor's

responsibility for omissions it should be reasonably limited to the
physical limits of the Works, especially if the alleged omission
could not reasonably be established by a careful study of the
intended purpose or from legal requirements or standards. To be
on the safe side, proposals should be appropriately clarified.
The exceptions offered under Sub-Clause 5.1 are of fundamental

importance to the Contract. They would appear to mitigate many
of the Contractor's extremely wide responsibilities for the
definition and specification of the Works. It is crucial to keep sub-
paragraphs (a) to (d) in mind when studying the Employer's
Requirements and negotiating the Contract. They are important
enough to consider one by one.
Sub-Clause 5.1 (a) states that, "portions, data and information

which are stated in the Contract as being immutable". This
means that they are incapable of being changed and are,
therefore mandatory on the Contractor and must be the
responsibility of the Employer. It is therefore very important to
check and confirm that the Employer's Requirements state very
specifically which parts are immutable. This is such an important
matter that it must not be left to post contract interpretation and
argument. Of particular importance is the need to identify any
part of the Employer's Requirements which uses the term "the
Contractor shall" in respect of any data or information, as this
could well make the requirement immutable, insofar as it is
incapable of being changed by the Contractor.
Under Sub-Clause 5.1 (b), the Employer is responsible for the

correctness of the definition of the intended purpose and it is
reasonable to conclude therefore that the Employer also retains
responsibility for ensuring that it actually fulfils his needs.
18
Unfortunately, the Silver Book does not deal with the situation
where the Employer has provided no clear and identifiable
definition. If this important issue is left unresolved, it could well be
that the definition could only be established later by an
interpretation of the Employer's Requirements. Such a situation
would be unsatisfactory in the extreme and contractors would be
well advised to insist that a definition be provided in the
Employer's Requirements.
Criteria for testing and performance is normally the Employer's

responsibility and this is as stated in Sub-Clause 5.1 (c), so this
issue should not be a problem. Again however, contractors would
be well advised to satisfy themselves that they are appropriate to
their proposed design for the particular project.
Sub-Clause 5.1 (d) will undoubtedly give rise to a significant

amount of discussion. According to this Sub-Clause the Employer
is responsible for "those portions, data and information which
cannot be verified by the Contractor, except as otherwise
stated in the Contract". This is, to put it mildly, an interesting
statement. The words "cannot be verified" are obviously open to
interpretation but in this context, probably mean that it is either
impossible or impractical to verify. Nowhere in the Contract or
guidance notes is advice offered on how this is to be decided or
against what yardstick it is to be measured. It might be assumed
that the available time would be a deciding factor and yet no
comfort is offered to the Contractor by including a statement such
as "with reasonable regard to time and economy". However, in
the event of dispute, commercia] practicality could still be a
reasonable defence when interpreting the word "cannot". In the
long term, only arbitrators or the courts will establish where the
border lies between "can be verified" and "cannot be verified".
It would certainly be sensible for contractors to state in their

tenders which parts of the Employer's Requirements could not be
verified. Such a statement should at least lead to a discussion to
establish who is to be responsible for which information. It is
important that these matters are agreed before the Contract is
signed if dispute is to be avoided later.
5.2 Most contractors would agree that an orderly flow of technical

information is critical to the success of a turnkey project. Yet, the
Contractor's
Silver Book does not specifically address this issue but, under the
Documents
terms of Sub-Clause 5.2, actually invites a situation where the
Employer, or his adviser, can seriously disrupt and delay the
design and construction process by repeatedly reviewing
documents before giving permission for construction to proceed.
Regrettably, this is not uncommon in turnkey projects, especially

those where the Employer has appointed a consulting engineer,
'independent' from his own organisation. To delay the
commencement of construction until reviews of the contractors
documents are completed to the satisfaction of the Employer is, to
put it mildly, a recipe for disaster. The provisions for review of
documents are overly prescriptive and give the Employer too
19
much freedom to interfere with and disrupt the Contractor's

design.
The Contractor has total responsibility for achieving the

performance criteria and must therefore have total freedom to
achieve this objective free of the Employer's interference.
Contractor's Documents should be given to the Employer for
information and the Contractor should at his own risk, be entitled
to proceed with construction. To avoid potential conflict,
contractors should set out in their tender document a clear and
practical programme for the submission of all data, design and
technical information required by the Employer and this should
include a specific provision for work to proceed at all times, at the
Contractor's risk. The Contractor's offer should be clarified
accordingly and, to avoid dispute later, any differences of opinion
on the procedure to be adopted should be resolved prior to
contract signature.
5.3 The apparently simple undertaking required by this Sub-Clause

hides a potentially dangerous inconsistency with Sub-Clause 5.1
Contractor's
[General Design Obligations]. Manifestly, "the documents
Undertaking forming the Contract", include the Employer's Requirements
and, subject to certain exceptions, Sub-Clause 5.1 makes the
Contractor responsible for their accuracy. Notwithstanding this,
Sub-Clause 5.3 requires the Contractor to design and execute the
Works to comply with the Employer's Requirements even if they
are defective or deficient. Furthermore, the Contractor has no
power to vary the Works without an instruction from the Employer
who is not bound to issue one! This obvious ambiguity should be
resolved pre-tender.
5.4 This Sub-Clause should ensure that there is no open-ended

obligation on the Contractor to amend the Works at his cost in
Technical
order to comply with the very latest design standards even if
Standards and
published after the tender has been submitted. The Contractor
Regulations
should check however that the Particular Conditions do not
amend or override this Sub-Clause. However, there is no
mechanism in the Contract to resolve any ambiguity between the
Country's technical standards and the Employer's Requirements.
Yet another matter for pre-contract discussions.
7 Plant, Materials and Workmanship
7.6 A surprising omission is the lack of any express provision that

permits the Employer to order a repair as opposed to removal,
Remedial Work
replacement or re-execution and the Contractor should have the
right to carry out repairs to render the Plant or Materials
acceptable and in accordance with the Contract. Should the
Employer insist on a replacement in such situations then he should
bear the additional cost.
EIC Contractor's Guide to the FIDIC Conditions of Contract tor EPC Turnkey Projects
20
8
8.3 This Sub-Clause obliges the Contractor to give advance warning,

is a new feature of the FIDIC Conditions and requires that, "the
Programme
Contractor shall promptly give notice of specific probable
future events or circumstances which may adversely affect
or delay the execution of the Works".
Contractors should consider whether, if such warning i~ given, it

could have an impact on the starting point for calculating the
notice periods under Sub-Clause 20.1 [Contractor's Claims]. It
would be only fair if this obligation to give warning is made
reciprocal and applies to the Employer as well.
8.4 The Contractor's entitlement to an extension of Time for

Completion is limited by comparison with the Yellow Book. A
Extension of
right to extension exists if the delay is due to a Variation Order, to
Time for
a delay caused by the Employer or his other contractors or if a
Completion right to extension exists under any other Sub-Clause of these
conditions, i.e.
2.1 Failure by the Employer to give access to and

possession of the Site.
(Cost plus reasonable profit added to Contract Price).
4.24 Discovery of fossils etc.
(Cost but no profit added to Contract Price).
7.4 Delayed testing caused by Employer (see also Sub-
Clause 10.3).
(Cost plus reasonable profit added to Contract Price)
8.5 Delays caused by Authorities.
(Extension of time only).
8.9 Suspension initiated by Employer (see also Sub-Clause
16.1 ).
10.3 Interference with testing by Employer (see also Sub-
Clause 7.4).
13 The time consequences of variations are dealt with in
Sub-Clause 8.4(a)
13.7 Changes in Legislation.
16.1 Suspension initiated by Contractor (see also Sub-Clause
8.9).
17.4 Employer's Risks.
19.4 Force Majeure.
The variable remedies open to contractors should be carefully

noted i.e. time only, time and cost and time, cost and profit.
Here again, FIDIC's logic is difficult to follow.
21
The Red and Yellow Books contain, in addition to those,

mentioned in the Silver Book, the right to an extension of time in
the following cases:
(i) exceptionally adverse climatic conditions;
(ii) unforeseeable shortages in the availability of personnel or
goods caused by epidemic or governmental actions; or
(iii) in the event of adverse physical conditions.
None of the new FIDIC Contracts contain the sweep-up clause

found in the 4th Edition of the Red Book which refers to "other
special circumstances",
It could be argued that the Force Majeure provision in Sub-Clause

19.1 [Definition of Force Majeure] gives the Contractor a right to
an extension of time in the events listed above under (i)-(iii).
Manifestly, exceptionally adverse climatic conditions should be a
Force Majeure event, as should shortage in personnel and goods
albeit depending on the reason for such shortage. The difference
between an undisputed contractual right to an extension of time
and claiming Force Majeure is that additional requirements must
be satisfied for the latter such as the delaying event could not
have been provided against before entering into the Contract nor
avoided nor overcome when it happens. The existence of a right
to an extension of time is not dependent on these requirements.
8.6 If, in the opinion of the Employer, the Contractor is working too
slowly he can instruct acceleration measures. This applies not
Rate ofress
only when the agreed Time for Completion is at risk but also
Prog where "progress has fallen (or will fall) behind the current
programme under Sub-Clause 8.3 [Programme]".
This type of clause is normally found in construction contracts

where the Employer or his engineer has produced the design and
therefore has know-how sufficient to follow closely the actual
construction of the works and construction methods. In a turnkey
contract, the Employer has less detailed knowledge.
With the increased responsibility for the Contractor under the

Silver Book it should follow that the Contractor has more freedom
to execute the Works at his own pace as long as he complies with
the Time for Completion or other contractually agreed dates. It is
perfectly feasible to sustain a position which maintains that it is for
the Contractor to decide whether acceleration measures should
be undertaken or not, particularly if the Employer's justification for
acceleration is that although the Contractor has not yet fallen
behind he "will fall" behind. Contractors should have a strong
incentive to adhere to the programme in any event, as their right
to payment is normally tied to meeting programme milestones
tied to a payment plan.
EIC Contractors Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects
22
8.7 The maximum amount of Liquidated Damages shall be stated in
the Particular Conditions. However, damages in the event of
Delay Damages
delay can exceed this amount e.g. if the Contractor has to pay the
Employers costs under Sub-Clause 8.6 [Rate of Progress] or the
Contract is terminated.
It is not unusual for contracts to state that that the Employer may
not terminate the Contract before the aggregate of liquidated
damages has reached the maximum amount. The Silver Book
does not contain such limitation but, on the other hand, in
accordance with Sub-Clause 15.2 [Termination by Employer]
there have to be qualified reasons for termination due to delay.
If the Contract is terminated due to delay then the Contractor will

have to pay all losses and damages suffered by the Employer-
(see Sub-Clause 15.4 [Payment after Termination]). However,
such loss and damage may not include loss of profit or other
indirect damages and the maximum liability is limited under Sub-
Clause 17.6 [Limitation of Liability].
9
9.2 The references in this Sub-Clause to Sub-Clause 7.4 [Testing]
(fifth paragraph) and Sub-Clause 10.3 [Interference with Tests on
Delayed Tests
Completion] are confusing because these sub-clauses provide
relief to the Contractor for the circumstances set out in those sub-
clauses and not specifically for those set out in Sub-Clause 9.2
[Delayed Tests].
9.4 If the Works fail to pass repeated Tests on Completion and the
failure "deprives the Employer of substantially the whole
Failure to Pass
benefit of the Works or Section..." then the Employer has the
Tests on
right to reject the Works, terminate the Contract, recover all sums
Completion
paid for the Works, plus financing costs, costs for dismantling the
Works and clearing the Site.
It is obvious that the Contractor will suffer catastrophic financial

consequences if the Contract Price has to be repaid together with
financing costs and the costs of dismantling the Works and
reinstating the Site.
It is conceivable that there could be contracts where such a

severe remedy is justified, where, for example the Contractor has
developed a unique know-how for a complete production process
and it fails to perform as guaranteed and no other contractor is
capable of putting it into satisfactory working order. In such
circumstances, it would be unreasonable to expect the Employer
to bear the consequences of the Contractor's failure.
On the other hand, current practice in the event of termination is

that the Contractor is entitled to payment for the value of the
Works completed at the date of termination. Thereafter, it is up to
the Employer to decide whether or not to complete the Works
with another contractor. In both situations the Contractor must
23
pay the Employer's additional costs. In circumstances where the
Works contain technology which is "in the public domain", then
the same principle should apply. However, it should be
recognised that in such a case design responsibility for the whole
of the Works could rest with the new Contractor and contractors
faced with such a prospect should take due regard of the risks
involved. It is important to understand the implications of this
requirement, as the Contractor could be in a very serious
situation in the event that Tests on Completion are not
successful.
It is important, in relation to this Sub-Clause to consider the

limitation of liability under Sub-Clause 17.6 [Limitation of
Liability].
10
10.2 According to this Sub-Clause, "Parts of the Works shall not

be taken over or used by the Employer, except as may
Taking Over of
be agreed by the parties". It fails to address the situation where
Parts of the
the Employer uses the Works or part of the Works without the
Works
agreement of the Contractor. Various difficulties and risks could
arise in such a situation none the least of which would be damage
to the Works, which may not be covered by insurance. The
Yellow Book offers a way out in Sub-Clause 10.2 [Taking Over of
Parts of the Works] which states that "... if the Employer does
use any part of the Works before the Taking-Over Certificate
is issued: (a) the part which is used shall be deemed to have
been taken over as from the date on which it is used "
11
The Contractor shall at his own cost remedy defects caused by

11.2 the design of the Works.
Cost of
Remedying Sub-Clauses 4.1 [Contractor's General Obligations] and 5.1
Defects
[General Design Obligations] make it absolutely clear that the
Contractor is fully responsible for the design of the Works,
including the correctness of the information on which he bases
the design subject only to the important exceptions in Sub-
Clause 5.1. As written this means that the Contractor takes
responsibility for any design supplied by the Employer.
No exception is made for the situation where part of the design is

supplied by the Employer or the defect in the design is due to
incorrect information or design criteria for which the Employer
remains responsible in accordance with Sub-Clause 5.1. It is
clearly a flaw in the Silver Book that such important exceptions
are not expressly referred to. This is an unsatisfactory state of
affairs and the Contractor should not be left to rely on a court or
similar to establish that a reasonable interpretation is that a
responsibility allocated to the Employer under Sub-Clause 5.1
should also have the effect that the Employer takes the risk and
24
cost for remedying defects caused thereby. The Employer's
responsibility under Sub-Clause 11.2 (a) should be entirely
consistent with that set out in Sub-Clause 5.1.
It is therefore recommended that the Parties clarify this matter in

the Particular Conditions. This will be particularly important
where the Employer has responsibility for supplying a wide
range of information or for important parts of the design. It is
interesting to note that Sub-Clause 11.2 (a) in the Yellow Book
has specific wording to cover just this situation.
It should also be noted that a similar ambiguity exists and is

highlighted under Sub-Clause 17.3 [Employers Risks] and
underlines the importance of getting the exclusions under Sub-
Clause 5.1 absolutely correct.
11.4 If the Contractor fails to remedy a defect and the defect or

damage "deprives the Employer of substantially the whole
Failure to
benefit of the Works or any major part of the Works..." then
Remedy Defects
the Employer is entitled to recover all sums paid for the Works,
plus financing costs, costs for dismantling the Works and
clearing the Site. These are indeed punitive sanctions and
contractors must carefully consider whether the risks they carry
under the Silver Book are commensurate with the likely reward
for performing the Contract.
This Sub-Clause is similar in effect to Sub-Clause 9.4 [Failure to

Pass Tests on Completion] where more comprehensive
comments have been made.
13
13.1 The Employer may initiate Variations prior to issuing the Taking
Over Certificate for the Works, and the Contractor has only
Right to Vary
limited grounds for refusing to undertake the instructed Variation,
which are:
"(i) the Contractor cannot readily obtain the Goods required
for the Variation, or (ii) it will reduce the safety or suitability
of the Works, or (iii) it will have an adverse impact on the
achievement of the Performance Guarantees",
Notwithstanding any objections raised by the Contractor, the
Employer may still confirm his instruction.
The Employer's right to unilaterally issue Variations does not fit

well within the concept of an EPC Turnkey Contract and the
grounds that permit the Contractor to object to a Variation are too
restrictive. It should be at the Contractor's sole discretion to
refuse or accept a Variation if he believes that the price offered is
wholly inadequate, the Variation will have an adverse effect on
the undertaking of any of his obligations under the Contract or,
following a request by the Contractor under Sub-Clause 2.4
[Employer's Financial Arrangements], the Employer is unable to
provide evidence that satisfactory financial arrangements are in
place and being maintained to pay for the addition to the Contract
25
Price resulting from the Variation Order.
Should the Employer instruct the Variation despite the Contractor

giving notice that he will not consider himself bound by the
Variation, then the only remedy open to the Contractor is to refer
the matter to the Dispute Adjudication Board.
This Sub-Clause provides that the Contractor may, but is under

13.2 no obligation to, make proposals to amend the Works that will
Value
benefit the Employer.
Engineering
Unreasonably, what is not provided is a process whereby the
two Parties share the benefits of any value engineering
undertaken by the Contractor.
The Contractor may therefore wish to consider how he should be

reimbursed for his additional efforts, or agree a method of sharing
the enhanced benefits to be enjoyed by the Employer.
This Sub-Clause represents a dramatic departure from normally

13.3 accepted practices for dealing with the valuation of Variations
Variation
and Contractors would be well advised to agree the price of all
Procedure
Variations before starting the additional work.
The procedure outlined places the onus on the Contractor to

prepare the design and price and to re-programme the Works to
accommodate the proposed Variation. The Employer may then
approve, disapprove or comment upon the Contractor's
submission. The procedure will involve the Contractor in a great
deal of additional effort and expenditure that may not be
recoverable if the Variation is not approved or is substantially
amended by the Employer. Accordingly, the Employer should be
made aware at the time of Tender that the Contractor will expect
to recover such additional expenditure.
If the price of a Variation is not agreed, then it shall be

unilaterally determined by the Employer under Sub-Clause 3.5
[Determinations], and ultimately, in the event of disagreement,
by the Disputes Adjudication Board or Arbitrator. "Reasonable"
profit will be allowed but this does not necessarily mean the
same profit margin as is built into other contract rates or in prices
for comparable works or that comparable rates will apply.
It is not clear whether the Contractor is liable for any design

13.5
associated with Provisional Sums. In the absence of any
Provisional
express provision it may well be that the Contractor is held to be
Sums
responsible under Sub-Clause 5.1 [General Design Obligations] .
Again, an issue to be sorted pre-contract. Attention is drawn to
the Guidance Notes which indicate that Provisional Sums should
only be used for minor supplies.
26
This Sub-Clause contains provisions in respect of the recovery
13.7
of additional Costs associated with changes in legislation.
Adjustments for
Changes in
Contractors should note however that the recovery of losses only
Legislation applies to changes in legislation in the Country in which the Site
of the Permanent Works is located.
14
Provision is made for the Contractor to receive an Advance

14.2
Payment as an interest-free loan for his mobilisation and design
Advance
provided that the amount of the advance is stated in the
Payment Particular Conditions.
If an advance is specified in the Particular Conditions then its

payment will only be made after receipt by the Employer of "(i) a
Statement (under Sub-Clause 14.3 [Application for Interim
Payments], (ii) the Performance Security in accordance with
Sub-Clause ~.2 [Performance Security], and (iii) a guarantee
in amounts and currencies equal to the advance payment".
The advance payment may be paid in instalments. However the
number and timing must be stated in the Particular Conditions
and the Contractor will require the advance payment guarantee
to recognise this.
Within Sub-Clause 14.7 [Timing of Payments], paragraph (a)

states that the first instalment of the advance payment shall be
paid within 42 days after the date on which the Contract
Agreement came into full force and effect, or within 21 days after
the Employer receives the documents in accordance with Sub-
Clause 4.2 [Performance Security] and Sub-Clause 14.2 ,
whichever is later. Contractors may consider these periods too
long before receipt of the advance and could indeed require
payment of the advance as a condition precedent to the
commencement of work on Site
To initiate the payment process the Contractor is to submit a

14.3
Statement at the end of the period of payment which period is to
Application for
be stated in the Contract. If no period is stated, the submission
Interim
is to be at the end of each month.
Payments
To be valid, the Statement must include items detailed in Sub-
Clauses 14.3 (a) to (t). It must also include the progress reports
which are defined within Sub-Clause 4.21 [Progress Reports], an
onerous precondition for the receipt of payment.
Sub-Clause (a) requires that the contract value of the Works

executed be estimated unless defined in accordance with Sub-
Clause 14.4 [Schedule of Payments]. It does not detail how the
estimate is to be prepared in a manner that will be acceptable to
the Employer. Accordingly, a suitable procedure should be
agreed with the Employer. The Statement should also contain
the various additions and deductions to be made to the contract
value of the Works.
27
Sub-Clause 14.5 [Plant and materials intended for the Works]

below, makes provision for payment to be made in respect of
certain Plant and Materials which are in the Country in which the
Works are located but which are not yet on Site. However
contractors should be aware that there are no provisions to
make payments in respect of any Plant and Materials which
have not been included in the entitlement under Sub-Clause
14.5, or for those which are either stored outside the Country of
the Works or which have been delivered to the Site but are not
incorporated in the Permanent Works. It is recommended that
amended payment procedures be negotiated prior to Contract
signature.
The amount of any Retention Money is to be stated in the

Particular Conditions and the Contractor may wish to include
provisions that permit him to provide a retention guarantee in lieu
of the Employer retaining cash.
The Contract may provide for payment to the Contractor based

14.4 upon a Schedule of Payments and if so, "the instalments
Schedule of
quoted in the Schedule of Payments shall be the estimated
Payments contract values for the purposes of sub-paragraph (a) of
Sub-Clause 14.3 [Application for Interim Payments]".
If the instalments are not defined by reference to actual progress

achieved then the Employer is entitled to revise any payment
instalment by making a determination under Sub-Clause 3.5
[Determinations] which will take into account any delay in
progress. Equally, the Contractor could request that, when the
Works are ahead of programme he is entitled to an appropriate
increase in the scheduled payment.
If it is intended that the Schedule of Payments be based on the

achievement of specific Milestone Events then this should be
expressly stated. Otherwise, payments would be based on the
actual value of work done.
This Sub-Clause provides for payment in respect of Plant and

14.5 Materials provided they are in the Country in which the Works
Plant and are located. To obtain payment, the Contractor is to mark the
Materials relevant Plant and Material as being the property of the
intended for the Employer or provide suitable insurance together with a
Works guarantee equal to the value of the payment to be made. (See
also comment under 14.3 [Application for Interim Payments]
above).
The provisions for withholding payment in this Sub-Clause are

14.6 potentially harsh. For instance, if the Contractor, in the
Interim Employer's view, is allegedly proceeding without "due
Payments expedition", in apparent breach of Sub-Clause 8.1
[Commencement of Works], the Employer could maintain that
the whole of the value of the delayed works should be withheld.
A most unsatisfactory and unacceptable situation.
28
This Sub-Clause details the periods within which payment is to

14.7
be made by the Employer in respect of the advance, interim and
Timing of final payments. By comparison with well-established norms, the
Payments periods proposed are excessive and contractors may wish to
suggest more reasonable intervals.
14.9 The amount of any Retention Money will be defined within the
Particular Conditions and this Sub-Clause provides for the first
Payment of half of the Retention Money to be released after the Taking-Over
Retention Certificate has been issued provided that the Works have
Money passed all specified tests, including any Tests after Completion.
It is important to fix a date for any tests to be carried out after

completion to avoid any delay to the release of the moiety of the
retention.
The outstanding balance of the Retention Money is to be paid

"promptly" after expiry of the latest expiry date of the Defects
Notification Period(s). Sub-Clause 1.1.3.7 provides that if no
such period is stated in the Particular Conditions then the
defects Notification Period shall be 12 months and under Sub-
Clause 11.3 [Extension of Defects Notification Period] the period
could be extended by a maximum of two years. The release of
the final tranche of Retention Money could therefore be up to
three years after completion. The full release of Retention
Money may be further delayed if any work remains to be
completed, as the Employer may withhold the estimated cost of
any outstanding works.
The above restrictions, together with differing interpretations of

the meaning of the word "promptly" could result in a protracted
period of delay before the Contractor is able to recover his
Retention Money. Pressure on contractor's cash flow could be
avoided if the Employer is prepared to accept a bank guarantee
in lieu of retention.
14.10 The Contractor is required to submit a Statement at Completion

with supporting documents within 84 days after receiving the
Statement at Taking-Over Certificate following which the Employer may make
Completion an Interim Payment to the Contractor. This statement means
that all of the Contractor's claims must be submitted, along with
all other documentation required or reasonably implied as
required under the Contract. Sub-Clause14.10 (b) and (c) refers.
Failure to include claims would result in them being barred under
Sub-Clause 14.14 (b) [Cessation of Employer's Liability].
Contractors should also have regard to the extremely tight time
limits laid down in Clause 20 [Claims, Disputes and Arbitration] for
the submission of detailed particulars.
A written discharge is to be submitted by the Contractor with the

Final Statement and should be worded to provide for such
14.12
Discharge discharge to become effective when the final payment has been
received and all bonds and guarantees returned.
EIC Contractors Guide to the FIDIC Conditions of Contract lor EPC Turnkey PrQiects.
29
This is a very important Sub-Clause in respect of any
14.14 Contractor's claims. If the Contractor fails to notify them in the
Cessation of
Final Statement and the Statement at completion required by
Employer's
Sub-Clause 14.10 [Statement on Completion], then, with minor
Liability exceptions, they will be barred. The notifications under this Sub-
Clause are in addition to those required under Sub-Clause 20.1
[Contractor's Claims].
15
This Sub-Clause gives the Employer, in addition to the right to
15.1 give instructions under Sub-Clause 3.4 [Instructions], an unlimited
Notice to
right to require the Contractor by notice to make good any alleged
Correct
failure to carry out any obligation under the Contract. If the
Contractor fails to comply with such notice, the Employer has the
right to terminate the Contract under Sub-Clause 15.2
[Termination by Employer].
In circumstances where the Employer has given the Contractor a

very brief and vague description of the scope of work and the
Contractor is responsible for the design and tied into a lump sum
price, such a provision would be very dangerous for the
Contractor. In situations where the Parties have made different
interpretations of the Employer's Requirements, then this
provision enables the Employer to impose his view on the
Contractor by threatening termination of the contract if the
Contractor will not comply. Such a right should only apply in the
event of material breach of contract.
As always the Employer has the right to terminate the Contract in

15.2 certain circumstances. These circumstances include breach by,
Termination by
and insolvency of, the Contractor as well as corruption.
Employer
Allowing the Employer the right to terminate the Contract in the
event of corruption is a sound principle. However, the definition
of corruption as defined by this Sub-Clause is too wide. It
extends to the Contractor's sub-contractors (over whom the
Contractor does not have total control) and it covers any act,
however small, carried out by any individual. As a consequence,
determination of the Contract for the act of corruption under a
sub-contract is too severe a remedy. The obligation should be
limited to an obligation on the Contractor to terminate the sub-
contract and should not give the Employer the right to terminate
the Contract.
Sub-Clause 15.2 (a) could be applied to quite trivial faults since it

relates to compliance with a Sub-Clause 15.1 [Notice to Correct]
notice which covers "any" failure by the Contractor to carry out
"any obligation". Such a clause could be used oppressively by an
employer.
This Sub-Clause should also be considered in the light of the

comments on Sub-Clause 8.7 [Delay Damages] above regarding
damages payable by the Contractor in the event of delay.
EIC Contractor's Guide to the FIDIC-Conditions of Contract for EPC Turnkey Projects.
30
16 Suspension and Termination by

Contractor
The right of the Contractor to terminate the Contract is subject to
16.2
notice periods that could extend to 84 days. In the case of failure
Termination by
to receive reasonable evidence with regard to the Employer's
Contractor
financial arrangements (Sub-Clause 2.4 [Employer's Financial
Arrangement]) or failure to pay the Contractor amounts due (Sub-
Clause 14.7) the Contractor must allow 42 days to elapse to
demonstrate non-payment. Thereafter he must give a further 14
days notice before he may terminate the Contract.
These time limits are too long. The Contractor must continue
working even if the Employer has failed to pay. It would be more
equitable if (similar to the other grounds for termination in Sub-
Clause 16.2) the Contractor were required to give 14 days' notice,
particularly in the case of suspension of work by the Contractor.
The situation will be more complex where project finance is in

place and a lender has step-in rights. However, the same basic
principles should apply.
17
This Sub-Clause is unnecessarily broadly drafted. It imposes the

17.1
risk on the Contractor of injury etc and damage to property (other
Indemnities
than the Works) arising "in the course of' the design or
execution of the Works even if not caused by the Works. This is
a ridiculously wide risk for the Contractor to assume which, in its
defined terms, may not be insurable.
The last paragraph contains a reference to Sub-Clause 18.3 (d)

(iii) [Insurance against injury to Persons and Damage to Property]
according to which the Employer is not obliged to indemnify the
Contractor to the extent that insurance cover is available at
commercially reasonable terms. Since it is arguable whether or
not insurance cover was available at commercially reasonable
terms, it may be advisable when negotiating a contract to exclude
this exception in Sub-Clause 18.3 (d) (iii).
The catalogue of Employer's Risks does not include loss or

17.3 damage due to the occupation of the Works, or any Section
Employer's thereof, by the Employer because Sub-Clause 10.2 [Taking Over
Risks
of Parts of the Works] does not allow the use of any parts of the
Works, except if stated in the Contract or as agreed by both
Parties. Where these latter exceptions occur, the Contractor
should either ensure that a Taking Over Certificate is issued in
respect of any such parts or the Yellow Book solution identified
under the comments previously made in relation to Sub-Clause
10.2 [Taking Over of Parts of the Works] is followed.
The Employer's Risks does not contain the Employer's

Requirements, data and information for which the Employer is
31
responsible according to Sub-Clause 5.1 [General Design
Obligations]. If any loss or damage to the Works is caused by
these responsibilities then the Employer must remain liable.
The operation of exceptional forces of nature has not been

included as an Employer's Risk because it is intended that the
Contractor bears the full risk. Omitting the operation of
(exceptional) forces of nature from the list of Employer's Risks is
very burdensome. Generally speaking, their specific occurrence
is unforeseeable even by an experienced Contractor, and an
experienced Contractor can not be expected to take adequate
precautions against them.
In view of the Contractor's inability to foresee such risks the

Contractor cannot make any realistic risk assessment.
Accordingly, any estimate in respect of such events can only be
speculative.
If the Contractor does not want to assume such risks the

corresponding provision of the Yellow Book Sub-Clauses (f), (g)
and (h) should be adopted as a more appropriate risk allocation.
17.4 If, and to the extent that, the Employer requires the Contractor to
rectify the loss or damage to the Works, Goods or Contractor's
Consequences
Documents resulting from any of the Employer's Risks, the
of Employer's
Contractor is entitled to time extension and payment of the Cost
risks
incurred, but not to any uplift for profit, for rectifying the loss or
damage.
The Contractor's rights under this Sub-Clause are subject to his

compliance with Sub-Clause 20.1 [Contractor's Claims].
17.6 This Sub-Clause provides that there is no liability on either Party

for loss of use of any Works, loss of profit, loss of any contract or
Limitation of
for any indirect or consequential loss or damage.
Liability
It should be noted that it is only in certain cases of breach of
contract by the Employer that the Silver Book entitles, the
Contractor to compensation for loss of profit (see Sub-Clauses
2.1 [Right of Access to Site], 7.4 [Testing], 10.3 [Interference with
Tests on Completion]).
This is inequitable and the Contractor should always be entitled to

compensation for loss of profit and other indirect or consequential
damages, in the event of a breach of contract by the Employer,
irrespective of whether or not there is a specific Sub-Clause in the
Silver Book.
By excluding Sub-Clause 17.1 [Indemnities] from the limitation of

liability both the Contractor and the Employer are fully liable for
the events outlined in Sub-Clause 17.1.
EIC Contractor's Guide to the FIDIC Conditions of Contract tor EPC Turnkey Projec
32
19.1 This Sub-Clause provides a definition of Force Majeure and

provides a non-exhaustive catalogue of Force Majeure events in
Definition of
the second paragraph that includes natural catastrophes such as
Force Majeure
earthquakes, hurricane, typhoon or volcanic activity.
19.4 In the event that the Contractor is prevented from performing any
of his obligations under the Contract due to an event of Force
Consequences
Majeure, the Contractor can claim for time extension and the Cost
of Force
incurred. The claims for Cost are limited to the events listed in
Majeure
Sub-Clause 19.1 (i) to (iv) [Definition of Force Majeure]. Such
limitation is difficult to understand given the fact that the
catalogue of Force Majeure events is not exhaustive.
19.6 In case of termination due to Force Majeure, the Contractor is

entitled to be paid for the Works executed, the Cost of Plant and
Optional Materials ordered, any other Cost incurred in the expectation of
Termination, completing the Works, the Cost of removal of Temporary Works
Paymentand
and Contractor's Equipment and the Cost of repatriation of staff
Release
and labour. If the Contractor wants to receive profit on these
Costs, a corresponding provision would have to be included in the
Contract.
20.1 This Sub-Clause details the procedure that the Contractor must
follow when he considers himself entitled to an extension of Time
Contractor's
for Completion and/or additional payment under any of the
Claims
Clauses or otherwise in connection with the Contract.
The Contractor is required to give notice of his claim as soon as

practicable and not later than 28 days after becoming aware, or
when he should have become aware, of the event or
circumstance giving rise to the claim. Failure to comply with this
notice provision would result in the Contractor forfeiting his right
to an extension of the Time for Completion and to additional
payment and the Employer is then discharged from his liability in
connection with the event.
The penalty for failure to comply with a purely technical

requirement to give notice of a claim is unduly harsh. This is the
first time that a FIDIC contract has removed the fundamental right
of the Contractor to make a claim merely as a result of a failure to
comply with a fixed period of time to submit the required notice.
In certain circumstances the Contractor may prejudice his
entitlement by failing to comply strictly with a notice provision but
he should certainly not forfeit his rights altogether and neither
should the Employer be discharged from any and all liability in
connection with an event. It is ironic that this provision would also
apply when the event or circumstance giving rise to the claim is
caused by the Employer in the first case e.g. refer to Sub-Clause
8.9 [Consequences of Suspension].
EIC Contractors Guide to the FIDIC Conditions of Contract tor EPC Turnkey Proje<
A comparison of the notice provisions under Sub-Clause 20.1
with the notice provisions under Sub-Clause 2.5 [Employer's
Claims] where the Employer is required to give notice as soon as
practicable after becoming aware of the event or circumstance.
This demonstrates an unfair imbalance between the position of
the Employer and that of the Contractor without any reason being
offered for such imbalance.
In addition to the first 28 day notice period the Contractor is also

subject to a 42 day period by which he has to send to the
Employer a fully detailed claim with full supporting particulars.
(See also the provisions for continuing claims). Due to the
complex nature of the Works in an EPC contract this could prove
to be extremely difficult and inevitably, the task of compiling and
interpreting the relevant facts to support and justify the claim will
be a time consuming and long drawn out process. Such
provisions could be lead to intensive disputes and costly
arbitration.
The sixth paragraph of this Sub-Clause requires the Employer to

respond to a Contractor's claim giving his approval or disapproval
within a fixed period or time whereas the eighth paragraph
requires the Employer to proceed in accordance with Sub-Clause
3.5 [Determinations] to agree or determine any extension of Time
for Completion and/or any additional payment. It is not clear why
these two separate procedures are required. However, it should
be borne in mind that under Sub-Clause 3.5 there is no time limit
within which the Employer has to make a determination.
Contractors should read the comments made under this Sub-

Clause in conjunction with those under Sub-Clauses 14.10
[Statement at Completion] and 14.14 [Cessation of Employer's
Liability] all of which underline the importance of submitting all
required notices in time to ensure that their rights are protected
and maintained.
20.2 This Sub-Clause provides for the establishment of the Dispute

Adjudication Board (DAB) comprising either one or three
Appointment of
members to be appointed by the Parties. The DAB is to be
the Dispute
appointed by the date 28 days after a Party has given notice of its
Adjudication intention to refer a dispute to a DAB. The appointment of the DAB
Board
expires after it has given a decision on the referred dispute,
provided no other disputes have been referred to it in the
meantime. When the appointment expires a new DAB will have
to be appointed to deal with the next dispute.
It is very likely that adjudication by a DAB in large and complex

EPC Projects would be much more effective under a standing
body rather than one convened on an ad hoc basis. It would be
particularly beneficial for the DAB to become conversant with the
Contract and the Works at an early stage and to familiarise itself
with the progress of the Works on a regular basis. Undoubtedly
this will result in speedy and well informed judgements and
consequently the procedures and draft agreements set out in the
34
Red Book are to be preferred for such projects. Under these rules
the DAB is appointed at the start of the Contract and remains in
existence for the duration of the Contract unless agreed
otherwise by the Parties.
20.4 It should be noted that, if the DAB has given its decision as
required by this Sub-Clause and if neither Party has given notice
Obtaining of dissatisfaction within 28 days after having received the DAB's
Dispute
decision, the decision becomes final and binding on both Parties.
Adjudication
Even in the case of dissatisfaction by either Party it would appear
Board's
that the intention is that decisions of the DAB are binding on both
Decision
Parties "unless and until it shall be revised in an amicable
settlement or an arbitral award".
The Contractor is required to "continue to proceed with the

Works" but the obligation of the Employer, in so far as payment
is concerned, is merely to comply with the normal process for
Interim Payments. There is no provision for any sanction against
the Employer in the case of non-payment. Manifestly, any
payments due as a result of a DAB decision sholJld be considered
as Payments due under Clause 14 [Contract Price and Payment]
but to be made with immediate effect. Any failure to pay would
then give the Contractor the right to Suspend the Works under
Sub-Clause 16.1[Contractor's Entitlement to Suspend Work], an
appropriate sanction in such circumstances.
EIC Contractor's Guide to the FIDIC Conditions of Contract for Epc.:rumkey Projects.

FIDIC EPC Turnkey Contract

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Type/Clase : Guide de redaction / Users’s guide / Guías de redacción

Source/Procedencia : European International Contractors

Date de publication : 01/03/2000

Tél/Tel : (49) 30 212 86 244

Fax : (49) 30 212 86 285

Avertissement: Les contrats et guides de la présente collection ont été

Advertencia: Los contratos y las guías de la presente colección han sido

Definition of the scope of the works

Disruption of the design and construction process

"the Employer should exercise limited control over and should

Allocation of risks and responsibilities

Claims and disputes management

A comparison of FIDIC's Conditions of Contract for Plant and Design-Build (the

1.4 Provides that "The Contract shall be governed by the law of

1.9 Obligates both Parties to treat the details of the Contract as

Sub-Clause 1.13 (a) provides that "the Employer shall have

Responsibility for obtaining permissions is ambiguous and

Ideally, the Contract should include a detailed schedule of the

In particular, those permits that are required to allow the project

1.14 Where the Contracting Party is a joint venture or consortium,

Conversely, should the Employer consist of two or more legal

The effects of any delay or disruption caused by the Employer's

This is a crucial obligation on the Employer, particularly where

The Contractor should also have a right to be made aware of

A powerful sanction is available to the Contractor should the

Contractors should give due consideration to the risk associated

2.5 This Sub-Clause offers some protection to the Contractor and

obligates the Employer to follow a given procedure if he

The Employer must notify the Contractor ''as soon as

The provisions of this Sub-Clause are also mandatory in the

A provision entitling the Contractor to claim against the

Contractors should appreciate a fundamental difference

Contractors should also take note that the powers of the

3.2 The Employer or the Employer's Representative may delegate

3.4 This Sub-Clause is very specific in terms of what constitutes an

2.1 [Right of Access to the Site];

The fact that the Employer has the right to make a

No time limit is placed upon the Parties reaching agreement and

The Contractor must be aware that the Sub-Clause places no

Clauses 4 [The Contractor] and Clause 5 [Design] set out the

4.1 Fitness for purpose obligations are of particular concern where a

According to this Sub-Clause, "When completed, the Works

Under Sub-Clause 5.1 (b) [General Design Obligations] the

In a perfect world, it should be obvious to all concerned that

Failure of the Works to be fit for purpose carries punitive

sanctions limited only by the terms of Sub-Clause 17.6 [Limitation

4.5 The concept of an Employer nominating a subcontractor is

In the event that the Employer instructs the employment of a

4.6 This Sub-Clause spells out the obligations of the Contractor.

The question of responsibility for data is discussed more

Sub-Clause 5.1 [General Design Obligations]." Put simply,

Significantly, the disclaimer covers any information provided

FIDIC recognise that, under certain circumstances, it will be

4.12 The language used in this Sub-Clause is uncompromising in the

The requirements of this Sub-Clause are unnecessarily detailed

The Sub-Clause is equally vague on the likely content of the

Design criteria encompass many and varied technical matters

Employers are likely to insist that performance criteria and

Paradoxically, it could well be that in situations where the

Whilst there is no specific declaration to limit the Contractor's

The exceptions offered under Sub-Clause 5.1 are of fundamental

Sub-Clause 5.1 (a) states that, "portions, data and information

Under Sub-Clause 5.1 (b), the Employer is responsible for the