What Is a Contract?

A contract is a legally binding agreement between two or more parties who agree to buy or
sell goods and services from one another. There are many different types of contracts. The
three most common contract types include:

 Fixed-price contracts
 Cost-plus contracts
 Time and materials contracts

A contract provides legal protection for all parties involved in the transaction. It outlines the
rights and responsibilities of all parties and helps reduce the risk of any party forfeiting their
duties per the agreement. Contracts typically include details related to the scope of work of
the project, quality control, legal jurisdiction, project schedules, and payment terms. A
contract is fundamental to any business transaction that involves an exchange of value. It
documents the terms of the agreement in a way that is enforceable in a court of law if any
party does not hold up their end of the exchange.

Fixed-Price Contracts

Fixed-price contracts are also known as lump-sum contracts. This type of contract is ideal in
situations where there is a clearly defined scope of work. In such cases, the buyer provides a
detailed description of the final outcome, including product dimensions, expected
timeframes, material specifications, and more. Using the information provided by the buyer,
the seller creates a formal statement of work that outlines the total project cost, including all
labour and materials, along with billing milestones based on a detailed project schedule. If the
buyer makes any changes to the scope of work or timeline, it can mean additional charges
from the seller.

With fixed-price contracts, buyers know the exact cost of the project from the start, which
many people see as a big benefit. Fixed price contracts result in a minimal risk for buyers.
While buyers sometimes make a lump-sum payment at the start of the project, the seller takes
on the majority of the risk since the buyer often only pays for work once it's completed. If the
project takes place over a longer timeframe, buyers usually make smaller lump-sum
payments at specific project milestones. For example, construction crews typically charge a
fixed price for all materials, labor, and equipment. They receive payment upon completion of
each stage of the construction project.

With fixed-price contracts, sellers cannot go back to the buyer to ask for more money if they
go over budget. As a result, sellers take on the majority of the risk, so they sometimes pad the
price to make sure they cover any potential risks. If something goes wrong and sellers
underbid the original contract price, they risk eating into their profit and must find ways to
cut corners and decrease costs. Project quality and schedules can suffer as a result. Also, if
buyers pay any money at the start of the project and the work remains incomplete, getting the
money back is sometimes a challenge.

Cost-Plus Contracts

With a cost-plus contract, also known as a cost-reimbursable contract, buyers pay for the cost
of the work plus a fixed percentage charged by the seller for providing the goods and
services. Sellers charge the buyers for the actual cost of any materials, equipment, labour, and
overhead involved in running the project. To make a profit, sellers tack on an extra fee based
on the terms of the contract. Some sellers prefer an incentive payment option over a fixed
percentage. Here is an article about how to structure an incentive contract . A cost-plus
contract defines all rates and percentages, as well as all allowable expenses and incurred
costs. The contract often also includes a maximum amount sellers can spend. Any spending
over that amount requires the buyer's approval.

With a cost-plus contract, neither the rates for materials and labor nor the quantity of time
needed to complete the project is fixed. As such, costs may fluctuate throughout the life of
the project. On top of that, buyers do not know the full cost of the project before it begins.
Also, it is often difficult to track the actual effort and materials used for the project. Despite
the uncertainties and risks to buyers, many prefer this option. In the end, they only pay for
what they get, which many buyers view as an advantage.

Time and Materials Contracts

A time and materials contract is great for buyers who don't necessarily know what they want
when they begin their project. Sellers use time and materials contracts when it's difficult to
determine the amount of time they need to spend on the project and the types of materials
required to complete the project. With this type of contract, sellers charge for the cost of any
materials they end up using plus an hourly or daily wage. All rates, including any markup
charges on materials and wages, are included in the terms of the contract. Once the contract is
finalized and accepted, these rates stay in place for the duration of the contract.

For example, a time and materials contract work well for software developers hired to create
an app for a company that is unsure about what the app needs to do. The developers charge
for any time spent programming, designing, and testing the app, as well as any additional
iterations required to finalize the product. They submit their receipts and records of working
hours at fixed intervals as outlined in the contract to receive payment. When sellers charge
buyers based on time and materials, they typically keep a record of the time spent working on
a certain project, as well as proof of any work they did during this time. This provides buyers
peace of mind that their money is well spent. In some cases, sellers work directly as an
extension of the buyer's team. This gives buyers considerable control over how sellers spend
their time and the types of work they do.

Time and materials contracts work well for budget-conscious buyers. If they keep a close eye
on the project costs, this type of contract provides an excellent way for buyers to enhance the
skills on their team. However, a time and materials project poses a risk of blowing estimated
costs if the project is not well managed.

Combining Different Types of Contracts

Sellers may combine different types of contracts to create one that hits all the high notes of
their business exchange. Some business exchanges include a range of products and services,
such as labor and equipment. In such cases, the contract needs to outline any applicable terms
and agreements from more than one type of contract to cover all parts of the transaction, such
as a fixed-price contract for the labor and a cost-plus contract for the equipment.
Understanding the different types of contracts and selecting the right one for the project is an
important part of business transactions. It's often a good idea to work with a contract
lawyer to make sure the contract holds up in court. As a rule of thumb, fixed-price contracts
present less risk to buyers, while cost-plus contracts pose more risk to buyers. Meanwhile,
time and materials contracts offer a more balanced risk for both buyers and sellers.

Table of Contents
 Introduction
 What is FIDIC?
 What is the main purpose of FIDIC?
 Historical Background
 Objectives of FIDIC
 What are the FIDIC forms of Contract?
 Features of FIDIC Contracts
 What are the FIDIC General Conditions of the Contract (“GCC”)?  
 What are the FIDIC Particular Conditions of the Contract (“PCC”)?  
 Why is a hierarchy of documents important?
 Golden Principles of FIDIC
o Following are the FIDIC Golden Principles
 Advantages of FIDIC
o International standard
o Focus on Projects
o Price competition
o Lower bid time and cost
o Various types of Contracts
o Practical clauses
o Multiple languages
o Bankability
o Less Risk of Disputes
o Neutral Contracts
o Success Ratio
 Disadvantages of FIDIC
o Unfamiliarity by Local Contractors
o Limited Judicial Consideration/Precedent
o Customization
 FIDIC in India

Introduction
In the last few years, we have seen substantial growth in the real estate and
construction industries worldwide. The projects are now becoming universal
and inventive and it requires more expertise as the risks to the parties are
increasing. 

Therefore, engineers, contractors and builders are looking to execute

international forms of contract for their projects, which will have a clear
scope of works, rights and obligations, and liabilities of the parties. Hence,
FIDIC contracts are model contracts for such projects.  
What is FIDIC?
FIDIC stands for Fédération Internationale des Ingénieurs – Conseils, which
means International Federation of Consulting Engineers. It started in 1913 in
Belgium and now has a membership of over 100 countries.  Currently
situated at the World Trade Center in Geneva Switzerland. It is an
international standard organisation for consulting engineering and
construction are best known for the FIDIC family of contract templates. 

What is the main purpose of FIDIC?

The principal goal of FIDIC is to promote and execute the consulting
engineering industry’s strategic goals on behalf of its members and to
publish information and resources of interest to its members. FIDIC
standardizes contracts that are commonly used in the global construction and
engineering industry, primarily for international construction projects, which
have a higher value and are authorised by many multilateral development
banks. 

It publishes standard forms of contracts for construction works,

infrastructure projects, EPC/Turnkey projects, consultancy services, etc. and
publishes agreements for clients, consultants, sub-consultants and joint
ventures together with related materials such as standard pre-qualification
form, performance guarantee form, letter of acceptance, etc. 

FIDIC organises the annual conference and an extensive programme of

seminars, workshops and training courses and other events in the
furtherance of its goals.

Historical Background
The origins of the FIDIC standard forms of the contract lie in the Institution
of the Civil Engineers London form of contract, which was issued in 1956 by
UK-Engineers. In 1957, FIDIC adopted and published its first edition of a
standard form of contract which is called the “Red Book” for civil engineering
works. Since then, FIDIC has regularly updated its standard forms of
contract.

Objectives of FIDIC
One of the key objectives of FIDIC is to promote sound and effective project
management of engineering works. 

Following are the other objectives of the FIDIC: 

 1. Provide the consulting engineers with standard forms of contract
and other related documents like standard pre-qualification form,
performance guarantee form, letter of acceptance, etc.
2. To provide solutions on issues relating to consulting engineering by
developing and promoting consulting engineering best practices. 
3. Provide consulting engineers with the resources needed for their
better image and reputation.
4. Promote and assist the worldwide development of viable consulting
engineering industries, as the industry needs to maintain the best
practices and sustainable quality services. 
5. Promote and enhance the leading position of FIDIC’s forms of
contract. 
6. Improve and develop FIDIC’s training and publishing activities that
will make the organization visible and valued. 
7. Promote and encourage the development of young professionals in
the consulting engineering industry as they represent the future of
the industry.

What are the FIDIC forms of Contract?

FIDIC is well known for drafting standard forms of contract (“FIDIC Model
Contracts”) in the field of consulting engineering industry worldwide and over
the years, it has consistently improved its contracts. The main purpose of
the FIDIC Model Contracts is to define the contractual relationship between
the parties and distribute the risks fairly to the parties.

The FIDIC Model Contracts are drafted for a wide range of projects. They are
segregated by the colour given to the cover of the document in which rules
and regulations of the contracts are mentioned. 

The below table gives a brief overview of FIDIC contracts: 

FIDIC
Type Details
Contract

Conditions of contract for construction This is for the very common job works,
Red Book
for building and engineering works. designed mainly by the employer.

Yellow Conditions of contract for plant and The contractor is responsible for the
Book design-build for electrical and plant design, building and engineering
mechanical plant and building and works. Yet still, the employer might be
 engineering works. required to carry some design.

Conditions of contract for use on

This is the short form of the contract. It is
Green engineering and building works of
used mostly for simple, repetitive, short-
Book relatively small capital value or where
duration jobs.
the construction time is short.

Conditions of contracts for use The projects funded by certain MDBs,

Pink
of building and engineering works which are supranational institutions such
Book
designed by the employer. as the World Bank.

The contractor carries the engineering,

Silver Conditions of contract for procurement and constructions tasks up
Book EPC/Turnkey Projects. to the final delivery of a fully equipped,
tested and ready to run facility.

It implies a long-term commitment of the

Gold Conditions of contract for design, build
contractor and offers a new and unique
Book and operation project.
procurement route.

The only standard international form of

Form of contract for dredging and
Blue Book contract designed specifically for the
reclamation works.
dredging industry.

The White Book is an important part of

White FIDIC Client/consultant model service the FIDIC suite and is one of the most
Book agreement. widely used forms of professional
services contract internationally.

Features of FIDIC Contracts

Generally, the FIDIC Model Contracts consist of two parts. Part A is known as
General Conditions of the Contract and part B as Particular Conditions of the
Contract. 

What are the FIDIC General Conditions of

the Contract (“GCC”)? 
The GCC describes allocation and management of risk between the parties
and it contains the general terms of the contract like rights and obligations of
parties, procedure for payment, certification, dispute resolution, etc. They
are published by FIDIC and should not be amended. 
What are the FIDIC Particular Conditions
of the Contract (“PCC”)? 
The PCC defines conditions, which are specific to the project and the place
where the project is executed. They are used as an amendment and the
purpose of the PCC is to define clauses that are not part of the GCC. 

Why is a hierarchy of documents

important?
In the FIDIC Model Contract, all parts of the contract should be read together
and it provides a default hierarchy for the documents forming the contract as
stated below:

1. The Contract Agreement (if any);

2. The Letter of Acceptance (this is the formal acceptance of the
contractor’s tender and usually presents the point in time when
Contractual Parties enter into the Contract, but this depends on the
local regulations);
3. The Letter of Tender;
4. Part B or the Particular Conditions of the Contract;
5. Part A or the General Conditions of the Contract;
6. The Specification;
7. The Drawings;
8. Schedules and any other document forming part of the Contract.
The main purpose of the hierarchy is that documents have precedence based
on the time of their origin and parties can exclude or limit the parts of the
documents previously produced.

Golden Principles of FIDIC

The FIDIC Model Contracts were made to maintain the standardization in the
contract and FIDIC thinks that amendments in the GCC are changing their
contracts to such an extent that contracts are no longer identifiable as FIDIC
contracts. Therefore, FIDIC implemented five golden principles (“FIDIC
Golden Principles”) which will prevent modifying or deleting some general
conditions. 
The FIDIC Golden Principles were launched at the FIDIC Asia Pacific Contract
Users’ Conference in Hong Kong on 25th June, 2019. In order to promote
acceptance and understanding:

 It is framed at a conceptual level to summarize the essence of a

FIDIC contract;
 Each Golden Principle expresses a single, readily understood and
generally accepted concept;
 The FIDIC Golden Principles are limited to the minimum number
necessary for completeness.

Following are the FIDIC Golden Principles

1. The duties, rights, obligations, roles and responsibilities of all the
contract participants must be generally as implied in the general
conditions, and appropriate to the requirements of the project.
2. The particular conditions must be drafted clearly and
unambiguously.
3. The particular conditions must not change the balance of
risk/reward allocation provided for in the general conditions.
4. All time periods specified in the contract for contract participants to
perform their obligations must be of reasonable duration.
5. All formal disputes must be referred to a dispute
avoidance/adjudication board (or DAB, if applicable) for a
provisionally binding decision as a condition precedent to
arbitration.

Advantages of FIDIC
As informed above, the FIDIC Model Contracts are widely accepted by the
construction industries as they offer several advantages. The advantages of
using the FIDIC Model Contracts are following:

International standard
FIDIC is a true international standard. Therefore, the FIDIC Model Contracts
are familiar to contractors throughout the world and are widely accepted.

Focus on Projects
To execute a new contract, the parties have to start from the base, which
needs a lot of time starting from appointing lawyers until the contract is
executed. By using the FIDIC Model Contracts, the parties can focus directly
on the project and can manage the risk efficiently. 

Price competition
Most contractors worldwide use the FIDIC Model Contracts as it allows
increased bid lists and encourages more price competition amongst
tenderers. Therefore, ultimately it provides value for money.

Lower bid time and cost

The FIDIC Model Contracts are ready to use drafts, which will expedite the
discussion and negotiations on the terms and conditions of the contract. The
contractors do not have to engage the specialist, which will result in less cost
and a shorter time. 

Various types of Contracts

As informed above, the FIDIC Model Contracts are divided into different
colour books and the parties can choose the contracts as per various features
like kind of construction, size & nature of the project, purpose of the contract
and identity of the parties. The parties can choose the right book for a
certain type of project which will cover different terms and conditions specific
to the project. 

Practical clauses
The FIDIC Model Contracts are already intended for use on major projects
thus practical clauses like the scope of work, rights and obligations, liabilities
of the parties are covered. 

Multiple languages
The FIDIC Model Contracts are published in up to 20 different languages
including major languages like Chinese, Japanese, Indonesian, French and
Spanish. This means lower translation cost where the contracts need
translation into the foreign language of the other party. 
Bankability
Most of the international banks including Multilateral Development Banks are
using the FIDIC Model Contracts, which eases obtaining approval from the
bank for the contracts. 

Less Risk of Disputes

The FIDIC guide, other FIDIC publications and published papers provide a
broad explanation of the FIDIC Model Contracts and the particular provision
of each clause. This means there is less disagreement and less risk of
disputes between the parties.

Neutral Contracts
Another advantage of the FIDIC Model Contracts is that it is fair and neutral.
It balances the obligations and duties of the parties, as they are not drafted
in favour of one party and protects the interest of both parties.  

Success Ratio
Since the FIDIC Model Contracts are accepted worldwide and are easier to
use, the parties will be more confident as these contracts can impact
significantly on the efficiency and success of the projects. 

Disadvantages of FIDIC
However, FIDIC Model Contracts are widely accepted and there are several
advantages as well, but in some situations, they seem to create some issues
with it. Following are few disadvantages to the FIDIC Model Contracts:

Unfamiliarity by Local Contractors

The local contractors are not still not familiarised with the FIDIC Model
Contracts and it may discourage them from tendering, reducing local
competition and increasing their bid time and costs. 

Limited Judicial Consideration/Precedent

As FIDIC Model Contracts provide for arbitration, there is little guidance from
the Courts as to the intended operation of particular clauses or precedents to
follow. This compares to general contracts where there are significantly more
decisions about the operation of various clauses.

Customization
As we know, every project is different and customization is necessary for
every project. To implement modifications in the contract, they tend to shift
commercial terms to the schedules of the contract. Moreover, it becomes an
exhausting experience as all technical and legal details are put together in
the schedules of the contract.

FIDIC in India
The FIDIC Model Contracts are used all over the world including the
Government of India for executing projects. Consulting Engineers Association
of India (CEAI) is the apex body of consulting engineers in India. CEAI is the
only Member Association from India representing the Indian Engineering
Consultancy profession at the FIDIC. CEAI membership comprises individual
consulting engineers working independently, private and public sector
engineering consulting firms and firms engaged in activities related to
engineering consultancy. 

In India, in recent times, international competitive bidding has become a

model in infrastructure projects. Some of these projects include the mega
power projects, railways, telecommunications, airports, highways, ports,
etc. 

Let us take an example of national highway development in India.  

The national highway development in India is mainly financed by the World

Bank and the World Bank and the other multilateral development banks
emphasize incorporating the FIDIC terms into their tender documentation.
However, in India, the contracts are developed by the Ministry of Road
Transport and Highways and projects are based on Engineering, Procurement
and Construction (“EPC”) contract scheme laid down by the National Highway
Authority of India (“NHAI”) guidelines. EPC stands for Engineering,
Procurement and Construction. Under an EPC delivery model, an EPC
contractor will generally be responsible for the design, construction and
commissioning of a facility. 

Let us compare the selected clauses and various features regarding the
execution of highway construction projects based on EPC mode of NHAI
conditions of contract with FIDIC contract. The below points will highlight the
difference between the documents prepared based on EPC and FIDIC.

 The FIDIC and EPC contract by NHAI brings out similar clauses
regarding the security deposit. It is observed that FIDIC specifies
clear guidelines regarding precautions and procedures for
suspension of work due to poor workmanship while NHAI specifies a
performance bond to guarantee workmanship.
 FIDIC provides an extension of time clause to be determined by the
engineer based on the early warning provided by the contractor due
to unprecedented factors while NHAI specifies the extension of time-
based on the discretion of the engineer in charge. 
 While NHAI specifies clear guidelines and a hierarchy of
responsibility to grant the variation of work, FIDIC specifies that
variation of work other than the omission of work can be executed
by the contractor with the consent of the engineer based on value
engineering principles.
 Even though dispute resolution by both the EPC contract of NHAI
and FIDIC model is based on similar time-bound procedures, wide
contrast exists in the settlement of claims by both systems as NHAI
does not specify an intermediate resolution paving the way to
arbitration and court litigation. 
In conclusion, the FIDIC Model Contracts are drafted for major construction
projects and have been successfully used on thousands of projects by
contractors across the world. It provides various benefits as they improve the
chances of success of the project. These facts lead to the logical conclusion
that the FIDIC Contracts should become the standard starting point for
construction contracts worldwide where foreign contractors are involved on
major projects.
Log In Join

The Constructor
The Constructor Navigation
 Articles 

 Community

 Categories 

 Case Studies

FIDIC Suite of Contracts

Home/ Construction Engineering & Management

 Reading time: 9 minutes

The International Federation of Consulting Engineers (FIDIC, French: Federation
Internationale des Ingenieurs-Conseil) drafts and publishes the FIDIC contract suite.
The original edition of the FIDIC books dates back to 1957. However, FIDIC has
recently published many new contracts to complement the suiteDuration 1:36

The FIDIC contract suite currently covers many projects and procurement
methodologies. As a result, any foreign contractor or consultant operating outside the
UK is likely to meet the terms of the FIDIC contract terms.

The FIDIC contract forms are organized around the extent of design and other duties
assumed by the Employer and the Contractor. As a result, rather than the nature of the
project, the suite is now linked with common procurement techniques.

Contents: [show]
FIDIC Contract Books
The FIDIC books are differentiated based on common procurement techniques and
assigned with a color name that is popularly used around the world.

1. Green Book

2. Red Book

3. Yellow Book

4. Orange Book

5. Silver Book

6. Gold Book
FIDIC Contract Books

1. Green Book- Short Form of Contract

The first edition of the Green Book was published in 1999. The Short Form of
Contract is intended for engineering and construction projects with a small capital
value. The Green Book Guidance Notes recommend that it not be employed on
projects with a contract value higher than US$500,000.
 Green Book- Short Form of Contract

The Green Book is likely to be best suited for projects which are too simple or include
repetitive work or work of short duration that does not necessitate the use of
specialized subcontractors.

It's a versatile document that encapsulates all necessary administrative and

commercial agreements. In addition, the Green Book's provisions can be readily
amended and supplemented with other alternatives integrated via the Appendix.

In this type of contract, the Contractor executes the works following the design
provided by the Employer. However, it also has a provision where the design is
included partly or wholly in the Contractor's scope.

The Green Book's standard General Conditions are suitable for most projects.
However, it is possible to add Particular Conditions to address unique project
situations if necessary.

2. Red Book- Conditions of Contract for Construction

For Building and Engineering works designed by the
Employer  
The first edition of the Red Book was published in 1999. The Red Book provides
contract conditions for construction works where the Employer provides the design.
 Red Book- Conditions of Contract for
Construction For Building and Engineering works designed by the Employer

The Red Book is not suitable where most of the projects are to be designed by the
Contractor, and for such projects, the Yellow Book or Silver Book shall be referred. 

In Red Book, the administration of the project and supervision of the works is carried
out by an Engineer who the Employer employs. The Engineer is in charge of
providing directions, validating payments, and assessing completion, among other
responsibilities.

The Contract Conditions are made up of the General Conditions and the Particular
Conditions. The Red Book contains instructions for preparing Particular Conditions if
the General Conditions must be modified. The guideline also includes other types of
security, such as a parent company guarantee, an advance payment bond, and a
retention guarantee, which may be specified as appropriate to the contract via the
Particular Conditions.

This Red Book concludes with standard forms for the Letter of Tender, the Contract
Agreement, the Appendix to Tender, and a Dispute Adjudication Agreement. 
Red Book (MDB edition) 
For many years, Multilateral Development Banks (MDBs) have compelled their
borrowers or assistance recipients to adopt the FIDIC Conditions of Contract as part
of their regular bidding papers.

The FIDIC MDB edition of the Red Book streamlines the FIDIC contract for MDBs,
their borrowers, and other project procurement stakeholders such as consulting
engineers, contractors, and contract attorneys.

3. Yellow Book- Conditions of Contract for Plant and

Design-Build
(For electrical and mechanical plant and building works, designed by the Contractor).
The first edition of Red book was published in 1999. 

Yellow Book- Conditions of Contract for Plant

and Design-Build

The Yellow Book provides contract conditions for construction works where
the Contractor carries out the design. The Yellow Book applies to the provision of
mechanical and/or electrical plants, and for the design and execution of engineering or
building or works.
Typically, the Contractor develops and provides the works in line with the Employer's
specifications, which may involve civil, electrical, mechanical, and/or construction
services.

An engineer employed by the Employer is in charge of project administration and

work management. The Engineer is in charge of providing directions, validating
payments, and assessing completion, among other things.
4. Orange Book- Conditions of Contract for Design-
Build and Turnkey
The first edition of the Red Book was published in 1999. 

The Orange Book is intended for usage in scenarios where the contractor is solely
responsible for the design. Such single-point responsibility may be advantageous for
the Employer, but the benefits may be countered by having less influence over the
design process and greater difficulty implementing different requirements.
 Orange Book- Conditions of Contract for Design-
Build and Turnkey

The Orange Book is intended to be used on turnkey contracts. The Employer's needs
often involve delivering a fully-equipped facility that is ready to go with the turn of a
key. Therefore, the specific Employer requirements must be properly documented to
specify the design, building, fixtures, fittings, and equipment that the Contractor's
design must deliver. 

The Orange Book contains many sub-clauses that FIDIC deemed are generally
applicable and included in Part I - General Conditions. Part II - Conditions of
Particular Application is included in the Orange Book to modify and supplement the
General Conditions.

A part of the Orange Book includes preparing the Part II conditions. Part I and Part II
conditions govern the parties' rights and obligations.

5. Silver Book- Conditions of Contract for

EPC/Turnkey Projects
The Silver Book is appropriate for use in the process, power, and private infrastructure
projects where a Contractor will assume complete responsibility for the project's
design and execution. 

The Silver Book transfers the risks of completion in terms of cost, time, and quality to
the Contractor; it is only suitable for use by experienced contractors who are
conversant with sophisticated risk management procedures.

Silver Book- Conditions of Contract for EPC and Turnkey

Projects

Construction is merely one aspect of a larger, more difficult commercial effort for
many huge projects. Any financial or other failures of the construction project will
risk the entire venture. The Silver Book technique may be appropriate for such
projects since it provides a higher cost certainty than the more standard FIDIC suite
forms.

The Silver Book requires the Contractor to assume a higher level of risk than is
common under most other types of contracts to get this increased cost certainty.
Therefore, the Contractor accepts the risk of ground conditions under the Silver
Book. 
Similarly, the Contractor accepts responsibility for the accuracy of the Employers
Requirements, subject to specific exceptions, which significantly differs from typical
design and build contracts.

However, not all risk is transferred to the Contractor; the Employer retains risk for
war, terrorism, and Force Majeure. Following the award of a project under the Silver
Book, the Contractor will be allowed to carry out the work as they see fit, as long as
the result meets the Employer's performance standards. 

As a result, the Employer should have only limited control over the Contractor's work.
The Silver Book contains conditions pertaining to 'Tests on Completion,' and Taking
Over occurs only once the tests have been completed successfully. 

Such conditions are critical for EPC/Turnkey projects when the contract's goal is to
provide a working facility for the Employer.

6. Gold Book- Conditions of Contract for Design, Build

and Operate Projects
In 2008, the first version of the Red Book was released. It became evident that a
contract that combined a design-build responsibility with a long-term operating
commitment was in high demand.
 Gold Book- Conditions of Contract for Design, Build and
Operate Projects

The Gold Book adopts a "green-field" DBO scenario with a 20-year operation period
and a single contract awarded to a single contracting entity (which will almost
certainly be a joint venture or consortium) to optimize the coordination of innovation,
quality, and performance.

The Contractor is not responsible for the project's funding or eventual commercial
success under the DBO contract.

FAQs
Which are the different types of FIDIC books popularly used
around the world?
The FIDIC books are differentiated based on common procurement techniques and
assigned with a color name that is popularly used around the world.
1. Green Book
2. Red Book
3. Yellow Book
4. Orange Book
5. Silver Book
6. Gold Book
What is the full form of the FIDIC contract?
The International Federation of Consulting Engineers (FIDIC, French: Federation
Internationale des Ingenieurs-Conseil) drafts and publishes the FIDIC contract suite.
The original edition of the FIDIC books dates back to 1957. However, FIDIC has
recently published many new contracts to complement the suite of contracts. 
When is the Green Book of FIDIC used?
The Green Book- Short Form of Contract is intended for engineering and construction
projects with a small capital value. The Green Book Guidance Notes recommend that
it not be employed on projects with a contract value higher than US$500,000.
Read More

Type here to search...

 HOME
 ABOUT US
 OUR LAWYERS
 CONTACT US
NEW FIDIC YELLOW BOOK 2017: MAJOR CHANGES
Jan 09 2017

By Matthew E. Smith, Inga K. Hall, and Sarah A. Drinkwater, K&L Gates,

London

Introduction

FIDIC has long been renowned for its flexible suite of standard forms of contract
for use on international construction and engineering projects. FIDIC is the
“contract of choice” for international infrastructure and process plant projects,
particularly in Eastern Europe, Africa, the Middle East, and Asia.
Two of the key strengths, or attractions, of the FIDIC suite of contracts are, firstly,
that they are capable of use across a diverse range of legal systems and, secondly,
that they have been pro-actively updated and added to over time to respond to the
needs of the industry.

By way of background to this last point, FIDIC produced a core ‘Rainbow Suite’
of 4 contracts in 1999: the Red Book (for Building and Engineering Works), the
Yellow Book (Plant and Design-Build), the Silver Book (EPC/Turnkey Projects)
and the Green Book (short form contract). Additional forms have subsequently
been added to the Rainbow Suite, including the White Book consultant’s
appointment in 2006 and the Design-Build-Operate Gold Book form in 2008. In
early 2016, FIDIC formed a working group to focus on updating its existing suite
of contracts and to add entirely new forms of contract (including sector-specific
tunnelling and renewables forms); with intentions to release such new and updated
contracts over the course of the next two years.

Following the FIDIC International Contract User’s Conference in December 2016,

at which K&L Gates partners, Matthew Smith, Kirk Durrant and Rafal Morek,
spoke on trends in amending FIDIC contracts, attendees were able to obtain a copy
of the much anticipated “special pre-release version” of the 2nd Edition of the
Yellow Book (2017) and the 5th Edition of the White Book (2017).

This Alert provides a high-level overview of the changes which will be made to the
Yellow Book, its first update in over 15 years. The 2017 Yellow Book 2nd edition
changes are likely to have wide-reaching impact as the Yellow Book remains the
most commonly used contract in the Rainbow Suite. Some of these provisions
reflect innovations introduced in the Gold Book 2008 which are now being
integrated into the new versions of the ‘1999 suite’ (Red, Yellow and Silver) but
many other changes are completely new.

One thing that is clear is that the changes are very extensive indeed, both in terms
of length and effect, and whether you are an Employer or Contractor or an
Engineer or another consultant, it is essential that you are fully aware of these
changes when the final versions of the new contracts are issued this year.
In due course we will be releasing more detailed commentaries on the ‘new’
Yellow Book and the other forms which are due for release this year as well as
conducting workshops on the use of the new forms. If you are not already on our
mailing list and wish to be informed of these, please contact Matthew
Smith (matthew.smith@klgates.com) or Rich
Paciaroni (richard.paciaroni@klgates.com).

Yellow Book 2nd edition changes

Although the basic nature of the Yellow Book as a lump sum contract on which the
contractor designs the works and assumes the risk for quantities is unchanged, the
quantity (45 additional pages) and substance of the changes which have been made
mean that the Yellow Book as we have known it will now be extensively different.

Many clauses are almost completely redrafted from the 1st edition text and many
clauses are considerably longer than they were before, with entirely new concepts
added. The 20 General Conditions now run to 108 pages, compared to the earlier
63 pages.

The main substantive changes include:

 greater definitional complexity

 changes to the role of the Engineer

 additional project management tools

 treatment of extensions of time

 the variation procedure

 tightened interim payment application procedure

 enhanced performance security provisions

 limitations of liability

 extensive changes to claims procedure

 much more extensive use of ‘time bars’ some of which ‘bite’ against
the Employer and the Engineer as well as the Contractor
  changes to agreement/determination by the Engineer and Disputes
Adjudication Board (DAB)
Greater definitional complexity

The 2nd edition takes a more complex approach to drafting and includes numerous
new definitions to reflect this, including an NEC-style ‘Contract Data’ as a new
sub-section of the Particular Conditions, which takes the place of the old Appendix
to Tender. Unlike the 1999 edition, the definitions are now listed alphabetically
rather than topically, which makes them easier to follow for novice-users, but the
greater complexity and inter-linkages between definitions and associated clauses
increase the need for great care to be taken when completing the Yellow Book
form. Notably, there has been a departure from the earlier “reasonable profit”‘
position (for example within the Variation procedure, Sub-Clause 13.3 1st edition)
by way of the insertion of a newly constituted definition, Cost Plus Profit. This is
defined to mean Cost plus the applicable percentage for profit stated in the
Contract Data, which is to be 5% if not otherwise stated. Further, Force Majeure
has been re-named “Exceptional Risk”.

The Engineer’s role

It is also noteworthy to mention that amendments have been made to the role of the
Engineer, with Sub-Clause 3.1 requiring a professional engineer not only to have
suitable qualifications, experience and competence in the main engineering
discipline but also to be fluent in the ruling language (as defined in Sub-Clause
1.4). An Engineer’s Representative has also been introduced. Sub-Clause 3.3
provides that the Engineer can appoint a representative and delegate to him the
authority necessary to act on the Engineer’s behalf at the site, except to replace the
Engineer’s Representative. The Engineer’s determination provisions in Sub-Clause
3.5 of the ‘old’ Yellow Book have been substantially amended and ‘beefed up’.
Detail has been inserted to deal with a situation where the Contractor believes an
Engineer’s instruction constitutes a Variation (but has not been stated to be so) and
a mechanism has been put in place to allow the Contractor to give Notice to the
Engineer with reasons why he cannot execute the Variation expeditiously or at all.

Additional project management tools

FIDIC has made considerable efforts to strengthen the project management tools
and clauses included in the contract.

The programme requirements in Sub-Clause 8.3 have been significantly increased

with numerous additional matters required to be shown on each programme, and
the programming software specified. The programme must also be logically-
linked, show the earliest and latest start and finish dates for each activity, the float
and critical path(s). The record-keeping requirements in Sub-Clause 6.10 have
been expanded and are now required to be included with each Sub-Clause 4.20
progress report. These changes appear supported by the provision now made in
new Sub-Clause 3.6 for the Engineer or the Contractor’s Representative to call for
meetings to discuss future work or any other matter connected with the Works.

Whilst these are two examples of expansion of existing FIDIC concepts, the 2nd
edition also contains a number of additional project management tools, such as the
inclusion of NEC3-style advance warning obligations in Sub-Clause 8.4.

Sub-Clause 8.3 of the ‘old’ Yellow, Red and Silver Books required the Contractor
to give advance warnings of any probable future events or circumstances which
may adversely affect the works. The ‘new’ Yellow Book would require both
parties to “endeavour to” give advance warnings of various matters including those
which may increase the Contract Price, cause delay or affect the performance of
the works when completed. This reflects the approach in the UK NEC contracts of
encouraging greater openness and visibility, but stops short of specifying any
specific sanction for failure to give advance warning. In contrast, the NEC
contracts provide that failure to give an advance warning may be brought into
account in assessing Contractor’s claims.

The general quality assurance provisions in Sub-Clause 4.9 now provide for
detailed Quality Management Systems and Compliance Verification Systems.

These changes are consistent with a much greater focus in standard form contracts
providing tools to assist project delivery, in addition to allocating legal and
contractual risks.

Extensions of time
The extension of time (EOT) provisions have been moved from Sub-Clause 8.4 to
8.5 and are largely unchanged in terms of the causes which may entitle the
Contractor to an extension of time (although the exceptionally adverse climatic
conditions limb has been tightened up to be limited to Unforeseeable climatic
conditions at the Site).

A new paragraph has however been added which attempts, in a limited way, to
address the issues of concurrent delay by providing that the Contractor’s
entitlement to an EOT “shall be assessed in accordance with the rules and
procedures stated in the Particular Conditions”. This serves to highlight the issue of
concurrency as a matter to be addressed by the Parties, but does not propose any
particular approach to be taken. Concurrency is often a thorny issue and this may
be why many standard form construction contracts do not address concurrency and
leave it to the general law. Parties are recommended to seek legal advice in
drafting appropriate provisions to address this issue.

Variation Procedure

A greater degree of clarity has been added to the variation procedure set out in
Sub-Clause 13.3 and the clause has been expanded considerably (it now runs to
almost two pages). In addition to the Engineer being able to request a proposal
prior to instructing a Variation, an instructed Variation must be by way of a Notice
(with a capital ‘N’). This links to the new definition of ‘Notice’ which provides
that the Notice must ‘describe itself’ as a notice and be issued in accordance with
Sub-Clause 1.3 (Notices and other communications). Sub-Clause 1.3 includes
various requirements for a valid Notice including a requirement to refer to the
relevant Sub-Clause under which it is issued. The intention is, no doubt, to avoid
uncertainty as to whether a particular communication is intended to be a Variation
instruction.

Application for Interim Payment

Sub-Clause 14.3, which deals with applications for interim payments, has been
tightened. The Contractor is now expected to submit its Statement to the Engineer
in one paper original copy, one electronic copy and additional copies as set out in
the Contract Data. Further, the list of items that the Statement is to cover has been
extended to include amounts to be added for Provisional Sums, release of retention
money and any amount to be deducted for utilities provided by the Employer for
Contractor use.

Performance Security Provisions

Performance security provisions have been significantly enhanced by the later

edition, and in particular if variations or adjustments result in an accumulative
increase or decrease of the Contract Price of more than 20% of the Accepted
Contract amount in the specific currency, then at the Employer’s request, the
Contractor shall quickly increase the amount of Performance Security in that
currency by a percentage equal to the increase. Similarly, in the event of a
decrease, the Contractor may decrease the amount of Performance Security in line
with the accumulative decrease, with this being done at the Employer’s request.
Interestingly, the Employer pays for the increase but does not receive any saving if
there is a decrease in the value of the Performance Security.

Limitations of Liability

Subtle amendments have been made restructure Sub-Clause 17.6 (Limitations of

Liability) but the clause largely remains the same. Sub-Clause 17.6 has been split
into two, the first part excluding indirect or consequential loss and loss of profit
etc. and the second part limiting the Contractor’s total liability. Each part is subject
to a list of ‘carve outs’ which are not excluded or limited.

This Sub-Clause in the pre-release version has been the subject of much debate
because one of the ‘carve outs’ is a new indemnity from the Contractor in Sub-
Clause 17.6 in relation to “any errors in the design of the works and other
professional services which results in the works not being fit for purpose”. In other
words, Contractors may be exposed to unlimited liability for fitness for purpose. It
is not yet known whether this is an error in the pre-release version that may be
picked up in the final version issued for release. However, if it does make it
through to the final version, Contractors should be aware of this exposure and the
potential risk.

Claims
The Sub-Clause dealing with Employer Claims in the 1st edition has been deleted
in its entirety, and instead of individual clause provisions for Employer claims
(former Sub-Clause 2.5) and Contractor claims (former Sub-Clause 20.1), these
have now been merged together within an enlarged Sub-Clause 20.1 and 20.2. The
new claims provisions are now much more detailed, with the claims procedure in
Sub-Clause 20.2 alone now running to almost three pages.

Under the ‘new’ pre-release Yellow Book, the Employer and Contractor are now
both subject to the same time bars for making a claim, which can now be found in
Sub-Clause 20.2. Whereas before it was only the Contractor who was subject to a
28 day period from the date it became aware of the event or should have become
aware of the event to serve Notice, the Employer must now do the same.

As such, the time bar on notification is now reciprocal whereas, prior to this
change, the Employer was not subject to a time bar and only needed to provide
Notice as soon as reasonably practicable. This appears to address a criticism that
the ‘old’ Sub-Clause 20.1 notice provisions were one-sided because there was a
time bar attaching to Contractor’s claims but no equivalent time bar in relation to
Employer’s claims against the Contractor.

Sub-Clause 20.2.2 sets out that the Engineer has a positive duty within 14 days of
receipt of the notice of claim to give a preliminary response if he considers that the
initial notice of claim is time barred.

There is also a requirement for a capital ‘N’ notice, again linked to the notice and
communication provisions in Sub-Clause 1.3. The practical effect is that, to be
valid, the Notice must describe itself as a notice and refer to the relevant clause, in
addition to complying with the other notification provisions in Sub-Clause 1.3.
This appears to be intended to add greater clarity and avoid Parties relying upon
‘informal’ notices, such as references in letters or minutes of meetings, to avoid the
effect of the time bar provisions.

The time bars apply not only to claims notification but also to the particulars of the
basis of the Claim in the ‘fully detailed claim’. This is no doubt intended to further
the objective of ensuring that claims are resolved as early as possible. Some had
suggested that the time bars in the ‘old’ FIDIC 1999 suite did not go far enough,
because they only applied to notification and the Contractor could still
subsequently roll forward the detailed claim into a ‘rolled-up’ claim to the end of
the project. The new FIDIC contracts would seek to address this and lock the
parties into an escalating procedure leading to agreement or determination or
ultimately to arbitration.

In addition to the 28 day period to notify the Claim, the Employer is also under the
same obligation as the Contractor to submit a ‘fully detailed claim’ comprising of a
description of the event, particulars of claim and amount and contemporary
records, within the prescribed period.

The Engineer is also required, as another positive obligation, to give a Notice to

the effect that the claim has lapsed if the claiming Party fails to provide, within the
prescribed period, particulars of the contractual or other basis of the Claim in a
fully detailed claim. Accordingly, the time bar on the fully detailed claim only
appears to apply if the fully detailed claim has either not been provided at all, or
completely fails to set out its contractual or legal basis.

The prescribed period for serving a fully detailed claim is 42 days after the
claiming party becomes aware, or ought to have become aware of the event or
circumstance giving rise to the claim, or “such other period (if any) as may be
proposed by the claiming party and agreed by the Engineer”. It appears that the
Engineer may well be in the unenviable, and difficult position, of having to give
notice that the Employer’s claim is time-barred, or decide whether to extend the
period in circumstances where a claim would otherwise be time-barred.

The time bars and preliminary notice provisions are subject to a new Sub-Clause
20.3, “Waiver of Time-limits”. This builds on the approach in the Gold Book of
giving the Dispute Adjudication Board (DAB) the right to override the time bar.

Sub-Clause 20.3 provides that the claiming party may  apply to the DAB if the
Engineer has issued a notice to the effect that the claim is time barred and the
claiming party believes there are circumstances which justify the late submission
of its preliminary or fully detailed claim. A failure to submit this to the DAB
within 14 days of the Engineer’s notice deems the Engineer’s notice to be final and
conclusive.
The DAB has power to override the time bars where, in all the circumstances, it is
“fair and reasonable” to do so. Sub-Clause 20.3 provides a non-exhaustive list of
such circumstances. These include the extent to which the other Party would be
prejudiced by acceptance of the late submission and any evidence of the other
Party’s prior knowledge of the Claim.

Agreement or Determination

Far greater detail has been inserted in relation to the role of the Engineer in
arriving at determinations. The provisions for determination have been expanded
from two paragraphs in the ‘old’ Yellow Book to over two pages.

In particular, the job and function of the Engineer has been more specifically
described. Among other things, the Engineer has a greater role to play in helping
the parties to reach agreement within specific time limits. For example, the
Engineer has duty to consult with the Parties and facilitate time limits for achieving
“agreement” (42 days). A failure to achieve agreement within this 42 day period
gives the Engineer a second time limit (a further 42 days) to arrive at a fair
determination. A failure by the Engineer to arrive at a determination within the
timescales is deemed a rejection, and allows for the commencement of dispute
resolution proceedings. Provision has also been made for the dissatisfaction of
either party with the Engineer’s determination. A Notice of Dissatisfaction (NOD)
can be made by the dissatisfied party to the other Party with a copy to the
Engineer, provided it is done so within 28 days. A failure to comply with this time
period means that the dispute is final and binding on the parties, unless revised by
a DAB. A ‘fast track’ to obtaining a DAB decision is also provided for under this
Sub-Clause.

The Engineer is required to act ‘neutrally between the Parties’ when carrying out
his duties under the agreement or determination provisions. The word ‘neutral’ is
not defined and may be a fruitful area of debate.

Dispute Avoidance/Adjudication Board

Sub-Clause 21 includes a requirement for a standing DAB (not ad hoc). The name
of the DAB has been changed to “Dispute Avoidance/Adjudication Board”,
perhaps to give greater emphasis to the DAB’s role in avoiding disputes, and the
DAB has been integrated into the escalating claims resolution procedure. Under
Sub-Clause 21.4.4 provides that if a party is dissatisfied with the DAB decision it
must give a notice of dissatisfaction (NOD) within 28 days and must commence
arbitration within a further 182 days. If neither party commences arbitration within
that period the NOD “shall be deemed to have lapsed and no longer be valid”.

Conclusion

The updates to the FIDIC Yellow Book 1st Edition are substantial, reflecting the
length of time and changes in the construction industry since 1999. It appears that
many changes to the FIDIC Yellow Book build on the positive changes introduced
in the Gold Book in 2008 as well as reflecting the success of the NEC3 Contract
suite to date, which has focused heavily on project management.

Some of the most important changes appear to be practical, in particular the update
to the claims provisions which will encourage faster dispute resolution. However,
some areas of the “special pre-release version” of the Yellow Book are likely to
generate debate and may be the focus of negotiation and amendment by contracting
parties.

The increased prevalence of time bars, together with the greater complexity of the
claims procedure and notification requirements and the greater integration of the
DAB into the claims procedure, are likely to make the ‘new’ Yellow Book much
more ‘resource hungry’ in terms of administration for all parties, and particularly
the Engineer. They may also increase the number of claims as Parties notify and
submit claims to avoid the time bars and refer disputes over time bars to the DAB.
This will no doubt be an area of debate: some may see this as an unnecessary
additional burden on the project and a distraction from the overriding objective of
progressing the works, whereas others may see it is necessary to allow disputes to
be resolved as and when they arise and avoid claims rolling up into more
significant disputes.

We will issue separate updates on the pre-release 2017 White Book shortly and on
the revised Red and Silver Book and the other new forms as these are published.

If you have any questions or wish to discuss specific issues raised in this alert,
please contact any of the authors Matthew
 Smith (matthew.smith@klgates.com), Inga Hall (inga.hall@klgates.com)
or Sarah Drinkwater (sarah.drinkwater@klgates.com).
Drones in Construction: Legal Overview

New UAE Penal Law Allowing for the Imprisonment of Biased Arbitrators Leads to Widespread
Concern and Uncertainty in International Arbitration Community

Search Blog
Type here to search...

Subscribe to Blog Updates

Sign up

Your Email Address

Recent Posts

 RECENT CHANGES TO TENDER LAW REGULATIONS IN QATAR

 Justin Leonelli named Regional Director for Delaware Valley Region

 AAA AMENDMENTS TO THE COMMERCIAL ARBITRATION RULES AND MEDIATION

PROCEDURES

 CLARITY IS KEY – HOW DO YOU SERVE A VALID PAY LESS NOTICE?

 REGULATING HEAT NETWORKS:  Energy security bill to the rescue? 

Archives

Archives                                                                                                                                                                           

Categories

Categories                   

Contact Information

Construction Law Blog

K&L Gates
210 Sixth Avenue
Pittsburgh, PA 15222
Phone: 412.355.6500
Fax: 412.355.6501

K&L Gates practices fully integrated offices located in the United States, Asia, Australia, Europe, the
Middle East and South America and represents leading global corporations, growth and middle-market
companies, capital markets participants and entrepreneurs in every major industry group as well as public
sector entities, educational institutions, philanthropic organizations and individuals. For more information
about K&L Gates or its locations, practices and registrations, visit www.klgates.com.

This blog/Web site is made available by the contributing lawyers or law firm publisher solely for
educational purposes to provide general information about general legal principles and not to provide
specific legal advice applicable to any particular circumstance. By using this blog/Web site, you
understand that there is no attorney client relationship intended or formed between you and the blog/Web
site publisher or any contributing lawyer. The blog/Web site should not be used as a substitute for
competent legal advice from a lawyer you have retained and who has agreed to represent you.

Portions of this Web site may contain Attorney Advertising under the rules of some states. Prior results do
not guarantee a similar outcome.

Follow Us
linkedin


 
twitter


 
youtube


 
facebook


 
googleplus


 
rss


Copyright © 2022, K&L Gates LLP. All Rights Reserved.
 Privacy Policy
 Disclaimer