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The Law School

BSM135
International Construction Contracts
Topic One: Introduction to International
Construction Contracts
01 Topic 1: Introduction to International Construction
Topic Preview
This first topic will consider the following:
1. Understanding international construction practice
2. Differences between domestic construction and international construction
practice
3 Brief history of international construction contracts
4. Why use standard form contracts in international projects
5. Major forms of International Construction Contracts
6. Brief introduction to procurement/delivery methods

Topic Content

1. Understanding International Construction practice

International construction practice has provided the world with many beautiful
sights to behold and has made possible the provision of essential infrastructure in
very challenging and in previously impossible locations. Employing innovative
technological structures and complex financing instruments, the sector connects
designs from one part of the world to expertise and finance in another, translate
them into completed projects undertaken by workers of different nationalities in yet
another part of our world, thus traversing a variety of languages and cultures.

International Construction project in its basic form is aptly described by S B

Stebbings as ʻ…projects where the contractor, lead consultant or the employer is
not of the same domicile and at least one of them is working outside its country of
originʼ. International Construction entails engaging resources (whether technical or
financial) from different sources across the globe for the delivery of major aspects
of construction/engineering projects. Due to the increasing involvement of lenders
in projects, a predominantly foreign financed construction project (especially
where the project is funded by one of the multilateral development banks) will
qualify as an international project.

International projects involve complex and multidimensional contractual

relationships; these could include a joint venture comprising local and international
contractors, an employer that lies within a larger bureaucratic structure with
different levels of authority, or international lenders acting in a syndicate. Each set
of relationship is governed by series of documents. The mix of possible documents
in an international construction project could include:

1. An agreement of “business terms” indicating such things as the names

of the parties, description of the project, and the contract sum;
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2. The construction contract indicating the general and special conditions of the
contract, stating the basic rights, duties, and obligations of the parties;
3. The agreement with the lenders including guarantees and step-in rights;
4. The tender documents;
5. Time and cost schedules;
6. Insurance agreements, consultancy and confidentiality agreements;
7. Others i.e. ancillary agreements, exceptions, manuals, protocols, payment
schedules, specifications and appendices etc.

These documents usually translate to thousands of gigabytes in electronic data and

an avalanche of paper if printed out. International construction is usually
concerned with high net worth projects which create a different matrix of risks and
challenges. These projects are often large and technically complex. Examples of
international construction projects with complex characteristics abound and can be
found across different regions of the world. Letʼs look at the Hong Kong airport
project as an illustration here. The project required 1248 hectare reclamation, a
34km rail and road access, over 30,000 site workers and a web of 225
agreements entered into with contractors from more than ten different countries
including China, Japan, Hong Kong, United Kingdom, Holland, France, Belgium,
New Zealand, Australia, South Africa, Italy amongst others, at a cost of
approximately US $ 20 billion. The construction industry accounts for
approximately 10% of the global Gross Domestic Product (GDP) translating into
receipts of over 7.5 trillion US Dollars. Information from the European International
contractors (the EIC is Europeʼs trade association of construction contractors
involved in international projects) indicates that the turn over of its members in
2016 (for international projects only) was in excess of one hundred and
seventy-one billion Euros.

The growth of international construction is attributable to the increased demand for

infrastructure services across the globe in the past three decades. Bruner and
OʼConnor on construction Law, list seven reasons for the growth of international
construction projects, to wit:
1. Advances in communication technology.
2. Increased political stability and military security.
3. Democratisation of national governments and movement towards cooperation
between nations.
4. Increased interdependency in trade and banking between nations evidenced by
various trade agreements i.e. GATT.
5. The desire of project controllers to obtain the best available resource at the
lowest price located in any part of the world, this trend is specially promoted by
multinational corporations and multilateral lending agencies.
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6. Continuous increase in the size and financial requirements of construction
projects prompting action to spread risks
7. Willingness by international construction companies to compete for jobs in
different jurisdictions. The global economic problems make going international
even more crucial.

2. What differentiates domestic construction from international

construction projects?
Complexity and size have been used to differentiate domestic and international
construction projects. The latter is often thought to involve more complex processes.
However, this is not a very helpful analytical tool: many domestic projects have
matched their international counterparts in terms of size and complexity. So what
makes a project international and another domestic?

Professor Nael G Bunni has suggested that a series of factors are peculiar to
international construction. His list include:
1. Vast sums of money are frequently provided by various banks, financial
institutions, and insurance companies, with guarantees.
2. Construction people usually come from different social classes, and
from different countries and cultures.
3. Construction people also come from different firms. Extensive interaction is
required between many of the firms involved in construction, including those
engaged as suppliers, manufacturers, subcontractors and contractors, each with its
own set of commitments and goals.
4. International construction projects are susceptible to unusual risk, i.e. cultural
risk.
5. Many international construction projects are constructed in isolated regions of
difficult terrain, sometimes stretching over extensive areas,
being exposed to natural hazards of unpredictable intensity, frequency, and
return.

The two important factors that distinguish a local construction project

from an international construction project are:
1. The existence of significant foreign element to the project and
2. The projectʼs ʻunusual risksʼ on account of 1) above – these are
risks that are not common to domestic projects and also includes risks although
present in domestic projects, assumes enhanced significance due to the structure of
an international project.

While the first factor is self-explanatory, the second requires further study.
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2.A. Risks in International Construction Practice
Risk has been the subject of different definitions by various bodies. To understand
the risks involved in international construction practice it is useful to understand
what risk means. The Royal Society in a study on risk analysis, perception and
management in 1992 defined risk using the point of view of an adverse occurrence
as “a combination of the probability, or frequency, of occurrence of a defined
hazard and the magnitude of the consequences of the occurrence.” Hazard as
used in the definition was described as “a situation that could occur during the
lifetime of a product, system or plant that has the potential for human injury,
damage to property, damage to the environment, or economic loss.” Another
definition from this view point defines risks as “the probability that a particular
adverse events occurs during a stated period of time or results from a particular
challenge.

The approach of the latest Australia/New Zealand Standard for Risk Management
(AS/NZS ISO 31000: 2009) is significantly different; their definition focuses on the
dual nature of risk and the possibility of a positive outcome. It defines risk as “the
effect of uncertainty on objectives”. This effect may be negative or positive. The
definition of risk in the Risk Analysis and Management of Projects (RAMP) ( the
third edition published 2014), a collaboration between the Institute of Civil
Engineers (ICE) and the Institute of Actuaries in the United Kingdom, has also
traditionally viewed risk, from the point of view of an event with two possible
outcomes. In construction practice, risk is generally understood as the existence of
potential or actual threats that would affect the objective of a project during the
different stages of construction and use. The fact that a risk could result in a positive
consequence is a relatively recent notion in the industry.

In terms of the risks the construction industry faces, E.J Rimmer writing in 1939 puts
the unique position of the industry aptly when he stated thus: “The subject-matter of
an engineering contract is generally such as necessitates that the documents of
which the contract is composed must make provision for contingencies and events
of a specialnature, and it is chiefly in this respect that it has peculiarities not to be
found in other forms of contract, and is often inevitably of considerable length”.

He added:
“The facts that contract works are to be constructed in or erected and fixed on to
land, and cannot be rejected and sent back to the Contractor if they prove to be
unsatisfactory; that the works are to be carried out in open air under unstable
conditions with material and labour of varying quality; that the conditions of
excavation and foundation cannot be entirely foreseen until the ground is opened
up; that execution of the works may result in damage to property belonging to
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other persons; that works of specialists may have to be carried out concurrently
with work done by the general contractor; that the period of the contract may
extend over several years and the Employer may desire the use of completed parts
of the work before final completion of the whole; and that the amount of money
involved is often such as to imperil the financial resources of a contractor who has
made an unwise tender.”

He concluded that
“...[This] necessitate that terms should be inserted in engineering contracts which
would be superfluous to ordinary commercial contracts of purchase and sale.”

A casual observation of a minor construction project will reveal the various layers
of risk inherent therein. From accurate design layouts, to purchasing the right
materials, to successfully supervising workers, meeting budgetary targets etc.,
construction projects pose considerable challenges and uncertainties.

These challenges are multiplied in international construction practice. Materials

may be sourced from different locations, in different currencies. Workers may
come from different nationalities and work in different locations. The financier
or lending bank may have an official language different from the language of
the lead contractor. The employer could be a sovereign government creating
both payment and enforcement risks. The sheer volume of papers when disputes
arise- design papers, comments, instructions, telephone messages etc. all created in
the course of one international construction project could fill a small office. Below
is a non-exhaustive list of the common risks associated with international
construction practice:
1. Profit reparation and currency exchange risk
2. Political risk – disruption of project due to wars, unrest etc.
3. Cultural risk
4. Double taxation risk
5. Expropriation risk especially in build–operate–transfer
type agreements
6. Corruption and money laundering risk
7. Regulatory and payment risk

Where projects carry some or all of the above in its risk profile, it would indicate
that it is most probably an international construction project.

The appropriate allocation of these risks is one of the main concerns of construction
contracts especially in common law countries. The understanding of the risk
inherent in a project influences to a large extent the choice of contract
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(contract terms) for the project. This is very important in international construction
practice where it has been observed that a substantial percentage of participating
stakeholders (contractors, subcontractors, consultants) do not address their minds
sufficiently to the risks and severity of impact that such risks will have on the
delivery of the project. One reason for this is that the nature of international
projects requires segmentation of activities into phases, this usually creates
compartmentalization and information disconnect between stakeholders. This will
often obscure the risk profile of a project leaving the undiscerning participant open
to various unfavourable outcomes.

2.B. Difference between International Construction Contracts and

Domestic Construction Contracts
There is a historical and ongoing argument over the utility of creating different
contracts for domestic and international projects. The argument is premised on the
argumentthat, whatever favourable provisions are included for the benefit of an
employer/ contractor in either segment [domestic or international] should be
passed to the stakeholder in the other.

The counter argument points to the difference in the risk profile of domestic and
international projects and the need to create contracts, which specifically cater for
the risk of each segment of the industry. The decision on the choice of contract for
any project is determined by the parties. However as a general trend, domestic
projects use one of the many standard forms available within the jurisdiction. For
instance, in the United Kingdom the Joint Contract Tribunal (JCT) forms and the
NEC3 are popular. While standard forms used domestically are increasingly being
used for international projects, it is worth noting that parties to international
projects will usually use standard contract forms with established reputation and
association with successful international project delivery. The rationale here is that
these internationally recognised forms provide mechanisms to manage some or all
of the risks associated with international projects. Another rationale is that while
domestic contracts are amended and drafted with a particular legal system in view,
international construction contracts are drafted with multiple jurisdictions in view.

3. Brief History of International Construction Contracts

From the start the institutions that issue industry standard agreements have been
minded to separate domestic and international contracts. ICE ʻGeneral Conditions
of contract and forms of Tender, Agreement, and Bond for use in connection with
Works of Civil Engineering Constructionʼ, is arguably the first form to go
international. After various amendments the last being by 1950, it was finally
prepared for the international audience. This was because the ICE took notice of
the increasing appeal of its form among many professional groupings in the world.
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Many contracts adopted the format and content of the ICE contract for
international projects. To go beyond the minor changes usually employed when
using the forms in those countries, and to provide for a fair international contract,
the association drew up a new version of the contract differentiated from the
domestic version by the blue colour of its cover. The major changes in the
international version when compared to the domestic form included:
1. The allocation of risk of damage due to unforeseen forces of nature;
this was shifted to the employer from the contractor.
2. Requirement for joint insurance between the parties to secure
against third party risks.
3. Provision for amendment of the contract price where the net effect of a variation
is found to result in the reduction or addition of the sum stated in the tender by
15%.

The culture of designating a contract form as ʻinternationalʼ was followed by the

Fédération Internationale des Ingénieurs Conseils 3 (FIDIC) when it released its first
form in 1957. This culture has been preserved by the Engineering Advancement
Association of Japan (ENAA) whose standard forms maintain the tag
ʻinternationalʼ and Institution of Chemical Engineers (IChemE) which publishes two
parallel forms one for domestic projects and another designated international for
international projects.

In recent years there has been a shift of emphasis from differentiating domestic and
international contracts. FIDIC in the 1987 fourth edition of the Red Book
deliberately dropped the word ʻinternationalʼ in its name and invited parties to use
the contract for both domestic and international projects. The NEC (formerly New
Engineering Contract) published by the ICE is used for both international and
domestic projects; it provides alternative terms that cater for the risk profile of
domestic and international projects.For a particular contract to be fit for purpose it
must anticipate the challenges and the risk in a project. Some contract forms have
embraced the risk and challenges inherent in international construction and
provide appropriate provisions. These contracts are therefore regularly used in
international construction projects. The next section examines why the industry
adopts standard forms. This is followed by an overview of international
construction contracts.

4. Why use standard form in international projects

International commerce has seen a movement towards harmonization of rules and
practice. The need to allow less burdensome transfer of goods and services has
seen the development of rules and guidelines by various international
organisations with the aim of harmonizing rules and practices in different sectors.
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Notable examples of such harmonizing efforts include the Organization for
Economic Cooperation and Developmentʼs (OECD) contract guidelines, the New
York Convention on the enforcement of arbitration awards in different jurisdictions
and the United Nationʼs Convention on Contracts for the International Sale of
Goods (CISG) amongst others. Construction lawʼs contribution to this process
has been germane even though somewhat different. Standard form contracts have
been the basis for international construction projects for nearly 70 years now.
Unlike other spheres of commerce where standard form contracts are developed
by individual organisations /companies based on cumulative experience and
drafted mainly to protect the organization, in the construction industry standard
forms are prepared by professional organisations with the aim to share risk
equitably.

The advantages of using standard forms of contract in international construction

projects are numerous. Beyond providing predictability, familiarity with the form
and certainty, it also reduces the costs of negotiating an agreement of similar
nature on a repetitive basis. It also removes the balance of bargaining power
conundrum, where the party with superior bargaining power would force onerous
terms on the other party. Standard forms also allow for a more comprehensive
coverage of risk and points the parties to the areas where beneficial and
substantial negotiations could be undertaken without dissipating energy on the less
important aspects.

5. What are the major forms of international construction

contracts?
There are many forms of international construction contracts as well as domestic
contracts which are increasingly gaining grounds in the international construction
market. It would be an error to assume that all the contracts say the same thing in
a different way. As this module progresses, you will gain knowledge of the
significant differences between the popular types of international construction
contracts in use. The following overview acknowledges the work of International
Bar Association subcommittee TI, whose work forms the basis of the overview.
Please note that what follows is exactly what it is meant to be, an outline. As this
module progresses, we shall look at some of the contracts, particularly the FIDIC
and the NEC forms in much detail.

5.1. Fédération Internationale des Ingénieurs-Conseils (FIDIC)

FIDIC produces standard forms of contract for civil engineering construction which
are used throughout the world. FIDIC contracts are often referred to as the
international standard. They are best known by their colours. This module will study
the major colours of the FIDIC suites of contract, these will include, the old Red
Book (1987),
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the 1999 Rainbow suite- the Red Book, the Yellow Book and the Silver Book; also
the Pink Book and the Gold Book. We shall also introduce you to the new FIDIC
forms released in December 2017.

Contracts under the FIDIC family include:

1. Conditions of Contract for Construction (First Edition, 1999) - Red Book.
2. Conditions of Contract for Plant and Design-Build (First Edition, 1999)- Yellow
Book.
3. Conditions of Contract for EPC/Turnkey Projects (First Edition, 1999)- Silver
Book.
4. Short Form of Contract (First Edition, 1999) - Green Book
5. Conditions of Contract for Construction (the MDB Harmonised Edition, 2010) -
Pink Book

Other Forms of FIDIC Contracts:

6. Form of Contract for Dredging and Reclamation Works “Dredgers Contract” -
Blue Book

7. A form of agreement for engagement of Consultants- White Book

8. A form of agreement for Sub-consultants
8. A joint venture agreement form

In December 2017, FIDIC released its latest forms – the second editions of the
Red Book, Yellow Book and Silver Book. We will look at the main features of
these forms under Topic 6.

5.2. Institution of Civil Engineers (ICE)

ICE is an independent engineering institution and represents approximately
80,000 civil engineers worldwide. Principal membership is in the United
Kingdom, but it has memberships in China, Hong Kong, Russia, India and roughly
150 other countries.

The ICE documents are traditionally for Engineering Contractors. Pre1987

versions of FIDIC were based on ICE forms but there is far less similarity now.
Traditionally, they were Engineer-based contracts where the Employer appointed
the Engineer.

Available Documents
1. ICE Conditions of Contract Measurement Version 7th Edition: July 2004
2. ICE Conditions of Contract Design and Construct 2nd Edition: July 2004
3. ICE Conditions of Contract Minor Works 3rd Edition: July 2004
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4. ICE Conditions of Contract Term Version: July 2004
5. ICE Conditions of Contract Ground Investigation 2nd Edition: July 2004
6. Agreement for Consultancy Work in respect of Domestic or Small Works:
amendments.

From August 2011, ICE withdrew from the publication of the ICE conditions. It has
now been taken over by other organisations (Association for Consultancy and
Engineering (ACE) and the Civil Engineering Contractors Association (CECA))
and renamed the Infrastructure and Construction Contract (ICC).

The New Engineering Contract (the NEC)

The NEC was developed by ICE in the early 1990s with the aim of introducing a
new form of non-adversarial contract strategy which would contribute towards
more effective and smoother management of projects. NEC is now in its Fourth
Edition. The third edition is currently used across the spectrum of engineering and
construction activities by a wide range of clients, consultants and contractors. Its
use encompasses projects large and small, civil engineering and building,
national and international. It has been used on a number of high profile projects
including the 2012 Olympics and the on-going Crossrail project. Internationally,
NEC has been used on projects such as the Christchurch Art Gallery re-level
project in New Zealand, the Mt. Mercer wind farm project completed in 2014 in
Australia and the Witwatersrand University project in South Africa.

The NEC is radically different from previous standard forms. It is a legal

framework of project management procedures designed to handle all aspects of
the management of engineering and construction projects. In this module, we will
study the provisions of NEC with emphasis on the NEC 3 ECC. The NEC4
Contract refines and fill gaps identified with NEC3. To this extent, it represents an
improvement over the forms preceding it. Details of the changes introduced by
NEC4 will be examined under Topic 10.

Structure of the NEC

The main NEC3 contract, the Engineering and Construction Contract (ECC) and
its associated sub-contract, are based on nine core clauses, a set of main clauses
(six main options) and a series of secondary option clauses.
The six main Option clauses are:
Option A: Priced contract with activity schedule
Option B: Priced contract with bill of quantities
Option C: Target contract with activity schedule
Option D: Target contract with bill of quantities
Option E: Cost reimbursable contract
Option F: Management contract
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Depending on the Main Option Clause selected, an Employee may incorporated
additional clauses by selecting from series of secondary options (19 in total).
These include Options X1(price adjustment for inflation), X2 (changes in the law)
and X3 (Multiple currencies). The Main Options under both NEC3 and NEC4 are
the same but NEC4 introduces some additional secondary option
clauses and has also modified the names of some of the existing secondary options
under NEC3. We shall examine the content of the NEC Conditions in some detail
under Topics 9 and 10.

5.3. III. Institution of Electrical Engineers (IEE)

The IEE, based in London, England, is an international organization for electronics,
electrical, manufacturing and IT professionals, with specifically tailored products,
services and qualifications to meet the needs of today's technology industry.
The IEE, jointly with the Institution of Mechanical Engineers (IMechE), issues a
range of model forms of general conditions of contract (including, inter alia, Forms
of Tender, Agreements and Performance Bonds) and guides (known as
"commentaries") to their use. These are Model Forms of Contract for electrical and
mechanical work and consultancy. The contents of these publications are decided
by a joint committee of IEE /IMechE members and others representing the various
interests of the electrical and mechanical engineering industries. IEE has developed
the Joint IMechE/IEE Model Forms of General Conditions of Contract. Apart from
Model Form MF/4 and Model Form MF/3, the model forms have also been
adopted and are recommended by the Association of Consulting Engineers (ACE).

A Model Forms Information Pack which expands on the Model Forms and which
contains copies of all Supplements, Amendment Slips and Amendment Lists relating
to the current range of Model Forms is available on the IEE website. The website
also sets forth the terms and conditions upon which a licence to install and use the
texts of the IEE copyright Model Forms on users' computing systems may be
purchased.

5.4. Institute of Chemical Engineers

IChemE as an organisation, is similar to IMechE/IEE, but is interested in production
of contracts for the specialist process industry. The forms of contract have been
significantly updated in recent years to cover the spectrum of contract possibilities.
Like FIDIC, IChemE contracts are often known by their colour and a list of available
contracts is set out below:

IChemE (Green): Form of Contract –Reimbursable Contracts, 4th Edn. 2013

IChemE (Brown): Form of Contract – Subcontract for Civil Engineering Works, 3rd
Edn. 2013
12 IChemE (Orange): Minor Works 2nd Ed 2003

IChemE (Red): Form of Contract – Lump Sum Contracts, 5th Edn. 2013

IChemE (Yellow): Sub Contracts 4th Edn. 2013

IChemE (Burgundy): Target Cost, 2nd Edn. 2013

IChemE (Silver): Professional Services Agreement, 2015

IChemE (White): Rules for Expert Determination 3rd Ed 2001

IChemE (Pink): Arbitration Procedures

5.5. The Joint Contracts Tribunal (JCT)

Since 1931, the JCT, based in London, England, has been producing standard
forms of contract, guidance notes and other standard documents used in the
construction industry. The JCT range of contracts are fundamentally building rather
than civil engineering contracts but are used for projects where both building and
civil engineering works are involved. They cover orthodox contracting and design
and build and management contracts. Some forms deal with less complicated or
expensive forms of contract. The major types of form are listed below. Traditionally,
English building contracts have been divided into With and Without Quantities
forms to cover both methods of measurement.

The JCT helpfully publishes a document entitled – Practice Note – Deciding on the
appropriate JCT Contract, which provides guidance on what they would consider
to be the appropriate JCT Contract for different situations, e.g. design and build,
traditional contracting, cost plus or management. The note also contains a detailed
list of JCT style contracts available.

In a radical departure from previous JCT forms, the JCT launched on 1 March
2007, a new set of contract documents entitled JCT – Constructing Excellence. JCT
following changes in legislation in the UK, published in September 2011, the 2011
set of JCT contracts:

1. 2011 Standard Form of Building Contract

2. 2011 Intermediate Form of Building Contract
3. 2011 Minor Works Building contract among others
The body released the 2016 Edition of the JCT suite of contracts during the latter
part of 2016.
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The following is a list of the forms included in the new (2016) edition:

1. Standard Building Contract With Quantities (SBC/Q)

2. Standard Building Contract Without Quantities (SBC/XQ)
3. Standard Building Contract With Approximate Quantities (SBC/AQ)
4. Standard Building Contract Guide (SBC/G)
5. Standard Building Sub-Contract Agreement (SBCSub/A)
6. Standard Building Sub-Contract Conditions (SBCSub/C)
7. Standard Building Sub-Contract with sub-contractorʼs design Agreement
(SBCSub/D/A)
8. Standard Building Sub-Contract with sub-contractorʼs design Conditions
(SBCSub/D/C)
9. Standard Building Sub-Contract Guide (SBCSub/G)
10.Standard Building Contract With Quantities (SBC/Q) Tracked Change
Document
11.Standard Building Contract Without Quantities (SBC/XQ) Tracked Change
Document
12.Standard Building Contract With Approximate Quantities (SBC/AQ) Tracked
Change Document
13. Collateral Warranties for different types of Works, 2016.

5.6. International Chamber of Commerce (ICC)

The Commission on Commercial Law and Practice (CLP) (one of the Commissions of
the ICC) based in Paris, France, has developed the ICC model contracts and ICC
model clauses, which give parties a neutral framework for their contractual
relationships. These contracts and clauses were carefully drafted by the experts of
the CLP Commission without expressing a bias for any one particular legal system.
The idea behind ICC model contracts and clauses is to provide a sound legal basis
upon which parties to international contracts can quickly establish an evenhanded
agreement acceptable to both sides. The contracts are constructed to protect the
interests of all parties, combining a single framework of rules with flexible
provisions allowing the parties to insert their own requirements. Currently, the
following ICC model contracts have been developed:

1. ICC Model Turnkey Supply of an Industrial Plant Contract, 2003

2. ICC Model Turnkey Contract for Major Projects, 2007
2. ICC Model Sub-contract (for Turnkey Projects), 2011
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5.7. Liaison Group of the European Mechanical, Electrical, Electronic
and Metalworking Industries (ORGALIME)
ORGALIME publishes Model forms covering a wide range of issues including
construction. In March 2003, the ORGALIME Turnkey Contract for Industrial Works
was published. It is their most comprehensive contract publication on the subject.
ORGALIMEʼs premise was that purchasers and contractors in the engineering
sector, who had used existing models, had not found them as suitable for industrial
works as for civil engineering contracts. In April 2015, it published the Model form
of Consortium Agreement to be used where two or more companies agree to
cooperate to tender and deliver a large industrial installation(s).

5.8. ENAA the Engineering Advancement Association of Japan (ENAA)

ENAA is a non-profit organization established in 1978 with the support of the
Ministry of International Trade & Industries Japan to promote the advancement of
engineering capabilities and the development of the engineering service industry.
A major feature of ENAA is the close cooperation it receives from its numerous
member engineering firms which cover a broad spectrum of the industry.

ENAA publishes model contract form for international construction; these include
International Contract for Process Plant construction (Turnkey Lump sum
Basis),2010, the ENAA Model Form - International Contract for Power Plant
Construction, 2012 and the ENAA Model Form-International Contract for
Engineering, Procurement and Supply for Plant Construction, 2013. In preparing
these forms ENAA point to having engaged in substantial consultations.

6. Procurement/Project delivery Methods

A number of factors may determine what type of contract form may be used on a
project. These include the procurement or delivery method and types of
construction contracts (which invariably also reflect payment arrangements).
There are different types of delivery methods suitable for international construction
projects. These include the traditional design-bid-build method, design and build,
management contracting and construction management. Others often used on
major projects include prime contracting, alliancing, partnering (though there still
remain some debate on whether partnering is a procurement method),
Public-Private Partnerships (PPP), Build –Operate and Transfer (BOT) and Design –
Build and Operate (DBO). The procurement option is also dictated by several
factors including the nature of the project, the parties, the project location and
funding requirements.

Whatever the options may be, the choices parties make regarding the delivery
method influences substantially the kind of contract form they will ultimately use.
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A close observation of the various forms reviewed will disclose that some of them
are modelled on the various types of delivery methods outlined above. The JCT
Suite of contract forms provides a good example of standard forms which have
been fashioned to cater for most of these procurement/delivery options. The FIDIC
Red Book, 1999 is said to be suitable for situations where the Employer or its
representative is primarily responsible for the design of the project. In most
instances where the Red Book will be used, the design is likely to be separated from
construction. This reflects the traditional design-bid-build procurement method.
Similarly, the Yellow Book is suitable for design and build projects, whilst the Silver
Book is primarily suitable for turnkey projects.

Some of the standard forms make contract types primary distinguishing feature.
Thus, a standard form may be more suitable for use where the proposed contract
is a lump sum or fixed price, prime cost/cost plus or reimbursable contract, target
cost contract or unit price. A good example here is the NEC3 Options A-F (see
Section 5.2 above). It is important that you read further on the delivery methods
and the contract types if you are not already familiar with them. This will provide
the relevant context for subsequent discussions on the various standard forms.
01
The Law School
BSM135
International Construction Contracts
Topic One Activities
01 Topic 1 Activities
This week, you have two brief questions. Please attempt all. Your
answers should be pithy and cogent but brief (answers to both
questions (not each question) should not exceed 400 words in total).

Activity 1
With reference to pages 5/6 of your lecture notes, write a brief note explaining
any two of the risks outlined there.Consider how the risks could affect an
international construction project and your recommendations on how to manage
them.

Activity 2
Read through the two scenarios below and write your opinion on whether the
transactions qualify as international construction projects. You should provide
reasons for your position:

A. The construction of the dam in an area with a successful and an upwardly

mobile population presented significant challenges. There were very few skilled
and unskilled workers available in the labour force to work on the site. To this end
the company reached a unique agreement with the labour union that allowed over
2000 legal migrants to be employed to work in the site under local labour laws.

B. Peter & Peter is a leading construction design consultancy based in the United
States. Peter the managing partner has been approached to lead the firm in
contributing expertise to the design of the worldʼs greenest eco town. The town is
to be built in India. Peter was approached by his golf playing partner and long
standing friend Paul who leads an American firm of international contractors. Peter
& Peter will be sub-consultants to Paulʼs firm.

[There will be general feedback for this exercise –no personalized feedback will
be provided]
01
The Law School
BSM135
International Construction Contracts
Topic 2: Introduction to FIDIC
and the Old Books
01 Topic 2: Introduction to FIDIC and the Old Books

Topic Preview
This topic will examine the history of FIDIC, introduce FIDIC contracts generally
and examine the provisions of:
- the fourth edition of the FIDIC Red Book;
- the Old Yellow Book; and
- the Orange Book

Topic Content

1. A Brief history of FIDIC

FIDIC is a French language acronym for Federation Internationale des Ingenieurs

Conseils, known in English as the International Federation of Consulting Engineers.
It was started in 1913 by the trio of France, Belgium and Switzerland. The United
Kingdom joined the Federation in 1949. FIDIC is headquartered in Switzerland
and now boasts of about 100 member associations and 65 affiliates as of 2018.
The constituting national associations have expanded to also represent other
groups of professionals including architects. Primarily FIDIC is the international
federation of national associations of independent consulting engineers. The main
objective of FIDIC is to promote the interest of consulting engineers worldwide.
Over the years, FIDIC has become famous for its secondary activity of producing
standard form contracts for the construction and engineering industry.

FIDIC published its first contract titled Conditions o f Contract (international) for
works of Civil Engineering constructionʼ in 1957. As the title indicated, this first
contract was aimed at the Civil Engineering sector and it soon became known as
the ʻRed bookʼ, after the colour of its cover. It has become the tradition that FIDIC
contracts are known in popular parlance by the colour of their cover.

This first contract by FIDIC was undertaken jointly with the then International
Federation of Building and Public works (currently known as the European
Construction Industry Federation (FIEC). FIDICʼ s concerted effort at achieving
broad consultation and acceptance of its contract forms has seen subsequent
editions of its contracts being ratified by the International Federation of Asian and
Western Pacific Contractors Association, Associated General Contractors of
America and the Inter-American Federation of the Construction Industry,
Multilateral Development Banks, amongst others. Because of the broad support it
enjoys, FIDIC contracts are the foremost contracts in international construction.

2. FIDIC Contract Forms

Over the years FIDIC has consistently improved on its contracts. The organisation
has added new forms of contract,
02
replaced previous ones and updated important terms in the
ʻFIDIC familyʼ of contracts. The table below gives a brief overview of FIDIC
contracts to
date:

FIDIC Contract Year Released Notes

Conditions of Published in 1957. These contracts were aimed at the civil engineering
Contract for Works 4th/final edition sector as differentiated from the Mechanical/Electrical
of CIvil Engineering published 1987. engineering sector.
Contructions Supplement to the 4th
Edition 1996.
- The (old) Red Book

Conditions of Contract Published in 1967. The 3rd These contracts were aimed at the electromechanical
for Electrical and and last edition in 1987. construction sector.
Mechanical Works

Conditions of Contract for The first and only edition This was the first design and build contract released by
Design-Build and Turnkey of this contract was released FIDIC.
in 1995.
- The Orange Book

The Red Book Released in 1999. Suitable for contracts where the majority of the design
responsibility rests with the employer.

The Yellow Book Released in 1999. Suitable for contracts where the contractor has the majority
of the design reponsibility.

The Silver Book Released in 1999. For turnkey projects. This contact places significant
risks on the contractor. The contractor is also responsible
for the majority of the design for the project.

The Pink Book First published 2005. An This is an adaptation of the Red Book, 1999 created to fit
amended version was the purposes of Multilateral Development Banks (MDBs).
published in 2006 and in
June 2010 another edition
was released.

The Gold Book Published in 2008. This is FIDICʼs first Design build and operate (DBO)
contract.

The Green Book Published in 1999. This is the short form of contract.
03
The new Red Book Published 2017 Suitable for contracts where the majority of the design
Second Edition responsibility rests with the Employer.

The new Yellow Book Published 2017 Suitable for contracts where the contractor has the majority
Second Edition of the design responsibility.

The new Silver Book Published 2017 For turnkey projects. This contract places significant
Second Edition risks on the contractor. The contractor is also responsible
for the majority of the design for the project.

Other contracts in the FIDIC family include the FIDIC sub-contract, the Blue book
which is concerned with dredging and reclamation works and the White book,
which is for the engagement of consultants, by Employers. There are plans to
introduce a new White Book and an Emerald Book for tunnelling contracts.

3. General Features of FIDIC contracts

The FIDIC family covers a wide range of contracts. The following are some of the
common features:

Presentation
Each of the FIDIC forms of contract consists of a group of documents namely:
1. General Conditions;
2. Guidance on the preparation of the Particular Conditions;
3. Forms of Tender;
4. Contract Agreement;
5. Dispute Adjudication Agreement
Our focus will be mainly on the General Conditions. FIDIC is usually presented in
two parts. Part I consists of the General conditions and Part II is made of the
Conditions of Particular Application. Part I contains the general terms of the
contract. FIDIC intends that these terms will be common to all projects and parties.
Such issues as rights and obligations of each party, procedure for payment,
variation, certification a dispute resolution are all provided for in Part I.

It is hoped that the parties will use the Part II of the contract (Conditions of
Particular Application) to introduce any qualifications or amendments to Part I
provisions they have agreed to. They are also to use the Part II to insert terms to
cater for the peculiarity of the project. Terms to be inserted by the parties in Part II
include the language of the contract, choice of law, the name of the person or firm
appointed to act as Engineer or Employers representative for the project among
other terms.
04
In most FIDIC forms there is a default hierarchy for the documents forming the
contract. The following are listed in the order of priority, such that, in the event of
inconsistency the first on the list takes precedence:

1. The Contract Agreement

2. The Letter of Acceptance (this is the formal acceptance of the contractorʼs tender
and marks the formation of the contract)
3. The Letter of Tender.
4. Part II -The Conditions of particular application.
5. Part I - General conditions of contract
6. The Specifcation and Drawings (Red Book), The Employerʼs Requirements
(Yellow Book), the Schedules (Red and Yellow Books).
7. Further documents (if any), listed in the Contract Agreement or in the Letter of
Acceptance.

The parties are allowed to rearrange the priority of documents or stipulate that no
priority or order of hierarchy will apply to the contract. This can be done in Part II
of the contract.

Dispute Resolution
FIDIC contract forms provide for a multi-tier dispute resolution process. The
emphasis in recent years has been on dispute avoidance. The process usually
provides, as a first step, for disputes to be submitted for adjudication before an
Engineer or a Dispute Board. If one (or both) of the parties is dissatisfied, a period
is allowed for amicable settlement. If the parties are not able to settle the dispute
during the ʻamicable settlementʼ period, the final stage is to proceed to arbitration.
FIDIC contracts provide as a default position that the arbitration rules of the
International Chambers of Commerce should apply in the arbitration of disputes
arising from the contract.

Bias for English Law

The first sets of FIDIC contracts were based on English legal principles. This bias
was so strong, that in commenting on the FIDIC Red book first edition, Ian Duncan
Wallace QC put it lightly thus:

“As a general comment, it is difficult to escape the conclusion that at least one
primary object in preparing the present international contract
was to depart as little as humanly possible from the English conditions.”
05
Since 1957, future FIDIC contracts have successfully incorporated legal princi ples
of other legal systems. However, the basic framework of English law principles has
survived. For instance, provisions relating to liquidated damages have been
maintained.

4. Why study (or use) the FIDIC family of contracts?

The FIDIC forms have a global reputation as standard forms of choice in
engineering and construction fields. Any one who has been involved with
international construction projects would be familiar with at least one of the FIDIC
forms, and for some, perhaps not in sufficient detail. Below are some reasons why
studying the FIDIC forms is important:

The range of contracts

FIDIC contracts are among the few standard forms that cover a wide range of
activities and sectors relevant to international construction. Unlike some other
international standard forms that are specialised and cover only specific project
types, FIDIC forms are adaptable to a wide range of sectors. So rather than being
tied to the process industry power plant sector for instance, FIDIC covers these
areas and others based either on the type of works (civil or mechanical) or on who
bears the greater share of the design responsibility. The FIDIC suite also provides a
wide range of contracting options ranging from Employer designed projects, to
Contractor designed projects, to Turnkey projects with a single point of
responsibility and recently the Design, build and operate contract.

Successful usage
Over the last sixty years, the FIDIC form has continuously been used for major
international projects in all regions of the World. It has been endorsed and is used
by most leading Multilateral Lending institutions. It has also been interpreted into
various languages including Arabic, Spanish and French to mention a few. Because
of its wide usage, it is appropriate that students from diverse backgrounds across
the globe on this module are introduced to these contract forms.

An International Benchmark
FIDIC contracts have become the benchmark for international standard forms.
Other contract forms are analysed from their point of divergence from the FIDIC
forms. A good understanding of FIDIC forms is therefore important in
understanding other standard forms used in international construction.
Additionally, at various times, FIDIC contracts formed part of or were the
foundation for the public procurement and construction legislation of Oman, Saudi
Arabia, Kuwait and Romania (some of the legislations have since been changed or
updated).
06
Certainty of terms
Because FIDIC is widely used, parties have relative confidence to predict the
boundaries of their rights and the extent of their responsibilities. Over the years,
clauses in FIDIC contracts have gained judicial notoriety in various jurisdictions and
in different arbitration fora, creating certainty around them. Even where this has
not been the case, experience from previous projects gives each party a good
understanding of the terms and reciprocal expectations created by the contracts.

Perception of fairness
FIDICʼs extensive consultation process ensures that its contract forms receive w
ide acceptance across different stakeholder groups in the industry. This reduces the
incidence of protracted negotiations over accepting a FIDIC cont rac t as the
applicable contract for a project. Also the clauses in FIDIC contracts already go
through extensive negotiations during the drafting process, therefore reducing
considerably the need to renegotiate individual clauses. The forms are accepted as
being fair in the most and parties are inclined to implement them with minimum
resistance.

Flexibility
As can be deduced from the discussion above, the FIDIC forms are flexible and are
created to allow for input by the parties. This is in recognition of the peculiarity of
each project. FIDIC also has a well-defined dispute resolution process.

5. The FIDIC (old) Red Book, 4th edition

In 1987, FIDIC published the fourth and last edition of the old Red book. This
contract is still being used by some organisations for new projects. It is also a fact
that some disputes arising from this contract are currently going through the last
stages of dispute resolution. Another important reason for the study of the old Red
Book is to lay a good foundation for understanding of subsequent suite of contracts
released by FIDIC. Problems with the old Red Book is the ʻmischiefʼ that the new
forms are created to correct.

5.1. Background
The background under which the FIDIC Red Book 4th edition was published makes
compelling literature. While the 3rd edition of the Red book did revise in some
significant way the 2nd edition of the book, it left unchanged many salient points.
For instance, the 3rd edition made no attempt to wean the FIDIC Red Book from its
English law foundations. Despite this, the 3rd edition of the Red Book went on to
be a particularly successful contract form. It was translated into German, French
and Spanish languages. Its use coincided with the World economic
ʻreorganisationʼ of the 1970ʼs and it formed the basis of numerous successful
projects in the Middle East.
07
During the later years of the 3rd edition of the Red Book, disputes between parties
were on the increase and the terms of the contract came under microscopic
scrutiny. This revealed some problems with the contract form (3rd edition of the Red
book). In choosing which set of professionals to blame for this, Professor Nael
Bunni posits thus:

“Criticism only came to surface in recent years when the number of disputes
ending in arbitration grew and every clause and term in the Red book came under
the scrutiny of lawyers experienced in discovering different interpretations to a set
of words!”

While this fault placing is arguable, the fact that a review of the 3rd edition of
FIDIC Red Book was due was not in dispute. In keeping with its tradition of
updating its contract forms, FIDIC appointed a drafting committee in 1983.

A few other issues are important to note about the period the draft was
undertaken. The World Bank and other multilateral institutions had become major
players in the international construction industry. As of 1987, the World Bank had
grown its annual infrastructure expenditure to $25.57 billion from $8 billion a
decade earlier. Most of this increased expenditure involved construction works in
developing countries. The Bank had adopted the FIDIC Red book as its preferred
form for construction projects. This meant the importation of FIDIC concepts to
countries with no equivalent principles. For instance its concept of liquidated
damages had no equivalent in the Islamic legal system. In reacting to this, one
commentator summed it up thus:

“...on many occasions the intended aims of the FIDIC clauses supported by the
English legal system and the UK construction industry practice may lead to a
different result for the same FIDIC clause governed by Egyptian law or any other
Arab countryʼs lawsʼʼ.

5.2 Drafting of the Old Red Book

The 1983 drafting committee for the 4th edition of the Red Book had a balancing
act on its hand because of the terms of reference assigned to it. The terms could be
summarised as follows:

1. Change only where change was required

2. Pay attention to specific topics that had increasingly become contentious
3. Maintain the status of the consultant engineer
4. Make the language easier to understand and to administer at construction sites.
08
The stakeholder groups consulted in the drafting process included:
1. FIDIC National Member Associations
2. European International Contractors (EIC):Representing the Confederation of In
te rna tional Contractors Associations (CICA). The EIC representatives were
assisted by two group s from the Associated General Contractors of America
(AGC)
3. Multilateral banks
4. Gulf States represented by officials from the various Arab Funds
5. Insurers, brokers and legal experts.

By the time the final draft of the contract was approved, each of the clauses had
been redrafted twice, most went through more than four redrafts and one clause
suffered through seventeen redrafts. The chairman of the drafting committee of the
1987 Red Book, Mr. Helge Sorensen, listed the broad achievements of that edition
of the contract as follows:

1. Protecting and maintaining the FIDIC notion of the engineer.

2. Enhancing the role of the employer and getting it more involved in the project
without eroding the sphere of influence of the Engineer.
3. Maintaining the balance of rights and obligations between parties to the
contract without tilting the balance in favour of either party.
4. In the light of 3 above, spelling out in detail action and time oriented
procedures.
5. Making efforts to synchronise the wording and presentation of the Red book
with the sister Yellow Book.
6. Creating new provisions to deal with the reality of current international
construction practice.

The fourth edition of the Red book was arranged in two parts (Part I and II) and it
had 72 clauses.

5.3. Features, General Principles and Roles.

The following features and general principles underpin the FIDIC Red Book fourth
edition:
1. Applicable in various legal systems
To ensure that the Red Book is applicable internationally, FIDIC inserted three
important clauses relating to the law of the contract. The first is clause 5.1 (b),
which required the parties to choose the law to govern the contract and to insert
this in Part II of the cont ract. The next is clause 26.1, which obliged the contractor
to conform to the applicable national laws in performing his duties under the
contract.
09
This included not only the laws of the country where the project is located but all
countries where elements of the project are being constructed. The last but not the
least, is clause 70, which recognises that changes in national laws do occur and
provides for the contract to incorporate such changes into the cost of the project.
These clauses allow the Red Book to fulfil its purpose irrespective of the laws
applicable in a particular jurisdiction i.e. civil, common or Islamic Law. It is
important to note that the Red Book clauses relating to risk, liability and damages
are all common law based. Therefore clauses 5, 26 and 70 are central in
maintaining the international outlook of the contract.

2. It is a Re-measurement Contract
The FIDIC Red Book fourth edition was drafted originally as a remeasurement
contract. In a re-measurement contract, procurement is based on quotations made
by the Contractor to the bill of quantities prepared by the Employerʼs agent or
Engineer. Dividing the details of the design calculations, specifications and
drawings into appropriate trades and activity creates a bill of quantity. The bill is
further subdivided into different items with a brief description of what is required in
each item. The contractor considers the items and quotes a unit price for each of
the items on the bill of quantities. In doing this, the contractor is expected to add
ʻmark-upʼ rates and prices to cover the cost of mobilization, labour, plant,
overheads, demobilization and profit. The successful tenderer, will have his
payments calculated on the basis of the bill of quantities i.e. if the payment is for
laying blocks, the number of blocks laid is multiplied by the unit price quoted for
laying one block. Therefore, the risk of the price of the contract lies with the
Employer. This is because the quantity of materials used on the project could
fluctuate. At completion, a re-measurement of the actual work done is undertaken
and the final contract price is valued.

A 1995 supplement to the 4th edition of the Red book created an option to
proceed by way of lump sum contract. Here the contractor quotes the final price
for the project in his tender. The risk of actually completing the job on the quoted
prices (taking into consideration the changes that might occur in the quantity of
materials used for the project) lies with the contractor.

3. Shared Risks
The FIDIC Red Book fourth edition is built on the principle of appropriately
distributing the risks in the project among the parties. The risk of delay caused by
the contractor, for instance, is borne by him by way of liquidated damages. The risk
of a defective design by the Employerʼs agent is borne by the Employe r . The
correction of such design defect will be termed a variation, entitling the Contractor
to extension of time to complete the project and additional payment (where
appropriate).
10
In essence, the FIDIC Red Book is a balanced contract ensuring that the parties
carry the responsibility and risk best suited to their rights and obligations.

4. Roles There are three main entities playing key roles under the FIDIC Red Book
fourth edition. These are the Employer, the Contractor and the Engineer. The
contract is between the Employer and Contractor but contains rights and
responsibilities for the Engineer. It was drafted originally as a re-measurement
contract. The major roles under the contract mostly follow common practice but the
role of the Engineer is peculiar to the form (and to the United Kingdom construction
industry). Below is a brief description of the roles:

The Employer
This is the owner of the project and one of the parties to the Red Book contract. This
may be a sovereign government department, an independent person, or a
corporate entity. It is at the behest of the Employer that the work is carried out. His
duties include appointing the Engineer, providing access to the site, paying for the
work at agreed intervals among others.

The Contractor
The contractor is the company or organisation charged with carrying out the
works. The contractorʼs duty is to ensure that the work is carried out according to
the instructions of the Employer.

The Engineer
The FIDIC code of practice defines the consulting engineer as:
“...a professional engineer in private practice. He maintains his engineering office
either alone or in association with other engineers. He employs the necessary staff
to assist in carrying out the services which he provides. His organisation may be
that of a sole proprietorship, a partnership or a company. This depends on the
type and magnitude of his operations and the conditions of practice set by his
national association. He must carry out his practice on a highly ethical and
professional basis. The technical knowledge, experience and ability of the
consultant, his associates and assistants must be fully adequate for the projects
undertaken.”

In essence, FIDICʼs view of the consulting engineer is that it must be professional,

independent and competent. The Red book 4th Edition required the Engineer to be
impartial. The primary duty of the Engineer is to administer the construction
contract on behalf of the Employer. Among other things, the Engineer is expected
to conduct tests to ascertain the suitability and quality of works constructed by
contractor and to issue certificates on which payments will be based.
11
The Engineer also plays a quasi-legal role. He is the first point for settling disputes
between the Contractor and the Employer. Even where such disputes may have
arisen from his/her action/inactions, the Engineer is expected to be impartial and
to aim for a speedy resolution of the dispute(s).

The Engineer is permitted to appoint representatives or assistants often referred to

as the Engineerʼs representatives. Their duty is to assist the Engineer carry out the
enormous responsibilities entrusted to him by the contract.

5.4. The Rights and Obligations of the Employer under the Red Book
4th Edition
It was the intention of the drafters of the FIDIC Red Book fourth edition, to make the
Employer more visible. Some of the responsibilities and rights of the Employer may
be summarised as follows:

1. The Employer is to appoint the Engineer, and where appropriate provide him
with the
necessary approvals to carry out his work.
2. The Employer is to be consulted by the Engineer on issues specified by the
contract
and on any other issue that the Employer indicates in Part II that its approval is
required.
3. The Engineer is also to consult with the Employer and contractor w he n deciding
a dispute between the parties. In this regard, it is important that the Employer
understands that the Engineer is enjoined to be impartial.
4. The Employer is entitled to receive copies of the decisions taken by the
Engineer.
5. The Employer is to give possession of the site to the contractor and not to
interfere with the works. The Employer is also to give instructions that are necessary
for the progress of the work. This covers all areas of direct communication between
the Employer and the Contractor, i.e. execution of the contract agreement,
appointment of nominated sub-contractors etc.
6. The Employer is obliged to notify the Engineer of any decision he is dissatisfied
with and to issue a notice of intention to commence arbitration.
7. The Employer is to make timely payments to the contractor with a corresponding
right accruing to the contractor to terminate the agreement on grounds of
non-payment. FIDIC 4th edition specifically creates a 28day timeline for interim
payments and 56 day timeline after the final certificate has been issued for final
payment.
12
8. The Employer is entitled to liquidated damages for delay caused by the
contractor.
9. The Employer is entitled to be indemnified by the Contractor for patent rights
used by the Contractor in the project and also for any delict/tort caused by
interference with traffic or damage to an adjoining property by the Contractor or
his agents. There is also an indemnity to be provided by the Contractor in favour of
the Employer, in the event that the later fails to comply with relevant local laws.

5.5. The Obligations of the Engineer

Some of the functions of the engineer under the FIDIC Red Book fourth edition
included:
1. The Engineer is to seek and obtain approval from the Employer before
undertaking
duties that such approval is a pre-requisite.
2. The Engineer is to consult with both parties before taking any decisions on
matters where the contract so specifies. Although in consultation with the parties,
the Engineer is to ensure that his/her decisions are fair and impartial.
3. It is also the duty of the Engineer to appoint an Engineer assistant and delegate
duties to him in writing as is appropriate.
4. It is the Engineerʼs duty to inspect the works carried out by the contractor and
determine whether the work meets the standard set by the contract. The Engineer
is also to issue instructions where necessary and ensure that all defects are
remedied.
5. It is the Engineers duty to indicate the form of programme of work to be
submitted by the contractor and to accept the programme so prepared. It is also his
duty to request for a revised programme (when necessary), and request for a
general description of the arrangement of the works to be carried out.
6. The Engineer has the power to request the contractor to remove any person who
is incompetent or negligent from the site.
7. In the event of damage or loss due to the Employers risk, it is the Engineers duty
to indicate the extent of repairs required and the addition to time and contract
price for such repairs after due consultation with the Employer.
9. It is the Engineerʼs duty to set the tests to be carried out by the contractor to
determine the suitability of materials used for the project and the suitability of the
works.
10. It is the Engineers duty when the contractor gives notice of encountering
obstructions and physical conditions which could not have been reasonably
foreseen by an experienced contractor, to determine the extension in time and the
addition in costs to be awarded to the contractor after due consultations with the
parties and notifying the Employer.
11. It is the duty of the Engineer, to receive any dispute referred to him by the
parties and to determine it within 84 days.
13
The Engineer is the heartbeat of the contract. The success of the relationship
between the parties and the successful completion of the project is determined to a
large extent on how well the Engineer performs his duties.

5.6. The Rights and Obligations of the Contractor

1. The main duty of the contractor is to complete the works with due diligence
within the time contemplated by the contract.
2. The contractorʼs main right is to receive payment for works according to the
contract.
3. The contractor contracts to complete the works no matter the circumstance. The
exceptions to this obligation are:
a. Where it is legally or physically impossible to complete. In most jurisdictions a
dis tinc tion is made between situations that are merely difficult and those where it
is impossible to complete.
b. When the work is suspended as a result of a default in payment by the employer
and in the exercise of the contractorʼs right to terminate.
c. Where the work is suspended by the Engineer under the various powers
accorded him and where an instruction to resume is not communicated 84 days
after the date of suspension.
d. Where any of the items listed under the employerʼs risk events disrupts the
continuation of the project (wars, rebellion, riot,natural disasters etc.)
4. It is the duty of the contractor to source the security for performance of the
contract (if required by the invitation to tender) within 28days after the receipt of
the Letter of Acceptance from the Employer.
5. It is the duty of the contractor to prepare and submit for the consent of the
Engineer a programme for the execution of the works within a timescale to be set
out in Part II of the contract.
6. It is the duty of the contractor within 84 days of the commencement date of the
contract, to notify the Employer that all insurance policies required to be taken out
in accordance with the contract are in place.
7. The contractorʼs duty of due diligence extends to the materials to be used in the
construction, and he/she/it is to ensure they are of the quality appropriate for the
works.
8. The contractorʼs role also extends to carrying out the design of part of the works
as specified by the contract.
9. It is the duty of the contractor to secure a safe working area although this duty
does not extend to cover the Employer and his work men.
10. In performing his/her/its obligations, the contractor needs to be particularly
careful of section 47.1 of Part I of the FIDIC 4th This section sets out a liquidated
damage procedure against the contractor for delay in completing the project
within the time contemplated by the contract.
14
For a complete overview of the roles and responsibilities of the stakeholders under
the Red Book fourth edition, please access the further reading section of this topic.

5.7. Selected Clauses

1. Variations
This is provided for under Clauses 51 and 52 of the FIDIC Red Book fourth edition.
Clause 51 entitles the Engineer to give instructions for variations of any type
relating to the form, quality or quantity of the works. The contractor is obliged to
increase or decrease the quantity of work in accordance with the instructions of the
Engineer. The Contractor is also to omit any work as directed by the Engineer. The
clause also provides that where an aspect of the works has been omitted on the
instructions of the Engineer, it is not to be carried out by the Employer or another
contractor.

In the FIDIC Red Book 4th edition, variations entitle the contractor to payment at
the rates determined under Clause 52. An exception to the rule that payment will
be made for variations is where such variation is required because of the defects
or default caused by the contractor. While the powers to order a variation seem
limitless, under common law there is an implied term that one may not by variation
procure a new contract for works.

2. Claims
Clause 53 sets out the procedure for the contractor to claim for additional
payment. The contractor is to make his claims within 28 days after the event giving
rise to his claim. Under the same Clause it is the duty of the contractor to keep
records that are material (contemporary records) to the claim. Within 28 days or
such other timeframe to be agreed to by the Engineer, the contractor is to furnish
the Engineer with particulars of the claims and grounds upon which they are
based. Payment for a claim certified as correct by the Engineer is to be included in
the interim payments due under the contract.

3. Termination
The Employers right to terminate is set out in Clause 63. The Employer may
erminate the contract after the expiry of a 14 day notice to the Contractor on the
occurrence of any of the events listed below. The termination will not release the
Contractor of his liabilities or obligations under the contract. The events are as
follows:
a. The contractor goes into administration or liquidation and is unable to pay his
debts.
b. The contractor repudiates the contract.
c. The contractor fails to commence work in accordance with the contract.
15
d. The contractor fails to proceed with works diligently and promptly within 28
days of receiving notice in accordance with clause 46.1. This clause concerns the
rate of progress of work and entitles the Engineer to issue a notice to the Contractor
to increase the pace of work, where the contractor had been slow.
e. The contractor despite written warnings by the Engineer persistently refuses to
comply with its obligations under the contract.
f. The contractor subcontracts the whole of the works contrary to Clause 4.1.

The Engineer is authorised on such termination to determine the amounts due to

the Contractor for work already done and/or for equipment used or partially used
on the project. Payments of such amounts by the employer shall not be due until the
expiration of the defects liability period and after that (where a defect has been
identified) until any defects have been remedied.

The contractorʼs right to terminate the contract is provided for in Clause 69. The
clause empowers the contractor to terminate the contract for the following reasons:
a. Bankruptcy of the employer.
b. The failure of the Employer to pay the contractor within 28 days after the expiry
of agreed timescales for payment under clause 60.10
c. Where the Employer gives notice to the contractor that due to unforeseen
reasons including economic dislocation he is unable to continue with the contract.
d. The Contractor also has a right to terminate where a suspension ordered by
the Engineer has lasted longer than 84 days and the suspension is not due to one
of the listed reasons in clause 40.1. In such circumstance, the Contractor is to follow
the procedure set out in clause 40.3. The Contractorʼs termination would take
effect after the expiration of a 14 day notice to terminate.

4. Dispute Resolution
The 4th edition of the Red Book has its dispute resolution procedure set out in
Clause 67. The FIDIC Red Book fourth edition removes the reference to the dispute
being between the Engineer and the Contractor and clearly states that the dispute
is between the parties. The steps set out by the clause are as follows:

1. The Engineer and the other party are to be notified in writing of a dispute
requiring the Engineerʼs decision.
2. The Engineer is to determine all disputes referred to him within 84 days after
consulting with the parties . The Engineer is to communicate his decision in writing
to the parties.
3. If the contract is current (that is, it has not been terminated or otherwise
discontinued), the parties are to give effect to the Engineerʼs decision until it is set
aside either by mutual agreement of the parties or by a subsequent arbitral award.
16
4. Where either party, is dissatisfied with the Engineers decision. A notice of
intention to commence arbitration should be issued within 70 days of the Engineers
decision.
5. Where the 70 days elapses, the decision of the Engineer becomes final and
binding. This decision can be enforced by arbitration.
6. Where the Engineer has failed to determine the dispute after the expiration of
the 84 days stipulated for him to do so, either party may within or on the 70th day
after this period, serve a notice of intention to commence arbitration on the other
party with a copy served to the service of the notice to commence arbitration.
7. Parties are expected to use 54 days to attempt amicable resolution of the
dispute. The arbitration would commence after the 54 days eventhough no attempt
had been made by the parties at amicable resolution.The ICC rules of arbitration
are adopted as the default arbitration rules for the contract. Parties may provide
for alternative arbitration rules in Part II of the contract.

5.8. Changes from the third to fourth edition of the Red Book.
To appreciate the trajectory of the development of the FIDIC forms, it is always
useful to keep an eye on changes to forms made at different stages of their
development. The following are some of the changes introduced by the FIDIC
fourth edition:

1. The contract introduced an important change in the power of the Employer to

replace the Engineer under clause 1.1(a)(iv).

While earlier versions allowed the Employer wide discretion on the matter, the 4th
edition provided that the Engineer appointed for the project would carry out
his/her duties for the duration of the contract. The replacement of an Engineer once
appointed could only be done with the consent of the Contractor. This was to
ensure that the Engineer retained his independence and impartiality without the
fear of being relieved of his duties. The guidance note justified this position by
stating that the identity and reputation of the Engineer might have been a
contributing factor in the contractorʼs decision to tender for the project. This being
so, the contractor was entitled to be taken into consideration before any changes
is made to the position of the Engineer. Subsequent forms have made changes to
this position.

2. Consents, approvals, certificates etc. to be given by the Employer, Engineer or

Contractor or sub -contractor or Arbitrator are to be done in writing (clause 1
(1.5). An instruction by the Engineer is also to be given in writing. Where
instructions are given orally, the Contractor is expected to confirm such instructions
in writing to the Engineer. Where this is not contradicted by the Engineer in writing
within seven days, the instructions are deemed to be correct.
17
3. The requirement that the Engineer consults with the Employer before taking
certain actions.
This is another important change. The list of actions includes instructing a variation,
accepting a claim for additional costs among others. There is also provision to
allow the Employer to specify additional areas that the Engineer should obtain his
approval before taking action. Where the Employer places such restrictions on the
power of the Engineer, the contractor is not required to investigate whether such
approval had been sought and granted. The contract deems that the exercise by
the Engineer of a power covered by such restrictions is conclusive proof that the
approval had been granted.

4. The introduction of an express term in Clause 2 (2.6)

requiring the Engineer to act impartially. This important change applies whenever
the Engineer is making a decision, expressing an opinion, consenting, approving or
taking any action that might affect the rights and obligations of the parties to the
contract. While this was an implied term in some jurisdictions, FIDIC thought it wise
to remove any doubts that may exist on the matter.

5. Removal of the word ʻinternationalʼ from the title

One minor but important innovation in the FIDIC Red book fourth edition is that the
drafters dropped the word ʻinternationalʼ from the name of the contract. This was
to emphasise that this FIDIC form is also suitable for domestic use.

6. Definition of cost
Another minor change is the change in the definition of cost, which is defined to
exclude profit.

6. Introduction to the Old Yellow Book

As stated under 5 above, the old Red Book was aimed at the civil engineering
sector. Because of the differences between civil engineering and electrical/
mechanical engineering (these differences will be considered below), it became
necessary to create a contract form that suited electrical and mechanical
engineering aspects of construction. The importance of this is further emphasised
by the fact that most international projects usually combine aspects of civil
engineering construction with electrical and mechanical works. The aim of FIDIC
was to produce a contract form that would be compatible with the Red book while
also catering for the specific nature of E&M construction. To achieve this, FIDIC
came up with the Conditions of Contract for Electrical and Mechanical Works,
commonly known as the Yellow Book after the colour of its booklet. The first edition
of the Yellow Book was produced in 1967, a 2nd edition in 1980 and then the 3rd
and last edition in 1987. This study will concentrate on the 3rd edition of the Old
Yellow Book.
18
6.1. Differences between Civil Construction and Electrical and
Mechanical Construction
The philosophy of the Old Yellow book was rooted in the perceived differences
between civilb engineering construction works and the activities undertaken in an
Electrical or Mechanical construction works. These differences include:

- Nature of activities: Civil Engineering construction would usually require work on

the site with heavy digging or some other activity related to the surface of the site
being a prominent feature. In contrast, Electrical and Mechanical works begin
before access to the site is sought and involves the supply and erection of specialist
plant or machinery with a significant proportion of the works (design and
fabrication) undertaken at the Contractorʼs workshop.

- Intellectual Property Risk: While this might exist on both types of works, it is a
more usual and regular risk under Electrical and Mechanical construction. The
component parts, the technology and other related outputs are usually all subject
to patent rights.

- Duration of the Project: While the approximate minimum duration of an

international civil construction project is four years with many lasting well over this
minimum, the Electrical and Mechanical works have a shorter duration and may be
completed before a project has been commissioned or alternatively may only be
used towards the end of a project.

- Tests: Because of the nature of Electrical and Mechanical engineering works, the
Employer would require much more detailed and specific tests than is required for
civil construction works.

- Also important is the fact that some of the designs in Electrical and Mechanical
works are technology driven and thus liable to change significantly at short notice.

The FIDIC Yellow Book 1987 aims to carter for the risks and interests created due
to the differences highlighted above.

6.2. Presentation and Clauses

In issuing the 3rd edition of the old Yellow Book, FIDIC had gathered the views of
users on the performance of the 2nd edition in various projects. The
preponderance of the views pointed to the need for a simpler and clearer text,
adaptable to users in the different jurisdictions of the World. This is what FIDIC set
to achieve in 3rd edition of the Yellow Book.
19
Presentation
The presentation of the 3rd edition of the Old Yellow Book followed the popular
FIDIC twopart format namely General Conditions of Contract (Part I) and Particular
Conditions of contract (Part II). Like the Red Book, Part 1 of the old Yellow Book
contains the general terms of the contract that FIDIC believes should be applicable
to all projects. These include such matters as duties of the parties, insurance,
dispute resolution among others. However, unlike the Red Book, Part II is divided
into A and B. Section A contains alternative terms to some of the clauses in Part I
of the contract. Section B provides the space for the Parties to include any further
specifications that they require. This should be used to provide terms to cater for
the peculiarity of individual projects. The parties have the option of not completing
Part II section A, in which case the clauses in Part I would apply.

Clauses and Terms

Since the aim was to achieve compatibility between the Red book 4th Edition and
the Yellow book 3rd Edition, there are similar terms in both contract forms. The
areas of similarity include the presence of an Engineer under the same FIDIC
concept of an independent Engineer. It also includes the requirement for the
Engineer to obtain approval from the Employer and to consult w i t h the parties for
specified activities . The similarities extend to the restriction on the right of the
Employer to replace the Engineer, this right being subject to the consent of the
contractor and also the requirement for written instructions; other similarities are
the preference for the ICC arbitration rules among others. There are a l s o many
differences between the two forms, probably the most significant is that in the
Yellow Book, it is expected that a significant portion of the design of the works will
be undertaken by the contractor and not the Engineer. We will now examine the
major clauses of the Yellow Book 1987 3rd Edition focusing on the areas of
difference with the old Red Book.

Clauses
The Old Yellow book 3rd edition dealt with the peculiar risks involved in Electrical
and Mechanical construction by adopting different clauses than those used by the
old Red book. The more significant differences in the provisions include the
following:
- Clause 1- Commencement date: The commencement of works on an Electrical and
Mechanical contract does not require access to the site. The definition of
commencement date under the contract assumed five different options, these were:
i. the date specified in the preamble as the date for commencement of the works;
or
ii. the date when the contractor receives such payment in advance of the
commencement of the works as may be specified in the terms of payment;
20
iii. the date when the contractor receives notice of the issue of any import license
necessary for commencing performance of the contract;
or
iv. the date when the contractor receives notice that any legal requirements
necessary for the contract to enter into force have been fulfilled;
or
v. The date when the contractor receives notice that any necessary financial or
administrative requirements specified in Part II as condition(s) precedent to
commencement have been fulfilled.

The parties are required to choose the option that best fits the circumstance of their
contract.

- Still under Clause 1, the definition of completion test envisaged for projects under
the Old Yellow book are more comprehensive. This is explained in the context of
the construction activities contemplated by the contract. The “finished construction
product would require sufficient test to ascertain quality and performance before
being incorporated into a project. Clause 1.1.34 defines the test of completion as
those tests specified in the contract. It is expected that the parties would in Part II
section B of the contract, set out the relevant tests applicable to their project.

- Clause 2 - The replacement of the Engineer: The Old Yellow book, like the Red
Book, provides that the contractorʼs consent would be required in the event that the
employer chooses to replace the Engineer.

- Sub -clause 2.7 of the contract deals with claims by a contractor arising from a
disagreement with the Engineerʼs instruction or decision. This clause provides for
the contractor to give a written notice within 28 days of the direction or decision
made by the Engineer that it intends to contest. Notably, there is no similar
provision for when an Employer wishes to dispute an Engineers decision or
direction. However, both parties do have the right to commence arbitration under
Clause 50 (see clause 50 discussed below). On the receipt of the notice referred to
above, the Engineer has a further 28 days to confirm, reverse, or vary the decision
or instruction. Where the Contractor is still dissatisfied with the Engineerʼs action
after this further 28 days, and the matter cannot be settled amicably the procedure
under clause 50 (discussed below), can then be adopted.

Clause 8 - C ontractors obligation. The Old Yellow Book envisages that a significant
portion of the design is undertaken by the contractor. The obligations of the
contractor are divided into different headings as follows:
21
a) design
b) manufacture
c) delivery to site
d) set out the works
e) tests and commission
f) timely completion as provided for in the contract.

- Clause 27 (sub-clause 1 and 2) : This provides an interesting alternative to the

liquidated damages procedure. It provides that the Employer is entitled to reduce
the contract sum at a specified percentage to be agreed by the parties for each
day of delay by the contractor up to a maximum reduction stipulated in the
contract. At that maximum, the employer is entitled to terminate the contract. This
is qualified where it is argued that the Employer will not suffer loss because of the
delay.

- Clause 50 deals with dispute resolution. Unlike clause 2.7 discussed above, the
clause refers to parties. This means that both the Employer and Contractor may
commence the process of dispute resolution under this clause. In sharp contrast to
the provision of the Red book 4th edition, the Yellow book 3rd edition does not
provide for the Engineer to determine, at first instance, all disputes that may arise
in the project; the parties may proceed straight to arbitration. However, for
disputes arising from an Engineerʼs decision or instruction, the parties are to
commence arbitration within 56 days of the Engineerʼs reply to the Contractorʼs
notice (under clause 2.7 discussed above). If the Engineerʼs decision or instruction
is not challenged within this timescale, it becomes final.

- Under Clause 50 sub-clause 3, the performance of the contract continues during

the pendency of the arbitral proceedings, unless the Employer suspends the works
under his right to do so in the contract. In the same vein, all payments due the
Contractor by the Employer are to proceed as usual during the arbitral process.
Sub clause 4, also stipulates that at conclusion of the contract, if there are still
disputes requiring arbitration, a formal notice of arbitration should be issued within
84 days of the issue of the final certificate of payment.

- Finally Clause 51 sets out the partiesʼ choice for the venue of arbitration, the
applicable procedural law, and the language of arbitration etc. From the study of
Arbitration Law in your first year, the importance of this clause should be
apparent.

Officially, the Yellow Book, 3rd Edition was superseded by the Yellow Book,1999,
and now the Yellow Book 2017. Nevertheless, it is important to note the
22
peculiarities of this form as this will help you appreciate how the Yellow Book has
evolved over the years and provide better understanding of subsequent Yellow
Books.

7. Introduction to the Orange Book 1st Edition.

7.1. Background
The Orange Book does not have the rich history of the other FIDIC books so far
discussed. It has neither an old nor new version. The Orange book 1st edition (and
only edition) was published in 1995 in response to market trends. Known as
"Conditions of Contract for DesignBuild and Turnkey, the Orange Book as is the
tradition, derives its common name from the colour of the booklet. The foreword to
the contract distinguished between Turnkey projects and design and build projects.
The former refers to projects where the Contractor undertakes to design, construct,
install fittings and deliver in a state that is ready for use at the turn of a key. Design
and build on the other hand include a combination of the different processes
required for the full design and construction of a project.

As indicated under Topic 1, Design and build and turnkey are procurement
concepts which had gained some popularity in the 1980s. Their advent was borne
out of the dissatisfaction of Employers with the traditional procurement method. In
those early years however, they were adopted for very few projects. The majority
of which were projects that the Contractor either had a patent or some specialist
skills. The ʻdesign and buildʼ and ʻturnkeyʼ concepts appealed to Employers
interested in securing certainty of price and less involvement in the design of a
project. This type of construction procurement was also suited to the needs of
private finance institutions. These institutions while looking for minimal direct
involvement in the design and completion of a project required that it met pre-set
standards. They also wanted a single person or company to hold responsible on
each contract (rather than responsibilities being shared by the Contractor and the
Engineer- with incessant buck passing).

FIDIC were somewhat slow to respond to this market trend, it was apparent that
FIDICʼ s major forms (the Red Book 4th Edn. and the Yellow Book, 3rd Edn.) were
unsuitable for this route of construction procurement. The first organisation to
respond to this need was the Japanese Engineering Advancement Association
(ENAA). ENAA started its process of consultation from 1986 and by 1992 had
published its second volume of a standard form turnkey contract for international
projects.

In 1992, the United Kingdom Institution of Civil Engineers published its version of a
Design and Construct conditions of contract.
23
This is a domestic form best suited for works within the United Kingdom. Also to join
the ʻfrayʼ was the German-based European International Contractors Association
(EIC). In 1994, they published the EIC Turnkey Contract. The EIC form seems to
have borrowed from the brevity of civil law contracts. It is perceived in some
quarters that the EIC form was weighted in favour of the contractors since it was
prepared by a contractorsʼ association.

It was in this context that FIDIC began consultations towards publishing the Orange
Book. The Orange book released in 1995 announced itself as being suitable for
design and build contracts and turnkey contracts. As would be expected from the
underlying philosophy of the books, the Orange book is significantly different from
the Red and Yellow Books. For a start, FIDIC in the Orange book dropped the
distinction between civil engineering and electrical/mechanical works and opted
for a hybrid contract comprising of both types of activities.

7.2. FIDIC Orange Book 1ST Edition- Presentation, Concepts and

Clauses

Presentation
The Orange book follows the FIDIC format of a two part contract with General
Conditions in Part I and Conditions of Particular Application in Part II. The principle
for this presentation remains the same. Part II is to be used by the parties to modify
any parts of Part I and to insert any specifications peculiar to the contract.

Concepts
The principles underlying the Orange Book are different from the other FIDIC forms
discussed so far. The Orange Book dropped the concept of the impartial Engineer
and replaced him with an Employerʼs Representative. The Employerʼs
representative has no quasi–judicial powers instead a Dispute Adjudication Board
(DAB) is constituted to be the first stage of the dispute resolution process. The
contract also adopts the fixed price payment option as against the re-measurement
payment option used in other FIDIC forms. It places all design responsibilities on
the contractor and requires him to create works to fit the Employerʼs requirement.
The Orange Book, however, adopts many of FIDICʼ s tested concepts. It places a
similar set of responsibilities on the Employer and shares the risk on the project as
fairly as it is possible in a turnkey procurement.

Provisions
With the benefit of hindsight, it is clear that the Orange Book laid the foundation
for the change in philosophy and style that is evident in the 1999 suite of FIDIC
contracts. Some of the provisions that set the Orange Book apart from the Old
Red/Yellow Books include:
24
- Clause 1: In the Orange Book, the concept of an ʻeffective date of contractʼ is
introduced. Defined as the date the contract comes into ʻlegal force and effectʼ. It
is used as a guide in calculating various time limits including provision of
performance security, appointment of members of the Dispute Adjudication Board
amongst others. The guidance notes to the contract states that the date of entry into
force of the contract is the date when the Employer accepts the Tender. This would
imply the date of the Letter of Acceptance. However, the parties are free to agree
to any other date as the effective date of the contract including providing any
condition precedent to be met prior to commencement.

- The Orange Book places at the apex of the contract documents the Employers
requirement document. The Employerʼs requirement is defined as ʻthe description
of the scope, standard, design criteria (if any) and programme of work, as
included in the Contract, and any alterations and modifications thereto in
accordance with the Contractʼ. The Contractor's Tender (clause 1.6(d)), similarly
occupies a prestigious position while the preliminary design included in the
Contractor's Proposal (clause 1.6(h)) comes last after the Conditions of Particular
Application – Part II and the General Conditions Part I.

- Clause 2 sets out the obligations and rights of the Employer. This clause borrows
the standard language of the other FIDIC forms obligating the Employer to, among
other things, provide access to the Site, and pay the price of the contract.
Sub-clause 1 deals with the right of access and sub clause 2 with possession of the
Site, they obligate the Employer to assist the Contractor in applying for permits,
licences and approvals.

Importantly, under sub-clause 2.4, the Orange Book introduces the right of the
Employer to terminate the contract at his convenience. The only restriction being
that it may not terminate the contract to complete the works itself or employ
another contractor to complete the works within a six-year period.

- Clause 3 introduces the employerʼs representative and places on him the

responsibility of supervising and administering the works. It also places on the
Representative (much like the Engineer in the Red/Yellow Book) the responsibility
of obtaining permission from the Employer for certain matters and to transmit all
copies of his instructions or decisions to the Employer. Clause 3.2 envisages a
situation where the Employerʼs Representative may not be a qualified construction
professional, and obligates him to appoint Engineers or other professionals to
assist him.

- Under Clause 3.5, which relates to adjustment of the Contract Price for Variations
or claims, requires the Employer's Representative, failing an agreement by the
parties, to
25
make a fair and reasonable determination.

- Clause 4 deals with the obligations of the Contractor. Clause 4.1 places on the
Contractor the duty to meet the Employer's Requirements, including the
performance of any work which is necessary, even beyond the letter and
specifications of the Contract in order to allow the safe, reliable and efficient
operation of the Works. Clause 4.9 stipulates that the Contractor will be deemed
to have checked and confirmed the accuracy of the site data provided by the
Employer. To balance the risk on this point, the Orange Book places such
acceptance of responsibility on the Contractor being reasonably permitted by time
and cost to check the accuracy of the data at the Tender stage. In Clause 4.11, the
Contractor is not required to bear the risk of unforeseeable sub-surface conditions.

- Clause 8 deals with extension of time and delay. In relation to extension of time,
Clause 8.3 (e) and 8.4 stipulates that any delays caused by the Employer or the
Authorities should entitle the contractor to an extension of time. Clause 8.3
provides the procedure for the Contractor to claim for extension of time for delay
caused by the Employer and requires the submission of “full supporting details”.
Clause 8.5 of the Orange Book requires the Contractor to check that the rate of
progress of the works matches the programme and in the event it does not, to
inform the Employer's Representative of the measures he intends to take to bring
the rate up to the requirements of the programme. This is to be done without
prejudice to the liquidated damages for delay. Clause 8.6 deals with liquidated
damages for delay which is to be calculated in accordance with the provisions of
the Appendix to the Tender. Clause 8.8 provides that costs will be paid to the
Contractor where the delay has been caused by a suspension of the works by the
Employer.

- Testing is an important part of the turnkey process. The Orange Book provides for
a double test process, before and after completion. The first set of tests apparently
corresponds to the erection and commissioning while the Tests after Completion
(which are optional) are basically performance tests. Tests on Completion are
provided for under clause 9.4; this clause gives the Employer the right to terminate
the Contract for repeated failure to pass these tests.

- Clause 10.2 deems that a Taking-Over Certificate has been automatically issued
in the event that the Employer uses any part of the Works before all relevant tests
have been carried out. The performance tests option, if chosen by the parties, is of
critical importance. These tests will be used to determine if the Employer's
Requirements have been met. This is particularly important in the light of the
significant penalties that may be imposed for sub-standard performance under
clause 11.4 (b) This clause links not passing these set of tests with liability to pay
liquidated damages.
26
- Clause 14 deals with the often vexed issue of variations. Sub-clause 14.1 allows
alterations to the document called Employers Requirement (defined above). By
implication, the Employerʼs right t o r e q u e s t variations at any time during the
Contract Period (clause 14.1) is virtually unlimited. It has been argued that this is
unsuitable for this type of contract. Clause 14.2 allows the Contractor the use of
the Variation procedure to suggest required improvements including those which
improve the operation of the Works or reduce the cost of construction.

The Orange Book does not prescribe the means for calculation of the adjustments
to the Contract Price on account of Variations. The only important direction is under
Clause 14.3 which provides that it should include profit and the provision under
Clause 3.5 that obligates the Employerʼs Representative to be fair and reasonable
when deciding issues on variation.

- Clause 15 deals with the breach of the terms of the contract by the Contractor. It
follows on from previous FIDIC forms. Clause 15.1 and 2 requires that the
Contractor should be notified of the breach and provided an opportunity to
remedy same within a reasonable time before the sanction of termination can
apply.

- The Contractor may suspend further work under clause 16.1 where payments that
are due and are not in dispute are withheld. The right to terminate for non-payment
is provided for under clause 16.2. Interestingly, this is not dependent on a prior
period of suspension. However, the clause requires a 14 daysʼ notice after
payment has been delayed for 42 days. The right to terminate for breach by the
Employer, where the employer consistently fails to meet his obligation under the
contract is provided for under clause 16.2. In the event of termination for the
default of the Employer, the Contractor is entitled to compensation for both direct
loss, and loss of profit.

- Probably the most significant change of all is contained in Clause 20. By contrast
to other FIDIC forms, the claims clause is included under the same title as disputes
and arbitration. As noted above, the real innovation of the Orange Book is the
creation of the Dispute Adjudication Board (DAB). The board is appointed for the
duration of the project. The DAB is required to respond with a reasoned decision,
whatever the nature of the claim, within 42 days.

- Clause 20.4 stipulates that the members of the Board are required to act as
experts and not arbitrators. Under Clause 20.4 the Board's decision will be binding
unless one of the parties gives notice of its dissatisfaction within a 28 day period.
Even then, it remains unless and until it is modified by amicable settlement or an
arbitral award.
27
- Clause 20.6 provides that the arbitrators should have full power to review and
revise any decision of the Board and that both parties shall be free to rely on any
new evidence or argument they choose in order to overturn a decision of the Board
and shall not be limited by the arguments previously advanced before the Board
itself. The procedure for amicable settlement prior to arbitration is provided under
clause 20.5, it is not particularly exacting and failure by a party to participate will
not prevent it initiating arbitration proceedings.

Officially, the FIDIC Orange Book has been superseded the 1999 and 2017
editions of the Yellow Book and the Silver Book. It is obvious from the discussion
above (e.g. on the DABs) that understanding of this Book will enhance your
knowledge and understanding of a number of concepts and how they have
developed over a period of time to date. You also need to bear in mind that some
of these old FIDIC forms are still in use in some regions of the world.

Introduction of Dispute Adjudication Boards

In 1996, a supplement was issued for the Red Book 4th edition which provided for
a Dispute Adjudication Board of either one or three persons. This was after the
concept had made its way into the Orange Book in the previous year. The subject
of Dispute Adjudication Boards will be considered critically both under Weeks 3
and 7.

6. Conclusion
FIDIC has over the years grown its stable of international construction contract
forms and by so doing has extended its influence globally. The study of the
pre-1999 FIDIC Red, Yellow and Orange Books are necessary for two reasons:
Firstly, they provided the relevant background to the evolution of relatively recent
forms. Secondly, unlike statutes/legislation, old FIDIC standard forms do not
necessarily become irrelevant with the introduction of new forms; parties in
different parts of the world still make use of these forms in a variety of ways. With
this background, we are ready to examine the 1999 Edition of the FIDIC Contract
forms in the next lecture.

Further Reading
1. Bunni, Nael G, The FIDIC forms of contract [electronic resource]: the fourth
edition of the Red Book, 1992, the 1996 Supplement, the 1999 Red Book, the
1999 Yellow Book, the 1999 Silver Book (Blackwell 2005): Specifically, Part IV-
Other Documents Related to the Red Book.
28
(Electronic copy of this material and other relevant materials are accessible from
the RGU Library through the ASPIRE list on the Moodle page of the Module).
Please note that electronic copies of the old Yellow and Orange books are not
available in the RGU Library. However, information on the relevant clauses has
been provided in sufficient detail in this lecture note and in Prof. Bunniʼs book

2. Bunni, Nael G, The FIDIC forms of contract: the fourth edition of the Red Book,
1992, the 1996 Supplement, the 1999 Red Book, the 1999 Yellow Book, the 1999
Silver Book (Blackwell 2005) (Part III- The Fourth Edition in Practice.

3. Christopher R. Seppala, Contractor's claims under the FIDIC civil engineering

contract, Fourth (1987) Edition, International Business Journal, 1997.

4. Fritz Nicklish, “The Role of the Engineer as Contract Administrator and

Quasi-Arbitrator in International Construction and Civil Engineering Projects”,
International Construction Law Review, Vol. 7, Part 3, pp. 322-338.

(Electronic copies of these materials and other relevant materials are accessible
from the RGU Library through the ASPIRE list on the Moodle page of the Module)
01
The Law School
BSM135
International Construction Contracts
Topic 2: Introduction to FIDIC
and the Old Red Book
01
Topic Activities

Read the following scenarios carefully and answer the questions that
follow:
1. The Qatar World Cup development committee (the committee) has entered into
a contract for the creation of dual carriage roads linking its Stadiums to major town
centres. The international construction company CCL are the Contractors. The Old
FIDIC Red Book 4th edition is adopted (without amendments to Part 1 terms) as the
construction contract for the project. US Engineering Firm Peter and May
Consultants have been appointed the Engineers for the project. The committee is
increasingly dissatisfied with the decisions being made and actions being taken by
the Engineers for the project. On the other hand, CCL have found Peter and May
to be competent. The committee wants to replace Peter and May consultants
and/or stem the tide of unfavourable decisions. Provide a considered opinion on
the rights of the committee in the circumstance. Your opinion should cover all
possible contractual mechanisms available to the committee.

2 . Recently, the Organising Committee has been asked by the Government of

Qatar to develop a back-up venue for the tournament in a fairly underdeveloped
region of the country. The infrastructure required include a new stadium, training
pitches, accommodation facility for teams and supporters and a new health facility.
To ease commuting challenges in this region, the government is happy to have in
place new roads and rail links connecting the local airport with the venue and on
time for the tournament. Due to the limited timeframe, the government is ready to
provide the needed financial resources but cannot commit technical staff since most
of them are already deployed on other projects.

Considering the facts above and your knowledge of the legal and
contractual provisions of the three major books of the Old FIDIC forms
we have examined so far, advise the Organising Committee on the
most suitable type of contract form to use for this group of projects.
Give reasons for your answer highlighting the advantages of your
preferred contract form over the other Books.

[Word limit: 400 words for both questions – answers can be in bullet points]

[Please note that both stories are fictional – your answers should be based on the
facts provided here].