"Breach of Contract" under FIDIC
Conditions of Contract for Civil
Engineering Construction
Mao Yihua
Institute of Construction Management
Zhejiang University
HangZhou,China
zjumyh@163.com
Abstract—With the development of theory and practice of the
international project claim management, the contractor carrying
out the contract claims is no longer based solely on the contract
agreement, but rather towards the combination of contractual
and legal trends. In FIDIC Conditions of Contract for Civil
Engineering Construction (Red Book, 1987 edition), there has a
more comprehensive description and requirements of the rights
of the employer, engineer and the contractor. So the specific acts
of the parties involved the contract may result in "Breach of
Contract" and trigger claims of time and cost. In this paper,
according to a further analysis of a series of claim cases based on
the Red Book we have studied the background of the contractual
and legal of "Breach of Contract" in depth.
Key words—FIDIC conditions of contract for civil engineering
construction; Contract Management; Breach of Contract
Ⅰ. INTRODUCTION
In the performance of international project contract, the employer,
engineer and contractor perform their rights and obligations under
the conditions of the contract to ensure the smooth implementation of
the contract and the project completed on time, quality and quantity.
The responsibilities and obligations of the parties are conferred by
the applicable contract document and laws. For example, engineer in
the "Red Book" playing a role of designer, supervisor, the certificate
issuer and arbiter. Therefore, he will design the work during the
design and construction phases. Under the "Red Book" the employer
also has the duty to transfer the site and make payments to the
contractor. The contractor has the duty to finish the works in the
completing time.
The responsibilities of employer, engineer and contractor are
very complex in practice, especially under the combination of
conditions of contract and applicable laws. The violation of the
conditions of the contract and the applicable laws may result in
"Breach of Contract", which raises the claim of time or/and cost.
Therefore, the analysis of the responsibilities and obligations under
the Red Book and the applicable laws as well as the conditions of the
"Breach of Contract" and the following-up effects is necessary for
the parties to perform the contract better.
. CASE STUDY
A Chinese international contractor gained a 112km-long highway
project in an Africa country. The fund is from the KFW
Bankengruppe. The employer is the country's Ministry of
Communication. The engineer is the joint venture of a German
international consulting company and an African consulting
company. The conditions of the contract are the FIDIC Conditions of
Contract for Civil Engineering Construction (Red Book, 1987 edition)
in 1992 revised edition, accompanied by the special revised
978-1-4244-5326-9/10/$26.00 ©2010 IEEE
Li Qingcheng
Institute of Construction Management
Zhejiang University
HangZhou,China
leafliqing@hotmail.com
conditions. They have the introduction of the specific conditions of
the Red Book’s(the fourth edition in 1996)additional provisions,
namely the substitute of the clause 67, DAB (Dispute Adjudication
Board) procedures. In this clause it declares the DAB is made up of
an arbitrator. The original commencement date was December 14,
2002 while the completion date was May 13, 2005.
On January 21, 2008 the contractor submitted to the DAB NO.01
controversial documents requesting for arbitration. In the documents
the contractor pointed out that the Breach of Contract by the
Employer results in the time at large since May 13, 2005. The breach
of the contract of the employer is as follows:
First, were the employer’s contract counterwork, including
instructed extra and additional works and/or breach of contract by the
employer. And the employer didn’t not give the contractor a
corresponding extension of the time;
Secondly, during the performance of the contract the employer
interfered the certification process to prevent the Engineer from
proper administration of the Contract so that the engineer was forced
to breach of contract against the contractor.
The contractor suggested that the work was delayed because of
"abnormal weather conditions", "employers failed to provide timely
the access to the site", "design changes (an additional layer of
asphalt)" and "local residents riots on site ".Theses were all the
employer’s risks. The employer should be charged for these delays
and give the contractor an extention so that the contractor can
reasonably arrange the resources allocation and construction.
However, as at the end of the contract the contractor had not received
the approval to extend the time of the work.
In the reply to the contractor’s claim document on February 25,
2008, the employer refused to endorse the breach of contract. He
thought that the engineer had made it clear on October 31, 2007 that
time “is and has been, at large since 03 December 2006 ".And this
had not been approved by the employer so it was not conformity with
the contract. On the claims and additional work instructions the
employer identified to give the EOT to April 13, 2007 and asked the
contractor to pay 5000 U.S. dollars per day as liquidated damages
from the April 13, 2007 to February 2008.
In the DAB's decision the arbitrator pointed out that in dealing
with the disputes it needed to consider three issues:
z
whether the employer and engineer have given EOT
under the contract;
z whether the provisions of the original contract period
automatically lapse;
z
whether the engineer was interference by the employer
when he extended the time of the work- just as
"blocking principle";
z whether the employer’s decision led to the breach of
contract.
 In accordance with special conditions of the contract, prior to
the granting of any EOT the engineer should gain the approval from
the employer. Although in the letter the engineer had said the
contractor should be entitled to receive EOT, the letter was only
preparation and assistance before amicable settlement, not the formal
EOT.
Besides, the arbitrator pointed out in the detailed description that,
z According to the Red Book the employer had the
responsibility to provide the access to the site and if he
failed he would cause breach of contract. Thus the
employer should give the EOT.
z According to the Red Book the employers had the
responsibility not to interfere the contractor’s work
otherwise it would cause the breach of contract and
should give the contractor EOT;
z There were not any clauses in the conditions that the
employer had the right of retroactive adjustment of the
contractual completion date and receiving liquidated
damages cost;
z According to the clause 1.5 if the engineer want to
extend the time of the contract he should be granted by
the employer, so amicable settlement was not a reason
for the employer to give the contractor an EOT in two
and half years .This was an unreasonable delay caused
by the employers.
z
The employer’s unreasonable delay made the engineer
not give the approve of EOT on time, resulting in the
contractor not clear their responsibility of completing
the work on time through reasonably arranging the
resources allocation.
Based on these reasons the arbitrator made the final decision:
z Employer's actions were consistent with the principle
of prevention and breach of contract;
z Employer's actions resulted in engineers’ failing of
meeting its obligations, giving the EOT on time, also
result in engineer being forced to breach of contract;
z Employer’s breach of contract led to time at large;
z Employer didn’t not have the right to ask for liquidated
damages;
According to the contract the contractor only have the
responsibilities to complete the work within a reasonable time.
THE CONTRACTUAL AND LEGAL ANALYSIS OF THE BREACH
OF CONTRACT
A. Concept of the "breach of contract"
"Breach of Contract" refers to breaking the contract or not
obeying the contract. From a legal point of view, it means that one
party to the contract fails to fulfill contractual obligations and there is
no valid legal grounds for exemption, which should be undertake
corresponding obligations.
B. Several kinds of breach of contract
Breach of contract are as follows:
z One party’s action makes the other party can not
perform the contract;
z One party’s breach of contract;
z
One party refuses to perform the contract;
z One party fails to perform the contract on time.
It is noteworthy that not all breach of contract can cause the
invalidation of the contract and need to turn to legal processing.
According to the severity degree of breach of contract the action can
be divided into two kinds, material breach and immaterial breach.
z If is the immaterial breach the usual practice adopted are:
ignores the existence of the breach of contract or
forgives the defects and continues to perform the
contract as usual;
z Points out the defects and let other party to remedy the
defects;
z Refuses to make any payments until the charged party
remedy the defects;
z Responsible party should be deducted relative
payments after remedying the defects.
If it is the material breach that one party should make claims
according the legal process or contract claim procedure, especially
after the failure of informal negotiation. If the amount is small the
parties can turn to the small claims court, negotiation, mediation,
conciliation or arbitration.
C. Damages payments under the breach of contract
In accordance with the law, if one party breaches of contract then
the other party has the right to seek compensation under the contract.
The main payment kinds include damages, specific performance,
cancellation and restitution.
1)Damages
The most common breach of contract damages are as follows:
a) Compensatory damages:The purpose is used to make
the non-breaching party to revert to the default state
when an incident takes place.
b) Punitive damages: It aims at a party for breach of
contract against default penalties to compensate the
injured party.
c) Nominal damages: Usually the breach of contract
doesn’t cause the loss while it is necessary let the party
at fault know it.
d) Liquidated damages: The liquidated damages are
agreed in the contract in advance. The amount is
depended on the reasonable estimate.
2) Specific Performance
If the compensation can not fully compensate for the loss in legal
way, then the non-breaching party may seek an alternative method,
specific performance. Usually it rarely occurs but just only under the
circumstances that the compensation is not sufficient to restore the
non-breaching party to the default state. For example, the service
provided by a party of breaching is rare or can not be replaced and
the compensation paid is unable to meet the needs of the other party.
Also it can’t achieve to compliance with the follow-up procedures,
the non-breaching party has to rely on the breaching party to
continue to perform the contract. In this case, the non-breaching
party may seek to the court to make the other party to fulfill a
specific performance in accordance with instructions.
3)Cancellation and Restitution
 The non-breaching party may cancel the contract and ask the
other party to return of profits (profit may not be able to restore the
breaching party to the previous state, but this trend is reflected in the
legal connotation: one party can not benefits because of its own fault
and make the other party damaged). Restitution means that the
breaching party to restore the state while cancellation means that one
party declares that the contract is invalid and all parties are cleaned
the slate.
. CLAUSES OF RESPONSIBILITIES AND OBLIGATIONS UNDER
RED BOOK
A. The employer’s obligations
The employer's general obligations under FIDIC conditions of
contract for civil engineering contraction are as follows:
z Specifies the various elements of the project, such as
site as well as project-related personnel;
z The appointment of a contract management engineer;
z To give the contractor the possession of the access to
site;
z
To issue information, instructions, approvals and
notices when necessary;
z To avoid any acts that might interfere with the works;
z To provide materials and the implementation of the
work;
z
To nominate the specialist sub-contractors and
suppliers when necessary
z To make payments in full and on time.
With the obligations of the relevant clauses of the employers
have
clauses1,2,6,10,11,19,21,22,25,26,30,31,42,51,59,60,63,65,67,71.
B. Engineer's obligations
Red Book follow the introduction of the traditional method as in
the field of civil engineering consultation. The engineer’s major
obligations include:
z
To finish technically the design of the concept
proposed by the sponsor;
z The preparation of a total set of tender documents and
attract capable contractors to bid at competitive prices;
make recommendations to the employers on the
analysis of tenders and selection of contractors;
z To supervise and inspect the contractor of the work and
ensure that it meets to the design requirements; contract
management;
z To deal with the unexpected incidents, issue of
certificates and adjudication of disputes.
In the first and second above, the engineer's plays the role of
architect; in (3), the engineer's role is as a supervisor and employers
agents; in (4) above, the engineer's role is as a manager, certificate
promulgator or the adjudicator.
With the obligations of relevant clauses of the engineer have
clauses
1,2,4,5,6,7,8,10,12,13,14,15,16,17,18,19,20,25,27,30,31,33,36,37,38,
39,40,41,42,44,45,46,48,49,50,51,52,53,54,56,57,58,59,60,62,63,64,
65,67,68,69,70.
C. The contractor's obligations
The contractor's obligations under Red Book include:
z
To construction the work in the time for completion
and finish the works on time;
z To use materials, equipments and technology in
accordance with the contract requirements and
instructions of the engineers;
z To provide guarantees, security and insurance for the
work in the time for completion;
z To provide required information and notification of
performance and completion and to warn the
employers when the issue increasing the cost or
delaying the time of completion may occur;
z
To perform some routine management and other
functions to finish the work.
With the obligations of relevant clauses of the contractor have
clauses1,3,4,6,7,8,9,10,11,12,14,21,23,24,25,26,27,28,29,30,31,33,3
4,35,36,37,38,39,40,41,42,44,45,46,48,49,50,52,53,56,57,58,59,60,6
3,65 , 67,68,69,70.
. DAMAGE PAYMENTS UNDER THE BREACH OF CONTRACT
A. The contractor’s damages under breach of contract
As stated in part IV, the obligations of the contractor has a detailed
description in Red Book. Failure to fulfill the contractual obligations
will result in the contractor’s breach of contract. The typical breach
of contract has a lot during the performance of the contract, such as
the non-authorized subcontractor, failure to pay the insurance fees,
give notice, provide reports or statements timely and amend the
schedule, etc.
When the contractor fails to finish the work because of its own
fault, the standard measure of the loss is the gap of the contract price
and the actual cost of work. Here the actual cost should consider: (1)
The employers should finish the work in compliance with the
original standard; (2) The employer should finish the work in a
reasonable manner; (3) the employer should finish the work in the
earliest reasonable opportunity. At this point the employer’s damages
formula should be as follows:
damages=the actual cost to finish the work-contract price + the
amount paid to the contractor of breach of contract-the actual cost
the contractor spends in finishing the work.
For the defective works (ie. construction does not meet the
contract’s requirements) assessment of damages is usually consider
the following three ways:
z Restoration costs;
z
The gap between the actual cost to finish the works and
the contract price;
z
The work’s value damage because of the contractor ‘s
breach of contract.
In the general engineering contract, the delay damages are usually
agreed in the contract. The way often depends on the type of project.
If the project is a commercial building such as factories or shops then
the profit will be considered while if they are the general public
works or other non-profit buildings the profit will not be considered.
B. The damages under the employer’s breach of contract
The measure of damages to the contractor will not have
theoretical difficulties under the employer’s breach of contract and it
usually does not produce indirect loss. Obviously the contractor’s
aim to accept the work is to gain profit. So when the contractor can
not gain the payment under the employer’s breach of contract then
the profit is the only factor will be considered to measure the
contractor’s lose. The following two conditions will be considered:
z As the employer's breach of contract leading to the
termination of, or have simply failed to work. In this
case, the contractor has been deprived of the right to
profit through perform the contract;
z As the employer's breach of contract led the contractor
to pay more to finish the work, therefore he gain less
profit.
The two types are often referred to as “total" or "partial"
prevention. According to Robinson charged of Harman Principle, the
total prevention causes the contract can not be continued so the
contractor is entitled to gain the payment of the finished works and
another sum to compensate for the remaining works’ profit. For
partial prevention, the main method of measuring the contractor’s
damages is the additional costs arose when the contractor perform
the contract.
When the employer breaches of the contract the contractor is
entitled to compensation of prime cost, site overheads, plant
disturbance and loss of productivity. In addition, claims on the same
principle with the lower efficiency of the claim are acceleration
claims.

CONCLUSION
The employer, engineer and contractor’s responsibilities under the
Red Book are connected with a specific performance environment.
The breach of contract is also not a single emergence, often it is
because of multiple reasons. The impact of post-breach of contract
also has a number of situations. We need to do a lot to make the
reasons and responsibilities clear. This is the key to solve the
disputes. The breach of contract’s contractual and legal connotations
is very complex so the research on it will be meaningful in the field
of international claim management and settlement of legal disputes.

REFERENCES
[1] Nael G, Bunni, The FIDIC Forms of Contract, Third Edition,
Blackwell Publishing, 2005
[2] FIDIC, Conditions of Contract for Civil Engineering
Construction Application Guide (1988 revised edition), Beijing
Aviation Industry Press, 1998
[3] FIDIC, Conditions of Contract for Construction, 1998
[4] Chiu Chuang, International Engineering Principles and Practices
of the contract, Beijing, China Building Industry Press, 2002