FIDIC Green Book - a brief overview Part 3

This is the third in a three-part series on the FIDIC Green Book. In this instalment, we will consider the various changes from the First Edition.

New Inclusions:
Provisions that have been added to the Second Edition, released in 2021, include:

  • professional liability insurance,
  • assignment,
  • intellectual property,
  • confidentiality,
  • limits on liability,
  • site data,
  • Employer’s financial arrangements,
  • inspection and testing,
  • commissioning and taking over taking over part of the works
  • responsibility for subcontracting
  • claims and variation have now been separated,
  • Defects and defects notification period, and
  • indemnities.

Some key features have also been added to the 2021 Edition. The form now contains a suitably long and helpful explanation of the salient features of the contract and how it works. There are also a number of typical sequence-of-events flow diagrams for processes such as:

  • variations,
  • claim management, and
  • disputes.

The form now contemplates having particular conditions. Included is a contract data proforma document that contains, among other things:

  • a formula for calculating prolongation costs for compensable delays,
  • a table for sectional completion, detailing times for completion for each section and related delay damages, and
  • a number of options for pricing and valuing the works, such as:
    • lump sum price within which there are:
      • single payment,
      • stage payment
      • with bill of quantities
    • remeasurement,
    • cost plus,
    • and a combination of options.

Employer Risk
There are more detailed provisions around the Employer’s risk with compensable delay giving rise to Extension of Time costs, including prolongation costs, or cost plus profit and excusable delays to Extension of Time only. The various Employer risk events and corresponding remedies are all set out in a single table.

Variations

There are two Variation procedures.
1. Instructed. The Contractor is required to execute the variation and settle the time and cost impact separately.
2. Staged. The Contractor submits a proposal that can be accepted or rejected.

Other Key Features in the New Green Book

The 2021 Edition introduces an Engineer to manage the project and determine claims, bringing the Green Book in line with the other main forms of FIDIC contracts.

Claims must be notified within 28 days and a fully detailed claim with supporting particulars must be produced within 56 days, but these are not expressed to be time-bars.

As with the 1999 Green Book, disputes are to be determined in the first instance by an Adjudicator as a condition precedent to final determination by ICC arbitration. The procedure is somewhat different, however, with the Adjudicator in the 2021 form being appointed from the outset, within 28 days of the contract coming into effect.

The Adjudicator remains in place throughout to provide informal assistance to the parties when issues or disagreements arise, and then determine any dispute referred to him in accordance with the adjudication rules.

The new version also introduces an advanced warning provision where either party is to notify the other and the Engineer to advise the parties of any known probable event which may delay or disrupt the execution of the Works or increase the contract price.

The level of responsibility on the Contractor for its design has now been enhanced. With this corresponding requirement for Professional Indemnity cover by the Contractor to cover any liability arising out of any act, error, or omission by the Contractor in carrying out its designed obligations.

Termination

As in the earlier version, termination costs are predetermined and expressed as LDs - liquidated damages. Payable on termination due to the Contractor’s default on insolvency, these remain at 20% of the value of the unexecuted works.

The Second Edition now clarifies that this is an exclusive remedy. Where the Contractor terminates, it remains entitled to demobilization and any other costs reasonably incurred in expectation of completion of works plus 10% of the value of the incomplete works.

The new version introduces a Termination for Convenience clause for the benefit of the Employer, with the cost being the same as termination by the Contractor for Employer default. Whereas the Employer chooses to exclude works, it is liable to the contractor for the cost of the omission plus 10% of the value of omitted works.

The updated edition also contains certain add-ins for simpler use, including:
• a new risk table which sets out the Employer's risk and their consequences,
• a table which sets out the insurance responsibility of each party, including for Professional Indemnity cover and in case of Contractor’s design, and
• payment valuation method through a tick-box selection.

This concludes our brief overview of the FIDIC Green Book. Are you using the Green Book? Have you found the updates in the 2021 edition useful? Let us know in the comments.

  • This guest post was written by Mansoor Ali, FICCP. This post was originally published as two LinkedIn videos, available here and here.Enjoying the ICCP’s articles? Why not sign up for our mailing list and receive new articles straight into your mailbox. Or, want access to a library of members-only content on contracts and claims, check out our Membership page and join the ICCP community today.

by Mansoor Ali

FIDIC Green Book - a brief overview Part 2

This is the second in a three-part series on the FIDIC Green Book. This instalment will focus on the Clauses.

Clause 1

Sub-Clause 1.1 focuses on definitions for terms used in the contract. The definitions in these conditions are not all the same as those to be found in other FIDIC contracts. This is a result of the need for simplicity in the conditions of this sort.

Significantly different definitions include commencement date, site variation, and works.

    • Under the heading Contract there are definitions for:
        Contract
        Specifications
        Drawings
    • Under Persons:
        Employer
        Contractor
        Party
    • Under Dates, Times, and Periods:
        Commencement Date
        Day
        Completion Date
    • Under Monies and Payments:
        Cost

    Also covered in other definitions are Contractor’s Equipment, Country, Employer’s liability, force majeure, materials, plant, site, variation and works.

    Other Sub-Clauses in Clause 1
    Sub-Clause 1.2 (Interpretation)
    Sub-Clause 1.3 (Priority of Documents)
    Sub-Clause 1.4 (Law)
    Sub-Clause 1.5 (Communication)
    Sub-Clause 1.6 (Statutory Obligation)

    Clause Two [Employer]

    Sub-Clause 2.1 (Provision of Site) states unless the parties have agreed otherwise, the site must be handed over by the Employer to the Contractor on the commencement date which is 14 days after the contract has come into effect.
    Other Sub-Clauses in Clause 2:
    Sub-Clause 2.2 (Permits and Licenses)
    Sub-Clause 2.3 (Employer’s Instructions)
    Sub-Clause 2.4 (Approvals)

    Sub-Clauses in Clause 3 [Employer’s Representative]

    Sub-Clause 3.1 (Authorized Person) who will be named in the Appendix. The Contractor will thus know who in an Employer’s organisation is authorized to speak and act for the Employer at any given time.
    Sub-Clause 3.2 (Employer’s Representative) allows Employers who require professional assistance to have their consultant, if required, with clearly established delegated powers. Once appointed, the Employer’s Representative acts for and in the interest of the Employer. There is no dual role or duty to be impartial.

    Sub-Clauses in Clause 4 [The Contractor]

    Sub-Clause 4.1 (General Obligations)
    Sub-Clause 4.2 (Contractor’s Representative)
    Sub-Clause 4.3 (Subcontracting)
    Sub-Clause 4.4 (Performance Security). There is no suggested form of performance bond/security bond or bank guarantee in this contract. The amount should be set out in the Appendix.

    Sub-Clauses in Clause 5 [Design by Contractor]

    Sub-Clause 5.1 (Contractor’s Design) and Sub-Clause 5.2 (Design Responsibility) detail the design requirements and obligations of both the Employer and Contractor.

    As with all design-build contracts, it is essential that the Employer's requirements are set out clearly and precisely. The Contractor will have an absolute obligation to ensure that the parts of the works designed by him are fit for their purposes, provided that the intended purposes are defined in the contract.

    The Employer must therefore make clear in the parts of the specification that impose design obligations the intended purposes of the part of the works to be designed by the Contractor under this clause.

    Clause 6 [Employer’s Liability]

    Sub-Clause 6.1 (Employer’s Liability) gathers together in one place the grounds for Extension of Time under Sub-Clause 7.3 (Extension of Time) and the grounds for claims under Sub-Clause 10.4 (Right to Claim). There is no time or claim for bad weather.

    Clause 7 [Time for Completion]

    Sub-Clause 7.1 (Execution of Works)
    Sub-Clause 7.2 (Programme) The appendix should stipulate any particular requirement as to the format and level of detail of programme to be submitted.
    Sub-Clause 7.3 (Extension of Time). This sub-clause is connected to Sub-Clause 10.3 (Early Warning). An Extension of Time should not be granted to the extent that any failure by the Contractor to give an early warning notice under Sub-Clause 10.3 contributed to the delay.
    Sub-Clause 7.4 (Late Completion)

    Clause 8 [Taking Over]

    Once the works are ready to be used for their intended purpose, notice should be given. There is no provision for taking over of only parts of the work.

    If any tests are required to be completed prior to taking over, these should be specified in the specification.

    The Sub-Clauses in Clause 8 are:
    Sub-Clause 8.1 (Completion)
    Sub-Clause 8.2 (Taking Over Notice)

    Clause 9 [Remedying Defects]

    There is no defined defects liability period, but normally it is twelve months from the date of taking over.

    The Sub-Clauses in Clause 9 are:
    Sub-Clause 9.1 (Remedying Defects)
    Sub-Clause 9.2 (Uncovering and Testing)

    Clause 10 [Variation and Claims]

    Variation is defined to include any change to the specification or drawings included in the contract, requires the Contractor to notify the Employer of events promptly and to detail any claim within 28 days. If the effects of the event are increased or if the availability of the Employer to verify any claim is affected by the failure to notify, then the Employer is protected.

    These are detailed in the various Sub-Clauses including:
    Sub-Clause 10.1 (Right to Vary)
    Sub-Clause 10.2 (Valuation of Variation)
    Sub-Clause 10.3 (Early Warning)
    Sub-Clause 10.4 (Right to Claim)
    Sub-Clause 10.5 (Variation and Claim Procedures)

    Clause 11 [Contract Price and Payment]

    The sum in the offer is to be calculated and presented through either lump sum price or lump sum price with a schedule of rates or lump sum price with BOQ or Reimbursement with BOQ or Cost reimbursement. No provision is made for advanced payments.

    The Sub-Clauses in Clause 11 are:
    Sub-Clause 11.1 (Valuation of the Works)
    Sub-Clause 11.2 (Monthly Statements)
    Sub-Clause 11.3 (Interim Payments)
    Sub-Clause 11.4 (Payments of First Half of Retention)
    Sub-Clause 11.5 (Payment of Second Half of Retention)
    Sub-Clause 11.6 (Final Payment)
    Sub-Clause 11.7 (Currency)
    Sub-Clause 11.8 (Delayed Payments)

    Clause 12 [Default]

    The Sub-Clauses in Clause 12 are:
    Sub-Clause 12.1 (Default by Contractor)
    Sub-Clause 12.2 (Default by Employer)
    Sub-Clause 12.3 (Insolvency)
    Sub-Clause 12.4 (Payment upon Termination)

    Clause 13 [Risk and Responsibility]

    The Sub-Clauses in Clause 13 are:
    Sub-Clause 13.1 (Contractor’s Care of the Works)
    Sub-Clause 13.2 (Force Majeure)

    Clause 14 [Insurance]

    The Sub-Clauses in Clause 14 are:
    Sub-Clause 14.1 (Extent of Cover)
    Sub-Clause 14.2 (Arrangements)
    Sub-Clause 14.3 (Failure to Insure)

    Clause 15 [Resolution of Disputes]

    Arbitration may not be commenced unless the dispute has first been the subject of an adjudication.

    The Sub-Clauses in Clause 15 are:
    Sub-Clause 15.1 (Adjudication)
    Sub-Clause 15.2 (Notice of Dissatisfaction)
    Sub-Clause 15.3 (Arbitration)

    The next instalment will cover changes in the new edition of the Green Book.

    This guest post was written by Mansoor Ali, FICCP. This post was originally published as three LinkedIn videos, available here, here and here.

    Enjoying the ICCP’s articles? Why not sign up for our mailing list and receive new articles straight into your mailbox. Or, want access to a library of members-only content on contracts and claims, check out our Membership page and join the ICCP community today.

by Mansoor Ali

FIDIC Green Book - a brief overview

Over the next few blog posts, we will look at the FIDIC Green Book. The first edition was released in 1999 and the latest version is the 2021 Edition. In this blog mini-series, we will go through them and the changes introduced.

Overview

The Green Book is a short form of contract and is recommended for engineering and building works of a smaller scale. A maximum of USD$500,000 and a six-month construction period was initially considered as a reasonable limit on the capital value and duration.

However, the World Bank has suggested its use for contract values up to USD$10 million. Depending on the type of works, the Green Book may be suitable for contracts of considerably greater value. Also, it is considered more likely to be suitable for fairly simple or repetitive work or work of a short duration without the need for specialist subcontracts.

The main intention is to produce a flexible document of 15 clauses containing essential commercial provisions with a variety of administrative arrangements. Usually, for this type of contract, the Contractor constructs works in accordance with the design provided by the Employer.

However, is suitable for purely Contractor-designed civil or electrical and mechanical works. It excludes the express requirement for a third person, like an Engineer, to undertake any contract administration.

There are no particular conditions and the intention is that all necessary information should be incorporated in the Appendix to the agreement.

The dispute resolution provisions are more basic than other FIDIC contracts. There is no provision for amicable dispute resolution, nor a standing DAB, but an adjudicator. Also, perhaps due to the smaller value of the contract, there is no reference to the ICC arbitration. The parties instead decide the applicable rules and other arrangements in the appendix.

Apart from the Appendix, the contract includes rules for adjudication and adjudicators, agreement, and guidance notes. Pricing is also a matter of choice, lump sum reimbursement as well as cost reimbursable options. A single document is proposed for the form of tender and agreement, reflecting the simple projects envisaged.

One result of the simple form of contract is that there is an increased burden on the Employer to set out the full scope of works in specifications and drawings, including the extent of any design to be done by the Contractor. The conditions contain no overall limit on Contractor liability.

Procedure

The Green Book provides a printed form of Agreement, which is a simple procedure of offer and acceptance. It is intended that the Employer will write in the Employer's name in the agreement and fill in the Appendix where appropriate and send two copies with the full tender package to the Contractor to complete the remaining spaces and sign.

Having decided which tender to accept, the Employer signs the acceptance section of both copies and returns one copy to the Contractor. The contract comes into effect upon receipt of this copy by the Contractor.

If post-tender negotiations are made, a revised offer from the Contractor is accepted by the Employer signing and returning the acceptance form or a new form of agreement is completed by the parties.

When the applicable law imposes any form of tax such as VAT on the works, the Employer should make clear whether tenderers should include such taxes in their prices. Similarly, if the payment is to be made in whole or in part in a currency other than the currency of the country, the Employer should make this clear to the tenderers.

The Employer should complete the Appendix as indicated prior to inviting tenders. Tenderers may be asked to insert a time for completion if none is specified. Where tenderers are required to submit designs with their tenders, the document containing the design should be identified by the tenderer against item 1.1.1(f) of the Appendix.

The next post will cover an overview of the Green Book Clauses.

This guest post was written by Mansoor Ali, FICCP. This post was originally published as two LinkedIn videos, available here and here.

Enjoying the ICCP’s articles? Why not sign up for our mailing list and receive new articles straight into your mailbox. Or, want access to a library of members-only content on contracts and claims, check out our Membership page and join the ICCP community today.

by Mansoor Ali

FIDIC Green, Blue-Green, Gold, and Emerald Books - a brief overview

This is the third in a three-part series on the FIDIC Suite of Contracts. This post will summarise the Green, Gold, Blue-Green, and Emerald FIDIC contracts and outline the benefits of each. The series began by laying out the history and evolution of FIDIC contracts. The previous post in this series covered the Red, Yellow, and Silver Books. Because the Pink and Orange Books are no longer relevant, they will not be discussed in this series.

The Green Book

This is the short form of contract, first published in 1999 and updated in 2021. The Green Book contains the contract agreement, general conditions, rules for education, and notes for guidance. The short form of contract is recommended for Engineering and Building work of relatively small capital value. Depending on the type of works, the Green Book may be suitable for contracts of considerably greater value.

The Green Book is considered most suitable for fairly simple or repetitive work or works of short duration without the need for specialist subcontracts. The main intention is to produce a very flexible document containing essential commercial provisions with a variety of administrative arrangements. Usually for this type of contract, the Contractor constructs work in accordance with the design provided by the Employer.

However, it is also suitable for purely contracted design works as well as civil or mechanical and electrical works. There is no reference to an impartial Engineer. The Employer may appoint an independent Engineer if required. The intention is that all necessary information should be incorporated in the Appendix to the Agreement.

The Gold Book

The Gold Book provides the conditions of contract for Design, Build, and Operate, including the general conditions, particular conditions guidance, and sample forms. It is for contracts combining design-build obligations with a long-term operation commitment. The Gold Book adopts a ‘green field’ design-build operation scenario with a 20-year operation period, or beyond, where the parties intend to extend their cooperation throughout the duration of the project.

This form of contract is intended for a single contract awarded to a single contracting entity which will almost certainly be a consortium or JV. Rather than award separate contracts for design, build, and for operation, the Contractor has no responsibility for either financing or the ultimate commercial success of the project.

The Gold Book begins with a series of comprehensive flow charts which show in visual form the critical sequence of activities that is specified and unique to the Design-Build-Operate form of the contract. Comprehensive guidelines and suggestions on how various issues must be addressed are also provided.

The Blue-Green Book
The second edition of this form of contract, for Dredging and Reclamation Works, was released in 2016. It contains general conditions, particular conditions, the contract agreement, dispute adjudication, and notes for guidance.

The Dredging Contract Book includes all essential commercial provisions which may be used for all types of dredging and reclamation work and ancillary construction with a variety of administrative arrangements. Here the design is provided by the Employer or by its Engineer and the Contractor performs the work in accordance with the design provider.

Although this form may also be suitable for contracts that include, or wholly comprise, Contractor-designed works, it is more suited to the technical requirements of the dredging industry, and aligned with the overall balance of risk of the FIDIC Rainbow Suite of Contracts. It is, however, less suitable for complicated marine constructions or offshore projects, as it lacks the elaborate testing and taking over procedures often required in complex construction jobs.

The Emerald Book

The Emerald Book, which was published in 2019, provides the conditions of contract for underground works. It comprises the general conditions, guidance for the preparation of particular conditions, guidance for the preparation of tendered documents and annexes, the contract agreement, and dispute adjudication/avoidance agreements.

This first edition of the Emerald Book is published by FIDIC as a joint venture with International Tunneling and Underground Space Association. The basis for drafting the general conditions of this contract was the second edition of the Yellow Book.

These conditions include several new concepts in consideration of the risk that is peculiar to underground works.

For example, the risks allocated to the Employer include those arising out of:

  • the unforeseen physical conditions of the ground,
  • obstacles and adverse reaction to the excavation and
  • ground support process

Whereas, the Contractor bears the risks associated with:

  • extension of time and/or
  • reimbursement of cost.

The cost of the excavation and lining works depends on the subsurface physical condition and is to be measured and paid for using the rates and prices set out in the BOQs. All other work, for example, the ancillary surface work, has to be paid on a lump sum basis.

The Golden Principles
Published in 2019, there are five Golden Principles that FIDIC considers to be inviolable. These arose due to exceptional changes made by users to the general conditions through the particular conditions of contract to such an extent that the final contract would no longer represent the FIDIC principles and thus jeopardise the FIDIC brand and mislead the tenders and the public.

  1. The duties, rights, obligations, roles, and responsibilities of all the contract participants must be generally as implied in the General Conditions and appropriate to the requirement of project.
  2. The particular conditions must be drafted clearly and unambiguously.
  3. The particular conditions must not change the balance of risk/reward allocation provided for in the General Conditions.
  4. All time periods specified in the contract for contract participants to perform their obligation must be of reasonable duration.
  5. Unless there is a conflict with the governing law of the contract, all formal disputes must be referred to a DAAB (Dispute Avoidance/Adjudication Board) or DAB (Dispute Adjudication Board) if applicable, for a provisionally binding decision as a condition precedent to arbitration.

This guest post was written by Mansoor Ali, FICCP. This post was originally published as two LinkedIn videos, currently unavailable.

If you would like this complete series as a PDF, please email hello@instituteccp.com with the subject line ‘A Brief History of FIDIC’.

Enjoying the ICCP’s articles? Why not sign up for our mailing list and receive new articles straight into your mailbox. Or, want access to a library of members-only content on contracts and claims, check out our Membership page and join the ICCP community today.

by Mansoor Ali

FIDIC Red, Yellow, and Silver Books - a brief overview

This is the second in a three-part series on the FIDIC Suite of Contracts. This post will summarise the various FIDIC contracts and outline the benefits of each. It is a continuation of the previous post laying out the history and evolution of FIDIC contracts.

Advantages of Standard Forms of Contract

Some of the advantages of standard forms of contract include:
• savings in time and costs on repetitive transactions,
• clear and easy-to-understand drafts,
• frequent use increases understanding, and thus fewer disputes,
• tenders don't have to allow for unfamiliar contracts,
• fairness to all parties increases Contractor confidence and lowers risk contingencies and, subsequently, lowers costs,
• ease of use for international contracts,
• not drafted in favour of one party over another,
• allows for fairness to and protection of both parties, and
• includes the best practice in the industry and common issues and concerns that may be found in similar projects.

General Legal Character of FIDIC Contracts

FIDIC contracts have no legislative powers and the use of the FIDIC forms of contract never means that the particular conditions of contract escape national law. FIDIC standard contracts are simply general trade terms.

One cannot assume that the parties of a FIDIC contract expect their agreement to be governed by FIDIC. An important caution is that FIDIC general conditions are protected by copyright and trademark and may not be changed without specific consent. Such consent is generally in the form of a license to amend from FIDIC.

By the Book

The Red Book

Now, each book shall be discussed in turn, beginning with the Red Book, 2017 Edition. This provides the conditions of contract for the construction of buildings and engineering works where the detailed design is done by the Employer. It also allows some part of the works to be Contractor-designed but it is not suitable if most of the works are designed by the Contractor.

The Red Book has a balanced risk allocation between the Employer and Contractor compared to the Silver Book. Project administration is handled by the Engineer, who is appointed by the Employer.

Under the Red Book, payments are determined by measurement and by applying rates and prices from the Bill of Quantities (BOQ). There is the option for payment on a lump sum basis, also. Hence, an extra clause, Measurement and Evaluation appears in the Red Book.

The Engineer is required to determine a matter or settle a claim, consulting each party for agreement. If a determination is not agreed upon by both parties, then the matter is referred to a Dispute Avoidance and Adjudication Board (DAAB). If it's still not agreeable, then it goes to arbitration.

The Contractor may claim for payment and/or extension of time in the case of unforeseeable physical condition. Additionally, the Employer is responsible for the site data that is provided to the Contractor.

The Yellow Book

The second edition of the Yellow Book, issued in 2017, lays out the conditions of contract for plant and design build for electrical and mechanical plant and for building and engineering works where the design is done by the Contractor. As a result of this, a ‘design’ clause is added in the Yellow Book.

The risk of unexpected site conditions is borne by the Employer, yet the Contractor may claim for extension of time and compensation in such cases, as in the Red Book. Here, same as the Red Book, project administration is handled by the Employer-appointed Engineer.

Payments of the lump sum price are made as work proceeds and are based on instalments specified in the schedule of payments.

‘Tests After Completion’ is an additional clause in both the Yellow and Silver Books, commonly required for process and power plants. The Yellow Book is suitable for projects where design and construction, including electro-mechanical works, are the common areas; for example pumping stations, water and waste treatment plants, industrial plant transfer, recycling units, etc.

The Silver Book

The second edition of the Silver Book, issued in 2017, is a contract condition for EPC/Turnkey projects. It is suitable for process, power, and private infrastructure projects, where full responsibility for design and execution is on the Contractor. It is only suitable for use with experienced Contractors familiar with sophisticated risk management techniques.

Unlike the Red and Yellow Books, the Contractor accepts a higher level of risk and assumes responsibility for the accuracy of the Employer's requirements. The Employer still retains major risks such as war, force majeure, etc., but the Employer exercises limited control.

There is no reference to an Engineer in the Silver Book; instead, it's an Employee's Representative. The Employer’s Representative’s responsibilities are more concentrated on validating performance, maintenance, ease of operation, etc.

The Silver Book is recommended in cases where the Employer is mostly interested in the end results rather than the process and/or the design of the works. By signing the agreement, the Contractor accepts total responsibility for having foreseen all difficulties and costs of successfully completing the works without adjusting the contract price.

Other Prevalent FIDIC Books

In the next instalment in this series, the Green, Gold, and Emerald Books will be covered.

This guest post was written by Mansoor Ali, FICCP. This post was originally published as two LinkedIn videos, currently unavailable.

Enjoying the ICCP’s articles? Why not sign up for our mailing list and receive new articles straight into your mailbox. Or, want access to a library of members-only content on contracts and claims, check out our Membership page and join the ICCP community today.

by Mansoor Ali