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.

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