Business Beyond Boarders
Identifying which FIDIC conditions of contract are most applicable within the employee–contractor context in different project situations.

The International Federation of Consulting Engineers (FIDIC) wrote and published a revised ‘suite’ of contracts in 1999, documents used internationally to ensure amicable relations between Employer and Contractor within the construction sector. When undergoing plant maintenance, especially when international tenders are in play, Employers may benefit from utilising FIDIC’s internationally accepted conditions.

According to FIDIC, “the FIDIC suite of contracts now covers a wide range of projects and methods of procurement. It is therefore likely that any international contractor or consultant working outside of the UK will frequently encounter FIDIC conditions of contract.

Subcontractors will similarly encounter FIDIC derived conditions of contract when they are operating internationally. Even subcontractors that only operate within a particular country will from time to time encounter FIDIC derived conditions where they are operating within a supply chain governed by a FIDIC main contract.” The Federation further explains that, “Employers may also use FIDIC conditions where the local standard conditions of contract are not suited to the procurement route and there is a need to avoid the risks and expense of preparing a bespoke contract. The different forms of contract within the FIDIC suite are organised around the extent of design and other responsibilities assumed by the Employer and the Contractor. The suite is therefore now aligned with common procurement strategies rather than the nature of the construction works,” – all crucial factors to consider when undergoing plant maintenance and or refurbishment.

When selecting the most suitable FIDIC Conditions of Contract for a particular project it is important to be equipped with the necessary knowledge and understanding to make an informed decision. The understanding is that FIDIC remains a sound starting point for any major infrastructure project, which includes power rehabilitation projects. Independent consulting engineers can provide invaluable advice on both investment and procurement strategies.

In 1999, FIDIC published four forms of contract, which one must evaluate when selecting the most suitable for infrastructure rehabilitation, namely the Red Book, Yellow Book, Silver Book and Green Book. The purpose of these publications is to standardise both technical and administrative matters, which is desirable for the satisfactory execution of many types of commercial projects. Selecting the most appropriate Contract for power infrastructure rehabilitation depends on the type of project being contemplated.

FIDIC books in detail

Conditions of Contract for Construction (the FIDIC Red Book) is recommended for building or engineering works designed by the employer or by his representative, the engineer. Under the usual arrangements for this type of contract, the contractor constructs the works in accordance with a design provided by the employer.

Conditions of Contract for Plant and Design-Build (the FIDIC Yellow Book) is recommended for the provision of electrical and/ or mechanical plant, and for the design and execution of building or engineering works. The contractor designs and provides, in accordance with the employer’s requirements, plant and/or other works; which may include any combination of civil, mechanical, electrical and/or construction works.

The EPC Turnkey Contract (the FIDIC Silver Book) is recommended where one entity takes total responsibility for the design and execution of an engineering project. Under this arrangement of contract the entity carries out all the engineering, procurement and construction, providing a fully-equipped facility, ready for operation (at the ‘turn of the key’).

The FIDIC Green Book – Short Form of Contract is recommended for engineering and building work of relatively small capital value. According to FIDIC, the guidance notes for the Green Book recommended that generally it should not be used on projects with a contract value greater than $500,000. The Green Book is likely to be most suited to fairly simple or repetitive work, or work of short duration, without the need for specialist sub-contracts.

Identifying the problem

Standardisation, both in technical and administrative matters, is desirable for the satisfactory execution of many types of commercial projects. Major projects, whether they are predominantly building, civil engineering, chemical engineering, electrical engineering, mechanical engineering, or any combination, are frequently complex. Selecting the most suitable Contract for power infrastructure rehabilitation will depend on whether it is a straightforward, quick or inexpensive project, or it is employer designed (traditional project or Multilateral Development Banks providing finance); or if it is contractor designed or an EPC/ turnkey project. With the resulting increased complexity of contract conditions, it is becoming increasingly important for them to be based upon a standardised form of contract with which the contracting parties and financial institutions are familiar. FIDIC has established such contracts.

The solutions

At the inception stage of a project, procurement options should be reviewed with the help of a consulting engineer, and a decision made as to the most appropriate option. This stage in the procurement of each project should include the determination of the appropriate procurement strategy, with decisions being reached on the following matters:

a. The works to be executed under each contract (often called ‘contract packaging’);

b. The extent of design to be provided to, or to be carried out by, the contractor;

c. Lump-sum, measure-and-value, cost-plus or other basis for determining the final contract price;

d. Determining whether the employer or the engineer is going to do most of the design; and

e. Whether it is an infrastructure project (e.g. road, rail link, bridge, water or sewage treatment plant, transmission line, dam or hydropower plant) where the employer (who provides the finance) wishes to implement the project on a fixed price turnkey basis.

When the decision is made, the flow diagram presented below is therefore applied in selecting the appropriate FIDIC Conditions of Contract. It is important to have a clear understanding of the FIDIC Standard Forms of Contract in relation to the provisions such as scope and nature of construction. It is also important to note the legal basis for construction work for the project at the desired time and within budget, how to perform each stage and what the rules and responsibilities are.

Therefore, as outlined above, infrastructure rehabilitation is best managed using the FIDIC Silver or Red Book, with the Yellow Book being best suited for new infrastructure projects. In view of the above, selecting the most suitable FIDIC Conditions of Contract for power infrastructure rehabilitation depends on the level of complexity of the project; the execution entity: Contractor or employer; and the financing mechanism.