fidic contracts: law and practice in 1999, three new conditions of contract were published by fidic,...

FIDIC CONTRACTS:LAW AND PRACTICE

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FIDIC CONTRACTS:LAW AND PRACTICE

By

ELLIS BAKER

BEN MELLORS

SCOTT CHALMERS

ANTHONY LAVERS

WHITE KCASE

© Ellis Baker, Ben Mellors, Scott Chalmers and Anthony Lavers 2009

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FOREWORD

In 1999, three new conditions of contract were published by FIDIC, with their basicstructure and wording harmonised around the previous FIDIC Design-Build and TurnkeyContract (the 1995 “Orange Book”) format. These conditions were the Conditions ofContract for Construction, for Plant and Design-Build, and for EPC/Turnkey Projects.The first one is intended for construction works where the Employer is responsible for thedesign, similar to the old Red Book, and with an important role for the Engineer. The twolatter ones are intended for cases when the Contractor supplies the design. The Plant andDesign-Build Contract has the traditional Engineer while the EPC/Turnkey ProjectsContract has a two-party arrangement.

The 1999 Conditions of Contract for Plant and Design/Build retained the essentialelements of the earlier Orange Book. It had been noted, however, that new trends in projectfinancing and management, especially related to PFI and BOT, required a different set ofconditions, and the Conditions of Contract for EPC/Turnkey Projects were drafted to caterfor this. They complement but do not replace the Conditions of Contract for Plant andDesign/Build, in that they are intended to be used in a rather specific context, forexample:

u when greater certainty is sought that price and time will not be exceeded;u when the Contractor is required to take total responsibility for the design and

construction of the infrastructure or other facility;u when the Employer is willing to pay more in return for the Contractor bearing the

extra risks associated with this; andu when uncertain or difficult ground conditions or other largely unforeseeable risks are

unlikely to be encountered.

The EPC/Turnkey Contract should not be used for design-build work in other circum-stances. The decision about which form of contract to use should, therefore, always be takenin full consideration of the particular characteristics of the project at hand.

While several guides to the 1999 editions have been published, only a few deal with thewhole suite of contracts, most notably the Contracts Guide published by FIDIC. ForFIDIC, this guide, with detailed guidance to the new contracts, remains the main referencework, especially since it was written by the principal drafter of the three 1999 conditionsof contract. However, it aims mainly to explain the basis for interpreting the clauses. Thisnew guide—FIDIC Contracts: Law and Practice—is sure to become a leading industryguide as it also covers the full suite of contracts but does so in a more detailed manner byproviding legal commentary and detailed analysis of the clauses for each of the differentforms, with relevant case law. Moreover, the guide examines the FIDIC suite of contractsin relation to other organisations, such as the World Bank and the ICC, who are closelyinvolved in their use. This is especially important now that the Multilateral DevelopmentBanks (MDBs) and an increasing number of bilateral development agencies have adoptedthe MDB Harmonised Edition of the Construction Contract for their projects.

v

The authors have considerable experience in project procurement and internationaldispute resolution, so they are able to explain and interpret the significance of the contractclauses in the light of extensive use by a large user community that takes in engineers,project managers, quantity surveyors, architects, contractors, and professional staff frompublic authorities and procurement agencies. The new guide will certainly receive muchpositive attention from all interested parties.

Philip Jenkinson,Chairman of the FIDIC Contracts Committee

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FOREWORD

PREFACE

For a practising lawyer, a book is a daunting undertaking. In the course of producing thisone, I came to understand better why there was so little published assistance in use of theFIDIC contracts. This is not to denigrate the work of other authors on FIDIC subjects:grateful reference to their contributions has been made and recorded in many places withinthis one. But it was not hard to see the incentive to limit the scope of coverage, for example,to one form of contract.

And this was the gap which I, and colleagues, and indeed clients and others in theindustry, remarked over many years; the absence of a comprehensive legal text on the entireFIDIC suite, reflecting the full range of options offered by the respective forms.

It is, of course, not possible to practise in construction law internationally without beingfully aware of the massive presence of the FIDIC contracts in the global construction andengineering industries.

Apart from the numerous projects where one or other of the FIDIC contracts is selectedfor use, there are indirect, often ‘unofficial’ influences, as in the adaptation of older FIDICeditions for use as standard forms (e.g., in Eastern Europe or by State entities in the MiddleEast) or in reference of terms of bespoke contracts to the FIDIC equivalent for comparisonwith an international benchmark.

For me, at White & Case, this awareness was greatly enhanced by Christopher Seppälä,in the Paris office. His work as Legal Adviser to the FIDIC Contracts Committee and asauthor and presenter of papers was a constant reminder of the paramountcy of the FIDICcontracts in international construction procurement and disputes practice and was one ofthe inspirations for this book. Reference should also be made to FIDIC itself. This is in nosense an ‘official’ publication. Indeed, individual aspects of the FIDIC contracts arecriticised where that is felt to be justified, but this does not reduce the gratitude felt forencouragement received from Peter Boswell, as General Manager, and Philip Jenkinson, asChairman of the Contracts Committee. I have always taken the view that FIDIC is ‘big’enough in attitude to accept differences of opinion and valid criticism and do not regardthese as being inconsistent with sincere respect for FIDIC’s many achievements. That theopportunity ever arose to try to fill the perceived gap was due to the enterprise of Informain making the initial approach to us and the tenacity of Jessica Westwood and her colleaguesin seeing the project through. It is even more of a pleasure to record how much is owed tothem now that the debt no longer includes an undelivered manuscript.

While I have taken responsibility for all editorial judgements, including any errors in thetext, final delivery would never have been achieved without the sustained efforts of myco-authors, all White & Case lawyers in the London Construction & Engineering PracticeGroup. Ben Mellors has, in less than a year, project-managed the team effort from a part-finished draft to an end product. Scott Chalmers combined preparation of draft chapterswith lengthy overseas business trips and a young family. Anthony Lavers brought experi-ence of authorship as well as his substantive contribution to the collective effort.

vii

Formal acknowledgement is made throughout to the sources referred to, but moregeneral gratitude is also appropriate to the colleagues, senior and junior, in the Firm andin the wider legal profession, clients and other FIDIC users. Their insights and commentshave often enriched my understanding of the forms in practice.

As I have indicated, the intention behind this book is to respond to a need which wasobvious to me and to many others. How completely it meets that need is for readers to say;the team intends to listen to all constructive comment to factor into the preparation of anyfuture editions, which the publishers have been kind enough to anticipate.

What can be stated with certainty is that FIDIC Contracts: Law and Practice is offeredto FIDIC users and their advisers in the same spirit of sharing of knowledge and experiencefrom which I and my co-authors have benefited over the years. We hope it will make adifference.

Ellis BakerWhite & Case, London

viii

PREFACE

OUTLINE CONTENTS

Foreword vPreface viiAuthor Biographies xxviiIntroductory Notes for Readers xxixTable of Cases xxxiiiTable of Legislation xxxviiList of Tables xxxix

CHAPTER 1. FIDIC 1

CHAPTER 2. THE FIDIC CONTRACT 17

CHAPTER 3. PRODUCT 57

CHAPTER 4. PRICE 157

CHAPTER 5. TIME 217

CHAPTER 6. CONTRACT ADMINISTRATION AND CLAIMS 267

CHAPTER 7. RISK, INSURANCE AND SECURITIES 343

CHAPTER 8. REMEDIES 401

CHAPTER 9. DISPUTE RESOLUTION 505

Index 555

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DETAILED CONTENTS

Foreword vPreface viiAuthor Biographies xxviiIntroductory Notes for Readers xxixTable of Cases xxxiiiTable of Legislation xxxviiList of Tables xxxix

CHAPTER 1. FIDIC

FIDIC 1The meaning of FIDIC 1The history of FIDIC 1The FIDIC organisation and its activities 1The FIDIC Contracts Committee 3The background to FIDIC’s contracts 4Collaborative work with other organisations 6

ICC 6World Bank/Multilateral Development Banks 10European International Contractors 12

Utilisation of the FIDIC contracts 13FIDIC’s aspiration 13The 1990s: the Reading University Study 14FIDIC usage globally 14

CHAPTER 2. THE FIDIC CONTRACT

Introduction 17The FIDIC Suite of Contracts 17

FIDIC current major project forms 17Currently published prior forms 18Other FIDIC construction forms 18FIDIC consultant and consortium agreements 18Rainbow Suite: major project forms 18

FIDIC’s general principles 18FIDIC’s contract suite 19Other FIDIC forms 22

The Contract 24Documents forming the Contract 25

Generally 25Documents forming a FIDIC Contract 26

xi

Location of contractual information or data in the Contract 31Incorporation of documents 32

The Conditions of Contract 33Interpretation of the Conditions of Contract 34Particular Conditions—‘Tailored’ Provisions 35

Priority of contract documents—Sub-Clause 1.5 36Procurement and contract award 38

Procurement 38Tender documents 40Base Date 40Administration of the tender process 41

Legislative regulation 41Development of tender contracts 43

Contract award—formation of the Contract 45Red, MDB, Yellow and Gold Books 45Silver Book 46

Applicable laws and permissions 46Laws relevant to the Contract 46Law governing the Contract 47Ruling language 48Compliance with applicable Laws 49

‘‘Laws’’ 50Permissions, permits, licences and approvals 51

Indemnities 53Change in laws 53

Changes in Laws of the Country 54

CHAPTER 3. PRODUCT

Introduction 57The scope of work 59

Contractor’s general obligations: Red Book and MDB 59Contractor’s general obligations: Yellow, Silver and Gold Books 60

Implied Works 61Contractor’s general obligations: Gold Book—Operation Service 61Permanent Works, Temporary Works, Goods, Plant and Materials 62Manner of execution 62Methods of construction 63Contractor’s Documents 64

Red Book and MDB 65Sub-Clause 5.2: Yellow and Silver Books 65Contractor’s Documents submitted for review: Yellow and Silver Books 66Contractor’s Documents submitted for approval: Yellow and Silver Books 67Contractor’s Documents: Gold Book 68

Training 69As-Built Documents 69

Red and MDB Books 69

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DETAILED CONTENTS

Yellow, Silver and Gold Books 70Operation and maintenance manuals 71Operation Service: Gold Book 71

Generally 71General requirements 72Commencement and carrying-out of Operation Service 74Independent compliance audit 74Delivery of raw materials 75Delays and interruptions during the Operation Service 76Failure to reach production outputs 77Completion of Operation Service 77Ownership of output and revenue 78

Site 78Site and possession 78Setting out 80Access, transport and rights of way 80

Access and access routes 80Transport 81

Security of the Site 82Contractor’s operations on Site 82Access after Taking Over 83Clearance of Site 83

Red, MDB, Yellow and Silver Books 83Gold Book 83

Site data and tender information 84Red, MDB, Yellow and Gold Books 84

Site Data 84All necessary information and sufficiency of Accepted Contract Amount 84

Silver Book 85Adverse physical conditions 86

Red, MDB, Yellow and Gold Books 87Physical conditions 87Unforeseeable 87Procedure and consequences 89Risk sharing 91

Silver Book 92Design obligations 92

Red Book and MDB 93Errors or defects in documents prepared for the execution of the Works 94

Yellow and Gold Books 94Errors in the Employer’s Requirements 95Indemnity due to errors 96

Silver Book 96Errors in the Employer’s Requirements 96

Fitness for purpose 98Red Book and MDB 99

DETAILED CONTENTS

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Yellow and Silver Books 99Gold Book 100

Design compliance with law and standards 100Standards and quality 101

Materials and workmanship 101Generally 101Samples: Red, MDB, Yellow and Gold Books 102Samples: Silver Book 103Royalties and material disposal 103

Quality assurance 103Compliance with law 103

Generally 103Gold Book: Operation Service 104Permits, licences or approvals assistance 104Working hours 105

Technical standards and regulations: Yellow, Silver and Gold Books 105Safety, personnel and execution 106

Health and safety 106Personnel 107

Labour and labour laws 107Contractor’s Personnel 108MDB obligations 108MDB labour and social obligations 109

Employer’s Personnel obligations 110Execution 110

Co-operation 110Contractor’s superintendence 111Rights of way 111Avoidance of interference with public 111Protection of the environment 112Contractor’s Equipment 112Facilities for staff and labour 113

Employer’s Equipment and free-issue materials 114Employer’s Equipment 114Free-issue materials 114

Electricity, water, gas and facilities 115Books other than Gold Book 115Gold Book 116

Variations 116Definition of Variation 117

Who can order Variations? 121Right to vary in the Red Book and MDB 122

Grounds for objection 123Right to vary in the Yellow, Silver and Gold Books 124

Grounds for objection 125Limits to the scope of Variations 125

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Limits to the time for instructing Variations 126Variation procedure 126

Request for a proposal 126Instruction 128Valuation of Variations and the Contractor’s entitlement to an extension of

time 128Value engineering 129

Sub-contracting 130Subcontractors 130

Generally 130Generally: Books other than Silver 130Red and MDB Books: assignment of sub-contract/assignment of benefit 131Silver Book 131Gold Book 132

Nominated Subcontractors 132Generally 132

Testing 133Sampling 134Testing during the course of the Works 135

Inspection 135Rejection 136Remedial work 137

Tests on Completion 137Performance testing regimes generally 137FIDIC Tests on Completion generally 139Red and MDB Books 139Yellow, Silver and Gold Books 140

Delayed Tests on Completion 143Retesting Tests on Completion 143Tests after Completion 144

Generally 144Tests after Completion: Gold Book 145Tests after Completion: Yellow and Silver Books 145Delays to Tests after Completion 146Retesting 146Failure to pass Tests after Completion and non-performance damages 146

Tests Prior to Contract Completion: Gold Book 147Procedure for Tests Prior to Contract Completion 147Delayed Tests Prior to Contract Completion 148Failure to pass Tests Prior to Contract Completion 149Retesting Prior to Contract Completion 149

Defects 150Generally 150Completion of outstanding work and remedying of defects 151

Red, MDB, Yellow and Silver Books 151Gold Book: Design-Build Period 152

DETAILED CONTENTS

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Gold Book: Operation Service Period 153Cost of remedying defects, removal of defective work 154Extension of Defects Notification Period 154

Books other than Gold Book 154Gold Book 154Further tests 154

Contractor to search 155Defects Notification Period and cessation of liability 155Failure to remedy 156

CHAPTER 4. PRICE

Introduction 157Payment—a fundamental Employer’s obligation 157

Payment obligations primarily related to payment of Contract Price 157Other payment provisions 158

Accepted Contract Amount 160Relevance of Accepted Contract Amount 160

The nature of the FIDIC forms 161The remeasurement contracts: Red and MDB Books 161Lump sum contracts: Yellow, Silver and Gold Books 163The Contract Price in the FIDIC forms 164

Red and MDB Books 164Yellow and Silver Books 166Gold Book 166

Factors affecting the Contract Price 166Contractual entitlements to Contract Price adjustments 166Measurement: Red and MDB Books 167

Works and method of measurement 167Evaluation 169

Contract Price adjustment: Variations 172Red and MDB Books 172Valuation of Variations: Red and MDB Books 172Omissions in the Red and MDB Books 173Yellow, Silver and Gold Books 174Payment in applicable currencies 175

Changes in legislation 175Red, MDB, Yellow and Silver Books 175Gold Book 176

Adjustment for changes in Cost 177Red, MDB and Yellow Books 177Silver and Gold Books 179

Provisional Sums 179Daywork 180

Payment of the Contract Price 181Outline of payment mechanism 181Advance payment 182

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DETAILED CONTENTS

Employer’s payment of the advance payment 182Repayment by Contractor of the advance payment 184

Interim payment application procedure 186Schedule of Payments 187Plant and Materials intended for the Works 189

Payment under Red, MDB, Yellow and Gold Books 189Plant and Materials when shipped 189Plant and Materials when delivered 190Amount payable 190

Payment: Silver Book 191Payment for Plant and Materials in event of suspension 191Issue of Interim Payment Certificates 192

Red, MDB, Yellow and Gold Books 192Interim Payments: Silver Book 193

Making and timing of payments 194Payment: Red, Yellow and Gold Books 194Payment: MDB 195Timing of payments: Silver Book 195

Statement at completion 196Red, MDB, Yellow and Silver Books 196

Application, Final Payment Certificate, Discharge and Final Payment 197Red, MDB, Yellow and Silver Books 197Issue of Final Payment Certificate: Red, MDB and Yellow Books 198Issue of final payment: Silver Book 198Final Statements and Payment Certificates: Gold Book 199Final Statement Design-Build: Gold Book 199Final Payment Certificate Design-Build 200

Application for Final Payment Certificate Operation Service: Gold Book 200Final Payment Certificate Operation Service: Gold Book 201

Cessation of Employer’s liability 202Asset Replacement Schedule and Asset Replacement Fund: Gold Book 202

Asset Replacement scheme generally 202Asset Replacement Schedule 203Asset Replacement Fund 203

Maintenance Retention Fund: Gold Book 205Payment issues 206

Employer’s financial arrangements 206Red, MDB, Yellow and Silver Books 206Gold Book 207

Delayed payment 208Payments by Contractor to Employer 208

Payments for electricity, water and gas 208Payments for Employer’s Equipment 209Contractor to pay Employer’s costs 209Clearance of Site 210

Corrections to Payment Certificates or payments 211

DETAILED CONTENTS

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Deduction of Retention Money 211Currencies of payment and related issues 211Taxes 213Changes in Contractor’s financial situation 213

Gold Book 213Payment to nominated Subcontractors 214

Yellow, Silver and Gold Books 214Red and MDB Books 214

Direct payment to nominated Subcontractors 215

CHAPTER 5. TIME

Introduction 217Commencement 218

Commencement Date 218Red, Yellow, Silver and Gold Books 220MDB 221

Obligation to commence the Works 223Programme 224

Generally 224Contents of programme 225Role and status of the programme 227Duty to update programme 228Failure to submit programme 229Tender programme 230

Progress 230Obligation to proceed with due expedition and without delay 231Failure to proceed 231Early warning and updates on progress 231

Suspension 232Generally 232Instruction to suspend 232Obligations during period of suspension 233Contractor’s entitlement on suspension 234

Extension of time and Cost 234Payment for Plant and Materials 236

Prolonged suspension 236Resumption of work 237

Obligation to complete 238Generally 238Time for Completion 239Extent of ‘completion’ required 240

Red, MDB, Yellow and Silver Books 241Completion of the whole of the Works (and Sections) 241Other matters required for Works to be considered completed 242

Gold Book 245Completion of the whole of the Design-Build/Works 247

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DETAILED CONTENTS

Other matters required for Design-Build/Works to be considered completed 247Sectional completion 249Taking-Over: Red, MDB, Yellow and Silver Books 251

Generally 251Issue of Taking-Over Certificate for Works and Sections under Sub-Clause 10.1 253Taking over part of the Works 256

Silver Book 256Red, MDB and Yellow Books 256

Taking-over following interference with Tests on Completion 259Commissioning Certificates: Gold Book 259

Generally 259Issue of a Commissioning Certificate 261Commissioning of parts of the Works 262

Acceleration and the expedition of progress 262Generally 262

Acceleration to achieve earlier completion 263Instruction to expedite progress to complete within Time for Completion 264

CHAPTER 6. CONTRACT ADMINISTRATION AND CLAIMS

Introduction 267The contract administrator 268

Generally 268Appointment of the Engineer or Employer’s Representative (Gold Book) 269

Appointment of the Engineer: Red, MDB and Yellow Books 269Appointment of the Employer’s Representative (Gold Book) 270Who can be the Engineer or Employer’s Representative (Gold Book)? 271Replacement of the Engineer or Employer’s Representative (Gold Book) 273Authority of the Engineer or Employer’s Representative (Gold Book) 275

Constraints to authority 275Appointment of assistants and delegation of contract administration 277

The Employer as contract administrator: Silver Book 278The contract administrator’s role: Red, MDB, Yellow and Gold Books 279

Duality of contract administrator’s role 280Position at common law 281History behind the current FIDIC provisions 284Position under the Red, MDB, Yellow and Gold Books 286Other determinations, decisions and exercises of judgement 290

The Employer in contract administration: Silver Book 291Instructions 293

Red, MDB, Yellow and Gold Books 293Silver Book 294Formalities 294

Sub-Clause 3.5 294Procedure 297Giving effect 299Failure to consult 299

DETAILED CONTENTS

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Inadequate performance by the contract administrator 300Communication and reporting 302

Generally 302Language for communications 302Formalities for communications 302

‘‘Written’’ and ‘‘in writing’’ 304‘‘Agreement’’ 306Failure to comply with required formalities 306Notices 307Communications must not be unreasonably withheld or delayed 309

Records and reporting requirements 309Claims 309

Generally 309Contractor’s claims: Sub-Clause 20.1 311

Scope of application of Sub-Clause 20.1 312Express reference to Sub-Clause 20.1 312‘Any extension of the Time for Completion’ 313‘Additional payment under any clause of these Conditions’ 313‘Additional payment otherwise in connection with the Contract’ 316

Outline of procedure for claims under Sub-Clause 20.1 316Notice 317

Contents and formalities of notice 318Timing of notice 318Failure to give notice within required time 320Relationship with other notice provisions 324

Contemporary records 324Fully detailed claim 326Contract administrator’s response and determinations under Sub-Clause 3.5 328

Red, Yellow and Silver Books 328MDB 331Gold Book 331

Giving effect to the Contractor’s entitlement to payment 332Claims based on events or circumstances with a continuing effect 333Dissatisfaction with contract administrator’s determination 333

Employer’s claims 334Scope of application of Sub-Clause 2.5/20.2 (G) 335Outline of procedure 337Notice and particulars 337Determination under Sub-Clause 3.5 339Right to set off, withhold and deduct 339

Red, MDB and Yellow Books. 339Silver Book 341Gold Book 341

CHAPTER 7. RISK, INSURANCE AND SECURITIES

Introduction 343Risk allocation: Clause 17 343

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DETAILED CONTENTS

Generally 343General allocation of risk to Employer in Red, MDB, Yellow and Silver Books 344Allocation of risk in the Gold Book 347

General arrangement 347Employer’s risks 348

Liability for loss or damage to the Works, Goods and Contractor’s Documents 352Red, MDB, Yellow and Silver Books 353

Duration and extent of Contractor’s responsibility 353Consequences following damage 354

Gold Book 355Liability based on allocation of risk 355Contractor’s responsibility for care of the Works, Goods and

Contractor’s Documents 356Consequences following damage to Works or other property, Goods or

Contractor’s Documents 358Indemnities and risk allocation 359

Personal injury 360Damage to property (other than the Works) 361Risks allocated to the Employer 362Intellectual property claims 362

Limitation of liability 363Exclusion of certain types of loss 363Limitation of Contractor’s liability to Employer 365

Insurance 366Generally 366

Who is required to effect the insurance? 368Requirement for insurances to be effected 368Failure to effect insurance 370

Insurance for the Works, Goods and Contractor’s Documents 371Red, MDB, Yellow and Silver Books 371Gold Book 373

Design-Build Period 374Operation Service Period 375

Insurance for Contractor’s Equipment 376Insurance against injury to persons and damage to property 377Insurance for Contractor’s Personnel and other employees 378Liability for breach of professional duty: Gold Book 378Other insurances under the Gold Book 379

Security 379Generally 379

Types of security 380Requirement for security, form and entity 381Example forms 383

Tender security 384Parent company guarantee 385

DETAILED CONTENTS

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Advance payment guarantees 385Performance Security 387

Performance Security connected to other rights and obligations underthe Conditions 388

Type of security 388Form, terms and period 389Increases in Performance Security 390Entitlement of Employer to call Performance Security 390Return of Performance Security 392

Retention Money and Retention Money Guarantee 392Amount and limit of Retention Money 393Release of Retention Money 393

Release of second half of Retention Money 395Mechanism for payment to Contractor of Retention Money 396Retention Money guarantee 396

Maintenance Retention Fund or Maintenance Retention Guarantee: Gold Bookonly 397

Payment guarantee by Employer 397Title 398

Ownership of Plant and Materials 398Vesting of Contractor’s Equipment 399

CHAPTER 8. REMEDIES

Introduction 401The Employer’s remedies 403

Exercise of remedies on behalf of Employer 403Failures by the Contractor generally 404

Notice to correct under Sub-Clause 15.1 405Time 406

Failure to proceed 407Failure to complete within the Time for Completion 408Delay damages 409

Amount of delay damages 410Procedure 412Sectional completion 412Common law position: penalties and the prevention principle 413

Termination for failing to complete 416Remedies for defects in quality and performance 417

During the course of the Works 418Failure to pass Tests on Completion 419


Extension of Defects Notification Period 422Entitlement to an extension 422Procedure 423

Failure to remedy defects 423

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DETAILED CONTENTS


Failure to pass Tests after Completion: Yellow and Silver Books 426Failure to carry out maintenance: Gold Book 427Failure to pass Tests Prior to Contract Completion: Gold Book 428

Operation Service 429Delays or interruptions in Operation Service 429

Suspension of the Operation Service 430Failure to reach production outputs where the cause lies with the Contractor 430

Entitlement to payment of costs from the Contractor 431Indemnities by the Contractor 432Withholding and set-off 433

Withholding 433Right of set-off: general principles 434Right of set-off under the FIDIC forms 435

Red, MDB, Yellow and Gold Books 435Silver Book 436

Other practical remedies 436Termination by Employer 437

Employer’s right to terminate under the FIDIC forms 438Termination for Employer’s convenience 438

Procedure 440Contractor’s entitlement to payment 441

Employer’s termination for cause 442Grounds for termination 442Procedure 448

Notice 448Election to terminate 448

Consequences following termination 450Practical consequences of termination 450Financial consequences of termination 452

The Contractor’s remedies 454Delayed or non-payment by the Employer 454

Financing charges 455Extension of time 456

Grounds for entitlement to extension of time 457Associated entitlements to payment of Cost 459

Procedure and entitlement 465Period of extension of time 466

Early completion bonus 470Contractor’s entitlement to payment of Cost and other financial entitlements 471Indemnities by Employer 485Suspension of progress of Operation Service: Gold Book 485Other miscellaneous remedies 486Suspension 486

Generally 486

DETAILED CONTENTS

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Grounds for suspension 487Procedure 488

Contractor’s entitlement 489Contractor’s termination for cause 491

Grounds for termination 491Procedure 496Consequences following termination 496

Practical consequences 496Financial consequences 497

Force Majeure, Exceptional Events and release from performance under the Law 497Force Majeure/Exceptional Events 499

Definition of Force Majeure/Exceptional Event 499Consequences of Force Majeure or Exceptional Event 500

Notice 500Excuse from performance 500Contractor’s entitlement to an extension of time and Cost 501Termination 501

Release from performance under the Law 503

CHAPTER 9. DISPUTE RESOLUTION

Introduction 505Development of the FIDIC dispute resolution procedures 505

Dispute boards 507Generally 507Dispute boards in the FIDIC forms 508

The nature of the DAB in the FIDIC forms 509‘Standing’ DAB 509‘Ad hoc’ DAB 510Selection of type of DAB 510Gold Book 512Engineer/Employer’s Representative as DAB 512

Dispute board provisions in the FIDIC forms 513The appointment of the DAB 515

Timing and duration of appointment 515Number of members 517Identity of member(s) 517Failure to agree DAB 518Failure of one Party to enter into Dispute Adjudication Agreement 519Replacement and termination of appointment 520Remuneration 520

Obligations under the Dispute Adjudication Agreement 522Obligations of the member 522Obligations of the Employer and Contractor 523Disputes 524

Features particular to standing DAB 524Site visits and regular updates 524

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DETAILED CONTENTS

Referral for opinion of DAB: Red Book and MDB 524Avoidance of Disputes: Gold Book 525

Obtaining a decision on a dispute from the DAB 526Dispute: the jurisdiction of the DAB 527

The meaning and existence of a dispute 528‘Dispute’ under the Gold Book 532

The referral 533Powers of the DAB 534Procedure 535Decision of the DAB 536

Timing of the decision 537Amendments and corrections 538

Binding decision 538Notice of dissatisfaction 539Enforcement of a decision of the DAB 540

Amicable settlement 540Generally 540Amicable settlement clause in the FIDIC forms 541

Amicable settlement procedure 541Condition precedent to arbitration 542

Arbitration 543Generally 543Arbitration agreement in the FIDIC forms 544

Rules, institution, tribunal, seat and law 545Rules of arbitration and arbitral institution 545Number of arbitrators 547Language of arbitration 548Law and seat of arbitration 548

Referral of a dispute in respect of which the DAB’s decision has notbecome final 549

Who can make the referral? 549Timing of referral 550Jurisdiction and powers of the arbitral tribunal 550

Enforcement of a DAB’s decision 551Final and binding decision 551Binding but not final decision 552

Arbitration of dispute where there is no DAB in place 552

Index 555

DETAILED CONTENTS

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AUTHOR BIOGRAPHIES

Ellis Baker is a graduate of Queens’ College, Cambridge (MA 1992, LLM 1994). He hasbeen a Partner and Head of the Construction & Engineering Practice Group at the Londonoffice of White & Case since 2002. His transactional experience spans 30 countriesworldwide, and all the major contract forms, mainly in the power, oil and gas, mining andtransport infrastructure sectors, advising on procurement, negotiating and drafting con-tract documentation. He also has a significant dispute resolution practice, specialising ininternational arbitration, in which he has appeared as lead advocate. Mr Baker haspublished a number of books and articles on construction law and dispute resolutiontopics.

Ben Mellors, prior to qualifying as a lawyer in 2003, gained a Masters degree inEngineering Science from Oxford University and practised as a civil engineer with one ofthe UK’s largest consulting firms. He joined White & Case in 2009 from a specialistconstruction law firm. He has significant experience of the FIDIC forms of contract andhas acted in a number of disputes in East Africa, Eastern Europe and the UK on a widevariety of projects, ranging from roads to tunnels and court buildings to a teaching hospital.He is also a member of the Institution of Civil Engineers’ Advisory Panel for LegalAffairs.

Scott Chalmers holds degrees from universities in Canada and Australia, and hasqualified and practised as an architect in both countries, and as a lawyer in Australia andEngland. Admitted as a lawyer in 1999, he was with a major international Sydney law firmbefore joining White & Case in 2003. He specialises in negotiating and drafting large andcomplex construction and engineering contracts and has extensive experience of majorinternational infrastructure work, ranging from petrochemical plants in Saudi Arabia andKazakhstan, oil and gas facilities in Russia, Mauritania and Nigeria, to power projects in theUS and the Middle East and rail and transport projects in Trinidad and Australia.

Anthony Lavers read law at University College, London and the University of South-ampton and taught at the University of Portsmouth and the National University ofSingapore, where he obtained his Ph.D. After post-doctoral work at Wolfson College,Cambridge, he was successively Reader in Law and Professor of Law at Oxford BrookesUniversity. Called to the Bar in 1997, Professor Lavers joined White & Case in 2001, wherehe is Professional Support Counsel to the Construction and Engineering Practice Group.Chairman of the Society of Construction Law (2004–2006), he received a D.Litt. from theUniversity of Portsmouth in 2006 and was made a Fellow of the Royal Institution ofChartered Surveyors in 2008.

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INTRODUCTORY NOTES FOR READERS

‘The FIDIC forms’ in the title of this book refers to the five latest forms of contractpublished by the Fédération Internationale des Ingénieurs-Conseils (‘‘FIDIC’’) for use formajor works projects:

u Conditions of Contract for Construction for Building and Engineering Works Designedby the Employer (1st Edn, 1999) (‘‘the Red Book’’);

u Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant,and for Building and Engineering Works, Designed by the Contractor (1st Edn, 1999)(‘‘the Yellow Book’’);

u Conditions of Contract for EPC/Turnkey Projects (1st Edn, 1999) (‘‘the SilverBook’’);

u Conditions of Contract for Construction for Building and Engineering Works Designedby the Employer—Multilateral Development Bank Harmonised Edition (March 2006)(‘‘MDB’’);

u Conditions of Contract for Design, Build and Operate Projects (1st Edn, 2008) (‘‘theGold Book’’).

Although the MDB is based on the Red Book, the changes introduced in the MDB wereconsidered by the authors to be sufficiently significant in number and effect to merit equaltreatment alongside the other Books.

The operation of the FIDIC forms (as with construction contracts generally) relies onan often complex interaction of provisions found in different sub-clauses, which bothcomplement and supplement each other. These provisions must be read together to obtaina full understanding of the rights, obligations and liabilities of the parties. For this reason,the authors have adopted an issue-based approach, as opposed to providing a commentaryon a clause-by-clause basis. Individual sub-clauses have, of course, been considered indetail, but the authors have then sought to place these sub-clauses into the context of thecontract as whole. The book is, however, intended to be read alongside the relevant formof contract.

In this way, the book opens, in Chapter 1, with a general discussion of FIDIC as aninstitution and the background to the forms that are the subject of this book; Chapter 2considers the FIDIC forms and other forms published by FIDIC and the structure of aFIDIC Contract; Chapters 3, 4 and 5 are concerned the parties’ obligations in relation towhat and how the works, the ‘product’, are to be constructed and, in the Gold Book,operated, their payment obligations, and their obligations as to time; Chapter 6 deals withthe administration of the contract, and in particular two central features of the FIDICforms: the role of the third-party contract administrator (except in the Silver Book) and theadministration of claims; Chapter 7 concerns the mechanisms found in the FIDIC formsfor the allocation and management of specific risks; Chapter 8 collates and discusses thevarious remedies available to the parties; and the book concludes with Chapter 9—theresolution of disputes under the FIDIC forms.

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