Contract Administration Course - Part 3 - Introduction to FIDIC
This article is the thrid part of the contract administration course, which discuss the basics of construction contract administration.
In part 1, we covered the definition of an agreement and a contract, the primary elements of a contract and the types and parties to construction contracts.
In this part 2, we covered the basics of the different types of procurement, the tendering process and the tender documents.
In this part 3, we shall discuss FIDIC and the structure of FIDIC contracts.
FIDIC - Introduction
FIDIC, which is the acronym for Federation Internationale Des Ingenieurs-Conseils, the French name for International Federation of Consulting Engineers, is an international standards organization for the consulting engineering & construction best known for the FIDIC family of contract templates.
FIDIC is most commonly known for its standard forms of construction contracts, which are extensively used all around the world. The latest version is the 2017 rainbow suite of contracts, which succeed the 1999 edition, which has been the staple in construction for many years.
Structure of FIDIC Contracts
The FIDIC contracts are mainly based upon the English common law system. Although they incorporate the principles of the civil law system. You can read more about the differences between the civil and common laws system here.
FIDIC contracts have some common features:
Two Parts. FIDIC contracts are divided in to two parts, the general conditions and the particular conditions. Collectively, they are referred to as Conditions of Contract. The general conditions provides the general framework for the risk and obligations between the parties,such as procedures for payment, variations, claims, termination etc. The particular conditions are drafted to introduce project specific clauses and provisions.
Parties. FIDIC contracts have three main parties, the Employer, the Contractor and the Engineer. The Engineer is replaced by other person such as Employer's Representative in the Silver Book. There is no contractual connection between the Contractor and the Engineer. The Engineer is contracted to the Employer, usually by using the FIDIC's White Book, and administers the contract on behalf of the Employer.
Dispute Resolution. FIDIC contracts provides for several steps of dispute resolution before referring to arbitration. According to the latest Redbook 2017, disputes are first referred to a Dispute Avoidance/Adjudication Board (DAAB) for a decision. If a party is not satisfied with the DAAB's decision, the parties will then attempt to settle the dispute amicably before referring to arbitration.
FIDIC contracts consists mainly of the following documents, while others may be further included:
- Contract Agreement. While a LOA marks the formation of binding contract, it is formalized in the contract agreement. Contract agreements may be required by law in several cases.
- Letter of Tender. The document entitled letter of tender, which was completed by the Contractor and includes the signed offer to the Employer for the Works.
- Letter of Acceptance. The letter of formal acceptance by the Employer of the Letter of Tender, including any annexed memoranda comprising agreements between and signed by both Parties. If there is no such letter of acceptance, provisions including the expression "Letter of Acceptance" refer to the Contract Agreement and references to dates related to the Letter of Acceptance relate to the date on which the Parties enter into the Contract Agreement.
- Conditions of Contract. Terms and conditions that set the obligations, rights and allocates the risks of the contracting parties, when a contract entered into.
- Specifications. Specifications are a document detailing the Works to be executed.
- Drawings. The drawings referred to in the Specification and any modification of such drawings approved in writing by the Engineer and such other drawings as may from time to time be furnished or approved in writing by the Engineer.
- Schedules. The document(s) entitled schedules, completed by the Contractor and submitted with the Letter of Tender, as included in the Contract. Such document may include the Bill of Quantities, data, lists, and schedules of rates and/or prices.
FIDIC Red Book - Formation of Contract
The Redbook assumes that the works have been competitvely tendered, and the successful Contractor has submitted a Letter of Tender (offer), which was unconditionally accepted by the Employer in the form of a Letter of Acceptance (acceptance).
The LOA marks the formation of binding contract between the parties.
FIDIC Red Book - Major Clauses
It goes without saying that each word of the 20 clauses is of utmost importance. However, there are several clauses and sub-clauses that command more attention than others:
Clause 8: Commencement, Delays and Suspension
Clause 8 deals with the troublesome topics of time and delays. Under this clause, the engineer shall give the employer at least 7 days notice of the Commencement Date, which in all cases should be within 42 days from the Letter of Acceptance.
The Commencment Date is the date which the Contractor should commence the Works, and the Time for Completion is calculated from this date.
28 days after the Commencement Date, the Contractor shall submit a detailed time Programme to the Engineer. If the Engineer does not send any notice to the Contractor stating the extent the Programme does not comply with the Contract within 21 days, the Contractor shall proceed in accordance with the Programme.
Delay damages provisions are also set forth in this Clause, which states that the Contractor shall pay delay damages to the Employer for each day after the Time for Completion, with the amounts and limits stated in Appendix to Tender.
Clause 13: Variations and Adjustments
Clause 13 addresses changes to the contract and incorporates provisions for adjustments to contract price due to legislation.
The right to vary is a powerful right, since without such VO provisions, any change to the contract would require an addendum. However, the Engineer could instruct a change and the contract price and Time for Completion could be adjusted accordingly.
Engineer may either instruct a variation, or request the Contractor to submit a proposal for evaluation of the variation and any necessary modification to the Programme.
Clause 14: Contract Price and Payment
Clause 14 discusses the contract price and the procedures for payment of the interim payment applications.
Other provisions include Advance Payment, which is an interest-free payment by the Employer, which is repaid from interim payment applications..Advance payment is only paid on fulfillment of certain conditions.
Another important provision is the Retention Money, which is deducted from the interim payments to ensure that the contractor properly Completes the Works under the contract.
Clause 20: Contractor's Claims
Clause 20 discusses the procedures for Contractor's claims, and the procedures for dispute adjudication.
The most important, and controversial, provisions is the the time bar in sub-clause 20.1. This sub-clause provides for that if the contractor considers himself to be entitled to any extension or additional payment under any clause in connection with the Contract, the Contractor shall give notice to the Engineer describing the event not later than 2 days after the Contractor became, or should have become aware of the the event.
If the Contractor does not give such notice within 28 days, the Contractor shall not be entitled to any extension of time or additional payment in connection with the event, and the Employer is discharged from all liability in connection with the claim.
This marks the end of the third part of the course, and in the next articles we shall discuss in more details the individual clause of the FIDIC Redbook.
Please share your ideas, suggestion and questions in the comments section below.
In this part, we learned:
- what is FIDIC;
- structure of FIDIC contracts;
- formation of FIDIC contracts; and
- brief of major FIDIC Redbook clauses.
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