FIDIC CONDITIONS OF

CONTRACT
BY Manoj Nair
▪ FIDIC is the International Federation of Consulting Engineers
▪ Its members are national associations of consulting engineers.
▪ Was founded in 1913 by Belgium, France and Switzerland HQs is in Genève, FIDIC membership
covers 94 Countries as of today.
▪ FIDIC publishes international standard forms of contracts for works and for clients, consultants,
sub-consultants, joint ventures and representatives, together with related materials such as standard
pre-qualification forms.
▪ FIDIC also publishes business practice documents such as policy statements, position papers,
guidelines, training manuals and training resource kits in the areas of management systems and
business processes.
▪ Organises workshops and training programmes
▪ The first edition of FIDIC was published in 1957- subsequent edition in 1969
▪ Third edition in 1977
▪ Yellow book for mechanical and electrical works -1963- second edition in 1980
▪ 4th Edition (1987) Red Book required the Engineer to act impartially when taking action or
decisions – previous editions assumed implicitly.
▪ 1996 a Supplement was published – option of DAB – payment by lumpsum basis than by
reference to BOQ
▪ 1995 Orange Book – Conditions of Contract for Design Build and Turnkey Orange Book
dispensed with the role of Engineer – provided for Employer Representative
▪ The express requirement for being impartial was relinquished- Employer representative had to “determine the matter
fairly, reasonably and in accordance with the contract.
▪ Archaic rule submission to Engineer for “Decision” was eliminated and DAB was introduced.
▪ 1994 FIDIC established a task group to update the Red and Yellow Book in light of development in International
Construction Industry.

Role of Engineer -
Use of common definitions in Red and Yellow Book
Balance the interest of familiarity with pre-existing terminology – update.
▪ In 1999 FIDIC introduced the new Red book, the new Yellow Book, Silver Book ( EPC/Turnkey Projects) and the
Green Book (short form of Contract)
▪ In 2017 FIDIC introduced new editions – Red, Yellow, Silver and Green book (collectively) Revised Conditions-
increase clarity and certainty
 World Bank (WB)

 European Bank of Restructuring and Development (EBRD)

 European Investment Bank (EIB)

 European Commission (EC)

 KfW Bankengruppe (KfW)

 Islamic Development Bank (IDB)

 African Development Bank (ADB)

 Asian Development Bank (ADB)

▪ FIDIC contracts consists mainly from:

▪ Contract Agreement;

▪ Letter of Tender;

▪ Letter of Acceptance;

▪ Conditions of Contract;

▪ Specifications;

▪ Drawings;

▪ Schedules;

▪ Dispute Adjudication Agreement.

▪ General Conditions of Contract and

▪ Particular Conditions of Contract .

▪ The general conditions are intended remain unchanged for every project

▪ particular conditions of contract are the result of negotiation between the parties and are designed to modify or delete some of
the general conditions
 Conditions of Contract for Construction for Building and Engineering Works
Designed by the Employer; 2017 Edition – RED BOOK

 Conditions of Contract for EPC Turn-key Projects 2017 - SILVER BOOK EPC
Turn-key : Engineering – Procurement – Construction

 Short Form of Contract (2017 Green Book) – GREEN BOOK

 Conditions of Contract for Construction (Multilateral Development Bank Harmonised Ed. Version 3: June 2010). For
Building and Engineering Works designed by the Employer. Harmonised RED BOOK

 Conditions of Contract for Design, Build and Operate Projects (1st Ed, 2008) - GOLD BOOK
RED BOOK

 Design and Engineering (incl. BoQs) is done by Employer or Employer’s

Representative.

 Tenderers fill in their unit prices into the existing BoQs.

 Final amount is not fixed, payments are done based on the real amounts
executed. (Exceptions are available eg: lump-sum conracts)
 RED BOOK

 Employer carries the risk for contract amount increases.

 The better the design, the flawless the project implementation.

 Tender evaluations are relatively simpler.

▪ YELLOW BOOK

 Employer prepares only the Employer’s Requirements.

 Employer Requirements includes only; Draft layout, Operational

Parameters, Technical Specifications and Financial Proposal Format
(Schedule of Prices).

 Tenderers submit their technical proposals together with their financial

proposals. Technical proposals cover at minimum methodology, basic
design and drawings, bill of and similar supporting documents.
▪ YELLOW BOOK

 Generally lump-sum price contracts are used.

 Price increase and other risks are distributed amongst both

parties.

 Tender evaluation process is more complicated and requires

technical expertise.
SILVER BOOK - 1
 Two-party contracts (No Engineer)

 Employer defines design parameters, quality measures and functional

requirements.

 Tenderers submit comprehensive technical proposals supported with

designs.

 Lump-sum contracts are used and all risk lies with the Contractor.
SILVER BOOK - 2

 More suitable for projects like; refinery, petrochemical facilities, power

plants.

 Implemented if the employer foresees high risk for the supply and
assembly of mechanical and electrical components.

 Tender evaluations are very complicated and requires continuous

negotiations.
GREEN BOOK

 For low contract values (< 500,000 USD)

 Simple but repetitive works

 Short term assignments

 Usually Employer takes over the design

responsibility.
Parameters RED YELLOW SILVER GREEN

Employer or
Design Employer Contractor Employer Contractor

Engineer approves or
Only Contractor’s rejects before Only Contractor’s
Design Approval Design (If any) executions N.a. Design (If any

Unit Price / Lump-sum

Financial Proposal Unit Price Lump-sum Price Lump-sum Price Price

Payment Calendar / Measured quantities

Payment Schedules Measured quantities Payment percentages Payment percentages or Percentages

No. Employer
19
representative may
Engineer Yes Yes Generally No assign if needed.
Parameters RED YELLOW SILVER GREEN

Significant number of Relatively less and

Tests during Construction tests simpler Generally no tests Limited or no tests

Very detailed and Very detailed and

Relatively less and complicated complicated
Tests at completion simpler performance tests performance tests. Limited or no tests

12-14 April 2011 20

Employer carries the Contractor carries the
Risk Distribution design risks Distributed risks Varies
▪ The contractor is responsible for all the acts and defaults of the

subcontractors
▪ Unless otherwise agreed the contractor cannot subcontract the whole of the

Works;
▪ The contractor remains wholly responsible to the employer for the acts of that

subcontractor as if those acts had been carried out by him;

▪ The prior consent of the engineer is required for all subcontractors apart from suppliers

and subcontractors named in the contract;

▪ The contractor must give the engineer 28-days notice of both the intended and actual

commencement date of any subcontractor’s work; and

▪ The subcontract must contain suitable provisions entitling the employer to require the

subcontract to be assigned to him in the event of termination. (………..Red Book)

1. FIDIC contracts are drafted by engineers experienced in design and
construction,

2. FIDIC contracts embody a balanced risk allocation

between the Parties, and

3. The role of ‘the Engineer’ under FIDIC Contracts is

critical.
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 requirements of the Project.
2. The Particular Conditions must be drafted clearly and unambiguously.
3. The PCs must not change the balance of risk/reward allocation provided
for in the GCs.
4. All time periods specified in the Contract for Contract Participants to
perform their obligations must be of reasonable duration.
5. All formal disputes must be referred to a Dispute
Avoidance/Adjudication Board (or DAB, if applicable) for a provisionally
binding decision as a condition precedent to arbitration.
▪ A key theme in the revised Red Book is the increased emphasis on dispute
avoidance. This follows FIDIC’s philosophy.
▪ Dispute avoidance is promoted in several ways:
▪ distinguishing claims from disputes;
▪ changes to the role of the Engineer;
▪ emphasising the avoidance processes that dispute boards can offer; and
▪ early warning.
• There are also changes to:
• Claims procedure and time bar (to encourage early recognition of claims);
• Notices (they must be given);
• Programme emphasis and extensions of time;
▪ The Contractor’s general obligations in relation to design (if
any) have been expanded and there is an additional
undertaking by the Contractor that the design and the
Contractor’s Documents will comply with the technical
standards stated in the Specification and the Laws (in force
when the Works are taken over) and otherwise in accordance
with the documents forming the Contract.
▪ it is now possible for a percentage to be included in the Contract Data
setting out the limits of subcontracting.

▪ if nothing is stated in the Contract Data, the default maximum limit

stated in this Sub-Clause is “the whole of the Works”
▪ There is a new obligation on the Contractor to train the
employees of the Employer in the operation and maintenance
of the Works and to provide qualified and experienced staff
and all necessary facilities and materials. This is also a pre-
condition to taking over under cl. 10.1.
▪ The Contractor is responsible for remedying defects that arise from
improper operation and maintenance which was attributable to matters for
which the Contractor is responsible
▪ Contractor to indemnify the Employer against all errors in the Contractor’s
design (if applicable) which result in the Works not being fit for purpose.
▪ Contractor shall obtain at his own cost Performance Security for
proper performance, in the amount and currencies stated in the
Appendix to Tender
▪ If an amount is not stated in the Appendix to Tender this sub-
clause shall not apply.
▪ The Contractor shall deliver the Performance Security within
28 days after receiving the Letter of Acceptance.
▪ The Performance Security is valid until the Contractor has
executed and completed the works and remedied the defects.
▪ Employer shall return the Performance Security to the
Contractor within 21 days after receiving a copy of the
Performance Certificate.
• Quality Management Sub-Clause
• the Contractor to prepare and implement a QM System within 28
days of the Commencement Date;
• to ensure Notices, as-built records etc “can be traced”;
• to ensure proper coordination and interface; and
• for submission of documents for review.
• Engineer may Review the QC system within 14 days.
• Deemed acceptance after 21 days.
• Failure to implement – Engineer may issue a Notice.
• Internal audits – once every 6 months.
• External audits – Contractor to notify Engineer of any failings.
• Compliance Verification System to demonstrate design, materials,
workmanship etc all comply with the Contract (Sub-Clause 4.9.2).
▪ Revised Sub-Clause 8.3:
▪ initial programme within 28 days after receiving the Notice stating the
Commencement Date;
▪ using software identified or acceptable to the Engineer;
▪ Contractor to revise whenever programme “ceases to reflect actual progress or
is otherwise inconsistent with the Contractor’s obligations.”;
▪ detailed, all activities, sequence and timing of inspections and tests, all key dates,
logic linked, float, rest days and holidays, delivery of materials; and
▪ supporting method statement.

• No need to follow the Sub-Clause 20 procedure for an EOT arising from a

Variation (see Sub-Clause 8.5).
▪ The Contractor’s entitlement to EOTs has been expanded to grant relief
▪ where the non-suitability or non-availability of an access route arises as a result
of changes to that access route by a third party after the Base Date,
▪ where delays are caused by private utility entities or where there are
Unforeseeable shortages in the availability of Employer-Supplied Materials.
▪ In a major departure from the 1999 Red Book, the Contractor has an express
entitlement to an EOT for delays (caused by epidemic or governmental actions).
▪ Limitation of liability moved from Sub-Clause 17.6 to Sub-Clause 1.15
▪ Neither Party liable to the other for any loss of use of the Works, loss
▪ of profit, indirect or consequential loss; and
▪ Contractor’s total liability set out in Contract Data or by default the Accepted
Contract Sum.
• Care of the Works and Insurance (including Insurance after Taking Over)
covered by Clauses 17 and 19;
• Indemnities for personal injury, death and property damage, and
insurance;
• PI insurance for any “act, error, or omission … in carrying out the
Contractor’s design obligations” Amount in Contract Data or to be
agreed with Employer; and
• Optional PI insurance for the fitness for purpose obligations.
▪ Claims – Clause 20:
• Claims (time, money and another relief) are just disagreements;
• Notice of a Claim (condition precedent), Engineer’s initial response;
• Fully detailed Claim (legal basis CP) contemporary records; • Agreement or
Engineer’s determination; and
• Monthly updates, assessment and payment.
▪ • Disputes - Clause 21:
▪ Formation of Dispute;
▪ Referral of Dispute to the DAAB;
▪ 84 day procedure;
▪ Written DAB decision;
▪ Notice of Dissatisfaction – 28 days; and
▪ Arbitration:

▪ NOD – Amicable Settlement - Arbitration (Sub-Clause 20.7); and

▪ DAAB compliance – Arbitration, and interim measures.
▪ Time and money claims require a Notice of Claim under Clause 20.2.1 in
the following terms:
▪ “The claiming Party shall give a Notice to the Engineer, describing the event
or circumstance giving rise to the cost, loss, delay or extension of DNP for
which the Claim is made as soon as practicable, and no later than 28 days after
the claiming Party became aware, or should have become aware of the event
or circumstance (the “Notice of Claim” in these conditions). If the claiming
Party fails to give a Notice of Claim within this period of 28 days, the claiming
Party shall not be entitled to any additional payment, the Contract Price shall
not be reduced (in the case of the Employer as the claiming Party), the Time
for Completion (in the case of the Contractor as the claiming Party) or the DNP
(in the case of the Employer as the claiming Party) shall not be extended, and
the other Party shall be discharged from any liability in connection with the
event or circumstance giving rise to the Claim.”
▪ Requires:
• a written communication (Definition of Notice at Sub-Clause 1.1.56 and Sub-
Clause 1.3 [Notices and Other Communications]);
• a paper original signed by the CR, Engineer or authorised representative of the
Employer OR electronic original in compliance with the Contract Data (Sub-
Clause 1.3(a)(i)&(ii));
• identification as a Notice (Sub-Clause 1.3(b)). Note “another form of
communication..” requires identification of the applicable Contract provision; and
• delivery to the Engineer and copied to the other party (Sub-Clause 1.3 (c)&(d)).
• Within 28 days of the event or circumstance, otherwise the claiming Party is
not entitled to any additional payment or time.
• Discharge of liability is also included.
▪ Contractor’s claims and Employer’s claims are now dealt with in exactly
the same way.

▪ Claim (now a defined term) can be for time and/or money but also for a
relief or remedy that is not time or money.
▪ In re Attorney General for Falkland
Islands v Gordon Forbes Construction
(Falklands) Limited
▪ Falkland Islands Supreme Court held
that
“Contractor not entitled to claim
where no contemporary
record was maintained”.
▪ Contemporary records may include:-
▪ monthly reports
▪ labour reports
▪ claim notification
▪ site visits and inspections reports
▪ Reports on early warning notifications concerning probable future
events which may effect progress of the works and the contract price
▪ Programme details
▪ Other records
▪ Sub-Clause 2.4 has been amended.
• Financial arrangement to be detailed in the Contract Data.
• The Employer must give Notice with supporting particulars if the Employer:
• intends to make a “Material Change”; or
• has to amend the financial arrangements because of “changes in the Employer’s
financial situation”.
• The Contractor can request reasonable evidence that financial
arrangements have been made and are being maintained for the Employer
to pay the balance of the Contract Price if:
• a Variation exceeds 10% or the cumulative value of Variations exceed 30% of the
Accepted Contract Amount;
• does not pay in accordance with Sub-Clause 14.7; or
• there is a material change in the Employer’s financial arrangements.
A new requirement that the “Engineer”:
• may be a legal entity rather than an individual;
• is a professional engineer, suitably qualified and experienced; and
• fluent in the language of the Contract.

• However, the Engineer could be represented on Site by a named individual

(Sub-Clause 3.3 [The Engineer’s Representative]).
• The Engineer is appointed to carry out the role and duties of the Engineer
assigned to him under the Contract
• The Engineer cannot amend the terms of the Contract.
• If the Engineer exercises any authority for which the Employer’s approval is
required then deemed approval has been given.
• The Engineer may delegate to suitably qualified assistants.
▪ Now Sub-Clause 3.7 (was 3.5)
▪ The Engineer shall act “neutrally” and “… shall not be deemed to act for
the Employer.” Neutrally is not defined, but FIDIC did not mean
“independent” or “impartial” but rather “non-partisan”.
▪ Consultation (Sub-Clause 3.7.1):
▪ consult promptly jointly and/or separately to endeavour to encourage
Parties to agreement: and
▪ write it down and the Parties to sign.
▪ Within 42 days, or proceed to make a determination.

▪ Make a fair determination taking account of all relevant circumstances

within 42 days.
▪ If the Engineer does not issue a Notice of agreement or determination: • the
claim is deemed rejected; or • the “matter” is deemed to be a Dispute and
may be referred to the DAB (no NOD is required).
• Agreement and determination under Sub-Clause 3.7 also applies to:
▪ measurement of the Works;
▪ rates and prices;
▪ Variations; EOT and adjustments of the Contract price and
▪ Schedule of Payments;
▪ Daywork;
▪ amount to be paid for plant and materials off Site;
▪ amounts not certified in an IPC; and
▪ disagreement as to the cause of a defect.

• In the 1999 version Determinations just applied to claims.

▪ A “Dispute”- Failure by the respondent party or the Engineer to
oppose or respond to a claim in whole or part may constitute a
rejection of claim (thereby crystallising a “Dispute”) if in the
circumstances the DAAB or an arbitrator deem it reasonable to do
so.
Dispute Avoidance/Adjudication Board (DAAB):
• A “Standing” DAAB in all contracts;
• One or three members;
• Default appointment by FIDIC;
• Parties are deemed to have signed the DAAB member agreements
(law of appointed same as the law of the Contract);
• Avoidance of disputes;
• Referral of a Dispute to the DAAB:
• If Sub-Clause 3.7 “applied” within 42 days of a Sub-Clause 3.7.5
NOD, ref to Sub-Clause 21.4.1, in writing to everyone;
• Both parties to make all information available inc access to the Site;
• Decision within 84 days of the reference (unless DAAB invoices not
paid);
• “binding on both Parties, who shall promptly comply…
Sub-Clause 21.4.4.
• Either party can serve a NOD:
• stating clearly that it is a NOD: with reason(s); within 28 days after receiving the DAAB
Decision; and may dispute all or part.
• After 28 days the DAAB Decision “… shall become final and binding on both Parties.”. •
Note that “… neither party shall be entitled to commence arbitration of a Dispute unless
a NOD in respect of that Dispute has been given …”
• There are some exceptions. Arbitration
• If a NOD has been served [Sub-Clause 21.5]:
• amicable settlement for 28 days after the date on which the NOD was given; but no
attempt to amicably settle need be made;
• ICC Arbitration [Sub-Clause 21.6]:
• one or three arbitrators; •
language of the Contract applies;
• may open up review, revise etc.;
• costs; tribunal may take account a Party’s failure to cooperate with the other in
constituting a DAAB;
• not limited to evidence put before the DAAB;
• may commence before or after completion of the Works; and
• if award requires payment then this is immediately due (no need for a certificate etc).
 Communication
▪ Should be revised in line with all the communication tools allowed for the specific
project.
▪ It is important that all parties are aware of correct address to which
communication needs to be sent.
▪ There is little point in using formal registered address – if the registered office
address is not used regularly.
▪ Care must be taken to ensure that proper procedures are in place to monitor fax
machines and communication
▪ Bermuth Lines V. High Seas Shipping

▪ Arbitration proceedings were served at an email address which appeared in the

Lloyds Maritime Directory and on the Company website.

▪ The email was received and then ignored by the clerical staff.

▪ The Judge held that the service was valid and failings of internal administration
were the responsibility of the company concerned
 Law and Language
▪ If different languages will be used under certain circumstances this
should be defined here
▪ Key features of this Clause
▪ The Appendix to Tender shall set out the law of the Contract
▪ The Appendix to Tender shall set out the language of the Contract
▪ Law and Language governs the Contract and Performance of Works
 Priority of Documents
▪ Amendments and additions can be made here. Please be extremely careful, and
do not change unless you have to.

▪ The document forming the Contract are to be taken as mutually explanatory of

one another. For the purpose of interpretation the priority of the document shall
be in accordance with the following Sequence

▪ If any ambiguity or discrepancy is found in the documents, the Engineer shall

issue any necessary clarification or instruction.
(a) the Contract Agreement;
(b) the Letter of Acceptance;
(c) the Letter of Tender;
(d) the Particular Conditions Part A – Contract Data;
(e) the Particular Conditions Part B – Special Provisions;
(f) these General Conditions;
(g) the Specification;
(h) the Drawings;
(i) the Schedules;
(j) the JV Undertaking (if the Contractor is a JV); and
(k) any other documents forming part of the Contract.
i) Notify the Engineer
ii)The Engineer shall issue necessary calrifications
 Contract Agreement
▪ Contract Agreement will also be referred as «Letter of Acceptance»
▪ Key features of this clause:
▪ The Parties are to enter into Contract Agreement with 28 days of the receipt by
the Contractor of Letter of Acceptance
▪ The form of the Contract shall be that annexed to the Particular Conditions.
▪ The Employer will be responsible for any stamp duties or other charges.

▪ The general rule of offer and acceptance parties could find themselves
under a binding contract without having entered into any of the formalities
set out in 1.6.
 Assignment

 Neither Party can assign its interest in the Contract without the prior
agreement of the Other

 This Sub-clause includes a prohibition on assignment, save where (at its

absolute discretion) the other party gives its consent, or where the Party
interest under the Contract is offered to secure finance ( no consent required)

 Typically there is a prohibition is on the Contractor and Sub-contractor

 Right of Access to Site
▪ If there are conditions (time constraints or other) related to this issue, this clause
should be drafted accordingly.

 Engineer’s Duty and Authority

▪ The limits of Engineer’s authority should be clearly defined here.. This article
should be in line with the ToR for the Engineer’s service contract.

 Contractor’s General Obligations

▪ If the Contractor has additional obligations, these should be clearly defined here.
 Safety Procedures
▪ If there are any additional procedures to be
implemented because of local laws they should be
defined here
 Electricity, Water and Gas
▪ This articled defines where and how the Contractor
will obtain the necessary infrastructure.
 Progress Reports
▪ If additional reports other than the ones defined in
General Conditions are requested, these should be
defined here.
 Rules of Origin.
▪ This sub clause should be added in few projects.
Please remember this is only for permanent works.
▪ Delay on a construction project occurs
when:
(a) The construction of a project or a
part of the project is not completed
within the time period originally
intended and as specified in the
contract; or

(b) The scope of the work as

contemplated in the contract increases to
the extent that more work is required to
be performed within the original contract
time.
Delay Not Caused By Delay Caused By The Owner Delay Caused By The
A Party Contractor
Site conditions which Excessive changes in Contractor management
differ from what was requirements or design and performance
expected problems
Severe weather Defective or insufficient plans Failure to properly man
and specifications and perform the job
Strikes Owner interference Poor workmanship
Natural disasters such Failure to provide adequate Failure to order materials
as floods, fires, and access to the site and equipment in a
earthquakes timely fashion
Acts of municipal and Failure to obtain necessary Delays due to the fault of
government permits for the work the contractor
authorities
Acts of God Failure to coordinate the job Unavailability of labour,
when there are separate material or equipment
contracts awarded
Failure of the consultant to
provide or approve drawings in
•Delay not caused by a party is often • Excusable delays may be further
referred to as excusable (as opposed to classified into compensable and non-
inexcusable) delay, or non-compensable compensable delay;
(as opposed to compensable) delay: • Generally, delay that could have been
• An excusable delay is one that will avoided by due care of the one party is
serve to justify an extension of the compensable to the innocent party
contract performance time – it excuses suffering the damage as a result of the
the party from meeting a contractual delay’s impact;
deadline; • Delay not caused by a party is generally
• Inexcusable delay is one for which the non-compensable delay;
party assumes the risk of the cost and • If a delay is deemed compensable, then
consequences, including the resulting the party will be entitled to additional
impact on others, such as delay due to a compensation for the costs of delay, as
contractor’s own mismanagement; well as additional time for contract
• Generally, whether a delay is excusable performance; and
or inexcusable is a matter of contract. The • It is possible for a delay to be
question asked is, does the contract compensable without extending the
permit the delay in question? contract time.
▪ Acceleration is an effect of delay.

(a) A contractor must complete its work faster than it had originally planned
in the construction schedule; or
(b) Despite excusable delay meriting an extension of time in the contract
schedule, the owner requires the contractor to complete the construction as
originally scheduled;
▪ An owner’s denial of the valid time extensions to a contract may lead to
claims for damages for breach of contract in an amount representing the
additional costs to the contractor for having to do more work in the
available time period. Such additional costs may result from the need to
replay and re-sequence the work, hire additional workers, work overtime,
accelerate material delivery, obtain additional supervision, or use
additional equipment. A contractor should note that it may succeed at a
claim for acceleration damages even if it did not achieve the requested
completion date.
▪ A concurrent delay occurs when two or more causes of delay overlap. It is
important to note that it is the overlapping of the causes of the delays not
the overlapping of the delays themselves.
o Option One – Contractor has no entitlement to an extension of time if a concurrent
delay occurs.
o Option Two – Contractor has an entitlement to an extension of time if a concurrent
delay occurs.
o Option Three – Causes of delay are apportioned between the parties and the
contractor receives an extension of time equal to the apportionment, for example,
if the causes of a ten day delay are apportioned 60:40 owner: contractor, the
contractor would receive a six day extension of time.
(a) The delay must affect the overall construction and did not just eliminate the float.
It is not sufficient that the delay be troublesome; it must be critical. Critical delays
are those that extend the overall project completion date. For example, changing the
type of electrical switch plates may not delay substantial completion of the project,
but changing the type of structural steel members while the contractor is erecting
structural steel on a multis-tory office building will do so;
(b) The events or problems alleged actually caused the delay. One of the principal
methods used for proving causation in delay claims is to use the critical path method
(“CPM”):
• CPM compares an originally planned construction schedule with an as- built
schedule so that the parties can determine whether delay has occurred and the cause
of the delay;
• A CPM analysis establishes whether or not delay has occurred on the critical path;
• Determination of the critical path is often required for the calculation of delay
damages;
(c) The innocent party must prove that the delay is inexcusable and compensable (i.e.
the responsibility of the party at fault);
(d) Notice (either actual or constructive) of the delay must be given;
(e) A contractor should review the contract to determine whether the contract allows
for an extension of time or both an extension of time as well as compensation; and
HEAD OF DAMAGES DESCRIPTION OF HEAD

ON-SITE OVERHEAD • Extended field office overheads including

supervision, costs of the site office and
equipment and labour costs for the extended
period.
• These are usually proved by reference to the
contractor’s accounting records and the on-site
costs including daily logs, foreman’s reports,
rental invoices, etc.

INFLATIONARY OR OTHER • These costs will arise directly as a result of the

INCREASE IN COST OF increased costs of the contractor in working an
MATERIALS AND LABOUR extended period.
• They are usually proven by reference to
collective bargaining agreements and invoices
with respect to the increase of costs and
materials.
HEAD OF DAMAGES DESCRIPTION OF HEAD

HEAD OFFICE OVERHEADS • Recovery of head office overheads has been

approved as an item of recovery.
• A number of formulas have been developed to
prove the amount of the cost. Generally speaking,
the theory is that an extended contract will create
additional head office costs and will result in a
lower revenue base for the contractor as it will be
unable to assume additional work during the
extended period.

• Productivity is a difficult cost to prove. The

PRODUCTIVITY disturbance of the contractor’s progress or plan
will likely result in the loss of productivity or
efficiency. This usually results in delay
circumstances where the contractor is required to
demobilize and re-mobilize as a result of changes
in the scope of work or changes to its
(a) Ensure that the contract contains (e) A contractor should ensure that the
adequate provisions for an extension of contract provides for both an extension of
time due to delay; time plus compensation for costs in the
(b) Ensure that the contract contains event of excusable and compensable
specific provisions allowing for the delay;
resolution of delay related issues within (f) A contractor should include contract
the scope of the contract; terms which specify the exact heads of
(c) Ensure that sufficient float is built into damages to which it is entitled for
the schedule so that when delays do compensation in the event of
occur, they are absorbed into the contract compensable delay; and
and are less likely to become critical to (g) An owner should consider obtaining a
the overall construction schedule. In genuine pre-estimate of the owner’s
other words, ensure there is adequate damages in the event of delay in the
construction time for the circumstances; completion of the work.
(d) Consider including express clauses in
the contract allowing for proprietary
rights over the float in the construction
schedule;
▪ The total liability of the Contractor to the Employer under or in connection with the contract is limited to Contract
Price ( which is the FIDIC Default position).
▪ Sub Clause 8.8 already states that “this Sub-Clause shall not limit the Contractor’s liability for Delay Damages in any
case of fraud, gross negligence, deliberate default or reckless misconduct by the Contractor
13.3.1Contractor is entitled to include loss of profit etc. in all its Variation valuation proposals if there is a basis for it
in the circumstances.
▪ FIDIC 'provides for a right of objection under Clause 5.2 that is conditional upon the contractor's receipt of an
indemnity from the proposed nominated entity.

▪ Intellectual Property Rights- Infringement ( 17.3)

▪ Professional Indemnity Insurance – Design Liability (19.2.3)

▪ DAAB- Member
▪ Ensure appropriate clause is drafted to take care of third party liability –
❑ Is difficult to cap
❑ Seek indemnity from Client
❑ WesternGeco Ltd v. ATP Oil & Gas (UK) Ltd
( “Liability under this Contract”)
▪ Delay damages are pre-quantified damages which the parties to a contract agree shall be
payable in case of a breach of such contract.
▪ Delay Damages are the only damages due from the Contractor for failure to meet the
Completion Date, except in the event of
▪ Termination Under Sub-Clause 15.2 [Termination for Contractor’s Default]
▪ DD shall be the sum stated in Appendix to the Tender – shall be paid every day until such
default continues – subject to a cap.

▪ The DD does not relieve the contractor from performing his obligations to complete the
Works
▪ Excusable – non Excusable
▪ Compensable versus uncompensable
▪ Penalty
▪ The period for notifying defects and/or damage in the Works or a Section or a Part (as the
case may be) under Sub-Clause 11.1 [Completion of Outstanding Work and Remedying
Defects], as stated in the Contract Data (if not stated, one year), and as may be extended
under Sub-Clause 11.3 [Extension of Defects Notification Period]. This period is calculated
from the Date of Completion of the Works or Section or Part.
▪ The Defects Notification period is an additional period of time during which the duty to
perform continues to exist.
▪ Contractor is under obligation to carry out any work which becomes instructed by the
Engineer or Employer, to the extent that a defect occurs which is or is not attributable to
the Contractor
▪ Legal Defect Liability only starts after acceptance of Works – when the Engineer issues
Performance Certificate. Eg. French Decennial Liability Clause
▪ The duration of the Defects Notification Period is stated in the Appendix to the Tender or
Particular Conditions as the case may be.
▪ Ends automatically after the expiry of the fixed period of time – even if Performance
Certificate is not issued.
▪ Clause 15 deals with Termination by Employer
▪ Termination for convenience
▪ Termination for Cause
▪ Contractor not entitled to terminate a Contract for convenience,
▪ Sub-clause 9.4(b): failure to pass tests on completion.

▪ Sub-clause 11.4(c): failure to remedy defects.

▪ Sub-clause 19.6: optional termination payment and release (force majeure or exceptional events).

▪ Sub-clause 19.7: release from performance under the law.

a) The Employer shall be entitled to terminate the Contract if the Contractor: (a)
fails to comply with Sub-clause 4.2 [Performance Security] or with a notice under
Sub-clause 15.1 [Notice to Correct].”
b) abandons the Works or otherwise plainly demonstrates the intention not to
continue performance of his obligations under the Contract
c) without reasonable excuse fails:
a) (i) to proceed with the Works in accordance with Clause 8 [Commencement, Delays and
Suspension], or
b) (ii) to comply with a notice issued under Sub-clause 7.5 [Rejection] or Sub-Clause 7.6
[Remedial Work], within 28 days after receiving it”.
d) subcontracts the whole of the Works or assigns the Contract without the required
agreement
e) becomes bankrupt or insolvent, goes into liquidation, has a receiving or
administration order made against him
f) gives or offers to give (directly or indirectly) to any person any bribe, gift, gratuity,
commission or other thing of value, as an inducement or reward:
▪ In any of these events or circumstances, the Employer may, upon giving 14 days’
notice to the Contractor, terminate the Contract and expel the Contractor from the
Site. However, in the case of sub-paragraph (e) or (f ), the Employer may by notice
terminate the Contractimmediately.”
▪ The Employer shall be entitled to terminate the Contract, at any time for the
Employer’s convenience, by giving 28 days notice termination to the Contract -
Employer to return the Performance Security.

▪ After this termination, the Contractor shall proceed in accordance with Sub-clause
16.3[Cessation of Work and Removal of Contractor’s Equipment] and shall be paid
in accordance with Sub-clause 19.6 [Optional Termination, Payment and Release].”
▪ 16.1 deals with Suspension
▪ If the Engineer fails to certify ( issue of interim payment), fails to comply with employers
financial arrangement or payment – give notice of 21 days suspend work or reduce rate of work
▪ Where the Contractor suffers delay and/or costs – contractor entitled to EOT and payment of
cost plus reasonable profit.
▪ After receiving notice Engineer shall proceed in accordance with clause 3.5 [Determinations]
▪ 16.2

a) Contractor does not receive the reasonable evidence within 42 days after giving
notice under sub-clause 16.1 and 2.4
b) Engineer fails, within 56 days after receiving Statement and supporting
documents, to issue the relevant Payment Certificates.
c) Contractor does not receive Interim Payment with 42 days after the expiry of the
time stated in 14.2 [payments]
d) Employer substantially fails to perform his obligations under the contract
e) Employer fails to with sub clause 1.6 [contract agreement] or 1.7 [assignment]
f) A prolonged suspension 8.11
g) Employer becomes bankrupt or goes into liquidation
▪ Termination (Cl. 15.2 & 16.2) Additional termination rights have
been added for both Parties, the most important being that
either has a right to terminate if the other fails to comply with a
binding agreement or final and binding determination of the
Engineer or a decision of the DAAB and such failure constitutes
a material breach
❑Traditional approach

❑ Force Majeure Event means war, flood, lightning, earthquake, fire, volcanic
eruption, landslide, hurricane, cyclone, typhoon, tornado, explosion, civil
disturbance, act of God, or the public enemy, terrorist act, military action,
epidemic, famine or plague, ship wreck, action of court or public authority or
strike.
❑Section X Force Majuere Event
(a) Definition of Force Majeure Event. As used in this Agreement, a “Force
Majeure Event” means any act or event, whether foreseen or unforeseen,
that
i) prevents a party ( the “Non-Performing Party”), in whole or in part, from
(A) performing its obligations under this Agreement or
(B) satisfying any conditions to the Performing Party’s
obligations under this Agreement
and
ii) is beyond the reasonable control of and not the fault of the Non-
Performing Party
and
iii) The Non-Performing Party has been unable to avoid or overcome by the
exercise of due diligence
❑Specific Exclusions
❑ Unavailability of equipments or materials
❑ Economic hardship
❑ changes in market conditions
❑ insufficiency of funds
❑ strikes, go- slow or other labor difficulties
❑ Change in law, Political events to be in included in FME
❑ Any FME effecting a party's sub-contractor or third party
contractor constitutes a FME affecting the party.
❑Suspension of performance
❑Obligations of Non-performing Party
❑Resumption of Performance
❑Cost –Allocation
❑ NO adjustment to contract price is to be made on FME
❑ If FME increases the Non Performing Party's cost of performing its obligations in excess of $....... The Contract Price is
increased by the amount of the increased cost in excess of $.................
❑ Continued payments during a FME
❑ No Excuse of existing liabilities
❑ Right to terminate the Contract
❑Transaction Costs.

Except as expressly provided in this Agreement, each party shall pay its
own fees and expenses (including without limitation, the fees and
expenses of its agents, representatives, attorneys and accountants)
incurred in connection with the negotiation, drafting, execution, delivery
and performance of this Agreement and the transactions it contemplates
▪ In McCain, the purchaser had bought a system ("System") for removing
hydrogen sulphide from the biogas produced by its waste water system, so that
the biogas could be used to generate heat and electricity in a combined heat
and power plant. In addition to using the electricity for its own purposes, the
purchaser intended to generate revenue by selling Certificates of Renewable
Energy Production to third parties.

▪ the System was found to be defective and McCain claimed damages from the
supplier
▪ The damages claim included:
▪ the cost of buying a replacement system;
▪ loss of revenue from the System (from
selling Certificates of Renewable Energy
Production);
▪ the extra cost of buying electricity (since
the purchaser could not generate its own);
▪ the cost of contractors and other
personnel;
▪ the cost of mitigation efforts; and
▪ various other smaller claims, including the
cost of staff time to resolve the issues.
 NEGLIGENCE
▪ A party is negligent if his conduct
falls below the standard of care
owed to the other party, which
will normally be the degree of
care, competence and skill
expected from a reasonable
person engaged in particular
function or activity

▪ Courts have been traditionally

reluctant to define gross
negligence
GROSS NEGLIGENCE

▪ Mance J’s view was that the term

“gross” negligence is clearly intended
to represent something more
fundamental that the failure to exercise
proper skill.
▪ He concluded that “gross” negligence
would constitute “conduct which a
reasonable person would perceive to
entail a high degree of risk of injury to
others, coupled with heedlessness or
indifference to or disregard for
consequence”
▪ There is no single determinative factor, and that all
circumstances must be weighed in the balance to
ascertain whether an act or omission merits the
description of “gross”

*Red Tea Tankers Ltd v.s

Papachristidas 1997 2LLR 547
▪ Dealing with non payment- Discussion
▪ Owners Disclosure of environmental
Information

▪ Pre-existing Contamination clause.

▪ Responsibility for ownership,

transport, arranging and disposing
of waste

▪ Environmental Insurance
▪ A representation is a statement of fact, as of a moment in time intended to
induce reliance.

▪ A warranty is a promise by the maker of a statement that the statement is

true . If the statement is false- the maker of the statement will indemnify
the other party for any damages suffered because of the false statement.
▪ A term denoting a legal right that is reserved by most
insurance carriers. Subrogation is the right for an insurer to
pursue a third party that caused an insurance loss to the
insured. This is done as a means of recovering the amount of
the claim paid to the insured for the loss. means one party
has the right to "step into the shoes" of another party for the
purposes of bringing a claim for damages.
▪ Waiver of Subrogation
▪ Waiver of subrogation refers to a contract clause giving up
the right to subrogation
▪ Additional Insured
▪ One or more individuals (other than the individual named in
an insurance policy who are protected also under the terms
of the same policy. Additional insured's are added either by
endorsement or are referred to in the definition of 'insured'
in the policy itself.
▪ Case Study
▪ Pipes NZ Ltd v Steel Co Ltd [2014] NZHC
1216, the plaintiff relied on the
defendant to select a competent
manufacturer to produce pipes fit for use
in a hydro dam. The defendant had
numerous contacts in China and worked
with the mills there regularly. When the
pipes arrived from China with defects
(rendering them unfit for use), Thomas J
held that the loss fell on the defendant,
regardless of fault
▪ IPR Rights under Contract -???

Trademarks

Copyrights IPR Patents

Trade secrets
▪ A bid bond is important to show proof of guarantee to
the project owner that you can comply with the bid
contract and also that you can accomplish the job as
laid out in the contract. A bid bond is a guarantee that
you provide to the project owner stating that you have
the capability to take on and implement the project
once you are selected during the bidding process.
▪ If the client agrees to make an advance payment (sometimes referred to as a
down payment) to a supplier, a bond may be required to secure the payment
against default by the contractor. This is referred to as an advance payment
bond (APB), advance payment guarantee or advance stage payment.

▪ Typically on a construction project an advanced payment bond will be

required by the client if the contractor requests advance payment to help them
meet significant start up or procurement costs that may have to be incurred
before construction begins. For example where the contractor has had to
purchase high-value plant, equipment or materials specifically for the project.
The bond will protect the client in the event that the contractor fails to fulfil its
contractual obligations, for example if the contractor becomes insolvent.

▪ An advance payment bond will normally be an on-demand bond, meaning that

the bondsman pays the amount of money set out in the bond immediately on
demand, without any preconditions having to be met. This is as opposed to a
conditional bond (or default bond) where the bondsman is only liable if it has
been established that there has been a breach of contract.

▪ Advance payment bonds must be very carefully drafted to set out the
circumstances for payment and to make clear that they are on-demand bonds.
▪ Variations to the scope of construction works are necessary because no
project is impeccable and changes are required to meet unforeseen
circumstances or changed requirements. Variation can be in the form of
additions, omissions or substitutions.

Variations also know as change order

Base line
▪ ???????
▪ The 1999 Red Book was silent on latent defect liability (save to say
that each Party shall remain liable for unperformed obligations
following issue of the Performance Certificate) and so the
Contractor’s liability would be subject to the governing law
approach. Under the 2017 Red Book, the Contractor’s liability for
latent defects in Plant shall cease two years after expiry of the
Defects Notification Period
▪ The Survival clause specifies which
contract provisions will remain in
effect after the termination or
expiration of the agreement.
▪ Example
▪ Indemnity
▪ Confidentiality
▪ IPR
▪ …..
• Is the process of completing each project contract

• Includes administrative activities, such as finalizing open claims, updating

records to show the final status, and archiving documentation

• May include audits, the negotiation of final contract actions, and the payment of
money due from 1 party to the other
▪ Unforeseeable physical conditions

▪ Right of Access to the Site

▪ Delayed Drawings or Instructions.

▪ Adjustment for changes in legislation

▪ Commencement of the Works

Clause 4.10
“The Employer shall have available to the Contractor for his information, prior to the Base
Date, all relevant data in the Employer’s possession on sub-surface and hydrological
conditions at the Site, including environmental aspects. The Employer shall similarly make
available to the Contractor all such data which come into the Employer’s possession after the
Base Date. The Contractor shall be responsible for interpreting all such data.

▪ Employer is required to make available to the

contractor all relevant data in his possession on sub-
surface conditions before and after the ‘Base Date’
▪ Employer’s obligation to provide information does not
end after the tender submission
“……To the extent which was practicable (taking into account of cost and time), the
Contractor shall be deemed to have obtained all necessary information as to risks,
contingencies and other circumstances which may influence or affect the Tender of Works.
To the same extent, the Contractor shall be deemed to have inspected and examined the Site,
its surroundings, the above data and other available information…..

…….the form and nature of the Site, including sub-surface conditions,

……the hydrological and climatic conditions,”

▪ Contractor is deemed to have inspected and

examined the site only to the extent as far as
practicable, with cost and time considerations
Clause 4.11:
“The Contractor shall be deemed to:

(a) have satisfied himself as to the correctness and sufficiency of the

Accepted Contract Amount,

(b) have based the Accepted Contract Amount on the data, interpretations, necessary
information, inspections, examinations and satisfaction as to all relevant matters referred to
in Sub-Clause 4.10”

▪ Contractor is only responsible for interpreting the

data provided to him
Clause 4.12:
“‘Physical conditions’ means natural physical conditions and man-made and other physical
obstructions and pollutants, which the Contractor encounters at the Site when executing the
Works, including sub-surface and hydro-logical conditions but excluding climatic
conditions…If the Contractor encounters adverse physical conditions which he considers
to have been unforeseeable, the Contractor shall give notice to the Engineer as soon as
practicable.”
▪ Employer carries the risk of physical conditions that
could have been unforeseeable by an experienced
contractor at the date of tender
▪ Ground investigations can never fully disclose all the
details of the underground conditions. (Risks of unknown
ground conditions can never be 100% eliminated)
▪ Site data contained in GI reports is often of a significant
contractual importance in disputes related to unforeseen
ground conditions
▪ Many disputes related to the information provided and/or
representation made by the Employer.

Whether the GI information forms partof the contract documents?

Whether information provided by the employer constitute a representation as

to the true ground conditions?
▪ The TCC was requested to rule on whether the site investigation (SI)
reports formed part of the contract document.
▪ The contract defined ‘Contract Document’ as:
▪ ‘…the Contract Drawings, the Contract Bills, the Employer’s Requirements, the
Contractor’s Proposals, the CDP Analysis, the Articles of Agreement and the
Conditions, the Appendix and the
Supplementary Appendix’
▪ No reference to SI reports in theContract.

Judge Richard Seymour Q.C. held: Such reports could not be incorporated into the
contract by way of an implied term since it was not expressly incorporated as part of
the contract document.
No Entitlement
▪ Bacal’s foundation design was based on subsurface
conditions /
assumptions indicated in borehole data provided by
the Employer
▪ Bacal submitted the foundation design as part of its
tender and formed part of the contract documentation
under an express provision in the contract
▪ Sand & Clay turns out to be rock (different soil type)
which caused part of the foundations to be re-
designed where additional works were required.
Contractors may recover loss incurred by incorrect subsoil information if such information was a condition or warranty
in the contract.
Any SI documents must be expressly incorporated as part of
the contract document in order for the Contractor to
exercise his rights under the contract (implied term or
warranty).
▪ The Employer shall give the Contractor right of
access to, and possession of, all parts of the Site
within the time (or times) stated in the Appendix to
Tender.
▪ If no time is stated in the Appendix to Tender…..such
time as may be required to enable the Contractor to
proceed in accordance with the programme
submitted under Sub-clause 8.3 [Programme]
▪ If the Contractor suffers delay/or incurs Cost-
Contractor to give notice to Engineer- Contractor
shall subject to clause 20.1 [Contractor Claims] be
entitled to EOT and Cost and reasonable Profit
▪ After receiving notice Engineer shall proceed to
determine these matters [3.5 Determinations]
▪ Right to Access refers to the right to enter the site and must not be
confused with “access routes”
▪ Possession refers to the Contractor taking control and responsibility
of the Site
▪ The Appendix to the Tender will state the number of days from the
Employer will access to the Site from the Commencement Date.
▪ When the Employer issues Letter of Acceptance he is fixing the
latest calendar date for providing the possession of the site.
▪ Contractor takes Possession of the Site – Contractor assumes
responsibility for matters such as safety, security and insurance
▪ If access or possession is to be restricted different parts of the site at
different times
▪ Shared Possession ( Possession is not exclusive)
▪ The Contractor shall give notice to the Engineer whenever the Works are likely to be
delayed or disrupted if any necessary drawing or instruction is not issued to the
Contractor within a particular time, which shall be reasonable.

If the Engineer fails to issue the Drawings within a particular time according to the Contractor’s
schedule, the Employer should be responsible to give compensation to the Contractor, providing that
the Contractor has followed the procedure and fulfilled the requirements by giving notice to the
Engineer and within the time frame stipulated in the Contract. This Sub-Clause only mentions
“within a time which is reasonable”. Both parties should pay attention to this sentence as this might
cause different interpretation lead to dispute.
▪ The Contractor shall, in performing the Contract, comply with
applicable Laws. Unless otherwise stated in the Particular Conditions:

The parties should have the same interpretation on the “applicable laws” i.e. all regulations established by the law itself
instead of the parties obligation under the contract. Parties should not only comply with the laws and regulations issued
before the base date, but also to all laws and regulations issued during the course of the project. The FIDIC Contract
allocate the risk of change of law to the Employer as far as such law and regulation affect the Contractor in performing
their obligation, but the contractor should follow such law and regulation, and submit the notice on the incident (Sub-
Clause 1.13 clearly specify that each party is responsible to comply with the applicable Laws”).
▪ Except otherwise specified in the Particular Conditions of Contract, the
Commencement Date shall be the date at which the following precedent conditions
have all been fulfilled and the Engineer’s instruction recording the agreement of
both Parties on such fulfilment and instructing to commence the Work is received
by the Contractor:
▪ (a) signature of the Contract Agreement by both Parties, and if required, approval of
the Contract by relevant authorities of the Country;
▪ (b) delivery to the Contractor of reasonable evidence of the Employer’s Financial
arrangements (under Sub-Clause 2.4 [ Employer’s Financial Arrangement ]);
▪ (c) except if otherwise specified in the Contract Data, and possession of the Site
given to the Contractor together with such permission(s) under (a) of Sub-Clause
1.13 [Compliance with Laws ] as required for the commencement of the Works;
▪ (d) receipt by the Contractor of the Advance Payment under Sub-Clause 14.2 [
Advance Payment ] provided that the corresponding bank guarantee has been
delivered by the Contractor.
▪ If the said Engineer’s instruction is not received by the Contractor within 180 days
from his receipt of the Letter of Acceptance, the Contractor shall be entitled to
terminate the Contract under Sub-Clause 16.2 [ Termination by Contractor ].
Thank you

manojanair1@yahoo.com