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#10 (47) / 16 – 31.05.06

| Technologies |

| : FIDIC Contracts |

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| St. Petersburg |

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What is FIDIC?

Given the vast number of various forms of con-

tracts in the construction industry worldwide,

the community has always struggled to create

certain uniform sets of documentation that

would simplify the bidding process, be more

“user friendly”, and could be repetitively used

for different types of construction projects.

FIDIC is one of many professional associations

that has been trying to achieve these goals in

the last several decades.

FIDIC is the Federation Internationale des

Ingenieurs-Counseils (International Federation

of Consulting Engineers), established in 1913

by a group of French and Swiss engineers, with

its headquarters in Geneva, Switzerland. It is an

internationally recognized organization repre-

senting over 1 million professionals in 75 coun-

tries. In the past couple of years, we have expe-

rienced significant growth in interest from our

clients, Russian and international developers,

project sponsors and construction contractors,

in using FIDIC standard forms for construction

projects in Russia. We see the reason for that in

acknowledgement by the industry that FIDIC

forms are clear and coherent, all clauses are

essential, the definitions are detailed and the

structure of every standard contract is consis-

tent with the other FIDIC standard contracts.

More important, in our view, is that FIDIC

forms are fair and equitable – risk is allocated

to the party which is best able to control, bear

and deal with such risk. Every FIDIC standard

form is complete and flexible – the standard

forms cover most needs and are readily adapt-

able to fit any requirement of the parties to it.

And last, but not least, FIDIC standard forms are

recognized by the industry – they have been

tested for an extensive period of time in many

jurisdictions all over the world.

The FIDIC “Rainbow”

There are several types of FIDIC contracts (or

books), most bearing a dedicated color to

allow for easier identification and operation

of each form:

� Short Form of Contract (Green Book),

� Construction (Red Book),

� Plant and Design-Build (Yellow Book),

� EPC Turn-Key Projects (Silver Book),

� Employer-Consultant form of contract

(White Book),

� Dredging and Reclamation Work (no color)

and Tendering Procedure (Blue Book).

Below we will briefly speak about the first

four forms, i.e. Green, Red, Yellow and Silver

Books, as these are of most relevance to a gen-

eral construction project.

In addition to the logic shown in the diagram

shown here, the factors influencing the choice

of form of the contract are: Value/Complexity;

Design Responsibility; Need for Variations; Risk

Allocation; Work Type; Payment; Administration;

and Involvement of the Engineer.

What are the basic differences?

Short Form Contract (Green Book) is used for

simple or repetitive work or for works of short

duration, and for projects with no need for spe-

cialists (sub-contractor) or an Engineer as all

the design is done by the Contractor.

Construction Form of Contract (or Red

Book) is used where the design is done by

(or on behalf of) the Employer; the project

may require the Contractor to supply plant

design and/or execute some design, and the

project is administered by an Engineer hired

by the Employer.

In the Plant and Design-Build Contract

(Yellow Book) the Contractor is responsible

for Plant, Building and Engineering Works,

though the Employer may have executed

some design.

EPC Turn-Key form of contract (Silver

Book) provides for engineering, procurement

and construction by the Contractor who is to

deliver a fully equipped facility to the Employer

with tests on completion. The design is per-

formed by the Contractor in accordance with

the Employer’s requirement.

All these different forms, in essence, are

about risk allocation between two parties

(Employer and Contractor), and are based on

one fundamental issue – who is responsible for

the design of the project. The issue is not who

is doing design, but who is responsible for it.

Risks and Price

As you can see from the above diagram, the

formula is simple – the contract price is direct-

ly dependent on the risks (mostly, foreseen)

taken by the Contractor, with the Red Book

on the lower end of the risk spectrum for the

Contractor for the lesser consideration, and the

Silver Book requiring the Contractor to accept

all the project’s risks.

MDB Harmonized Edition of Red Book

FIDIC has been successful in introduc-

ing its standards to international lenders.

A group of international banks (MDBs, or

multilateral development banks) led by

The World Bank and which also includes

the EBRD, Nordic Bank of Development,

Inter-American Development Bank, Black

Sea Trade and Development Bank, Asian

Development Bank, African Development

Bank and Islamic Bank for Development),

have made the special edition of the FIDIC

Red Book a part of their standard bidding

document. In other words, international

lenders prefer (and sometimes insist) that

the construction projects they finance uti-

lize the Red Book Harmonized Edition.

The special features of this edition of

the Red Book are: an Engineer has less

authority; and deduction of the advance

payment can start only after certified inter-

im payments exceed 30% of the Accepted

Contract Amount and the advance pay-

ment must be repaid before 80% of such

Accepted Contract Amount is certified.

In other words, the Employer (and the

lender) is better protected under the MDB

Harmonized Edition as compared to the

regular form of the Red Book.

Composition of the Contract

The FIDIC contract, being a full agreement

between the Employer and the Contractor for a

given project, is a compilation of several com-

ponents, which, taken together, form the con-

tractual arrangement of the parties. A FIDIC

contract consists of:

� Contract Agreement

� Letter of Tender

� Letter of Acceptance

� Conditions of Contract

� Specification

� Drawings

� Schedules

� Dispute Adjudication Agreement

As utilization of a FIDIC form is very often

the result of a FIDIC based tender process,

FIDIC suggests that the Letter of Tender and

Letter of Acceptance, documents that are part

of the tender documentation, are made a part

of the contract.

A special feature of any FIDIC contract

is that its terms and conditions consist

of both General Conditions and Particular

Conditions. The General Conditions are a

standard combination of contract provisions,

while the Particular Conditions are the result

of negotiation between the parties and are

designed to modify or delete some of the

General Conditions.

FIDIC’s tender process suggests that

the Employer include the chosen standard

FIDIC contract and the proposed Particular

Conditions in the tender documentation

package with or without the possibility

for the Contractor to negotiate the terms

of the Particular Conditions, depending on

the terms of the tender. In either event, it

is the Particular Conditions which reflect

the specificity of the project on the con-

tractual level. Accordingly, contractors

should exercise maximum care when

reviewing and negotiating the Particular

Conditions.

FIDIC Contracts FIDIC based construction contracts are becoming increasingly popular in

the Russian construction industry. This article attempts to clarify what FIDIC

standard forms are, the principles upon which the forms are based, the structure

of the standard forms and the ways in which each standard form differs from the

other standard forms.

Georgy Borisov

Associate, Head of Real Estate

Practice, Moscow

Baker Botts LLP

.......................

STRAIGHTFORWARD PROJECT/

НЕСЛОЖНЫЙ ПРОЕКТ

EMPLOYER DESIGN/

ПРОЕКТ ЗАКАЗЧИКА

CONTRACTOR DESIGN/ПРОЕКТ ПОДРЯДЧИКА Plant and/or high unforeseen risks/Производственные и/или высокие

непредвидимые риски

Conditions of

Contract for

Construction /

Условия договора

строительного

подряда

Plant and

Design-Build /

Производственное

проектирование/

строительство

EPC Turn-KeyProjects /Проектирование, материально-техническое обслуживание и строительство «под ключ»

Short Form

of Contract /

Сокращенный

контракт

Fixed price – lump sumLittle employer involvement No major unforeseen risks/Фиксированная цена – единовременная выплата.Минимальная вовлеченность заказчика. Отсутствие существенных непредвидимых рисков

DISCUSS IN DETAIL/ПОДРОБНОЕ ОБСУЖДЕНИЕEmployer’s requirements with the Contractor, and negotiate a modified FIDIC contract/Обязательства заказчика перед подрядчиком и заключение договора FIDIC в новой редакции

да/yes

нет/no

нет/no

no

нет/no

да/yes

да/yes да/yes

Ris

k /

Ри

ск

Price / Цена

Red Book /

Красная

Книга

Yellow

Book /

Желтая

книга

Silver Book /

Серебряная

книга

Рынок/

market