The FIDE Digest

Contractual Relationships
Considerations and Relationships
Overview of the right steps of initializing a project:
 The employer has to examine what he wants to achieve.
 What responsibilities can he accept and what will be assigned to others.
 The engineering design has to take place.
 Contracts documents are prepared
- Everything shall be well if all parties knew their obligations, rights and performed in accordance to the
contract; otherwise, trouble starts.

The Employer
First Task
- Develop the concept of the project, examine its feasibility and prepare a cost plan.
- He shall have determination, authority, finance and energy to proceed not only to design and build, but also
to operate, maintain and support the project throughout its life cycle.
- It is important if he has adequate technical and commercial resources.

Second Task
- Secure the political and legal support of his government to be able to obtain all necessary decrees, statues and
regulations.
- Has to be able to obtain adequate supplies: water, raw materials, labor, staff etc...
- Assist the contractor to import/export necessary parts of the plant for the project.

Third Task
- Design Team has to be appointed to develop:
- Size, shape and location of the project.
- Functional requirements of the project.
- Prepare positive plans for any procurement, construction and operation.

Fourth Task
- Appoint a supervisor Engineer (who is the same as original or another engineer) by a separate contract other than
the Contract between the Employer and the Contractor. The details of this contract are not disclosed to the
contractor.
- The contract between the Engineer and the Employer includes but not limited to:
- Feasibility studies, designs
- Preparation of the Tender Documents
- Assessment of Tenders
- Supervision of the Works, commissioning and testing.
- This Engineer shall be named in the contract
- The Engineer shall determine with the Employer:
- Conditions of Contract.
- The pre-qualification phase of the selection of the contractor.
- Tender Documents.
- The employer shall consider along with the engineer
 - Financial plans, insurances, performance bonds, advance payments, TOC, tests and other things to be
considered are all stated in the book.
Fifth Task
- Decide which contract type to be used.
- FIDIC Red Book
- is recommended for Re-measurable civil contract.
- Not recommended for Lump Sum or Cost Plus.
- Better not to be modified to fit a contract other than Re-measurable.

The Engineer
- The Engineer is not a party to the contract between the Employer and Contractor.
- Has Certain duties and responsibilities which are explicitly

Pre-Contract
- The engineer is involved with number of activities necessary for contract documents to be issued and deal with the
matters necessary to obtain competitive Tenders form selected contractors.
- Ensure the availability of sufficient funds to honor the Engineer’s Certificates for payments.
- Employer shall confirm the availability of site and governmental permissions required.
- Engineer start to do the time schedule.
- The Engineer has to know from the Employer:
o The commencement date.
o Whether the works are required to be done in sections or as a whole
o How will Tenderer Contractor be to be invited to Tender.
o The Engineer would be wise if he informs the employer that he has to deal fairly between the Employer
and Contractor.

Tender Procedure
- The Engineer shall ensure that Tenderers.
o receive the same Tender information.
o receive equal opportunities to visit.
- The engineer should supervise the receipt, security and opening of the Tenders at the appointed time.
- Once the tenders are open, the engineer must:

o study each one carefully, correct errors o examine method statements and
o programmes if submitted with the Tender, o qualifications
and pay particular regard to any
o shortlist made up for the Employer to study o past experience of the Contractors
o recommend, with reasons, the most suitable Tenderer he believes will best serve the interests of
the Employer

Post-Contract
- The Engineer / Engineer’s Representative should
- record daily all matters of site interest such as
 weather conditions.
 Progress.
 Contractor's plant and labor on site, whether working or otherwise.
- Make regular visits to the Site to be kept fully updated as to progress.
- Arrange regular site meetings and the preparation and agreement of the minutes of meetings should
follow as soon as possible, preferably the day after.
- Shall respect the laws and customs of that country.
- Have authority to make minor alterations to design as may be necessary
- Must the approval of the client before any major modification UNLESS Emergency.
The Contractor
Pre-Tender
- The contractor must be certain that he:
- can provide the resources
- have enough financial resources
- can provide skilled workmen, supervisors, materials, equipment.
- Know how to acquire what he does not possess.
- Money he will pay in Tendering Process will not be recovered.
- Has skill to price work competitively
- Has to follow the conditions of the contract
- Has to follow the instruction of the Engineer
- Has to finish on time.
- Complies with the law of the country.

Selected Clauses
Engineer’s Representative and Assistants
- The Engineer is entitled to appoint a Representative who is usually resident on Site and has specific duties and
authorities delegated to him by the Engineer.
- any failure by the Engineer's Representative to disapprove any work, materials or plant does not stop the Engineer
exercising his overriding authority to disapprove and giving instructions for rectification.
- Engineer may select and who might possess no suitable qualifications to properly perform the duties delegated to
him.

Engineer to Act Impartially Vs 1999

- The engineer's role envisaged in FIDIC 4th has always been criticized. The engineer is required to make decisions on
the day-to-day problems relating to the contract's administration. However, the engineer's neutrality is often
questioned, given that the engineer is paid by the employer.
- The engineer in FIDIC 4th is considered as impartial, not least given that Sub-Clause 2.6 [Engineer to Act
Impartially] states that the engineer shall exercise his discretion "impartially within the terms of the contract and
having regard to all the circumstances." Such discretion is required in regard to giving his opinion or consent,
expressing his satisfaction or approval, or otherwise taking action, which may affect the rights and obligations of
the employer or the contractor.
- The FIDIC 1999 has however sought to bring about a fundamental change to the engineer's role. The engineer is
now "deemed to act for the employer" under Sub-Clause 3.1 (Engineer's Duties and Authority). In Part I General
Conditions of the New Red Book, the employer's personnel are defined in Sub-Clause 1.1.2.6 (Parties and Persons)
to include the engineer and his assistants. Therefore, the engineer can no longer be considered "friendly" or
impartial.
- Bearing in mind the engineer is "deemed to act for the employer," it is hardly surprising then that Sub-Clause
16.2(b) entitles the contractor to terminate a contract in the event that the engineer fails, within 56 days after
receiving a statement and supporting documents, to issue the relevant payment certificate.

Contract Documents (Priority, ambiguities and discrepancies)

- The contract documents are given a listed priority
1. The contract Agreement
2. The Letter of Acceptance
3. The Letter of Tender
4. The Particular Conditions
5. The General Conditions
6. The Specifications
7. The Drawings
8. The schedules and other documents making part of the contract.
- For discrepancies and ambiguities that cannot be resolved by the priority of documents, the engineer shall
 resolve them.
 explain to the contractor exactly what is intended.
 issue appropriate instructions to the contractor as may be necessary.

- If the explanation given makes it necessary to change the order of such listed priorities, then a change to the
contract is necessary.
- the resolution of ambiguities and discrepancies could affect the Contractor:
 variations, additional works and omitted works
 changes to the Contractor's method of construction (c) delays or suspension
 matters concerning Sub-Contractors
 extra expenditure if the Contract period is extended.
- the most important to the Contractor are the Drawings.
- Drawings are usually issued by the Engineer.
- All Drawings to be issued by the Engineer should be available in sufficient detail, in time, and in such a
sequence as to permit the Contractor to proceed with the Works without delay or disruption.
- If the Engineer fails to do this
 the Contractor has to give proper notice to the Engineer as to his requirements.
 If the Contractor discovered, he will incur extra cost or delay if a Drawing or further instruction is
not given within a reasonable time by the Engineer
o he should give notice to the Engineer, with a copy to the Employer, stating what is
required and giving his forecast of any delay or disruption he is likely to suffer.
o If after all this the Engineer fails, or is unable, to issue any Drawing or instruction within
a reasonable time for which the Contractor has given notice, and if the Contractor suffers
delay and/or extra cost
 the Engineer will, after due consultation with the Employer and the Contractor,
give an Extension of Time and determine the amount of such extra costs to be
added to the Contract Price.
o However, if any delay on the part of the Engineer to issue any Drawings or instruction is
caused by, in whole or in part, the failure of the Contractor to submit Drawings,
Specifications or other documents which are his responsibility under the Contract,
 the Engineer must take into account such failure when making his determination.

-
Site and Access
- The employer is responsible to make the Site available for work to be performed.
- Site has to be subjected to detailed survey, report on geological nature of the hydrological and sub-surface
nature.
o This information is needed for
 The Engineer for design purpose.
 The Contractor for determining construction method and to price the tender.
- The contractor shall bear all the costs required for the Access route as well as their permits if necessary.
- The prudent Contractor who visits the Site will be able to examine
o The terrain.
o The local and surrounding conditions.
o facilities available to him and his staff.
o Make a realistic Tender and cover all his obligations should he obtain the Contract.
- Sometimes the access to site is given partially according to the sequence of construction.
Programmes
- During the preparation for a Tender, the contractor makes an overall assumption of estimate time, cost which
he can by which establish his profit.
- This outline program will enable him to fulfil his obligations for the construction of the Works and to complete
the Works within the Time for Completion required by the Tender Documents.
- Purpose of such a construction programme
o set out the Contractor's timing of the various stages of the Works in calendar form
o identify the timing of those matters over which he has no direct control such as:
 Site and access
 production of further Drawings and details by the Engineer
 the delivery to the Site of Plant and materials provided by the Employer
- The need for a detailed programme to be part of the Tender is not covered by the standard form.
- The need for the Contractor to submit a programme after a number of days from the date of the Letter
of Acceptance is
- This programme is submitted for consent of the Engineer, which is not required within any specified
time after submission.
- The Contractor has the right, to expect the Engineer's requirements for the program to be kept to a
normal cost expenditure as might be found in the Specification or elsewhere in the Contract
Documents so that any cost over and above these requirements will qualify as an increase to the
Contract Price.
- A program needs to demonstrate the timing, sequence and how the contractor intends to complete the works.
- If the schedule is unsatisfactory for the Engineer, he can request a further programme designed to enable the
works to be Completed on Time.
- The engineer can ask the contractor to give him a general description of the methods of construction;
however, this approval does not have to be obtained.
- The Contractor is asked by the employer/engineer to submit the detailed program only after he entered into a
legally binding contract (Letter of Acceptance)
- The contractor can claim that the rates specified in the BOQ are applicable for the time schedule stated in the
program; accordingly, the contractor claim to change the rates if the program was affected by the employer.
- The contractor will pay liquidated damages only If he did not complete within the time of completion in the
Appendix to tender + any extension, he will not pay if he passed the time of his program if his program is to be
finished before the time of completion.

Commencement to Taking Over

- The time for the commencement is the number of days between the Letter of Acceptance and the date on
which the contractor receives the notice to commence.
- If the Contractor does not receive the Notice to Commence from the Engineer within the number
of days given in the Appendix to the Tender, he should examine his position and seek to recover
any extra costs he incurs and an appropriate Extension of Time for Completion
- If the Employer fails to make available parts of the Site necessary for the Contractor to work
properly, the engineer will award extra costs and time as considered appropriate to the Contractor.
- The Time of completion could remain the same or extend for such as variation, delays and suspension, but
never is going to be reduced even if part of the work is omitted.
- If the contractor’s rate of progress falls behind, the Engineer can require the contractor to take measures
to catch up with the program where the contractor can seek the engineer’s consent to work nights and on
days of rest.
- Letter of intent is merely an indication of an intention by the employer to enter into a contract which
might or not materialize.
- Letter of Intent is useful when the issuance of Letter of Acceptance is not possible to be immediately
issued.
- The engineer issue Taking over certificate when the work is completed and tests are done.
- Issuing the Taking Over Certificate
o Release of certain responsibility from contractor to Employer.
 o Release part of the retention money.
o Start of the Defect Notification Period

Variations, Alterations, Additions and Omissions

- Only the Engineer has the authority to vary the Works by giving an instruction to the Contractor.
- The engineer is permitted to make changes of almost any kind but generally with the implied
purpose of achieving final Completion of the Works and within the scope of works.
- Engineer can give the instruction orally, but the contractor must write back to him within seven
days confirming the instruction unless in these seven days he receives no reply from the engineer
to reject.
- Drawing itself will be accepted as a written order from the Engineer to the contractor if a drawing shows a
change in the works as originally contemplated.
- The engineer must consider how this variation will affect the payment to the contractor:
o If the work provided is the same in character and within such timing as the
work already described in the BOQ, existing rates shall be applicable
o If the contract does not have rates or prices applicable to the varied work,
suitable rates or prices can be agreed between the Engineer and Contractor.
 If there is disagreement, the Engineer fixes such rates and prices he
considers appropriate and until these rates are fixed, the engineer
decides provisional rates or prices so that interim payments could be
made in monthly certificates.
o Some contracts which appear to have suitable rates for varied works already
within the BOQ, but it must be related to a time-based programme of
execution.
 If the work is done out of the time sequence on which rates were based,
the rates themselves are not applicable.
- A situation may arise when changes are made which concern a particular trade or operation, and
these changes can influence, directly or indirectly, the reasonableness of rates and prices in the
Bills of Quantities for other work which is not directly related to the changed work.
o Under such circumstances the Contractor is entitled to have these rates altered to a
suitable value as may be agreed between the Engineer and himself, even though this
would not be a direct part of the Variation itself.
- No variations are not permitted to be issued during DNP.

Climatic Conditions and Forces of Nature

- Tendering for work of civil engineering in foreign countries requires the ability to forecast risks
associated with climatic conditions which in turn involve additional costs.
- If the Employer provides data on climatic conditions this should also become part of the Tender.
Therefore, if any such climatic data proves to be wrong, the Contractor might be justified in
thinking he has a claim against the Employer.
- Contractor can claim additional costs arising from unforeseen physical conditions during the
execution of the Works, but not for unforeseen climatic conditions.
- It is difficult to apply to obtain an extension to the Time for Completion on grounds of bad
weather, because it is necessary for the Contractor to prove that the weather conditions causing
him the trouble are 'exceptionally adverse'.
- If the Contractor encounters any other problem caused by weather or natural disasters he may
seek to recover his additional costs by arguing that it was one of the Employer's Risks whereby he
undertook to carry the costs should damage be caused by the forces of nature against which an
experienced Contractor could not reasonably have been expected to take precautions.
Fossils

- Discovery of fossils, coins, articles of value or antiquity, structures etc, on the Site usually causes
more of an inconvenience to the Contractor than major physical obstructions.
- Contractor must tell the Engineer and carry out his instructions for dealing with the situation.
- If the Contractor suffers delay or incurs extra cost by following the Engineer's instructions
o an Extension of Time and an addition to the Contract Price will follow after due
consultation by the Engineer with the Employer and the Contractor
- will recover the costs only
- the Engineer who must give instructions as to what he requires to be done, the consequences of
what was actually done following these instructions could be treated as being a Variation and the
Contractor paid accordingly
- the influence on the Contractor's anticipated cost of the Works could be significant and could
include some of the following:

1. dislocation to his Programme of Work

2. possibility of a suspension, which could be dealt with as a Suspension Order under
3. loss of production and inability to obtain maximum productivity from labor plant and
other resources if the work is not suspended
4. extension to the Time for Completion which, although mentioned as such in Clause
27, will allow for the recovery of additional costs
5. extra cost of management, staffing and certain other overheads and on-costs; most of
these should be recovered
6. increased cost of Bonds, Insurances, Contract funding and such like (g) processing a
claim under these circumstances

Suspension of the Works

- The engineer can instruct the contractor to suspend works at anytime

- Contractor could be entitled to suspend work or reduce the rate of work if the Employer is in
default and does not pay him the amount due under any certificate within 28 days of the time
allowed for the Employer to make payment.
- During Suspension of the Works the Contractor has to protect and secure the Works or any part
affected to the extent required by the Engineer
- The Contractor will bear the cost of suspending the work in the following cases:
o the Suspension of the Works was already provided by the Contract or within the
Contractor's programme, in which case the costs of such suspension were deemed to
be in the Contract Price and the time factor within the Time for Completion
o the Contractor was in default or in Breach of Contract
o the suspension was required because of climatic conditions on Site. This can cause
complications because under Sub-Clause 20.4(h), the Employer accepts the risk of
loss or damage caused by any operation of the forces of nature against which an
experienced Contractor could not reasonably have been expected to take precautions.
No doubt such an occurrence of damage caused by the forces of nature would be
raised by either the Engineer or the Contractor and action taken as laid down in Sub-
Clause 20.3
o the suspension arose to ensure the proper execution of the Works or for the safety of
the Works or for any Part of the Works.
- Other than the previous reasons, the contractor may be entitled to extension of time
and/or costs based on the determination of the engineer.

- If the suspension has continued for more than 84 days

 o the Contractor may request the Engineer’s permission to proceed.
o If the Engineer does not give permission within 28 days after being requested to do
o the Contractor may, by giving notice to the Engineer, treat the suspension as an
omission the affected part of the Works.
o If the suspension affects the whole of the Works, the Contractor may give notice of
termination.
- The contractor has the right to slow down the rate of progress or to suspend work if he does not
receive the payment 28 days after the expiry date of receiving the payment.
- If the Contractor suffers delay or incurs cost because of this action, the Engineer has to consult
the Employer and the Contractor before determining any Extension of Time or addition to the
Contract Price and has to notify the Contractor and Employer accordingly.
- When the Contractor has been paid the money due because of the suspension or reduced rate of
working, with interest pursuant and, if notice of termination has not been given by the
Contractor, he must resume normal working as quickly as possible.

Defective Work

- Defects Liability Certificate because it is the Engineer's confirmation to the Employer that the
Contractor has completed all the Works and remedied all the defects to the Engineer's satisfaction.
This certificate has to be issued within 28 days after the expiry of the number of days stated as
being the Defects Liability Period in the Appendix to the Tender, or, if the Works have been done
in sections or as parts of the Permanent Works, is to be issued after the expiration of the Defects
Liability Period of the last Section or Part to be completed.
- The Engineer will only issue his Defects Liability Certificate when the contractor have completed
remedying of defects, shrinkages or other faults.
- Defective work or defects only come into proper prominence around the time the Contractor
makes a request to the Engineer for a Taking-Over Certificate.
- Before the Engineer issues a Taking-Over Certificate he will carry out an inspection and if he is
satisfied, he will issue the certificate to the Employer with a copy to the Contractor within twenty-
one days of receiving the notice from the Contractor. If there remains work to be done before he
can issue his Taking-Over Certificate, he will specify to the Contractor exactly what is required.
Only after this work has been done will a Certificate be issued. This has to be within a period of
twenty-one days after the satisfactory completion of the specified works.

Claims

Presentation of Claims

- Any claims which the Contractor wishes to present must be made before he submits to the
Engineer a Statement at Completion
- The Contractor can reduce the risk of failure with his claims if he makes a point of including all
of them with his monthly Application for Payment even if at the time he is unable to place a
detailed valuation on his claim.

Historical background

- It is helpful to give any historical data affecting the subject matter of the claim and to make all
necessary references to other documents to enable the reader to appreciate the background.
Contractual Argument

- State the particular Clause or Clauses on which the claim is founded

- The Contractor should set out in detail a logical argument
- Refer to similar known claims which have been successful in either litigation or Arbitration

General

- The contract has to record actual costs he incurs in carrying out the work and to keep site
diary updated on daily basis and that proper labour and plant records are maintained, and if
possible, for them to be agreed with the Engineer's Representatives as being statements of fact
- The contemporary records relating to any claim start from the actual timing of the 'event' rather
than to the giving of notice

Supporting data

- This data may include items, wherever possible, such as: Site records; photographs; Site Diaries;
daily weather reports; charts and maps; instructions; quality control documents; programmes;
Drawings

Financial

- detailed comparison between the costs anticipated by the Contractor when tendering compared
with the costs incurred when actually doing the work and being affected by the circumstances
which gave rise to the claim, and any consequential costs.

Application of Clause 53

- Start contemporary records simultaneously with occurrence of 'event'.

- Give notice of intention to claim within 28 days of the event.
- Act on the Engineer's instructions about the additional records
- Substantiate claim for a single claim within 28 days of giving notice (possibly varied by
agreement with the Engineer).
- For a continuing claim, submit detailed particulars on a regular basis (intervals to be agreed with
the Engineer).
- For this continuing claim, send a Final Account within 28 days of the end of effects resulting
from the event.
- Include an Application for Payment of the claim in each application for Certificate of Payment in
addition to actions required under Sub- Clause 53.3.
- Take heed of Clauses 60.5, 60.6 and 60.9 which limit the time for making claims.

Statement of Completion

- The Contractor has to submit to the Engineer a Statement of Completion not later than 84 days
after the issue of the Taking-Over Certificate for the whole of the Works, including amounts or
estimated amounts of all claims.