12/16/2019 FIDIC Subcontract

FIDIC Subcontract
OUT-LAW GUIDE | 08 May 2012 | 2:51 pm | 7 min. read

T his guide was last updated in May 2012.

FIDIC have published the First Edition Subcontract, to be used with the current Red and Pink
Books.
Why this matters

The Subcontract is the rst set of standard subcontract terms that can be used with the
current Red Book (building and engineering works designed by the Employer).  It is likely to
become the standard international subcontract for building and engineering projects over the
next few years.
Background & Overview

A "Test Edition" of the Subcontract was published in December 2009.  Building on feedback
from users, the nalised version of the Subcontract – of cially known as the "First Edition" –
was published in October 2011.  Some of the main changes made to the Test Edition are
summarised later in this Guide.
The FIDIC Subcontract is intended for use with the FIDIC "Red Book" 1999 edition.  The full
name of the Red Book is the "Conditions of Contract for Construction for Building and
Engineering Works Designed by the Employer".  So, the Subcontract is intended to be used
when the Red Book is the main contract on a project.  The Subcontract is drafted in a way
which assumes that all the obligations of the Contractor under the Main Contract are passed
down to the Subcontractor via the Subcontract and that the numbering of both the Main
Contract and Subcontract are unchanged.
The Subcontract can also be used with the FIDIC "Pink Book" (the Harmonised Edition of the
Red Book used for Multilateral Development Banks).  Note that some alterations are needed
in order for the Subcontract to be used with the Pink Book to re ect the differences between
the Red and Pink Books. 
Main Features of the FIDIC Subcontract
Risk Pass Down: The Subcontract works on the basis that the risks assumed by the
Contractor under the Main Contract are passed down to the Subcontractor and the
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Subcontractor is deemed to have "full knowledge of the relevant provisions of the Main
Contract".  This was the overriding philosophy of the Test Edition and remains largely true of
the First Edition.
The Subcontract is therefore drafted on a "back to back" basis with the Main Contract, with
the Subcontractor obliged to perform "all the obligations and liabilities of the Contractor
under the Main Contract" insofar as relevant to the Subcontract works - albeit with some
modi cations.  For example in relation to the time limits for giving notice in Clause 20.1, the
Subcontractor has a shorter time limit than the corresponding time limit in the Main
Contract.  This is in order to ensure that the Contractor has suf cient time to receive and
process the information from the Subcontractor and still meet the deadline for giving notice
to the Employer.
There are also stated exceptions to the risk pass down approach.  These are listed at Clause
2.2 of the Subcontract and include the Contractor's obligations in relation to setting out and
obtaining permits, licences and approvals.  Clause 2.2 of the Subcontract also allows the
parties to add other additional speci c exclusions in Annex A.  
Payment: The Subcontractor must submit his draft nal statement 28 days after the end of
the Subcontractor Defects Noti cation Period (which is tied into the Defects Noti cation
Period under the Main Contract).  The Contractor may require additional information if he is
unable to verify any part of the nal statement.  The Contractor must pay the balance of the
Subcontract Price within 56 days after the end of the Subcontractor Defects Noti cation
Period.
The Contractor can defer payments to the Subcontractor if the amount has not been certi ed
by the Engineer or the amount has been certi ed by the Engineer but not paid by the
Employer.  He may not do so if the non-certi cation or non-payment is due to Contractor
default or Employer insolvency.  FIDIC recognises that this pay when paid approach may not
be consistent with the local law (e.g. the UK HGCRA regime) and so includes alternative
provisions in the Guidance Notes to the Subcontract.
Co-operation with other subcontractors: The Contractor is responsible for the overall co-
ordination and project management of the Works and for the co-ordination of the
Subcontract Works with the Main Contract Works and the works of any other subcontractors. 

However, these obligations of the Contractor are subject to Clause 6.1 which requires the
Subcontractor to co-operate with any other subcontractors.   Clause 6.1 also provides that if
the Subcontractor is delayed or impeded by another subcontractor he must give notice of this
to the Contractor.  In these circumstances the Subcontractor may be entitled to an extension
of time and payment of any costs incurred.
Performance Certi cate: The Performance Certi cate applicable to the Subcontract Works is
deemed to be the Certi cate that is issued by the Engineer under the Main Contract.  In other
words, the Subcontractor's performance is not certi ed until performance of all the Works
have been carried out and certi ed under the Main Contract.  The Guidance Notes contain an
alternative clause that can be used if the Subcontract Works are completed in the early stages
of the overall project.

Notices: As is the case with Contractor claims under Clause 20.1 of the Main Contract,
compliance with the obligations relating to notices in Clause 20.1 of the Subcontract is a

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condition precedent to any Subcontractor claim.  Failure to comply with the notice provisions
will disbar any claim.
Loss or damage to Subcontract Works: The Subcontractor is by default obliged to rectify all
loss or damage to the Subcontract Works during the period when he is responsible for their
care.  Clause 17 sets out the circumstances for which the Subcontractor is responsible for the
cost of that recti cation and contains a mechanism whereby the Subcontractor can recover its
costs for recti cation of loss or damage caused by something for which he is not responsible. 
Termination: Clause 15.1 entitles the Contractor to terminate the Subcontract if the Main
Contract is terminated.  Other rights of the Contractor to terminate the Subcontract are set
out in Clause 15.6 and arise if any one or more of the events or circumstances set out in
Clause 15.2(a)-(f) of the Main Contract are applicable to the Subcontractor's performance
under the Subcontract.
Differences between the Test and First editions
Risk pass down: The exception to the Subcontractor's general duty to perform and assume
all the obligations and liabilities of the Contractor in relation to the Subcontract Works which
is contained in the words "other than where the provisions of the Subcontract otherwise
require" in Clause 2.2 is a new and important provision.  It allows the parties to ensure that
express provisions of the Subcontract take precedence over the Main Contract and to list
other clauses that are exceptions to the general duty in addition to the nite list of clauses
contained in Clause 2.2.  That list of clauses itself has also been expanded to include the
obligations in Clause 2.2 of the Main Contract (provisions dealing with permits, licences and
approvals).
There is also a signi cant change in relation to the rights that are passed down to the
Subcontractor.  The First Edition Clause 2.4 states that the Subcontractor "shall have" the like
rights entitlements and remedies that the Contractor has under the Main Contract.  The Test
Edition simply required the Contractor to exercise "reasonable steps to secure from the
Employer like rights entitlements and remedies" he enjoyed under the Main Contract.

Payment: The payment provisions have been streamlined and shortened in the First Edition. 
The interim "draft" stages have been removed and the timeframe for payment of the Final
Subcontract Payment has been reduced from 84 days after the expiry of the Subcontract
Defects Noti cation Period to 56 days after this date.

The Contractor has a new obligation to give full particulars and provide substantiating
documentation of amounts that have not been certi ed by the Engineer or for which the
Employer has failed to make payment under the Main Contract.

In relation to measurement and evaluation, the First Edition contains a slight change to what
happens if the parties cannot agree on the measurement.  The Contractor is now expressly
required to make "a fair decision...having due regard to the Subcontractor's views and all
relevant circumstances."  The Test Edition simply provided for the Contractor to use "the
appropriate and applicable measurement" if the parties could not agree.
Under the Test Edition the Contractor was not obliged to make an advance payment to the
Subcontractor until the Subcontractor had submitted its advance payment guarantee.  This
provision does not appear in the First Edition.

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Progress of the Works: The Subcontractor is no longer expressly required to comply with the
Subcontract Programme.  This is a signi cant change but not altogether surprising.  The
programme is a live document and subject to change and the Subcontractor already has a
strict obligation to comply with completion dates and ensure that the Contractor does not
breach completion dates in the Main Contract.

Extensions of Time: Clause 8.4(d) of the Test Edition contained a general "catch-all"
provision entitling the Subcontractor to an extension of time for "a cause of delay which
would give the Contractor an entitlement to extension of time under the Main Contract".  The
catch-all has been slightly changed in the First Edition Clause 8.4(d) so that it now refers to
"any one of the causes set out in the Main Contract Clause 8.4".  This is a potentially narrower
catch-all than the one which related to any cause under the whole Main Contract.
Loss or damage to Subcontract Works: In the Test Edition the Subcontractor was only
obliged to rectify loss and damage occurring as a result of "any cause which was the
responsibility of the Subcontractor".  In practice it can be dif cult for a Contractor to prove
that any damage to the Subcontract Works has been caused by something for which the
Subcontractor is responsible.  The change is therefore a practical one and ensures that
recti cation works can be carried out before any argument about responsibility arises.  It does
not signi cantly change the underlying risk allocation.
Points to be aware of when using the Subcontract

Numbering: The "back to back" drafting approach assumes that the numbering of the Main
Contract and the Subcontract are identical.  Care is needed to check that the numbering of
the two contracts corresponds exactly, particularly if substantial amendments have been
made to the Main Contract. 

Deemed knowledge of Main Contract: The Subcontractor is deemed to have full knowledge
of all the relevant provisions of the Main Contract – whether or not this is in fact the case.

Overriding the general risk pass down approach: If the Contractor and Subcontractor have
agreed any speci c exceptions to the general risk pass down approach in addition to the ones
set out in Clause 2.2, these should be expressly identi ed in Annex A.

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