i ® Edition 1994Baie 2Copylahe FICHE Al hs ere ‘Noguot tis publican ay be ‘produced orate nny Tor orby any eas lout emisionof de pulse is an international federation of national associations of independent consulting engineers, IDIC was founded in 1913 by five national associations of Independent consulting engineers within Europe. The objectives of forming the federation were ¢o promote in commion the professional interests of the member associations and to disseminate information of interest co members of its component national associations. Toca Bibi membership nambers 36 countries fom al part oft globeandthe federation represents mostof the independent practising, consulting engineers in the world, IDIC arranges seminars, conferences and other events in the furtherance ofits goals: maintenance highethial and professional ‘standards; exchange of views and information; discussion of problems of ‘mutual concer mong member associations and representatives of the international financial institutions; and development of the engineering profession in developing counsies. F IDC publications include proceedings ofthe various conferences and seminars, information for consulting engineers, project owners ‘and intemational development agencies, standard pre-qualification forms, ‘contract documents and client/consultant agreements. They are available from the secretariat in Switzerland. Pubited by FidesionIntemnonte ds Ingfious Conseils DIC PO. Box 8 (CH 1000 Lausane 12 Swivel Phone +4121 689 $008 Far 41216835632FEDERATION ITERRATIONALE DS INGENIEURS. CONSE {ONAL FEDERATION OF CONSULTING ENGINEERS INTERNATIONALE VEREIMOUNG DERATENDER NOENIEURE GUIDE TO THE USE OF FIDIC’S SUB-CONSULTANCY AND JOINT VENTURE (CONSORTIUM) AGREEMENTS @ Edition 1994ACKNOWLEDGEMENTS, FIDIC wishes to acknowledge the time and effort of those who contributed to the development of the Sub-Consultancy Agreement, the Joint Venture (Consortium) Agreement, and this Guide. ‘The Agreements are based on original drafts supplied to FIDIC’s Client Consultant Relationships Committee (CCRC) by Mr. David J. Lowes of Ove Atup & Partners in September, 1988, The CCRC, under the chairmanship of Mario Asin, has had the responsibility for revising the original drafts into the final published forms. Mr. Paul Taylor of Berrymans and Mr. Mark Griffiths of Griffiths & Armour submitted commentaries on the Agreements and the availability of these commentaries helped FIDIC to decide to embark on the preparation of this Guide. All members of the CCRC contributed to the Guide and these members are Mr. Mario Asin, Chairman during the time when most of the work of preparing the Guide wes undertaken; Ms. Fatma Célasan; Mr. Hans Ammendrup; Mr. Pablo Bueno; Mr. Jean-Bemard Loubriat, and Mr. Peter Batty, Chairman at the time the Guide was completed. The Executive Committee Members with prime responsibility for the work of the CCRC during preparation of the Guide were firstly Mr. Ron Triffo and latterly Mr. Bill Lewis. During preparation of the Guide Messrs. Taylor and Griffiths continued to provide advice and substantial comments, and Mr Steven Francis of Berrymans provided coordination and effected the incorporation of such comments. It is noted that this Guide supersedes FIDIC’s 1977 publication, entitled “Guidelines for Ad Hoc Collaboration Agreements between Consulting Firms”.TABLE OF CONTENTS 3.1 3.1. 3.1.2 3.13 3.14 41 42 43 44 45 INTRODUCTION .. Background. General approach used in drafting the Joint Ventre (Consortium) and Sub- Consultancy Agreements .. GENERAL DISCUSSION ON FORM OF COOPERATION AGREEMENT... LIABILITY AND INSURANCE, RELATED TO THE COOPERATION AGREEMENTS... Insurance of Liability in Joint Venture Agreements... General... The Alternative Liability and Insurance Clauses. Project Insurance in a Joint Venture Agreement... Sharing the cost of insurance Imposed Insurers Insurance of a Sub-Consultant... GUIDE TO COMPLETION OF THE JOINT VENTURE AGREEMENT... Applicable Circumstances ... Basic Requirements for Completion of the Joint Venture Agreement ‘Structure of the Joint Venture Agreement. ‘Commentary and Additional or Alternative Wordings to the Standard Form... Alterations to the Standard Form for a Continuing Joint Venture Agreement.GUIDE TO THE COMPLETION OF THE SUB-CONSULTANCY AGREEMENT... Applicable Circumstances Structure of the Sub-consultancy Agreement .. Suggested Wording for Completing the Schedules., PRE-CONTRACT AGREEMENTS .... Annexe 1 ‘Annexe 2 Appendix A Appendix B Liability and insurance clauses for a “Continuing Joint Venture agreement”... Sample Pre-Contract Agreement.. Sub-Consultancy Agreement... Joint Venture (Consortium) Agreemen1. INTRODUCTION This introduction describes briefly the background to the Joint Venture (Consortium) and Sub-Consultancy Agreements and the general approach used in drafting the Agreements. 11 Background Modern engineering projects are often very complex and must be conducted with full awareness of the total social and physical environment. They frequently require degrees of technical sophistication and ranges of skills which can best be provided by Consultants sharing their respective technical resources, geographical presence and local knowledge as an interdisciplinary team, comprising either a Joint Venture (Consortium) or a prime or principal Consultant with a number of Sub-Consultants. Such organisations may also be considered as suitable vehicles for transfer of skills and knowledge, when this is an important part of the project. Any Joint Venture or Sub-Consultancy needs a formal Agreement stating what cach Firm will contribute to the relationship, what each is intended to receive from the relationship and how they will deal with any problems that arise either within the Joint Venture or between the Consultant and its Sub-Consultants or in any project being handled by the team, In order not to jeopardize the harmonious completion of the Project any Agreement must achieve: i, Consistency with the Services Agreement or Main Agreement entered into with the Client. ii, Proper division of the tasks each participant is to undertake. iii, A clear and non-formalistic framework for resolving disputes. iv. _ In the case of a Joint Venture apportionment between Members of any remuneration from, and/or profits and losses of the Joint Venture, and of any liabilities incurred by the Joint Venture. During the last few years FIDIC and other organizations have sponsored seminars or scheduled workshops aimed at increasing the participation of local, indigenous consulting firms in intemationally funded projects, particularly those which are implemented in or are to benefit the country of the local firm.In many countries such firms compete, without any outside assistance, against international consulting firms. In other countries, where local consulting engineering firms have only a short history, such firms can only participate in internationally funded work in conjunction with international firms. Often the international firm and the local firm will find it most advantageous to associate on an ad hoc basis, that is for the sole and specific purpose of competing for and undertaking a certain project. However, a problem may occur if the local client is determined to use the project to develop his own in-house engineering capacity. In 1977, FIDIC had published “Guidelines for Ad Hoc Collaboration Agreements between Consulting Firms”, but the renewed interest in ad hoc collaboration, coupled with the fact that in 1989 FIDIC published its “Client/Consultant Model Services Agreement” (The White Book), prompted a decision to publish model forms, compatible with the White Book, for Sub-Consultancy and Joint Venture (Consortium) Agreements. Such forms of Agreement were published by FIDIC in 1992, and these forms are included in the Appendices to this Guide. 1.2 General approach used in drafting the Joint Venture (Consortium) and Sub-Consultancy Agreements ‘The general approach used in drafting these two Agreements was to start with tried and tested forms used over a period of time by an international firm for making ad hoc associations with other firms, including local indigenous firms in the countries of the projects. Modifications were made to the starting drafts, principally with the aim of: making the Agreements compatible with and suitable for use when FIDIC’s White Book will be used for the Agreement between the Consultant and the Client; in recognition that the drafts were prepared by an international firm which expected to take the lead or prime position, making the agreements more even handed, and, in the case of the Sub-Consultancy Agreement, recognizing that in many cases the local firm will be the Consultant and the international firm the Sub-Consultant; and attempting to simplify the documents and excise any legal jargon applicable only to particular jurisdictions.2. GENERAL DISCUSSION ON FORM OF COOPERATION AGRE! AENT There are two basic forms of cooperation: Joint Venture and Sub-Consultancy. Although in some cases the cooperating firms can choose which form to adopt, the Client's decisions will often dictate the form of cooperation between Consultants. ‘The following points should be considered in deciding the form of cooperation between the participating firms: Ina Joint Venture all Parties to the Agreement will have considerable influence on the working decisions of the team and will almost always carry joint and several liability. Many Clients see this as a major advantage of a Joint Venture. Where all firms make a significant contribution to the solution of all issues, a Joint Venture will usually be the most appropiate form of cooperation. Where one of the Consultants has only a small, well defined input he should be aware of the onerous responsibilities that joint and several liability can carry and he may wish to be employed as a Sub-Consultant, if necessary agreeing to a specific collateral warranty with the Client. With a Sub-Consultancy arrangement, the Main Consultant will have control of and responsibility for all major decisions. This will in most cases allow a simpler project organization. The Main Consultant will bear sole contractual liability to the Client except where the Sub-Consultant has entered into a collateral warranty. Some Clients prefer to hire one Consultant and let him organize Sub- Consultancy(ies) for services which cannot be undertaken within his own organization. Often, such Clients will reserve the right to approve the Sub- Consultant(s) and, in some cases, also the terms between the Main Consultant and the Sub-Consultant. The Sub-Consultant’s contractual liability will be to the main Consultant through the Sub-Consultancy Agreement.3. LIABILITY AND INSURANCE RELATED TO THE COOPERATION AGREEMENTS 3.1 Insurance of Liability in Joint Venture Agreements 3.1 General The partners should bear in mind the philosophy applied in drafting the White Book clauses; namely that to impose a liability on any organization is pointless unless the organization has either assets or insurance to cover that liability. In considering the liability and insurance clauses it is important to maintain a distinction between the three separate elements of liability to the Client, division of that liability between the partners and the insurance necessary to meet that liability, Nevertheless the three separate elements must be considered together, The liability to the Client will determine what liability has to be divided between the partners and what insurance is needed; what insurance is available will determine the liability that the Members of the Joint Venture can prudently accept and thus what liability can realistically be agreed to. Under the White Book Conditions and under most Services Agreements, the Consultant must insure against its liability to the Client. This obligation is the reference point for any Agreement between the partners on insurance. However they divide the obligation between themselves, they must be sure that their liability is at all times insured ‘Where the Agreement between the Joint Venture and its Client is under the White Book Conditions the effect of Clauses 18 and 19 of the White Book is to impose on the Joint Venture the obligation to use all reasonable endeavours to arrange and maintain agreed levels of insurance and to restrict the Joint Venture’s liability to what is actually recoverable under that insurance, The first question that has to be asked is, therefore, how best can insurance be arranged. Typically, insurance has to be bought on a year by year basis, and a very important factor in determining the suitability of alternative arrangements will be the relative degree of probability of being able to continue that insurance, so that the most suitable insurance arrangements may be determined and incorporated into the Agreement with the Client, Because continuance of any predetermined scheme of insurance cannot be guaranteed, it may also be wise to provide for alternative insurance schemes to be adopted in the event that the original arrangements, for any reason, cannot be maintained. The administrative arrangements for the purchase of insurance become a task to be allocated within the Joint Venture to the Member, or Members, bestable fo undertake it. Fall-back arrangements, for sharing of the Joint Venture’s joint and several liability to the Client as between the Joint Venture Members, are necessary to provide for the situation where insurance is unavailable, inapplicable, or insufficient and the protection of White Book Clause 18.2 is not available. The drafting of the Joint Venture Agreement liability and insurance clauses (Clauses 14 & 15 of the Joint Venture Agreement) thus needs to take into account both the anticipated liabilities which the Joint Venture will undertake to Clients and the insurance resources to which the Joint Venture has access, Unless these external factors are taken fully into account there is a real danger that the liability and insurance clauses within the Joint Venture Agreement may prove unworkable. 3.1.2. The Alternative Liability and Insurance Clauses Section 4 of this guide gives a number of altemative sets of Clauses 14 & 15 for achieving the insurance a Joint Venture may require, as discussed below: Series “A” Clauses - Where Clear Demarcation of Work is Possible If there is a clear demarcation between the Work of each Member, and if each has ‘equal access to insurance in an efficient market, then the Members can individually insure against the liability which may fall on the Joint Venture arising out of the Work that each Member has undertaken. This is a popular method, often adopted by major organizations who wish to retain control of their operations, but it brings its own difficulties. Not only must the demarcation of work be clear, but that demarcation must survive throughout the Project, and, above all, must be sustainable without dispute, if a claim is made, ‘Where this system is adopted, there will be a need to allocate to one of the Members a specific duty to co-ordinate the Work of the Members, and enable it to determine which insurer is responsible where, through a failure of co-ordination, some essential task is not undertaken or is delayed because it was not properly allocated. Itis essential to ensure that each Member's insurers have given their agreement to this method of insuring the Joint Venture’s liabilities and have also agreed that they will not seek any recovery from the insurers of the other Members on the basis of their joint Liability to the Client. If any of the Joint Venturers changes his insurer it will be essential to seck the new insurer’s agreement to the arrangement. Even so, each of the Joint Venture Members may wish to seek contingent cover against the failure of another Member’s insurance, which would leave him exposed to a liability arising out of work with which he has not been directly involved.Otherwise, each Member will be relying solely on another Member's insurance to cover losses for which they are all jointly liable to the Client. This will be particularly relevant when the Agreement with the Client is not based on the White Book and the benefit of its Clause 18.2 is not available. Series “B” Clauses - Where Clear Demarcation of Work is not Possible Ina Project where the responsibilities between Members cannot be clearly defined, or where individual Member’s Work is dependent upon effective interfacing and co- ordination with that of other Members, it may not be practical for each Member to insure against a liability arising out of a defined part of the Joint Venture’s Work. Jn these circumstances such an arrangement could simply encourage the Members and their insurers to enter into protracted argument about their respective defence to the Client’s claims. In such a situation the most sensible course may be for one Member, probably an international Member with direct access to the world’s major insurers, to agree with its insurers that the liability of the Joint Venture as a whole be brought within its existing insurance. Again, the other Members of the Joint Venture may feel that they need contingent cover against the agreed insurance failing, or ceasing to be available, for any reasons. ries ‘law: here Res] The combination of these two methods of insurance may be feasible under which one Member will have the responsibility for arranging insurance for all aspects of the Joint Venturer’s Work other than those parts of the Work which are specifically allocated to a nominated Member both to undertake and to insure. This may be a suitable method of providing for Projects where the mix of responsibilities may vary through different phases of the Project's life, It is not uncommon, for example, for Work on feasibility studies to be a joint task where responsibilities would be difficult to define, for detailed design to be divided into well defined packages undertaken by different Members of the Joint Venture, and for Services at the site during construction to be provided by a team drawn from all Members of the Joint Venture in circumstances where it would be difficult to disentangle their respective responsibilities, ies “D” Clauses - Where Re ty to Insure is Decided by Predetermined Shares A further alternative may be to agree that the insurers of each Member of the Joint Venture will contribute in pre-determined proportions to any claim against the Joint Venture regardless of the strict allocation of liability as between the Joint Venturers. Remember that, like all the other arrangements, this will require the specific agreement of all the insurers involved. Again, contingent cover against the failure of any Member's insurance may be important. 63.L3 Project Insurance in a Joint Venture Agreement It will be noted that all these recommended insurance arrangements rely on insuring the Joint Venture’s liability under the normal annual insurance policies, arranged by one or more of the Joint Venture partners. While not universally so, there are for ‘most consultants substantial difficulties in arranging insurance cover for professional liabilities under policies of more than twelve months duration. It is often impractical to arrange policies of sufficient duration to cover the whole period of potential liability which the Joint Venture may have in relation to a Project for which it is engaged, In many jurisdictions, liability for personal injuries is measured from the date of injury and not from the date of its cause, so that it is impossible even to determine 2 maximum period for the Joint Venture’s potential Liability. If a Project policy is arranged there will generally be the need for premiums to be continued to be paid after the Joint Venture’s Work is completed. ‘The amount of those premiums cannot be determined in advance. This poses very difficult problems of the retention of funds to meet unknown future cost, ‘The alternative ‘methods proposed permit the Joint Venture’s liability to continue to be insured, along with liabilities for other work undertaken by the Joint Venture partner responsible for arranging insurance, for so long as that Joint Venture partner continues in business, It should be possible to arrange this on the basis that no specific premium is charged. Latent Defects Insurance It might be appropriate for a Joint Venture Member, as indeed for any Consultant, to recommend that his Client consider the purchase of Latent Defects Cover where this is available. This will permit the cost of rectifying insured defects to be recovered on proof of damage, and will remove the necessity for the Client to allege negligence against the Consultant as a precondition to claiming on insurance. 3.14 Sharing the Cost of Insurance The Joint Venture Agreement will need to contain provision for the Members of the Joint Venture to contribute equitably to premium costs, and in particular where a Member is nominated both to undertake and to insure specific tasks (in accordance with “C” Draft Clauses 14 & 15 ), the Joint Venture will wish to avoid paying premium on the same fees twice. Consideration will also need to be given to the handling of any claims which may be made against the Joint Venture. It is normal for professional indemnity insurance to require the insured to meet a specific excess, i.e. the first part of any claim will be uninsured, The Joint Venture Agreement will have to contain agreement as to howthe Joint Venture partners will contribute to that excess, and generally it is recommended that all partners should have a continuing obligation to contribute. This will help to reinforce their obligation to assist in defence of any claim which should be the subject of a specific clause in the Joint Venture Agreement. Whatever arrangements a Member makes about liability and insurance it is imperative that it keeps its insurers fully informed. If'a Member takes on extra liability under a Joint Venture Agreement, or if it gives up a right to recover a loss from @ Joint Venture partner or anyone else, that affects the risk for which it is seeking insurance, The whole cover, and not just that for the Member's Joint Venture Work, could be invalidated by a failure to keep insurers informed. 3.1.5. Imposed Insurers Tn arranging insurance it will be necessary to comply with the local legal requirements which may even call for insurance to be organized with an insurer in the Country of the Project, although such requirement would be unusual and would not be practical in most developing countries. Care will be necessary to ensure that arrangements are made for the continued existence of cover after completion of the Project, and agreement will need to be reached as to which insurance company will control the handling of claims. In the case of a Joint Venture, this may make it appropriate for insurance to be arranged by the local Member provided that the Joint Venture has the full protection of Clause 18.2 of the White Book. Alternatively, it may be preferred that an international Member of the Joint Venture makes arrangements for its usual insurer to provide cover, and for a local company to “front” making reinsurance arrangements with the Member's usual insurer, A sub-consultant will have to consider how far local insurance law applies tohim. If that law is applicable, similar “fronting” and reinsurance arrangements may be necessary. 3.2 Insurance of a Sub-Consultant The obligations of the Sub-Consultant to arrange insurance are stated in Clause 6 of the Sub-Consultancy Agreement. ‘The insurance is to cover: the Sub-Consultant’s liability under Clause 5; the Sub-Consultant’s publie/third party liability, arising out of or it connection with the Sub-Consultancy Services; andany other risks or events stipulated in the Agreement or required by the laws of the Country. Seen from the point of view of the Sub-Consultant and his insurers, the Consultant is the clieat. The Sub-Consultant must accept the obligation of participating in the defence of any claim arising out of his part of the Services. Should any extension of the Sub-Consultant’s insurance be necessary and be impossible to obtain, or if it is deemed to be too expensive, it may be possible (but, except in countries where insurers normally expect to cover the liability of Sub- Consultants in the Consultant’ policy, it is not recommended where other options exist) to include cover for the Sub-Consultant under the Consultant’s insurance. The following points will need to be considered: Will it be possible to arrange the insurance for the whole of the liability period, or must premiums be negotiated every year ? If premiums are to be paid every year, is the Sub-Consultant to pay his share annually, of is the Consultant willing to accept payment based on an estimated development in premiums ? How is the Sub-Consultant going to pay his part of the premium ? How is the excess to be paid? Will the Consultant accept to do this against an up-front payment, or will the Sub-Consultant pay his part if his own liability is established ?4 GUIDE TO COMPLETION OF THE JOINT VENTURE AGREEMENT 4.1 Applicable Circumstances ‘The Joint Venture (Consortium) Model Agreement was prepared essentially to be used for the association between two or more Consultants, when: the association is for marketing and/or performing the Services required for a specific Project, rather than for a more permanent type of arrangement; and one party will be an international firm and one may well be a local firm in the country of the Project. Although not necessary for the wording of the Joint Venture (Consortium) Model Agreement, it is recommended that FIDIC’s new Client/Consultant Model Services Agreement (the White Book) will be the basis of the Agreement for Professional Services with the Client. Notwithstanding the above, itis expected that the Joint Venture (Consortium) Model Agreement may operate successfully, either as is or modified slightly, when one or more of the above conditions do not apply. One purpose of a Model Agreement such as this is to stimulate the awareness of the Members as to what should be in the Agreement to mitigate risks and avoid disputes. The subject of insuring the Professional Liability of a Joint Venture (Consortium) or its Members is particularly problematical. Accordingly, the more easily defined liabilities and direct control afforded by a Sub-Consultancy Agreement will, in many cases, be preferred. Certain issues deserve detailed attention at the proposal stage, to avoid the very real possibility of winning the Project only to find that one Member cannot meet its share of contractual obligations; in particular, the matter of insurances and guarantees ‘warrants early attention. In countries where it is inappropriate to use the title Joint Venture for an ad hoc association, but where Consortium is an acceptable title, the wording in the Model Agreement should be changed accordingly. The provisions of the Model Agreement are intended to operate whether the Joint ‘Venture (Consortium) is between two or more firms, but, o facilitate drafting, the ‘Model Agreement is worded as if there will be only two. The wording must be ad- justed if more than two firms will participate. 10‘One objective of this Model Agreement is the promotion of the team approach, sccording to FIDIC’s goal of optimizing transfer of technology by exposing local consultants to all facets of the Project, including environmental aspects, project management and coordination. For this reason, this Model Agreement concentrates on the fulfilment of obligations, rather than the assignment of different parts of the Services to the Members. However, such approach is not mandatory for the Agreement to operate, and itis possible to specify the services to be performed and/or products that must be delivered by each Member, when the requirements are sufficiently defined. 42 Basie Requirements for Completion of a Joint Venture Agreement A Joint Venture Agreement must stipulate: who the Members are, the roles they are to fulfill, and the purpose or objective of forming the Joint Venture; how costs, expenses, liabilities and any losses arising during the Joint Venture will be met, and how any surplus or profit will be divided; how the continuing rights and obligations will be carried after the conclusion of the Joint Venture; and the procedures for meeting all requisite administrative arrangements. ‘More specifically, and in order to effectively address these points, the parties before drafting need to consider: whether a single Project is envisaged or whether the relationship is to be on- going (this is dealt with in more detail in Annexe 1 to this Guide); for each Member, the commercial status of the firm, their expertise and qualifications pertinent to the Services, and full information about their ownership and any associated or subsidiary firms, the existence of which might represent a conflict of interest if the Joint Venture is selected to provide the Services; the nationality of the Members and the location of the intended Project or Projects; the laws (including competition law or anti-monopoly law) governing the operation of a Joint Venture in a particular country, as well as the lawsgoverning the trading relationships between engineers of different nationalities; the influence of the Joint Venturers in the country where the Project (or Projects) is located; Jocal currency and taxation arrangements, and local insurance requirements (for example insurance regulations or the imposition of local insurers); the procedures to meet the transfer of technology requirements of the Terms of Reference and the Client/Consultant Agreement, with inclusions in the time charts or task schedules of the transfer of technology programs; the mutual approval of the staff members who will be designated as “teachers” and “recipients”; the budget of the Joint Venture to comply with transfer of technology requisites, including the time required by the staff members of both parties, the acquisition or rental of equipment specifically needed for these purposes, and the cost of interpreters and translators; and the reporting of the achieved results of the transfer of technology program, or aspects, of a project. 4.3, Structure of the Joint Venture Agreement The Standard Form FIDIC Joint Venture Agreement is drafted with the intention of use for a specific Project. The notes in Sections 4.5 below offer a set of standard amendments by which the single project Joint Venture Form can be modified to become a suitable standard form for a continuing Joint Venture. If these amendments are adopted, the continuing Joint Venture can provide the basis of a relationship between Consultants for Projects undertaken under the White Book Conditions. Other altemative clauses have been proposed for a variety of different purposes, offering a considerable degree of flexibility and choice. To be operative, the Joint Venture (Consortium) Agreement will require the completion of several schedules. Those provided at the end of the document are, for most projects, the minimum, They should be completed as follows: Schedule 1, Project and Agreement Particulars - Schedule 1 is self-explanatory and generally involves only developing the information called for in Schedule 1 to make the Agreement workable. Schedule 2, Financial Administration Services - As a minimum, Schedule 2 should stipulate: 12the Joint Venture’s (Consortium) accounting procedures. A Joint Venture will generally only disburse monies to the Parties after it receives them from the Client, and it will not have the means to raise financing itself. Therefore, to cover the Joint Venture’s local operating costs, it will often be necessary for the Members to provide funds. Normally, the sharing in the provision of such funds should be proportional to the Members’ shares in the Joint Venture; the records and accounts to be maintained by the Members (which must include records and accounts necessary to comply with the Services Agree- ment), the laws of the country of the Project and the laws of the countries of the Members; the process for preparation of the Joint Venture (Consortium) invoices to the Client, which must be tailored to comply with the requirements of the Services Agreement; which Joint Venture (Consortium) bank accounts will be opened or will operate, and which persons will have access to the funds (normally, a Joint Venture or one or other of the parties fo it will open or maintain accounts in the country of the Project and in the country of each currency payable under the Services Agreement); and how advance payments will be handled, To reduce problems associated with adverse currency fluctuations and/or non-transferable local currencies, it is recommended that the Members specify in Schedule 2 their requirements (amounts and timing) of local, home country and/or other foreign currencies, and that the combined requirements of all Members be included in the appropriate appendix to (or at the appropriate place in) the Services Agreement. Schedule 3, Allocation of the Obligations - It will be necessary to specify the obligations to be fulfilled by each Member in sufficient detail to satisfy and protect, the interests of the other Member(s). This schedule should include at least the scope of work and time schedule of the Services Agreement, and clearly indicate the obligations to be met by each Member with the time schedule for accomplishing such obligations. Schedule 4, Financial Policy and Remuneration - It is necessary to cover in this Schedule at least: how the Members will recover their respective promotional costs, if each party is not expected to bear its own;how and by whom day to day operations of the Joint Venture (Consortium) will be financed; how funds received by the Joint Venture (Consortium) from the Client will be disbursed for reimbursement of costs and distribution of Joint Venture profits and losses (including clear definitions of profits and reimbursable costs). It is advisable to include in Schedule 4, a schedule (tentative or otherwise depending on the basis of remuneration specified in the Services Agreement) showing the anticipated amounts and timing of payments from the Client, and how such payments are expected (by percentage or otherwise) to be disbursed to the Members; and rules about costs incurred by a Member but disallowed by the Client Generally - There are many topics about the completion of Agreements by consulting firms which are discussed in FIDIC’s White Book Guide and which will be relevant to the conduct of a Joint Venture (Consortium). For example: i) For Schedule 1, Clause 20.1 - Rules of Arbitration, see FIDIC’s White Book Guide. ii) For attestation of the Agreement, see also the above mentioned Guide, in particular for the circumstances when the Agreement should be under seal. 4.4 Commentary and Additional or Alternative Wordings to the Standard Form Openii jent The draft altemative clauses, presented below and in Section 4.5 provide for a wide variety of circumstances, to extend the typical Joint Venture between a major intemational practice and a smaller local firm, to cover multi-party Joint Ventures and, above all, continuing Joint Ventures (for a term of years or several Projects) as opposed to a single Project Joint Venture. Emphasis is given to the practical distribution of executive and technical responsibility (and its consequences within the Joint Venture). A Joint Venture can take a number of forms but essentially the choice will be between incorporated and unincorporated entities. Care must be taken in an unincorporated Joint Venture, to ensure that this does not unintentionally create a partnership with shared liabilities, 14In very few, if any, jurisdictions, is there any established legal definition of a Joint Venture, Whether itis viewed by local law as a partnership, an association or a corporation, will depend entirely upon what the Members have agreed, or what the Jocal Courts decide the Members have agreed or have done, Single project Joint Ventures are often not incorporated. For a continuing relationship, incorporation is often sensible, but legal advice is then essential from local lawyers, particularly on fiscal, regulatory and administrative questions. ‘onditions and Terms If further Members are to participate in the Joint Venture, the names, addresses and descriptions of additional Members should be inserted at this point. fat io ‘The definitions included in Clause 1 of the Joint Venture (Consortium) Agreement (Sub-Clauses 1.1.1 to 1.1.14) are intended to be consistent with those set out in Part I of FIDIC’s Client/Consultant Model Services Agreement (The White Book) If it is wished, additional definitions can be added to this section, as follows: 1.1.15 “Policy Committee” means the committee of the Members constituted by the Members’ Representatives. 1.1.16 “Member’s Representative” means the person nominated by a Member pursuant to Clause 3.5. 1.1.17 “Local Representative” means the person nominated by a Member pursuant to Clause 7.10. 1.1.18 “Services Manager” means the person nominated by the Leading Member (or by another Member on request of the Leading Member) pursuant to Clause 7.12. 1.1.19 “Defaulting Member” means a Member declared in default of its obligations in accordance with Clause 12 hereof. Joint Venture 2.1 If the Joint Venture is to be incorporated, Clause 2.1 should be amended accordingly, and a further detailed Agreement will be necessary.23 ‘The officers of the Joint Venture should include the Representatives of the Leading Member, and the other Member(s), the Local Representatives, the Services Manager and (eventually) their duly appointed deputies. For absolute avoidance of doubt, an additional Clause 2.4 can be added, to provide that: “Reference to a Member shall be deemed to include references to the Leading Member in his capacity as a Member of the Joint Venture”. ‘There are good reasons why Members and the Client should be notified about changes of names or ownership of one of the Members of the Joint Venture. Accordingly, Clause 2.3 could be modified as follows: “Any Member which changes its name, or is taken over by ot merged with another firm, must promptly communicate details of the same to all other Members and to the Client. Unless otherwise agreed by the majority (all*) of the Members, this Agreement shall not terminate because a Member changes it name, or is taken over by or merged with another firm, provided that new name or firm is (an independent professional firm’*) acceptable to the Client, and officially accepted by him by a Variation or Amendment to the Services Agreement.” The final part of Clause 2.3 of the Model Agreement is unnecessarily cumbersome and could be deleted. Further, as always in this agreement, the degree of Member agreement should be explicitly stated, As amended Clause 2.3 could provide that:- “Unless otherwise agreed by (“the majority of” or “all”) of the Members, this Agreement shall not terminate if a Member changes its name, or is, taken over by or merged with another company or partnership.” * as applicable or as desired ** delete if not applicable or not desiredProposal Submission 3.1 Asthe Services Contract is intended to be the same as the Services Agreement defined in 1.1.8, it would be preferable to substitute the expression “Services Agreement” for “Services Contract” in this clause Performance of the Work 4.1 The Work to be performed under the Services Agreement is intended to be identical to the “Services” as defined in Section 1. It may be preferred to commence this clause with the words “The Services shall be carried out ...” instead of the wording as it stands. 42 The Services should be performed in compliance with the provisions of the Services Agreement. The words “to the satisfaction of the Client” are unnecessary and should be deleted from 4.2 - they might otherwise create an additional contractual burden. Executive Authority 7.1 This clause may not be sufficient to prevent a Member without authority binding its co-members, because that Member may have apparent or ostensible authority despite the lack of express authority. To avoid this problem, the Services Agreement should also define who has authority to act for the Joint Venture. It is strongly recommended that, following the appointment of those with authority to act for the Joint Venture, formal notice be given to the Joint Venture’s Client, bankers, Sub-Consultants and any other party with whom the Joint Venture is likely to have dealings. 7.2. The commitment referred to in the last sub-section of Paragraph 7.2 is intended to relate to the undertaking of any legal or financial obligations on the part of the Members. General Comment It is ofien desirable to include a provision for proxies of Representatives to attend in lieu of the usual Member if appropriate. It may also be desirable to state the quorum for the meeting. It should be made clear how many votes each Member is entitled to, since in some circumstances this might be dependent upon the share- holding or contribution to capital by a Member, rather than a one vote per Member basis.Members may wish to add a clause at the end of Section 7 whereby they have the right to appoint deputies to the local managers. Documents If itis agreed that copyright should be restricted to the Member producing the documents in question, Clause 8.6 should be amended accordingly. Personnel 9.5 Where Sub-Consultants are retained by the Joint Venture, it is recommended that the FIDIC Sub-Consultancy Agreement be adopted. Member in Default 12.2 The procedure for declaring a Member to be in default is the most stringent sanction available to the Joint Venturers, short of terminating the entire Agreement. If more detailed provisions are required, the existing Clauses 12.2, 12.3 and 12.4 may be substituted by the following: Alternative Clause 12.2 “A Member who fails within a reasonable time and without reasonable ex- cuse to perform the Services required of it under this Agreement, or any other duties and obligations set out herein, or otherwise agreed between the Members, or between the Members and the Client, may be declared in default by the other Members. In such case, the Defaulting Member shall indemnify the other Members against any losses, claims, demands, costs, expenses and other matters arising from such default”. Altemative Clause 12.3 Procedure upon declaring a Member in default “Jf a notice in writing is received from the Client that the performance of the Member's obligations under the Service Agreement is unsatisfactory, or 2 Member considers that another Member's performance of those obligations is unsatisfactory, a meeting of the Policy Committee shall be convened, and the Member in question shall be afforded an opportunity to hear the criticisms against it and explain its position.Alternative Clause 12.4 “A motion may then be made by any Member for a vote to be cast upon whether the Member in question should be declared in default of its obligations. All Members (other than the Member in question) shall be entitled to vote thereon. If a (unanimous/majority) vote is obtained, the Member in question shall be declared in default. Notice in writing of the declaration including the reasons therefor, shall be served on the Defaulting Member within 14 days of the Policy Committee Meeting.” jiability and Insurance ‘The following alternative sets of Clauses 14 and 15 apply in the respective cases described under 3.2 above. It should be understood that the proposed series of clauses may conflict with the Client's requirements for the Members to be jointly and severally liable. Accordingly, itis essential that the Client and the insurers all have a complete understanding of and agree with the arrangements made. SERIES “A” WHERE CLEAR DEMARCATION OF WORK IS POSSIBLE 14A wi) Schedule 3 to this Agreement sets out, for the purposes of this Agreement, the Works or Services for which each Member wiil be deemed responsible. (i) Bach Member warrants that it will indemnify and keep indemnified the other Members against all legal liabilities arising out of or in connection with the performance, or otherwise, of Works or Services deemed by Schedule 3 to be its responsibility. (iii) Bach Member is required to co-operate and produce such information as is reasonably required by the Policy Committee in defending any claim made by the Client or any third party arising out of or in connection with the performance or otherwise of the obligations under this ‘Agreement. ISA @_—_—_-Each Member will maintain insurance coverage as protection against all legal liabilities arising out of or in connection with Works or Services for which each is deemed responsible by Schedule 3.SERIES “B” zB) 1sB OG) wi SERIES"C” uc @ Gi) (ii) sci) WHERE CLEAR DEMARCATION OF WORK IS NOT POSSIBLE Each Member is required to co-operate and produce such information as is reasonably required by the Policy Committee in defending any claim made by the Client or any third party arising out of or in connection with the performance or otherwise of the obligations under this Agreement. [Name of Member] will maintain insurance coverage as protection against all legal liabilities arising out of or in connection with the performance, or otherwise, of the obligations under this Agreement, All Members will be named as co-insured in the policy of insurance taken out by [Name of Member] for the purposes of Clause 15B() directly above. WHERE RESPONSIBILITY FOR SPECIFIC TASKS. ONLY ASSIGNABLE Schedule 3 to this Agreement sets out, for the purposes of this Agreement, the Works or Services for which each Member will be deemed responsible. Each Member warrants that it will indemnify and keep indemnified the other Members against all legal liabilities arising out of or in connection with the performance or otherwise of Works or Services deemed by Schedule 3 to be its responsibility. Each Member is required to co-operate and produce such information as is reasonably required by the Policy Committee in defending any claim made by the Client or any third party arising out of or in connection with the performance or otherwise of the obligations under this, Agreement. Each Member will maintain insurance coverage as rotection against all legal liabilities arising out of or in connection with Works or Services for which the said Member is deemed responsible by Schedule 3.(ii) SERIES “D” “MD “uD i) iD = @ Except for the Works or Services listed in Schedule 3, which are dealt with in Clause 15C(i) above, fname of member] will maintain insurance coverage as protection against all legal liabilities arising out of or in connection with the performance or otherwise of the obligations under this Agreement, WHERE RESPONSIBILITY TO INSURE IS DECIDED BY PRE-DETERMINED SHARES Where liability and responsibility to insure have been decided by pre-determined shares and the Joint Venture become liable to pay damages, costs or expenses, by reason of a legal liability arising out of or in connection with the performance or otherwise of its obligations under this Agreement, then the Members will apportion such damages, costs and expenses in accordance with the pre~ determined shares which are set out in Schedule 3. Each Member is required to co-operate and produce such information as is reasonably required by the Policy Committee in defending any claim made by the Client or any third party arising out of or in connection with the performance or otherwise of the obligations under this, Agreement, Each Member will maintain insurance coverage as protection for itself and all other Members against that Member's Liability to pay damages, costs or expenses as provided for in Clause 14D(j) above. [Annexe 1 to this guide sets out the issues and clauses which must be considered Section 19 when the members wish to create a Joint Venture which will subsist beyond the completion of the present project] 19.1 Members should not consider arbitration to be the automatic choice for resolving disputes, Litigation may be a cheaper and more appropriate method. Members may also consider whether some alternative form of summary resolution would be appropriate for certain disputes, e.g. determination by the Policy Committee of disputes concerning the demarcation of responsibility for parts of the Works. The current trend a19,2 45 towards ADR should be carefully considered by Members. It is now possible to tailor a dispute resolution procedure to provide precisely the compromise between informality and legal precision that the Members are looking for. However itis strongly advised that, for the sake of finality, any determination should be stated to be final and conclusive. Ifa right of appeal from arbitration is required, the last sentence of Clause 19.1 should be deleted. One disadvantage with arbitration is that there is no effective third party procedure for related disputes to be referred to the same arbitrator. This can cause no end of inconvenience, especially in a multi-party Agreement such as a Joint Venture Agreement. The following should be added as Clause 19.3: “If the dispute to be referred to arbitration raises issues which are substantially the same as or connected with issues raised in a related dispute, and if the related dispute has already been referred for determination to an arbitrator, the Members hereby agree that the dispute shall be referred to that same arbitrator who shall have power to make such directions and awards as appear to him to be reasonably necessary to dispose of the issues before him.” Alterations to the Standard Form for a Continuing Joint Venture Agreement Conditions and Terms Delete: “Whereas . to... the said professional engineering Services”. Substitute: “Whereas the First Member and the Second Member have agreed 22 to form a continuing Joint Venture for the following purposes: (a) To enter into Joint Agreements for the provision of professional engineering Services to such Clients as may retain the Joint Venture from time to time; (b) To prepare and submit Proposals for Consultancy Services to prospective Clients; (©) To promote, market and advertise the services offered by the Members of the Joint Venture to prospective or existing Clients in such ways as may be thought fit;(@)— Torefer existing Clients and work opportunities to the Joint Venture, where appropriate; (e) To carry out any other activities in connection with the above which the Members consider relevant to the conduct of the business of the Joint Venture.” Definitions and Interpretation Definitions Delete existing Clause 1.1.1 and substitute: “Client” or “Clients” means the persons, firms, companies or bodies to whom the Members wish to provide or offer to provide Proposals or Services from time to time; Delete existing Clause 1.1.2 and substitute: “Project” means the undertaking of proposed or actual Works in connection with which Clients may require Services. Clause 1.1.3 Delete the words “to be supplied to the Client for the achievement of the Project”, and substitute the words “to be supplied to Clients, for the achievement of Projects”. Clause 1.1.5 Delete the existing clause and substitute: “Invitations” means invitations of the Clients to a Member or Members to submit Proposals for the provisions or professional engineering Services for Projects; It will now be necessary to make extensive if relatively minor alterations to the entire Agreement, for the sake of clarity and to adjust it for a continuing Joint Venture. 235 GUIDE TO THE COMPLETION OF THE SUB-CONSULTANCY AGREEMENT 5.1 Applicable Circumstances ‘The Model Sub-Consultancy Agreement was developed essentially with a view to its operation between an international Grm and a local firm in a developing country, where: either the local firm will be a Sub-Consultant providing certain specific services for the international firm; or the international firm will be a Sub-Consultant providing specific specialist or general advisory services to the local firm; and the Main Agreement will embody FIDIC’s Client/Consultant Model Services Agreement (i.¢., the White Book). ‘The Model Sub-Consultancy Agreement can also be used between consulting firms other than as mentioned above, and, while some modifications may be necessary, it can certainly serve as check list of points to be considered, The concept of Sub-Consultancy presupposes the existence of a Main Consultancy Agreement. The Model Sub-Consultancy Agreement is, therefore, (unlike the Joint ‘Venture (Consortium) Agreement), not intended to be used when two or more firms decide to work on a proposal or another type of promotional activity aimed at obtaining work which will be undertaken using a Consultant/Sub-Consultant teaming arrangement. In this case, the firm which will be the Sub-Consultant will normally submit with its quotation a written commitment to associate with the other finn. 5.2 Strueture of the Sub-consultancy Agreement To be operative, the Sub-Consultancy Agreement will require the completion of several schedules, Those provided at the end of the document are, for most projects, the minimum. They should be completed as follows: Schedule 1, Project and Agreement Particulars - Schedule 1 is self-explanatory and generally involves only developing the information called for in Schedule 1 t0 make the Agreement workable. Schedule 2, Scope and Program of the Sub-consultancy Services - Schedule 2 should stipulate what the Sub-Consultant is to do and when. 24Schedule 3, Facilities and Equipment to be Provided by the Consultant - Schedule 3 must be filled in if the Main Consultant is going to make facilities or equipment available to the Sub-Consultant, Schedule 4, Payment of the Sub-Consultant - Schedule 4 must always be filled in since this is the only place in the model agreement where the remuneration is stated, 5.3 Suggested Wording for Completing the Schedules Schedule 1 - Project and Agreement Particulars Schedule 1 must under all circumstances be completed. Clause 1.1 Definitions ‘The Client and the Project must be stated in order to complete the Sub- Consultancy Agreement. The Services to be performed for the Client by the Consultant must be clearly and precisely stated, to permit the Sub-Consultant a better understanding of its role in the Project, and how the product of the Sub- Consultancy Services will be used. If deemed useful an additional item (1.1.10) can be added to the Definitions under Clause 1.1 as follows: 1.1.10 “Consultant” means the party named in the Main Agreement who is engaged [as an independent professional firm *] by the Client to perform the Services, and legal successors to the Consultant and permitted assignees, * Delete if not applicable or desirable. Clause 2,2 Commencement and Completion The dates for commencement and completion of the Sub-Consultant’s Services must be stated. Such dates should consider the agreed time schedule of the Main Agreement, as well as allowing time for the Consultant to incorporate the product of the Sub-Consultant’s Work into the Consultant's Work products. Clause 2.3 Main Agreement Clause 2.3.3 of the Conditions states that, unless otherwise stipulated in the 25Agreement, the appended clauses of the Main Agreement have precedence over the other clauses of the Sub-Consultancy Agreement, and no othet order of precedence of the various parts of the Agreement is prescribed. Accordingly, it is necessary to stipulate in Clause 2.3 of Schedule 1 the desired order of precedence of the documents, if: itis desired to have such specified order of precedence; and it is undesirable to have the appended clauses of the Main ‘Agreement take precedence over the other clauses of the Sub- Consultancy Agreement. Clause 2.4 Language and Law The language of the Sub-Consultancy Agreement and the law which shall apply must be inserted to complete the Sub-Consultancy Agreement. If there is more than one language in 2.4.1, the ruling language should be stated in 2.4.2, It is desirable (and probably essential) to use the same language and law as used in the Main Agreement, so that: documents produced by the Sub-Consultant are in the correct language and the Sub-Consultant’s personnel can readily converse with the Client’s staff; and it will be possible to include disputes between the Consultant and the Sub-Consultant in any arbitration or other dispute resolution process between the Client and the Consultant as stated in Clause 9.3. Clause 3.5 and 4,2 Representatives. 26 Clauses 3.5 and 4.2 of Schedule 1 is where the Sub-Consultant and Consultant indicate the names of their respective representatives. It should be noted that these Representatives need not be the Parties’ Project ‘Managers, but they must be authorized to represent the respective Party in all matters. It will be practical for the Parties to nominate individuals that will be interacting in the provision of the Services, particularly if they will be working at the same location.Clause 4.3 Payment ‘The text recommends, in the sample Schedule 1 to the Agreement, an. introduction in Clause 4.3 stating that the Sub-Consultant will not be paid by the Consultant until the Consultant receives from the Client the funds intended to cover the Sub-Consultant’s charges. However this is a most contentious area, There is litte difficulty where non-payment is due to some deficiency in the work of the Sub-Consultant, As a general principle, the Consultant is under 1 obligation to pay for Work which is below the contractual standard, Conversely, there is now general agreement that the Sub-Consultant should not be penalised if payment of the Consultant’ invoices is denied or delayed due to the Consultant's fault, but through no fault of the Sub- Consultant. Wording to cover this case is suggested in the text dealing with completion of Schedule 4 below. The most difficult problem (and perhaps the most prevalent) is where the Client fails to pay for Work the quality of which he does not dispute. It may be that the Client has cash flow problems. There may be “political” reasons or merely personality differences. Non payment may also be due to administrative or bureaucractic inefficiency, or delay. In these circumstances, payment to the Sub-Consultant may depend upon the following: ‘Whether there is an existing relationship between the Sub- Consultant and the Client so that it could be said that the Sub- Consultant should share the risks of the Client’s non payment. This will especially be the case where, for example, the Sub-Consultant is a nominated Sub-Consultant, Whether there are prohibitions or restrictions by the Client on the imposition of pay when paid clauses. Public sector clients are increasingly eager to discourage the use of pay when paid clauses, especially where this will delay payment to local Sub-Consultants. Whether the Sub-Consultant’s Work is so small a proportion of the total consultancy work that it would be inappropriate to bar payment to the Sub-Consultant until the Client has found the funds to meet the much larger invoice of the Consultant. 27Clause 5.3 Financial Limit of Compensation ‘The limit(s) refer to Clauses 5.1 and 5.2, stating the liability of the Sub- Consultant towards the Client and the Consultant, if he is in breach of his duties under Clause 3, and the liability of the Consultant if he is in breach of his duties towards the Sub-Consultant. In the interest of equity, the limit should be identical in both cases, but different limits can be agreed between the Parties, ‘There would normally be no valid reason to set the limit of the Sub- ‘Consultant’s liability for its part of the Services higher than the Consultant’s liability to the Client for alll of the Services. ‘There may be good reason to set the Sub-Consultant’s liability lower than that of the Consultant, if the limit of the Consultant's liability to the Client is set at a higher amount than could possibly result from default on the part of the Sub-Consultant. Clause 5.4 Duration of Liability In most cases, the same duration as agreed between Client and Consultant and stated in the Main Agreement should be applied in the Sub-Consultancy Agreement. Clause 6 Insurance Cover ‘The various ways of arranging insurance cover are discussed in Section 3 above. Clause 8.1 Arbitration The rules governing arbitration should be stated. If the rules selected do not mandate the place of the arbitration, a mutually agreeable place can be stated in Schedule 1, as well as other details (such as the number and nationality of arbitrators). Regardless of the venue of the arbitration, the law stipulated in Clause 2.4 should be the substantive law applied in arbitration proceedings; in this, way, the merits of the issues giving rise to the dispute will be determined according to the law of the Agreement.Normally, the procedural rules of the arbitration (ie., rules governing the giving of evidence, cross-examination, discovery, etc.) will be set by the law of the country in which the arbitration is held. Clause 9.4 Copyright Clause 9.4 states, as the fall back rule, that if no provisions are made in Schedule 1, copyright in the work produced by the Sub-Consultant is retained by him, provided that the appended clauses of the Main Agreement do not transfer copyright to the Client. If this is the case, the Client will also have the copyright of the work of the Sub-Consultant, Iris recommended that the Sub-Consultant should retain copyright in his work, provided that this satisfies the terms of the Main Agreement. sche 2 - Scope and Program of the Sub-Cot ices Clauses 3.2.1 and 3.2.2 indicate that the Sub-Consultant’s scope of Services should be outlined in Schedule 1. In Schedule 2 a full description of the scope and time schedule for the Sub- Consultant's Services should be provided, and should be as close as possible to the description of the same Services in the Main Agreement. If the Main Agreement is based on the White Book, Scope of Services for the Main Agreement will be found in Appendix “A” to the Main Agreement. As indicated in Clanses 3,2.1 and 3.2.2, Normal Services and Additional Services should be listed separately in Schedule 1. The Additional Services, in this case, are Services which are foreseen but which, for one reason or another, are not included and priced as part of the Normal Services, Whereas Normal Services must always be described, some Sub-Consultancy Agreements may not foresee Additional Services and, consequently, there will be no need to identify possible Additional Services in Schedule 2. Whether or not Additional (or Exceptional) Services are anticipated, it is generally good practice to include in Schedule 4 rates and/or prices relating to Services to be provided for the performance of Additional (or Exceptional) Services. The time schedule for the Sub-Consultancy Services must also be included in Schedule 2. It will be normal to set deadlines for the Sub-Consultant, in order to allow the Consultant time to incorporate the results of the Sub-Consultant’s Work into the Consultant’s Work products and to meet his own deadlines. 29‘The fall back rule prescribed in Clause 3.7.1, which relates the Sub-Consultant’s Schedule to that of the Main Agreement, should be used only in cases where the program is not available, or cannot be fixed at the time of completion of the Sub- Consultancy Agreement. In this case, it is recommended that the Sub-Consultancy Agreement should require that the Sub-Consultant must furnish a time schedule, in conformance with the Consultant’s time schedule, within fourteen days after the Sub-Consultancy Agreement has been signed by both Parties. Schedule 3 - Facilities and ent to be Provi the Consultant ‘The Schedule must be completed clearly and precisely to give effect to Clause 4.4.1 of the Conditions. In some cases, some of the equipment will be part of that provided by the Client under the Main Agreement. If this is the case, Appendix B of the Main Agreement can form the basis for the preparation of Schedule 3. If the Consultant makes some of his own equipment available to the Sub-Consultant, this must be included. Ifno equipment is provided, this should be stated in the Schedule. Ifthe Consultant is to provide training or transfer of technology to the Sub- Consultant, then the title of Schedule 3 should be expanded to read “Transfer of Technology, Facilities and Equipment to be provided by the Consultant” and details of the Transfer of Technology Program should be stated in Schedule, Such details should include: the procedures to meet the transfer of technology requirements of the Terms of Reference and the Client/Consultant Agreement; the inclusion in the time charts or task schedules of the transfer of technology programs; the mutual approval of the staff members who will be designated as “teachers” and “recipients”; and the reporting of the achieved results of the transfer of technology program, or aspects, of the project. Note - If the Sub-Consultant is to provide transfer of technology to the Consultant, similar wording should be included in Schedule 2, but it will not be necessary to expand the title of Schedule 2. 30edule ent of the St sultant ‘The Schedule must be completed in order to make Clause 4.3 of the Conditions valid, since this is the only part of the Sub-Consultancy Agreement where the amount to be paid and the procedures for payment are mentioned, ‘The payments may be modeled on the same pattern as that between the Client and the Consultant, or they can be negotiated differently between the parties to the Sub- Consultancy Agreement. Reference is made to the proposed additional text included in Schedule 1 of the Agreement relating to Clause 4.3, making the payments to the Sub-Consultant contingent on receipt of the payments from the Client by the Consultant, This additional text assumes that the invoices of the Sub-Consultant are to be made part of the invoices from the Consultant to the Client, but does not oblige the Consultant to include the Sub-Consultant’s invoices with his own. A positive obligation may be thought preferable. The Consultant can also make payments to the Sub-Consultant dependent on the Clients’ payment to himself in cases where the Sub-Consultant’s invoices are not to be made part of the invoices to the Client. In such cases, stipulations other than the one in Clause 4.3 of Schedule 1 must be included, such as the suggested following text “Payments to the Sub-Consultant will not be made until the Consultant has received payment of his invoices for fees which are scheduled to be billed as follows: Instalment No. 1 due 42 days after ...... Instalment No. 2 Due upon submission of ....” It must, in all cases, be ensured that the definitions of due dates for Sub-Consultant payments be precise and easy to follow. Itis recommended that the Consultant and the Sub-Consultant establish and agree a schedule of payments indicating the dates when payments will be made, and the estimated amounts of such payments, In the case of certain fixed Sub-Consultancy Agreements, the amounts would be stipulated as percentages of the total amount of the Agreement, or as fixed sums. ‘As has been stated above, the Sub-Consultant ought to be paid in cases when he has fulfilled his obligations, but the Client refuses to pay due to deficiencies which are clearly not in the Sub-Consultant’s part of the Work (eg.., the Sub-Consultant has completed the survey and the soil drilling program, but the Client refuses to accept that the preliminary design is in accordance with the Main Agreement). 31‘The following text is suggested: “Nothwithstanding the foregoing, the Sub-Consultant will be entitled to payment if the Client refuses to pay because of alleged deficiencies in the Main Consultant's Work which have not been caused or contributed to by the Sub-Consultant. In such cases, the Sub-Consultant shall be paid as if the Client had paid the Main Consultant in accordance with the Main Agreement”. 6 PRE-CONTRACT AGREEMENTS In some cases, the model Joint Venture Agreement could seem too complicated to be completed if the first aim is to set the rules for cooperation during the preparation and submission of a proposal, eventually leading to a Joint Venture or a Sub- consultancy. ‘To cater for this, a sample Pre-Contract Agreement is included in Annexe 2 to this guide, 32ANNEXE 1 Liability and Insurance Clauses for a “Continuing Joint Venture Agreement” ‘The present Agreements and this Guide have been prepared predominantly for Consultants who wish the Joint Venture to exist only for a specific Project. Cleatly, in the case of Sub-Consultancy, it makes little sense to attempt to provide for a continuing relationship beyond the Project at hand. It may be, however, that the Joint Venture Members wish to retain an ongoing association which binds each to cooperate in the future, not only to carry out Consultancy Work, but also to bid for such Work, or to collectively market the combined capabilities of the Joint Venture. Such an ongoing association is beyond the scope of this Guide. If such an association is desired it will, inter alia, be important to state explicitly that the Liability and Insurance provisions for each Project will be separately determined. ‘Thus it will be appropriate to give the Policy Committee discretion to determine which set of Clauses (14 and 15A to 14 and 15D) will apply on a project by project basis. The following clause is suggested: “The Policy Committee will determine and cause to be incorporated into this Agreement those Liability and Insurance Clauses which will apply for each Project that will be the subject of a separate Services Agreement.” It should be noted that the set of clauses chosen for each Project will survive in relation to the Joint Venture’s continuing liability beyond completion of the Project and in relation to the insurance of that liability. ‘The question of which set of clauses is to be adopted for any Project should be considered prior to the signing of any new Services Agreement, in order that an equitable distribution of the Joint Venture’s fee may be made to cover anticipated insurance costs. 33ANNEXE 2 SAMPLE PRE-CONTRACT AGREEMENT FORM OF AGREEMENT . Of .. ‘This Agreement is made this 1 19. by and between (Name of Joint Venture Partner), with offices at (address), hereinafter referred to as Member 1, and (Name of Joint Venture Partner), with offices at (address), hereinafter referred to.as Member 2, who for the purpose of this Joint Venture Agreement shall be hereinafter referred to as the Members NOW THEREFORE THE MEMBERS INTENDING TO BELEGALLY BOUND, AGREE AS FOLLOWS : PURPOSE ‘The Members shall join forces for the preparation and submission to the Client of the Proposal described in Appendix II annexed hereto and made a part hereof (the Proposal) as 2 joint venture, under the name (Joint Venture Name), to carry out the specific purpose herein described and no other. DUTIES AND RESPONSABILITIES ‘The form and style of co-operation between the Members shall be as follows: ‘A. A Joint Venture (the Joint Venture) shall be formed, in which each of the Members shall be responsible for the duties and responsabilities set forth under its name in Appendix [annexed hereto and made part hereof. B, The Members shall use their best efforts to obtain from the Client mentioned in Appendix If hereto the award of the Services ‘Agreement for the Proposal and shall enter into such Contractsupon mutual agreement of the Members. Such efforts shall be co- ordinated by Member 1 as leader of the Joint Venture. Each Member shall currently keep the other Member informed of all feasible steps and actions to be undertaken and on the results thereof. C. Policy decisions and all other decisions of similar principal importance shall be made jointly by Member 1 and Member 2. INDEMNIFICATION Each Member shall indemnify and save harmless the other Member against all losses, expense, damage and liability of any nature whatsoever arising out of (1) that Member’s failure to perform its responsibilities in accordance with the terms of this Agreement and (2) that Member's actions or failure to act when action is required, as a Member in this Joint Venture. COSTS Each Member shall bear the cost incurred by it in connection with the promotion, preparation, negotiation and bubmittal of the Proposal, but such cost may be charged to the Joint Venture project account, in case of award of the Services Agreement to the Joint Venture, to such extent as may oreviously have been agreed between the Members. * The Members shall inform each other monthly of expenditures incurted. Only actual cost directly involved, without any profit, may be charged. If the members have agreed to a limit of pre-contract expenses as such limit isexceeded, the Members shall decide mutually whther to continue, or to stop their efforts to obtain the award of the Services Agreement and dissolve this Agreement. If the Services Agreement is not awarded to the Joint Venture, the aggregate of the costs incurred ba the Members shall be devided between them in proportion to eachMember’s total input of man-month value in the Proposal. + The distribution and prescribed limits of pre-contract expenses should be set forth to ensure a division af costs among the Members proportionate to the division of works, with an indication of those which may be charged to the project budget and reimbursed. The limits of expenditure ba each Member and the tasks to be performed for the proposal effort should. be established, f possible, with a view toward the potential mar-month costs in the ‘proposal. The pre-contract expenses to be charged to the Joint Venture should in any event be clearly spelled out. 35,36 EXCLUSIVITY, “The Members shall co-operateon the basis of exclusivity, ie., neither of them shall enter an arrangement with any other firm on matters falling ‘under the scope of this Agreement. Each of the Members warrants that the principle of exclusivity wil also be adhered to by its subsidiaries, and other firms or individuals over which it may exercise control. ADDITIONAL MEMBERS Notwithstanding the provision of Article 6, the Members are at liberty to invite (by mutual agreement of all the Members) other firms, specialized in their respective fields, to join the Members in the Joint Venture either as fall Members or as Sub-Consultants, These other firms shall be selected only with a view to unifying a strong group of experienced and well-related firms, qualified to undertake a project of such magnitude and nature. In the event that additional Members are invited to join, a new Joint Venture Agreement should be prepared incorporating the modifications necessary to adjust the rights of all Members. ASSIGNABILITY No Member shall assign, sell, transfer or in any way encumber its interests in the Joint Venture without first obtaining the consent in writing of the other Member. INSOLVENCY In the event of insolvency of either Member, the other Member is hereby stevocably constituted and appointed attomey-in-fact for such insolvent Member to act fir it in all matters affecting performance of this Agreement. FINAL AGREEMENT Once the preparation of the Proposal has reached an advanced stage, and the duties and resposabilities, man-month allocations and fees and charges of the Members are completely defined, this Agreement shall be adjusted according to the requirements and conditions prevailing at that time, Upon award of the Services Agreement, a final mutual agreement shall be executed, stipulating in detail the relations between the Members on the basis of this Pre-Contract Award Agreement, and in accordance with the terms of the Services Agreement.DURATION OF AGREEMENT The present Agreement shall be terminated: (a) atthe time the final Agreement (referred to in the second paragraph of 10 above) has been entered into between the Members; or (b) _ at the time it has been jointly established by the Members that their Proposal will not be accepted by the Client, ‘The present Pre-Contract Award Agreement shall only be terminated after all rights and obligations arising from it have ceased. GOVERNING LAW ‘This Agreement shall be govemned by and be construed in accordance with the 1aWS OF ... (Country). ARBITRATION All disputes arising out of or in connection with this Pre-Contract Award Agreement between the Members hereto which can not be solved in an amicable way shall be settled ba an arbitration committee of three arbiters; ‘one appointed by Member 1, one by Member 2 and the third by the two appointed arbiters. If this committee can not be formed, or is unable to function, then the matter shall finally be settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce, as in effect at the time such dispute arises. Arbitration proceedings shall be held in Geneva (or such other place as is mutually acceptable to both parties). ‘The award in any arbitration proceeding shall be final and binding upon both Members, and judgment thereon may be entered in any court of competent jurisdiction on application of either Member. 37INTERNATIONALE DES INGENIEURS-CONSEILS AATOWAL FEDERUTION OF CONSULTING BNOINEERS INTERNATIONALE VEREDGOUNG BERATENDES GESTEU SUB-CONSULTANCY AGREEME) & 1 aon 992-199N29892-00:1pea eal FIDIC wishes to acknowledge the time and effort of all those who contributed to the development of this Sub-Consultancy Agreement. ‘This document is based on an original draft supplied to FIDIC’s Client/ Consultant Relationships Committee (CCRC) by Mr. David J, Lowes of Ove Arup & Partners in September, 1988, The CCRC, under the chairmanship of Mario Asin, has had the responsibility for revising the original draft into this final published form, Mario Asin, assisted by Peter Batty, both of Tippetts-Abbett-MeCarthy- Stratton (TAMS), have undertaken most of the work of preparing this document. Members of the CCRC, who contributed to the work were Hans Ammendrup, Pablo Bueno Sainz and Jean-Bernard Loubriat. The CCRC also acknowledges substantial comments offered on the various drafts by Steven C. Gentry and Geoffrey Coates (former President and President, respectively, of FIDIC), and Godfrey L. Ackers, former member of the CCRC. The penultimate draft of this document was forwarded to several development banks and international funding agencies for their comments. FIDIC is indebted to those agencies who supplied comments on this document, empie 19 3FOREWORD ‘The Model Sub-Consultancy Agreement has been developed essentially | with a view to its operation between an international firm anda local firm in a developing country, where: = either the local firm will be a Sub-Consultant providing certain specific services and inputs for the international firm; - of the intemational firm will be a Sub-Consultant providing : specific specialist or general advisory services to the local firm ' and i ~ the Main Consultancy Agreement will embody FIDIC’s Client/ Consultant Model Services Agreement (.e., The White Book). The Model Sub-Consultancy Agreement may also prove suitable, cither as it is or with some modification, in cases where the above i conditions are not in effect. Caution must be used to avoid, for example, the situation where the termination of the Main Agreement . can be effected by a shorter notice than that required to terminate the Sub-Consultaney Agreement. For the Agreement to operate, the conditions of the Model Sub- Consultancy Agreement must be supplemented by completion ofat least the four Schedules appended to the Agreement as follows: Schedule 1 - is self explanatory. ‘The Sub-Consultaney Agreement is expected to include appended clauses of the Main Agreement. If this is not the case, it may be necessary to add additional clauses to Schedule 1 dealing with matters such as copyright. Schedule 2 - should stipulate exactly and in appropriate detail the services which the Sub-Consultantis required to provide and the required time frame or schedule, including all important intermediate milestones, , for such performance. Schedule 3 - should list the facilities and equipment, which the Main Consultant will make available to the Sub-Consultant for the perfor- mance of the Sub-Consultancy Services. Schedule 4 - should indicate in appropriate detail: = the payment type of the Sub-Consultancy Agreement (i.e., lamp sum, man-month rates, cost plus, etc.); - provisions governing the eligibility for reimbursement of costs/ services if the Agreement is not on a lump sum basis; and - payment provisions, such as time for payment, schedule of pay- ents, currencies of payment, place of payment, retention, et.. In cases where a sub-consultant is involved at the proposal stage (or in | the case of sub-consultancies for which there are likely to be protracted negotiations over the scope of work) it is important to address, at the | outset, issues which may become a bar to performance of the Sub- | Consultancy; this includes particularly a prospective sub-consultant’s | ability to provide the required insurances and guarantees. 7 } i enpiew