PGD IN PROCUREMENT AND CONTRACT LAW: BATCH X

NED UNIVERSITY.

PARTIES’ OBLIGATIONS AND RISK ALLOCATION IN FIDIC CONTRACTS

1. OVERVIEW AND HISTORY OF FIDIC

STANDARD FORM OF CONTRACTS: FIDIC is the most common one but we also other
form of contracts use in different places.

i. FIDIC: The International Federation of Consulting Engineers, most common construction

contracts.

ii. JCT : Join contracts Tribunal

iii. NEC: New Engineering Contract

iv. LOGIC: Leadership Oil and Gas Industry competence, used for offshore
works.

Among the above FIDIC is widely used

FIDIC = The International Federation of Consulting Engineers (Fédération Internationale des

Ingénieurs-Conseils)

History of FIDIC:

 Founded in 1913 by three Europeans Countries Belgium , France and Switzerland

Why FIDIC is the most common:

 FIDIC work to promote common interest of consulting engineering.

 100 plus member round the globe.

 Most elaborated, favorable, and common form of contracts is in FIDIC. Used by

different Development institutions, Multilateral Developmental Banks (MDBs) e.g.
World Bank etc.

 Pakistan is also member (Association of Consulting Engineering Pakistan).

2. PUBLICATION OF FIDIC:

 Red Book: Conditional contracts for Buildings and engineering works by employer.
Edition: 1957 (ICE UK version) 1987 (4th Edition), 1999 (Rainbow suit), 2017
(Latest).

 Green Book: Short form of contract for minor works with two main drivers
i). 0.5 Million dollar ii) Time frame = 06 Months. May be used for contracts in higher
values than mention.
  Pink Book: FIDIC MDB (Multi Development Banks) Edition, having conditions of
contracts for B & E works for funding institution like World Bank.

 Yellow Book: is about Electrical and Mechanical Plants but not limit to E & M now
used in wide range of works. Focus more on procurement type.

 Silver Book: Engineering Procurement and Construction (EPC)/Turnkey, used for

lump sum with higher risk.

 Gold Book: Gold Book for Design Build and operate (DBO) contracts, include
function of operation by contractor as inked in contract. Used for infrastructural
project like roads, airport or port. Differ from BOT (Build Operate and Transfer),
BOOT (Build Own Operate and Transfer), and PPP (Public Private Partnership) in of
function fund: funding in BOT, BOOT & PPP is handled by Contractor/Investors but
in Gold Book the Fund function is lies with owner of the project.

3. PARTIES’ OBLIGATIONS AND RISK ALLOCATION IN FIDIC FORMS

 The FIDIC contract is inked between parties: (i) Employer (Client) (ii) The
Engineer/Employer’s Representative (iii) The Contractor.

 Similarly the FIDIC book of contract imposed some obligations on both contractor
and Employers and it varies from type/format of book used in the contract for specific
project.

 E.g. in yellow and silver form of contract in FIDIC, the risk associated with designed
is the responsibility of the contractor while the Red Book give and any other form
give the responsibility to Employer.

3.1 Employer’s Main Obligation

The Employer’s obligations as per FIDIC Red book (2017) Edition is as below

 Site accessibility to the contactor, this way contractor will plan efficient work plan.
Site data like underground utilities and other necessary data provision is also
obligation of Employer.

 Must help in getting legal permits and approval etc.

 Cooperation and facilitation of contractor in way that able the contactor to work
smoothly. Employer or representative of employer must cooperate with the contractor,
that contractor is required.

 Funding and Financing well on time make the contractor able to work efficiently.
Funding has vital role in project.

 The appointment of Engineer or Employer’s representative for coordination cum

supervision, which should be impartial in case of dispute between contactor and
Employer.

 Delegate authority to representative or assistants.

  Approval of variation issued through instruction.

 Determination of matter or claims for payments

 Attend all the requisite meeting and keep records may be MOM of meeting, IPC of
Payment etc. (all contemporary records)

3.2 Contractor Main Obligation

The contractor has highest number of obligations in all form of contract and on FIDIC
too, some of which are mention below:

 Contactor has General obligation like plant and equipment, documents, safety etc.

 Performance security/Bond

 Appointment of representative.

 Provision of necessary record like shop drawings, as built drawings etc.

 Cooperate with Employer and other Contractor who are working in same project.

 Assure Quality of material as per specifications and standards.

 Maintain health and safety of personals and equipment.

 Verify site data provided by the Employers

 Assure the quantity and finance of work.

 Avoid Damages and losses of public convenience.

 Bear all cost and charges of right of special or temporary way.

 Responsible for transportation of Goods

 Providing of secure environment.

 Temporary utilities provision.

 Protection of environment.

4. CASE STUDY ILLUSTRATION

4.1 Amending Engineer’s impartial role:

 The engineer should carry duties not impartially/neutral but shall deem to act for
employer. Master Slave Relation, in this case no trust will be developed which will
affect the project. Most of employer follows the rule to execute the project which
definitely is not a way to handle project. This will make many dispute between
Employer and Contractor which will affect the project
  The Engineer should not follow the above be the one to avoid the possible dispute
and should act as dispute resolver.

4.2 Ambiguous measurement:

 The unclear and ambiguous measurement may arise possible dispute, any suitable
methods RICS etc. should be used as reference materials.

4.3 Illogical review time for engineer:

 Generally an illogical review time is given in contract which also leads to disputes.
This should be avoided; considerable time should be given in contract.

4.4 Removing DAB/DAAB

 The DAB/DAAB work as second dispute resolver after the Engineer. Removing the
DAB/DAAB will prolong the dispute if any.

HOW TO MITIGATE:

To mitigate the situation Golden Principles prepared by the FIDIC should be followed:

 Duties and obligation should be performed as assigned.

 Clearly and unambiguously drafted particular condition.

 The particular condition must not change the balance of risk/reward allocation.

 Reasonable timeframe for obligations.

 All formal disputes must be referred to DAAB.

LESSON LEARNED:

 Clarity and well defined scope to avoid dispute.

 Requirements and references should be given as we study RIC as reference.

 Unnecessary alteration lead to dispute, golden principles should be followed.

 Drafting particular conditions (two hats) should be from both parties.

 Responsibility matrix: make their duty clear to everybody.

 Dispute Resolution before going to arbitration.