A Contractor’s Guide to the FIDIC Condit ons of Contract Michael D. Robinson Independent Consult ng Engineer A John Wiley & Sons, Ltd., Publication A Contractor’s Guide to the FIDIC Conditions of Contract, First Edition. Michael D. Robinson. © 2011 John Wiley & Sons, Ltd. Published 2011 by John Wiley & Sons, Ltd. ISBN: 978-0-470-65764-5 This edition fi rst published 2011 © 2011 by John Wiley & Sons, Ltd Wiley-Blackwell is an imprint of John Wiley & Sons, formed by the merger of Wiley’s global Scientifi c, Technical and Medical business with Blackwell Publishing. 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Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor mentioned in this book. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold on the understanding that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional should be sought. Library of Congress Cataloging-in-Publication Data Robinson, Michael D., consulting engineer. A contractor’s guide to the FIDIC conditions of contract / Michael D. Robinson. p. cm. Includes bibliographical references and index. ISBN 978-0-470-65764-5 (hardcover : alk. paper) 1. Construction contracts. 2. Engineering contracts. 3. Architectural contracts. 4. Standardized terms of contract. I. Title. K891.B8R6135 2011 343′.07869–dc22 2010042183 A catalogue record for this book is available from the British Library. This book is published in the following electronic formats: ePDF 9781119993391; Wiley Online Library 9781119993414; ePub 9781119993407 Set in 10/12 pt Sabon by Toppan Best-set Premedia Limited 1 2011 Contents Preface v Acknowledgements and dedicaƟ on ix Chapter 1 Review of the FIDIC Condit ons of Contract for Construct on (CONS) – ‘The Red Book’ 1 Chapter 2 Act vit es and dut es of the FIDIC Contractor’s Representat ve discussed in the same order as they appear in the FIDIC Condit ons of Contract 105 Chapter 3 Act vit es and dut es of the FIDIC Contractor’s Representat ve summarised and arranged in t me sequence 143 Apendices 157 Appendix A Contractor’s claims under a CONS contract 159 Appendix B Employer’s claims under a CONS contract 161 Appendix C Condit ons of Contract for Plant and Design-build (P & DB) – ‘The Yellow Book’ 162 Appendix D Condit ons of Contract for EPC/Turnkey projects (EPCT) – ‘The Silver Book’ 165 Appendix E Other FIDIC publicat ons 166 Appendix F Model form for submissions to the Engineer for approval and/or consent 168 Appendix G Model form of daywork/daily record sheets 169 Appendix H Evaluat on of cost 171 Appendix I Contractor’s overhead costs 173 Appendix J Model let ers for use by the Contractor 178 IntroducƟ on to indexes 250 Index of sub-clauses (FIDIC system) 251 Index of sub-clauses (sorted according to FIDIC clause numbering system) 258 P reface T he Conditions of Contract prepared by FIDIC have for many years had no rival as the standard form of choice for use in the international construc- tion industry. T raditionally in the standard FIDIC forms the Engineer was given an authoritative role, enabling him to make informed judgements concerning the conduct and execution of projects with a large measure of independence from the Employer. From time to time FIDIC updated these standard forms, continuing to maintain the traditional role of the Engineer, culminating in the 4 th Edition 1987 (reprinted 1992). H owever, throughout the 1980s and 1990s discernible changes developed in the international construction industry. Employers increasingly became involved in day- b y- d ay administration of projects, thereby restricting the powers of the Engineer to act independently of the parties. The diminution of the power and authority of the Engineer had the effect of disturbing the allocation of risk between the parties and as many contractors perceived, to their disadvantage. T he same period saw a marked increase in the availability of international funding, particularly for infrastructure projects. As a consequence more and more companies, both engineers and contractors, undertook contracts outside their national borders. The international construction industry came of age. D isputes have long been endemic to the construction industry. The increased participation of more companies of differing nationalities in projects outside their own borders inevitably increased the number of dis- putes arising for a number of reasons. Contractors were not always familiar with the operation of a FIDIC- b ased contract. Equally, Employers, well used to their own national systems of contracting practices and law, were faced with having to deal with contracts based on unfamiliar FIDIC forms. As a consequence the number of disputes increased markedly. A key feature of the dispute- r esolution procedure contained in the FIDIC 4t h Edition 1987, Sub -C lause 67.1 – ‘ E ngineer’ s Decision ’ was the power and authority of the Engineer to make independent judgements. As the independence of the Engineer diminished as a result of the increasing direct involvement of the Employer, the value of the Engineer ’s decision was increasingly challenged by contractors, with the result that more and more disputes were referred to arbitration. F ew in the construction industry regard arbitration as a satisfactory means of resolving disputes. Arbitration is a lengthy and expensive process vi Preface which may lead to awards that with a more fl exible, realistic approach could have been negotiated without arbitration. A contractor also suffers because he is unable to foresee the outcome of the arbitration and his cash fl ow is uncertain and damaged as a consequence of lengthy arbitration. Regrettably there are instances of employers preferring to refer some disputes to arbitra- tion to avoid having to make decisions which for political or economic reasons they are unwilling to make themselves. A gainst this background FIDIC undertook a major review of their stand- ard forms. Following extensive consultations, a new suite of contract forms was issued in 1999: C ONS C onditions of Contract for Construction (‘ T he Red Book’ ) , which FIDIC recommends for use on building or engineering works designed by the Employer or by his representative, the Engineer. P & DB C onditions of Contract for Plant and Design -B uild ( ‘T he Yellow Book’ ) , which FIDIC recommends for the provision of electrical and/or mechanical plant and for the design and execution of building or engineering works to be designed by the Contractor in accordance with the Employer’ s requirements. E PCT C onditions of Contract for EPC/Turnkey Projects (‘ T he Silver Book’ ) , which FIDIC recommends for the provision of a process or power plant on a turnkey project. A fourth contract entitled ‘ S hort Form of Contract’ (‘ T he Green Book’ ) , intended for use on contracts involving simple or repetitive work, was also issued by FIDIC. This is not considered further in this book. I n the preparation of the new suite of contracts, FIDIC continued with the use of the English language as the language of interpretation. In retaining the use of the English language, FIDIC took the opportunity to ensure that all of the forms in the new suite were written in modern English and not the ‘ l egalese’ English of previous editions. Opening an introductory FIDIC seminar in London in early 2000, the chairman, Christopher Wade, remarked that the new suite of contracts ‘ h ad been written by engineers for engineers!’ Nonetheless, engineers with a lesser command of the English language have tended to fi nd it more diffi cult to assimilate the requirements, obligations and duties contained in the FIDIC forms. T he FIDIC forms are arranged in twenty primary clauses, each covering a major topic. For inexperienced personnel (particularly those whose mother- t ongue is not the English language) it is often diffi cult to draw together all the sub- c lauses relating to a particular issue. For example, the presentation of an individual claim may require reference not only to the sub -c lause that permits the contractor to claim, but potentially also to Sub -C lauses 3.5, 8.4 and 20.1 which are widely separated in the FIDIC forms. In the text of this book cross- r eferences to other relevant clauses or sub- c lauses are provided. Nonetheless, it is appropriate that professional users of the FIDIC forms should familiarise themselves with the general philosophy adopted by the FIDIC committee in preparation of the forms. T his book has the aim of assisting the contractor’ s staff to overcome some of the diffi culties encountered on a typical international contract using Preface vii FIDIC forms. Since the majority of FIDIC -b ased contracts use ‘ T he Red Book’ (CONS), this book concentrates on the use of those particular forms. Supplementary comments are included in Appendix C in respect of ‘ T he Yellow Book ’ (P & DB), recommended for use where the contractor has a design responsibility. For reasons expressed elsewhere, the third set of forms for turnkey projects, ‘ T he Silver Book’ (EPCT), has not found favour. Limited comments are included in Appendix D to this book. T he Contractor is represented on site by the Contractor’ s Representative who carries the overall responsibility for all the Contractor ’s on- s ite activities. I n order to provide guidance to the Contractor’ s Representative and his staff, this book is divided into sections: 1 ) A general summarised review of ‘T he Red Book’ from the Contractor ’s perspective. 2 ) A review of the activities and duties of the Contractor ’s Representative in the same clause sequence as they appear in ‘ T he Red Book’ with particular reference to submittals to the Employer and the Engineer. Additional notes are included in respect of the activities of the estimat- ing offi ce insofar as they impact on the activities of the Contractor ’s Representative. 3 ) A summarised version of the matters referred to in 2), but arranged in order of their likely time sequence on site. This has the added intention of providing the Contractor’ s Representative with a means of ensuring that documents are not only properly provided to the Employer and Engineer, but most importantly that they are provided within the time limits specifi ed in the Contract. 4 ) A number of appendices relating to construction topics are provided. These include an appendix containing a selection of model letters on various issues which require the Contractor to make formal submissions to the Employer or Engineer. T his book is intended to provide on- s ite guidance to the Contractor’ s Representative and his staff. It is not intended to be a review of the legal aspects of FIDIC- b ased contracts. Legal advice should be obtained as and when necessary, particularly if the Contractor has little or no knowledge of the local law. It is hoped that this book will assist contractors (and hopefully engineers in supervisory roles) to prevent problems arising rather than spend considerable time and energy resolving those problems once they have arisen. This comment has particular reference to the ever -p resent issue of resolving claims presented by the Contractor in a timely and professional manner. This book contains only brief quotations from the various FIDIC standard forms. It is recommended that the reader gives consideration to the purchase of a copy of ‘ T he FIDIC Contracts Guide’ published by FIDIC in 2000. The publication provides important guidance on the use and inter- pretation of the referenced FIDIC forms. A cknowledgements T he author is grateful to the Fé d é r ation Internationale des Ingé n ieurs- C onseils (FIDIC) for permission to quote extracts from the Conditions of Contract for Construction (‘ T he Red Book’ ) and the FIDIC Contracts Guide. All quoted extracts from these publications are given in italics wherever they occur. I n this book, the Employer, the Engineer, the Contractor and Subcontractors are referred to in the masculine gender in conformity with standard FIDIC practice. The author wishes to emphasise that the book is intended to address female readers on an equal basis with their male colleagues and that the use of the masculine gender is for practical reasons only. D edicat on T his book is dedicated to Stewart, Fred, Keith, Fritz and many others who have encouraged me to complete the task of writing this book during its long gestation and to my wife Monika without whose practical help and encouragement nothing would have been achieved. C hapter 1 Review of the FIDIC Condit ons of Contract for Construct on (C ONS) – ‘ T he Red Book’ A Contractor’s Guide to the FIDIC Conditions of Contract, First Edition. Michael D. Robinson. © 2011 John Wiley & Sons, Ltd. Published 2011 by John Wiley & Sons, Ltd. ISBN: 978-0-470-65764-5 Clause 1 General Provisions 3 C lause 1 G eneral Provisions 1 .1 D efi nit ons T his sub -c lause provides defi nitions of approximately 65 words and expres- sions that are used in the Conditions of Contract. With the exception of the words ‘ d ay’ and ‘ y ear’ , these defi ned words and expressions are identifi able by the use of capital initial letters. C onsequently, in any submission or correspondence it is important to use the capitalised form of the words and expressions if that is what is precisely intended by the writer. T he FIDIC Contract Guide (p. 339– 3 46) provides a glossary (dictionary) of words and phrases that are in common use in the fi elds of building con- sultancy, engineering and associated activities. This glossary is not intended to amplify or replace the defi nitions given in this Sub -C lause 1.1, but the use of the provided defi nitions is useful to ensure clarity on a given topic. N onetheless, there are a number of words and expressions used in these FIDIC Conditions of Contract that are neither defi ned in this sub- c lause nor yet explained in the glossary. These words and expressions include ‘c laim’ , ‘ e vent’ , ‘ c ircumstance’ . It is logical that these words and expressions have the meanings attached to them from any recognised standard dictionary of the English language (e.g. Oxford, Webster’ s ). T he Parties should take every care to avoid incorporating additional words and expressions of signifi cance into the contract documents without providing a corresponding defi nition. To illustrate this point, the author has experience of a Red Book contract which required the Contractor to produce ‘ w orking drawings’ . No defi nition of ‘w orking drawings ’ was provided in the contract documents. The Contractor took a broad view that ‘w orking drawings ’ related to drawings required for his own construction purposes. The Employer sought to extend the responsibility of the Contractor to include correction of elements of a faulty Employer -p rovided design. A lengthy dispute ensued. The Contractor amended the design under protest. The end result was that the completion was delayed and additional payment eventually became due to the Contractor. 1 .2 I nterpretat on T his sub -c lause contains legal statements confi rming (except where the context requires otherwise) ( a) w ords indicating one gender – includes all genders ( b) w ords indicating the singular also include the plural and vice- v ersa ( c) ‘ A greements’ h ave to be recorded in writing. As a consequence the Parties are required to ensure that any verbal agreements are formalised A Contractor’s Guide to the FIDIC Conditions of Contract, First Edition. Michael D. Robinson. © 2011 John Wiley & Sons, Ltd. Published 2011 by John Wiley & Sons, Ltd. ISBN: 978-0-470-65764-5 Chapter 1 4 Review of the FIDIC Condit ons of Contract for Construct on (CONS) – ‘The Red Book’ in writing. Too often important instructions and decisions are not formally recorded by the Parties. ( d) w here something is stated to be ‘ w ritten’ or ‘ i n writing’ this shall result in a permanent record. This requirement may have consequences in respect of the authorised means of communication identifi ed in Sub - C lause 1.3. 1 .3 C ommunicat ons T his sub- c lause identifi es the authorised methods of communications between the Parties. Importantly Sub- C lause 1.3(a) provides for the ‘ u se of any agreed systems of electronic transmission between the Parties as stated in the Appendix to Tender’ . If this is not so stated in the Appendix to Tender and the Parties are agreeable to the use of e- m ails, then a supplementary agree- ment between the Employer and Contractor will be required. The diffi culty with the use of e- m ails is that the sender may not be able to evidence directly if the required recipient did in fact receive the e -m ail – this in contrast to telefax messages wherein the recipient’ s telefax machine does respond. Many e- m ail operating systems do provide for electronic receipt of incoming e- m ails but this relies on the cooperation of the recipient. In all cases where electronic transmissions are acceptable, it is advisable for confi rmatory hard copies of all e- m ails to be sent to the recipient at prescribed intervals. In all cases the use of a formal mail transmission book is highly recommended. B oth Parties should ensure that only authorised staff members formally communicate, particularly by e- m ail, and that the other Party is informed in writing of the limitations of any delegated authority. 1 .4 L aw and Language B oth the applicable law and the language of communication are to be defi ned in the contract documents. I nvariably the applicable law is that of the country where the contract is to be executed. This more so, if the Employer is also resident in that country. Even if the applicable law is not that of the country of execution, it may happen that the local courts will claim jurisdiction regardless of the wording of the contract. Legal advice should be sought should such a situation arise. F requently the Employer may require that correspondence addressed to him be written in his own language. Given the vagaries of site translations, it is recommended that correspondence to the Employer and other public bodies be provided simultaneously in both the language of the contract and the local language. 1 .5 P riority of Documents T he basic priority listing of the documents forming the contract is given in this sub- c lause. Frequently additional documents will be added to the given listing by the Employer prior to tender date. Chapter 1