Transcript NGB - The British University in Dubai

The FIDIC Contracts & Construction Law
A presentation
to
The British University in Dubai
by
Nael G. Bunni, BSc, MSc, PhD, CEng, FICE, FIEI,
FIStructE, FCIArb, FIAE, RConsEI.
Chartered Engineer, Conciliator/Mediator and Registered Chartered Arbitrator
Part 1
1st April 2011
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Synopsis
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The FIDIC identity;
A survey of the FIDIC Forms of Contract and their
distinguishing features and characteristics;
The role of the Engineer and how it compares with
the term “Project Manager”;
The framework of contractual and legal
arrangements on a FIDIC Construction Contract;
The role of insurance in the construction contract;
The unique feature of seeking to provide for a
specific remedy in the event of any breach of the
terms of the Contract; &
The procedure set for claims and dispute resolution.
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The FIDIC identity
FIDIC - Federation Internationale des
Ingenieurs - Conseils
 Founded in 1913 in Ghent , Belgium by the
national associations of consulting engineers
of Belgium, France & Switzerland
 Has grown to represent associations from
over 84 countries worldwide
 Secretariat is located in Geneva, Switzerland
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Contd./2
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The FIDIC identity (Contd/2)
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One of the first committees established in 1913 was
the Contract Documents Committee.
Its Terms of Reference were:
– To monitor contract documents of interest to consulting
engineers regarding:
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construction of objects or works;
erection and installation of works;
maintenance of installations in operation; and
supply of materials
– To inform contractors, suppliers and officials concerning
contract documents recommended by FIDIC Contd./3
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The FIDIC identity (Contd/3)
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First standard form of contract published in
1957
– It was the first edition of the Red Book for civil
engineering works in the international field
– Since then FIDIC has become known outside the
engineering profession for its standard forms of
contract
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The Red Book was followed by the Yellow
Book for Electrical and Mechanical Works
including erection on site
Contd./4
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The FIDIC identity (Contd/4)
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Standard Forms & Associated Documentation
– Conditions of Contract for Works of Civil Engineering
Construction (Red Book), 4th Edition, 1987; updated in 88 & 92
– Conditions of Contract for Electrical and Mechanical Works
including erection on site (Yellow Book), 3rd Edition, 1987
– Conditions of Contract for Design-Build and Turnkey (Orange
Book), 1st Edition, 1995
– Conditions of Sub-contract for Works of Civil Engineering
Construction, 1st Edition, 1994
– Tendering Procedure, 2nd Edition, 1994
– Client/Consultant - model services Agreement (White Book), 3rd
Edition, 1998; 4th Ed. 2006
– Joint Venture (Consortium) - Agreement, 1st Edition, 1992
– Sub-consultancy Agreement, 1st Edition, 1992
– Dredging & Reclamation Form of Contract, 1st Edition, 2006
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The FIDIC identity (Contd/5)
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First Edition of the Green Book – Short Form of
Contract – Agreement, General Conditions, Rules
for Adjudication and Notes for Guidance;
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The 1999 Red Book – Conditions of Contract for
Construction, (for Building and Engineering Works,
Designed by the Employer) – General Conditions,
Guidance for the Preparation of the Particular
Conditions, Forms of Tender, Contract Agreement,
and Dispute Adjudication Agreement, 29,775 words;
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The FIDIC identity (Contd/6)
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First Edition of a new Yellow Book: Conditions of
Contract for Plant and Design-Build for Electrical
and Mechanical Plant, and for Building and
Engineering Works, Designed by the Contractor –
General Conditions, Guidance for the Preparation of the
Particular Conditions, Forms of Tender, Contract Agreement
and Dispute Adjudication Agreement, 30,408 words; and
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First Edition of the Silver Book: Conditions of
Contract for EPC turnkey Projects – General
Conditions, Guidance for the Preparation of the Particular
Conditions, Forms of Tender, Contract Agreement and
Dispute Adjudication Agreement, 26,792 words.
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Other Developments since 1999
 The Harmonised Multilateral
Development Banks Form of Contract,
1st Ed. 2005, 3rd Ed. 2010
 The Dredging & Reclamation Works, 1st
Ed. in 2006
 The most important development is the
introduction of the “Gold Book” in 2009
 The Test Ed. of The Subcontract Form
for the 1999 Red Book, published in
December 09
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The Harmonised MDB Form
 MDB: The Harmonised Multilateral
Development Banks Form of Contract, 2005;
 Intended for MDB funded projects;
 FIDIC retains copyright & Management;
 Based on the 1999 Red Book, which remains
FIDIC’s recommended Form, but amended
shifting many risks to the Contractor, including
the reduced Authority of Engineer;
 The 3rd Ed. was issued in 2010
 Many changes: for example. Cl. 20.
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The DBO Form: Design, Build & Operate
 The Gold Book deals with:
– Design, Build and Operate (DBO) Projects.
– It is based on and developed from the 1999 Yellow
Book.
– It is intended for projects where the employer
wishes the contractor not only to design and
construct a facility, but also to continue and
operate and maintain that facility for a long
number of years.
– Examples of Projects: Water treatment plants,
Power generation plants and manufacturing or
process facilities, and motorways/highway projects.
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Comparison of the 1999 Forms with
previous major forms
Form of Contract
Equivalent in the New Forms
Red Book, 4th Ed. 1992
New Red where the DAB is Adhoc & the
Engineer acts as the DAB
Red Book, 4th Ed. With
Suppl. 1996
New Red where the DAB is Standing & the
Board is Independent & Impartial
Yellow Book, 3rd Ed.
1988
New Yellow, 1999
Orange Book, 1st Ed.
1995
New Yellow, 1999
Newly developed
Forms
Silver Book & Green
Book, 1999
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Usual contractual arrangements in a construction project
Employer
or Owner
Engineer
Other
Consultants
Contractor
Sub-contractors
Suppliers
Manufacturers
Direct contract
Indirect relationship
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Aspects to consider when
choosing standard form:
The allocation of the essential functions
found in the project and particularly the
design function;
 The allocation of the risks inherent in the
projects;
 The allocation of the management role; and
 The method and timing of remuneration for
the contractor.
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1. The allocation of the
essential functions found in
the project and particularly
the design function
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The Allocation of Functions
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The following functions must be allocated to certain
parties:
– Promoter : Initiator of project or Employer/Owner
– Financier and his role as:
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Self financing
A simple lender
A lender in Build - Transfer
A lender in Build - Own - Transfer BOT
A lender in Build - Own - Transfer and Operate BOOT
A lender in Build - Own - Operate BOO
A lender in Build - Rent - Transfer BRT
BLT in leasing rather than renting
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The Allocation of Functions (cont.)
– Designer
» Sketch design
» Preliminary design
» Final design
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Manager and coordinator of various design functions
Contractor
Sub-contractor, supplier and manufacturer
Project Manager** & Safety Controller
Supervisor
Certifier
Adjudicator
Operator
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Roles under FIDIC Standard Forms
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Promoter/Employer
– Finance and operation of project
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Engineer
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Design in the Red Book, New & Old
Supervision
Certification
Adjudication in the Old Red & Yellow Books, but with
the DAB elsewhere
Contractor
– Construction
– Design in the New Yellow Book, partly in the Old
Yellow; the Orange Book & the Silver Book
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The Role & Functions of the Engineer
(a) The Completion of a skilful design incl.:
– preparation of drawings;
– drafting specification for materials &
workmanship;
– preparation of a bill of quantities .
(b) The preparation of tender & contract documents
and advising on the selection of a contractor.
(c) The supervision & quality control of work on site.
(d) The administration of the contract & evaluation
& certification of the work carried out .
(e) Adjudication of disputes .
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The different roles - Red Book 1992
Pre - construction Stage [ Steps (a) & (b) ] :
The Engineer acts as an advisor & consultant.
 Construction Stage [ Steps (c) & (d) ] :
The Engineer acts as an Agent of the Owner.
 Construction Stage [ Step (e) ] :
The Engineer acts as an independent ,
impartial & neutral professional. (under the
1999 Red Book: only when specifically stated)
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The Engineer as a designer
 The
shape, form and dimensions of the
project
 The function & performance
 The selection of the materials &
workmanship
 The production of documents
 Projection of cost
 Establishing timing & sequence of
construction
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The Engineer as the Employer’s Agent
 Implementing
& augmenting the
design
 Quality control
 Administration and management
– Pro-active duties
– Re-active duties
– Passive duties
 Cost accountancy & certification
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The Engineer as a supervisor
 To
supervise, inspect, oversee, or
monitor :
– Compliance with specified quality
– Progress in accordance with the
planned Programme
– Budget control as in the cost plan
– Compliance with safety & other
control requirements
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The Engineer as a certifier
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Valuation of work done & Payments to the
Contractor (Cl. 60); (Cl. 12);
Issue Taking - Over Certificate (Cl. 48); (Cl. 14);
Date of Completion (Cl. 49); (Cl. 8);
Payments to nominated sub-contractor (Cl. 59);
(Cl. 5);
Issue Final Certificate (Cl. 60.8); (Cl. 14.13);
Defects Liability Certificate (Cl. 62.1); (Cl. 14);
Valuation of work done, etc. in case of
Termination (Cl. 63.2); (Cl. 15).
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The Engineer as an adjudicator
under the 1992 Red Book
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Dispute
Reference to the Engineer
– [84 days for the Engineer to make a decision]
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The Engineer gives notice of his decision in writing
– [70 days for Emp. or Cont. to disagree & give notice of
intention to commence arbitration]
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If notice of intention to commence arbitration is
given, then attempt amicable settlement (56 days)
– [If no settlement, arbitration may then commence. Place,
no. of arbitrators & language may be inserted]
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ICC Rules apply unless stated otherwise in Part II
– [ Extreme care must be taken in amending this clause]
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Impartial or fair –Red 1992 – Clause 2.6
The Engineer to Act Impartially
2.6 Wherever, under the Contract, the Engineer
is required to exercise his discretion by:
(a) giving his decision, opinion or consent,
(b) expressing his satisfaction or approval,
(c) determining value, or
(d) otherwise taking action which may affect
the rights and obligations of the
Employer or the Contractor
he shall exercise such discretion impartially
within the terms of the Contract and having
regard to all the circumstances. …………
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Impartial or fair –Red 1999 – 3.1
3.1 Engineer’s Duties and Authority
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………….. . The Engineer may exercise (his)
authority ……. as specified in or necessarily to be
implied from the Contract. ………………..
Except as otherwise stated in these Conditions:
– (a) whenever carrying out duties or exercising
authority, specified in or implied by the Contract,
the Engineer shall be deemed to act for the
Employer;
– (b) the Engineer has no authority to relieve either
Party of any duties, obligations or
responsibilities under the Contract; and
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Impartial or fair –Red 1999 – 3.1
– (c) any approval, check, certificate,
consent, examination, inspection,
instruction, notice, proposal, request,
test, or similar act by the Engineer
(including absence of disapproval)
shall not relieve the Contractor from
any responsibility he has under the
Contract, including responsibility for
errors, omissions, discrepancies and
non-compliances.
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Impartial or fair –Red 1999 – 3.5
 Determinations 3.5
Whenever these Conditions provide that
the Engineer shall proceed in accordance
with this Sub-Clause 3.5 to agree or
determine any matter, the Engineer shall
consult with each Party in an endeavour to
reach agreement. If agreement is not
achieved, the Engineer shall make a fair
determination in accordance with the
Contract, taking due regard of all relevant
circumstances.
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2. The allocation of the risks
inherent in the project;
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The Allocation of Risks &Liability
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Law of contract allocates risks to contracting parties.
Standard Forms affirm that allocation or re-allocate
risks to another contracting part or third party.
For Civil Engineering Construction the following
concepts must be borne in mind:
– The meaning and significance of “Risk”;
– Not all undesirable events can be perceived and
identified; and
– Whilst risks generally imply undesirable consequences,
in certain circumstances desirable as well as undesirable
consequence may occur
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DEFINITIONS:
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RISK: ‘ The combined effect of the
probability , or frequency, of occurrence of
a defined hazard and the magnitude of the
consequences of the occurrence. ’
– B.S. 4778, 1991.
Australia/New Zealand Risk Management
Standard AS/NZ 3951: 1995: hazard is
replaced by event, which includes positive
as well as negative consequences.
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DEFINITIONS:
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HAZARD: ‘A situation that could
occur during the lifetime of a product,
system or plant that has the potential
for human injury, damage to property,
damage to the environment, or
economic loss’.
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RISK = “Hazard” x Probability of
occurrence
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3. The allocation of the
management role; and
The method and timing of
remuneration for the
contractor
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Management, Timing & Method
of Remuneration
 When
allocating risks and functions, the
promoter or employer should consider:
– Management and method of valuing work
done and its payment
– Is he prepared to share risks with other
parties
– Extent of such sharing
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Management, Timing & Method of
Remuneration (Contd./3)
 Categories
to consider depending on the
extent of risk accepted:
– Cost-reimbursable contracts
» May be sub-divided depending on sums to be
added
– Re-measurement contracts based on unit
rates and prices. May be sub-divided into:
Bill of quantities & Schedule of rates
– see next slide
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Management, Timing & Method of
Remuneration (Contd./2)
–Lump sum contracts. May be
subdivided into:
»Fixed price
»No sharing of risks
»Limited sharing
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