Construction procurement is particularly complex and risky. Forming a contract in construction may take lots of time and energy of both client and contractor. Therefore, standardisation in construction contract would help the buying organisation to save their precious resources. Furthermore, the wording of these model form contracts is accurate as it has been agreed among the professionals within an industry. However, becoming too reliant on model form contract also contains inherent risks. The organisation may not fully understand the implications of the content that potentially leads to disputes. The contract is model, which means it is not tailor-made for specific condition. If the parties using it do not make any changes, some terms can become non-applicable.
In this article, we focus on introducing and analysing the contents of FIDIC model contract. This type of model contract is commonly used around the world because its author, International Federation of Consulting Engineers, collaborates closely with development banks such as World Bank, Africa Development Bank, Asia Development Bank, etc. Every construction project that is financed by these institutions must adopt the FIDIC contracts. Therefore, you may easily find FIDIC model contract in public-private partnership. These model contracts are so popular that even Vietnam’s Government embeds some of the contents into the decree on construction contracts and encourages private entities to adopt the FIDIC model contracts.
Introduction to FIDIC model contracts
FIDIC is the International Federation of Consulting Engineers (or Fédération Internationale des Ingénieurs Conseils in French). This organisation was established in 1913. Like CIPS, FIDIC aims at disseminating the best practices in consulting engineering, promoting integrity and sustainability among the members.
To support the above values, FIDIC has produced many publications, including the model form contracts, best practice guidances, research on sustainability, integrity and risk management.
FIDIC model form contracts have been developed by this organisation since 1999, now they consist of several different books which are marked by colours. Thus, FIDIC model contracts also have the nickname “Rainbow suite of contracts”. Basically, the “Rainbow Suite” include the following books:
- Yellow book: Plant and Design-Build Contract (2 editions: 1999 and 2017)
- Silver book: EPC/Turnkey Contract (2 editions: 1999 and 2017)
- Red book: Construction Contracts (2 editions: 1999 and 2017)
- Emerald book: Conditions of Contract for Underground Works (1st Ed 2019)
- Blue-Green book: Dredgers Contract (2 editions: 2006 and 2016)
- Gold book: Design, Build and Operate Contract Guide
- Pink book: Construction Contract Multilateral Development Bank Harmonised Ed (2 editions: 2005 and 2010)
Beside the above coloured books, FIDIC also publishes guidances and complementary notes so that users can fully understand the contents of model contracts.
General Conditions, Particular Conditions and Golden Principles
There are two types of conditions in FIDIC contracts: General Conditions for FIDIC Works contracts and Particular Conditions. General Conditions (GCs) of Contract are written and prepared by FIDIC itself. These are contract clause which are widely used for international construction contracts. They are intended to be used in any jurisdiction. FIDIC aims at fair and balance among the contracting parties, therefore, General Conditions are based on fair and balanced risk/reward allocation between the Employer and the Contractor and are widely recognised as striking an appropriate balance between the reasonable expectations of these contracting Parties.
On the other hand, Particular Conditions are written or amended by users of FIDIC contracts. These conditions are increasingly contradicts with General Conditions and FIDIC principles. Thus, FIDIC has published a guidance called The FIDIC Golden Principles in which they instruct how users should draft particular conditions and the other documents of a contract based on FIDIC’s general conditions so as not to violate or deviate from FIDIC’s Golden Principles.
The Golden Principles are:
- GP1: The duties, rights, obligations, roles and responsibilities of all the Contract Participants must be generally as implied in the General Conditions, and appropriate to the requirements of the project.
- GP2: The Particular Conditions must be drafted clearly and unambiguously.
- GP3: The Particular Conditions must not change the balance of risk/reward allocation provided for in the General Conditions.
- GP4: All time periods specified in the Contract for Contract Participants to perform their obligations must be of reasonable duration.
- GP5: Unless there is a conflict with the governing law of the Contract, all formal disputes must be referred to a Dispute Avoidance/Adjudication Board (or a Dispute Adjudication Board, if applicable) for a provisionally binding decision as a condition precedent to arbitration.