Maintaining the complicated relations between parties involved in the intricate and technical industry of construction, installation, and massive manufacturing projects in terms of contracts and consultations within the limits of clear understanding by applying a standard form of contracts is crucial these days. The construction industry has seen the development of various standard forms of contract including, FIDIC (Fédération Internationale des Ingénieurs-Conseils), ENAA (Engineering Advancement Association of Japan), JCT (Joint Contracts Tribunal), ICE (Institution of Civil Engineers), etc. There are numerous standard forms like the aforementioned contract forms in the construction market. In this article, we will discuss the standard forms of contracts designed by FIDIC and ENAA.
FIDIC International Federation of Consulting Engineers is a French language acronym for Fédération Internationale Des Ingénieurs-Conseils (FIDIC) is an international organization. FIDIC was founded in 1913 by three European countries, namely Belgium, France, and Switzerland. Its headquarter is in Geneva, Switzerland. It has 102 member associations. Over sixty countries have joined and are members of FIDIC now. It is famous for producing standard forms of contract for construction and engineering projects. It has published several editions on construction contracts. In 1957, FIDIC published its first contract, titled The Form of Contract for Civil Engineering Construction Works. As the title indicates, this first contract was aimed at the Civil Engineering sector, and it soon became known for the color of its cover, and thus named The Red Book. The FIDIC contracts are primarily known for their color and are named after the color of their cover. FIDIC has constantly improved the contracts over the years. It has improved the existing contract forms and replaced them with new updated versions and essential terms over time.
FIDIC published its first contract forms book for the civil engineering sector in 1957 and was named Red Book because of its red cover. The FIDIC agreements and contracts are considered as the most authentic and standard forms in the construction and installation industry. The purpose of introducing contracts is to provide a standard form of contracts for construction and installation projects with the foundation having the same main principles. The FIDIC contracts safeguard the rights and interests of both parties involved in the agreement.
The first contract by FIDIC was commenced jointly with the International Federation of Building and Public Works. FIDIC’s rigorous effort at attaining extensive consultation and acceptance of its contract forms has seen subsequent editions of its contracts being endorsed by the International Federation of Asian and Associated General Contractors of America, Western Pacific Contractors Association, and Multilateral Development Banks, and the Inter-American Federation of the Construction Industry, to name a few. FIDIC contracts enjoy wide-ranging support for being unique and authentic contracts in international construction.
The FIDIC series of contracts cover almost all areas of contracts of construction and installation, and some of the prominent and standard features of the FIDIC contracts are following:
Usually, FIDIC contracts are divided into two parts;
There is an established hierarchy for the documents forming the contract in most FIDIC forms. The order of priority is mentioned below, and in case of inconsistency, the first on the list takes preference:
The parties to the contract are allowed to reshuffle the priority of documents or stipulate that no precedence or order of hierarchy will apply to the contract. This can be done in part two of the contract. FIDIC issued a variety of standard construction and installation contracts in 1999.
There several standard contracts created by FIDIC, such as Red, Yellow, Green, Orange, Gold, Pink, Blue and Silver books, and out of them, three famous standard contracts are Red FIDIC, Yellow FIDIC, and Green FIDIC contracts named after the color of documents’ covers. Following are the FIDIC standard construction contract forms:
Additionally, the less known FIDIC contracts are the Turquoise Book for Dredging and Reclamation Works (January 2006) and the White Book Model Services Agreement (October 2006).
It is the standard and most commonly used construction contract form in all projects, where the Employer (Client or party initiating construction works) provides the design on account of the traditional attainment route of Design, Bid, and Build. The payment to the Contractor (the party that the Employer engages to complete certain parts of works) is made based on measurement for the actual quantities of work performed. The accepted contract amount is based on assessed quantities. The Red Book has significantly advanced since its first published edition in 1957.
It is the second type of FIDIC contract, where the design is executed and guaranteed by the contractor. The Yellow book is known as a Plant and Design-Build contract. The payment to the Contractor is made on a lump sum basis. For the first time, it was published in 1963, with subsequent revisions.
Another so-called FIDIC book is the Green Book, containing short forms of contracts primarily intended for comparatively small projects of a low budget or repetitive nature or short duration where the Employer provides the design. Generally, it is used for low-valued projects such as USD 500,000, and 6 months are considered reasonable limits on capital and duration for projects where Green Book forms are used.
It is also a vital and renowned part of the FIDIC Suite. It is known as the Client/Consultant Model Services Agreement. The most recent version of White Book was published in 2017, and nowadays, it is one of the commonly used forms of proficient services contracts globally. The second edition of the Sub-Consultancy Agreement associated with the White Book has also been published.
In the 1990s, following trends in the construction industry, substantial changes were introduced to the original FIDIC contracts, and the Silver Book was published. It is used for EPC/Turnkey projects where most risks are assigned to the contractor. The contractor carries out the design, and payment is usually made on a lump sum basis.
FIDIC Gold Book is another form of FIDIC Contracts. Its first edition was published in 2008 and is based on a typical design and build contract form, in which a period of operation and maintenance has been added. The Gold Book incorporates an intricate range of different services and is intended to continue for more than 20 years, where the parties aim to extend their cooperation throughout a project.
FIDIC Blue Book is the less famous form of contract. It was published in 2006 and is a form of contract for reclamation, dredging, and subsidiary construction work with various administrative arrangements. Generally, the Employer who is in charge of the design and the most crucial part of the Blue Book contract describes the activity itself, defined in detail in the work’s drawings, specifications, and design.
The decision to choose a type of contract by the Employer or the parties relies on the requirements of each project and the interest of the Employer and preference to whom the charge of the design be given. If the Employer is more experienced in design and intends to have a major role in the design process, the Red Book will automatically be preferable. Otherwise, the Employer may choose for the Yellow Book or some other form of the FIDIC Suite. The Silver Book is usually desirable if no considerable unknown risks exist, and the Employer wishes to have more security regarding value and time duration.
All FIDIC contracts have certain standard features and identify the need for a well-adjusted method between the parts and obligations of the parties involved and a balanced distribution and risk management tactics. All of the FIDIC contracts are composed of General Conditions of the Contract (GCC), which are considered appropriate in all cases, and Particular Conditions of the Contract (PCC), in which the parties to contract can incorporate project-specific points on a case-by-case basis. Moreover, FIDIC contracts also contain rules for altering amounts and rules upon which contracting parties agreed to extend the time for completion and variation procedures. They all require experience and skillful staff, both on behalf of the Employer and the Contractor, and the Engineer, who is independent and unbiased.
Furthermore, most FIDIC forms provide for a multi-level mechanism for dispute resolution. It depends on the type of FIDIC contract; the most frequently used way for the resolution of disputes consists of four steps: first, the decision of the Engineer, who is the agent of the Employer and managing the construction project; second, the decision of the Engineer can be reassessed by a Dispute Adjudication Board (DAB), that is an independent panel consisting of one or three construction experts who make a decision; third, the parties should reach an agreeable settlement of their dispute; and, finally, the final solution for the dispute to be solved by binding arbitration or a national court, it depends on the agreement of the parties in the Particular Conditions of the Contract. In order to understand the concept of the delay penalty in construction cases, it is vital to know the essential provisions of laws governing the construction contracts in the UAE.
Due to the swift growth in the construction industry and international cooperation during the last twenty years, the FIDIC contracts are widely used in construction projects in the UAE. The owners or contractors modify FIDIC contracts according to the peculiarities of the law of the land and their particular requirements. The construction contracts are mainly regulated by the Civil Transaction Law Number 5 of 1985, under the Muqawala section and other relevant laws in the UAE. The FIDIC forms of the contract allow contracting parties to choose the governing law and interpretation language to be used in the contract. Thus, parties can choose UAE Civil Law and other construction relation legislations to govern their construction contracts. The parties are required to act in good faith by FIDIC contracts as well as the UAE Civil Law, and good faith means the Contractor is responsible for providing the Employer with the best possible quality of works. As there is no insurance against the construction mistakes, that is why FIDIC contracts bound the contractors with the obligation to inform the Employer of any construction defect or mistake, which is not available in Muqawala. The Contractor is liable to provide adequate remedies for defects in the construction works, and the Contractor would not be liable for the defects after providing remedies for such defects. At the same time, the UAE Civil Law is more stringent in this regard; as per its Article 880, joint liability is imposed on both the designer and the Contractor for ten years for the defects that could be a reason for the collapse of a building. If parties choose UAE Civil Law to carry out the construction works, parties should bear in mind that unilateral contract termination is prohibited under Article 267 of UAE Civil Law. The parties applying FIDIC believe that it is not challenging to terminate a contract unilaterally by providing a termination letter to the contractor without any consequences. In such cases in the UAE, the parties shall remember the damages claims against the Employer per Article 879 of the UAE Civil Law. For more informed knowledge regarding the UAE’s construction laws, it is always wise to seek expert guidance from construction lawyers in Dubai.
The term force majeure is encompassed in Clause 19 of the 1999 edition of Red, Silver, and Yellow Book. It is generally recognized as an exceptional circumstance or event beyond the control of any party. It could not have rationally provided against before entering into the contract—such circumstances that could not be reasonably avoided or overcome by a party. There is a lengthy list of events and circumstances that could be included in the definition of Force majeure. The event must be exceptional in nature. These conditions mentioned in the clause need to be satisfied to get relief in force majeure. The available relief against force majeure depends on the category of event that occurs during the project. The events are categorized for convenience and to get a clear idea of available relief. Following are the categories for which the relief is available in the event of force majeure:
The relief for the damages in case of force majeure is only available if any such unavoidable circumstance prevented the Contractor to perform his works, not for irrational reasons such as contractor did not perform works just because of an increase in the price of the material, and it was more than the cost of performance initially decided and prevented from performing the works. The Contractor is entitled to recover costs only he cannot claim profits. The Contractor is not entitled to recover costs arising out of natural catastrophes. The Contractor shall be eligible for an extension of time for the delayed period prevented from work due to the natural calamity. The FIDIC clause is silent about what pecuniary remedy the Contractor would be entitled to in case of the exceptional events that satisfy the requirements mentioned in the clause but does not call in any category mentioned in the clause.
Any party can terminate the contract if the force majeure stretches more than 84 days for one event that prevents it from performing works assigned to it by serving notice of termination of the contract upon the other party. Other than the relief mentioned in clause 19, the parties can be discharged from performing the works if the event prevents or makes it impossible for the party to perform its contractual obligations and it is out of its control.
It is a non-profit organization established in 1978 with the help of the Ministry of International Trade & Industry, the current Ministry of Economy, Trade, and Industry (METI). The objective of ENAA is to develop diversified activities such as the advancement of technological capabilities and the promotion of technical development. ENAA has produced several model forms of contracts for power plant construction, process plant construction, and industrial plants. It is also anticipated to assume the role of the topmost organization to establish a social system in accordance with the development of the social economy and the environment through the participation of many enterprises engaged in engineering business under close collaboration with the government, academia, and industry. ENAA consists of 194 companies as its members.
Additionally, ENAA owns related functions and divisions such as Geospace Engineering Center (GEC) to encourage the development of underground spaces, including unharnessed deep ones, and the Safety and Environment Center for Petroleum Development (SEC) to promote the formation of advanced petroleum and natural gas development systems. The GEC consists of 54 member companies, and the SEC consists of 29 companies. ENAA is also backed by famous Japanese companies, including Mitsubishi, Chiyoda, JGC, Hitachi, Sumitomo. ENAA Model Contract forms have become popular internationally over the past years. Following are the ENAA model contract forms:
ENAA considered many factors in preparing the 2010 edition but tried to maintain the risk allocation foreseen in the first and second editions, limiting the possibility of any confusion among the users familiarized with using the former editions. Key features of the power plant model form are the following:
The approach of ENAA on force majeure is slightly different from the FIDIC. The force majeure is principally defined in the General Conditions (GC) 37. It is defined as a force beyond the reasonable control of the affected party and is unavoidable. It also outlines a non-exhaustive list of categories of events supposed to be considered as Force majeure, like clause 19 of the FIDIC contracts, and the list of categories resembles it. However, it includes and covers another category: labor, materials, and utility shortages caused by force majeure events.
The relief provided by ENAA in the event of force majeure applies if a party is prevented, hindered, or delayed because of force majeure. The meaning of hinder means to make performance more difficult but not impossible. Thus, ENAA terminologies provide relief not only for complete non-performance of works but also for varied performance. Under ENAA, the affected party is relieved from performance, and it is entitled to an extension of time for the delay due to the force majeure. The notice provision is compulsory in ENAA, and the notice period starts from the time of occurrence of the event, not from the time of knowledge of the event. ENAA has set forth that no party would be liable to damages or additional cost regarding recovery of cost because of the delay or non-performance. However, there are exceptions.
Termination of contract rights arises if performance is considerably prevented, hindered, or delayed by Force Majeure event(s) for a period of 120 days or more collectively. The termination clause should be outlining termination in the event of force majeure should mention the criteria such as length of days of delay due to force majeure event etc. Furthermore, the provision for the consequences of termination should include issues such as payment for work done and for costs due to termination; it should also be clarified whether the contractor should include profit or not.
The term force majeure is broadly recognized by lawyers and contracting parties but is, in fact, rarely fully understood because, in English Law, there is no proper legal definition for this term that is why each of the standard forms defines this term differently. The effect of standard form provisions must therefore be fully understood before they are agreed to without revision. In all cases, the parties must satisfy themselves that the definition of force majeure will address the particulars of the project at hand and that the relief granted will be satisfactory in the circumstances. A failure to account for such matters in the contract could result in an affected party utterly dependent on the limited relief that might be available under the common law doctrine of frustration.
The FIDIC Red Book is widely used in the world as standard construction and installation contracts. Following are some case laws on the FIDIC contracts used worldwide.
adjudicated by the Queensland Supreme Court on 30 April 2013 (2013 QSC 105) related to a contract for a new processing plant in Botswana 80km southwest of the town of Maun carried out under the FIDIC Silver Book, 1999 edition. The Sedgman case proved that the FIDIC terms and conditions should be read together with the general guidance provided by FIDIC and against the origin of the clauses. Further, jurisdictional issues should be dealt with to give effect to the parties’ contractual bargain. Furthermore, the Silver Book payment provisions do not need to be re-interpreted.
Decided by the Supreme Court of Cyprus. The applicants, in this case, challenge the decision of the Board of the Cyprus Ports Authority that the tender was allegedly awarded to the wrong tenderer. The tender documents consisted of, inter alia, the General Conditions of FIDIC 4th edition with Conditions of Particular Application. The applicants included a VAT of 5% (the rate applicable 30 days before the date of submission of tenders) in their tender price, while all other tenderers included a VAT of 8%. Under the FIDIC contract (sub-clause 70.2) and according to the tender provisions, the Employer had to bear the increase in the VAT. The court compared the value of tenders excluding VAT and found that the tender price of the successful tenderer (excluding VAT) was still the lowest and, therefore, dismissed the applicants’ application.
Decided by the Court of Appeal, Hong Kong. Contract Price refers to sums payable to the Contractor for the performance of their obligations, i.e., execution and completion of the work, under the contract and not the sums a Contractor claims, which are payable to it upon termination regardless of whether or not such sums refer to work performed and certified before termination. Payments upon termination arise out of Sub-clauses 65.8 and 69.3 of Red, Fourth Edition, 1987, which refer to work executed before the termination date at the rates and prices provided in the Contract, not the Contract Price as defined in the Contract. Whether the sums referred to on account payments or installments is irrelevant because the payments had not been made before termination. Once the contract is terminated, these sums fall under different payment provisions (i.e., Sub-clauses 65.8 and 69.3).
Paris, France. The Arbitral Tribunal found that the respondent employer, who had not objected within the prescribed time limit to the Engineer’s decisions and had not stated his intention to commence an arbitration, was nonetheless entitled to take advantage of the notice of arbitration issued by the claimant contractor. The respondent employer could therefore request the arbitral tribunal to reverse the Engineer’s decisions. The arbitral tribunal also considered Article 11 of the conditions of contract, which required the Employer to have presented to the Contractor before the submission by the Contractor of the tender, such data from investigations undertaken relevant to the Works. However, the Contractor shall be responsible for his interpretation thereof. The arbitral tribunal found that a Materials Report provided by the Employer at tender after years of investigation was not contractual and was erroneous and misleading. It also found that the contractor/bidder was justifiably required to interpret the data but was not required to expedite the limited time available for its bid, new thorough investigations when the Employer had carried out investigations over some years.
Decided by the High Court, Trinidad and Tobago. The court declined to set aside an ICC Arbitration Award under the Arbitration Act Number 5 of 1939 (Trinidad and Tobago) on the basis that there was no technical misconduct or decision out of the jurisdiction on the arbitrator’s part. The ICC arbitration had considered whether the Engineer was independent and partial as required by the FIDIC 4th edition, if not whether or not the relevant Engineer’s decisions should be reviewed, whether alleged defects were the result of poor workmanship by NHIC or faulty design supplied by ICS, and whether NHIC’s resulting failure to comply with the Engineer’s instructions under Clause 39.1 was a valid cause for ICS’s subsequent termination of the contract under Clause 63.1. The court also revealed that there were no errors on the face of the Award. NHIC’s attempt to oust the jurisdiction of the court to review the Award (under Article 28(6) of the ICC Rules) was denied.
Adjudicated by the Court of Appeal, New Zealand. The case dealt with tortious liability and a limitation clause in the main contract, which sought to eliminate liability for indirect or consequential losses. There was no contract between the operator of a power plant and the contractor who was constructing it. The operator brought proceedings against the contractor (Rolls Royce). Rolls Royce claimed that there was a duty owed to the operator and sought to rely on limitation of liability clauses in its contract with its Employer. Rolls Royce sought to argue that it could have no greater liability to a third party for defects in the works than it would have to its Employer. The Court of Appeal found that while the loss to the operator may have been foreseeable as a consequence of any negligence by the contractor, the relevant contractual matrix within which any duty of care arose precluded a relationship of proximity. In addition, in commercial parties with equality of bargaining power, vital policy considerations favor holding them to their bargains. In these circumstances, it was not fair, just, and reasonable to impose such a duty.
In a West African Capital. The Respondent Employer, a State entity, challenged the Arbitral Tribunal’s jurisdiction and applied to the local courts for an order revoking the tribunal’s power to hear the dispute, alleging that the parties had entered into a memorandum of understanding (settlement agreement) referring disputes to the State courts and that the Claimant had made allegations of fraud which could only be dealt with by a State court. The court decided in favor of the Respondent, which considered the arbitral proceedings canceled. The Claimant appealed and also proceeded with the arbitration seeking an interim award on specific claims. The tribunal considered that it had a duty under Article 6(2) of the ICC Rules to consider and decide upon the matter of its own jurisdiction. It had a duty to ensure that the parties’ arbitration agreement was not improperly undermined contrary to international and State law. The tribunal had no jurisdiction to decide upon allegations of fraud. The claims before the tribunal had been appropriately brought, and the tribunal had jurisdiction over them. However, the Claimant’s application for an interim award on certain claims was refused. Final Award 2006: Governing law was that of a West African state. Re Clause 52.3 of Red, Fourth Edition, 1987 for a Contract Price adjustment where additions and deductions taken together exceed 15% of the Effective Contract Price, construing the Clause, the arbitral tribunal held that when the actual quantities resulting are less than the original estimate, the purpose is to compensate the Contractor for under-recovery of overhead. However, the Contractor must demonstrate that it was prevented from recovering the job site and general overhead costs included in the Bill of Quantities (BoQ) due to the decrease in actual quantities of work performed. Re entitlement to interest for the pre-judgment period on sums not certified by the Engineer, both the contract and applicable law are relevant. The tribunal’s discretionary powers to award prejudgment interest were equivalent to those of the courts. Under Clause 67.3, the tribunal could re-open the Engineer’s certificates and include interest. The rate of interest on unpaid certified sums in the Contract was also appropriate to such a claim.
In Wellington, New Zealand.
Partial Award Issue 1: Clause 11 refers to investigations undertaken relevant to the Works and the material regarding which unforeseen ground conditions were said to be encountered were not part of the Works. Furthermore, Clause 12 is directed to conditions on the Site. Supply of goods, materials, and equipment to incorporate into the works, in this case, river materials referred to in tender documentation, are at the Contractor’s risk.
Partial Award Issue 2: There was no evidence that the activities by third parties which disrupted the works were not peaceful. Hence, they did not fall within the definition of disorder under Sub-clauses 65(4) and 65(5) Red, 3rd edition. Furthermore, at the time of the relevant events, the Contractor did not have a legal right to access the site in question.
Final Award: The offer made by the Employer did not constitute a Calder bank offer because it was made seven months before practical completion and some two years prior to arbitration proceedings, some of the claims had not yet been ruled by the Engineer, and the offer did not coincide with the claim brought to arbitration.
Adjudicated by the High Court of Swaziland. Due to the Employer’s failure to pay the amount certified in the final payment certificate, the Contractor sought summary judgment. The Employer’s stance was that: parties must refer to arbitration before referring to a court of law, the Contractor has been overpaid and has overcharged the Employer in respect of BoQs, and the level of the work of the Contractor was not up to the mark. The court held in its order that: the Architect/Engineer was the agent of the Employer at the time of issuing the certificates, and the acts of his agent would bind the Employer, the Employer cannot disagree with the legitimacy of a payment certificate merely because it has been given negligently or the Architect/Engineer misused his discretion, there was no dispute between the parties; accordingly, parties were not obliged to refer to arbitration prior to the court, the works were examined prior to the issue of IPCs; therefore there was no overcharging, and the defect in the quality was not known. The court mentioned the FIDIC guidance on BoQ, where it is outlined that the purpose of BoQ is to provide a foundation supporting the fixing of prices for varied or additional work. The court also considered whether the obligation to pay the amount in the payment certificate was binding.
Adjudicated by the Technology and Construction Court, England and Wales. There was no DAB in place; therefore, parties were entitled to refer the dispute directly to arbitration. There was also an additional claim regarding the performance guarantee under clause 4.2, which the parties replaced. The case concerned the Claimant’s application for an interim injunction to restrain the Respondent from making demands under two on-demand performance guarantees. In doing so, the Claimant argued that the Respondent had wrongfully failed to issue a taking-over certificate. The Claimant contended that they had a strong claim that demand for payment would constitute a breach of contract as the Respondent had failed to issue Taking Over Certificates for the plant taken into use by the Respondent. The contract between the parties was based on the FIDIC form with some modifications, including the deletion and replacement, in its entirety, of clause 4.2 concerning Performance Security.