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AfDB New Procurement Policy:

Training Program for the Bank’s Procurement Staff

FIDIC Conditions of Contract

11

Main Features of the General Conditions of Contract

1. General Provisions

2. The Employer

3. The Engineer

4. The Contractor

5. Nominated Sub-Contractors

6. Staff & Labour

7. Plant, Materials and Workmanship

8. Commencement, Delays & Suspension

9. Tests on Completion

10. Employer’s Taking Over

11. Defects Liability

12. Measurement & Evaluation

13. Variations and Adjustments

14. Contract Price & Payment

15. Termination by Employer

16. Suspension and Termination by Contractor

17. Risk and Responsibility

18. Insurance

19. Force Majeure

20. Claims, Disputes and Arbitration

Twenty (20) Clauses in the General Conditions

2

Training Program for the Bank's Procurement Staff

Two of the General Provisions specify principles that need no repetition later: 1.2 "agreement" means in writing, resulting in a permanent record; and 1.3 "approvals", "certificates", "consents" and "determinations" are to be in writing; and are not to be unreasonably withheld or delayed.

Main Features of the General Conditions of Contract – cont.

3


Sub-Clause 2.4 requires the Employer to submit, within 42 days of receiving the Contractor's request, reasonable evidence that financial arrangements have been made and are being maintained which will enable the Employer to pay the Contract Price


4


Sub-Clause, 2.5 sets out the procedure for the Employer to follow in the event of a claim against the Contractor.


5


Clause 3 describes the role of the Engineer Sub-Clause 3.1 (a) states that the Engineer is deemed to act for the Employer except as otherwise stated in other Conditions. This sub-paragraph (a) specifies what is generally the Engineer's actual role under his agreement with the Employer, but does not state that the Engineer acts impartially because of the problems caused when such a statement proves false.


6


The Engineer may delegate authority under Sub-Clause 3.2 although there is no defined "Engineer's Representative". The role of these delegated assistants is to assist the Engineer.


7


Under Sub-Clause 3.4, the Contractor may object to a proposed replacement Engineer within the three (FIDIC six) weeks after being given notice by the Employer, with supporting particulars.

The Employer shall give full and fair consideration to this objection.

8



The Engineer's duties include making "fair determinations" under Sub-Clauses 3.5, 14.6 and 14.13. Although the Conditions rely upon the role performed by the Engineer, they define the Parties' rights and obligations in direct terms, and not in terms of the opinion of the Engineer

9



Under Sub-Clause 3.4, The Employer's entitlement to issue instructions is constrained by the need for them to state the contractual obligation and the Sub-Clause containing such obligation.


10


Clause 3 concludes with Sub-Clause 3.5 which sets out the procedure for agreeing or determining various matter: including Employer's claims, Contractor's claims, and the evaluation of Variations.

The Conditions have many provisions requiring a matter to be agreed or determined in accordance with Sub-Clause 3.5.


11


Clause 4 covers many of the Contractor's general obligations. Sub-Clause 4.1 states his obligation to execute the Works, and requires any contractor-designed works to be (when completed) fit for the intended purpose defined in the Contract.

This is an important matter to be borne in mind when the tender documents are being written, in particular because of the absence of any reference to purposes which may reasonably be inferred from the Contract. Although the risk is fairly allocated to the Contractor, he may not be able to be indemnified by his insurers or his subcontractor consulting engineers.


12


Sub-Clause 4.12 defines "physical conditions" and covers those which are "Unforeseeable".

Under a new provision, the engineer may also review whether other physical conditions in similar parts of the Works were more favourable than could reasonably have been foreseen when the Contractor submitted the Tender for which a reduction may apply, provided that no net reduction results in the Contract price.


13


Sub-Clause 8.3 covers the provision of “programme” showing how the Contractor proposes to execute the Works.

Each such programme is to be supported by a report describing the methods that the Contractor proposes to adopt.

Programmes are not "approved": the contractor proceeds in accordance with the Programme, except to the extent that (i) he has been advised of its non-compliance, or (ii) it does not actually comply with the Contract. Unrealistic Programmes do not provide a sound basis for claims.


14


Sub-Clause 8.4 defines the Contractor's entitlement to extensions of time: i. "The Contractor shall be entitled... " which is not stated as

being subject to anyone's opinion. ii. "... subject to Sub-Clause 20.1 ..." the second and the

final paragraphs of which may affect the entitlement to an extension of time.

iii. "... to an extension ... if and to the extent ... that completion ...is ... delayed...": so the extension should typically be calculated by reference to the delay in completion attributable to a listed cause. It may have disrupted progress but may not itself have been the cause of any delay in completion. For example, a listed cause may only delay works which are not on the critical path and thus do not delay "completion.


15


Sub-Clause 8.7 covers delay damages, previously called liquidated damages (a phrase which is also applicable to some of the possible types of non-performance damages).

It will be noted that delay damages are no longer referred to as an exception to the deductions which the Engineer is required to incorporate into Payment Certificates.

The Engineer is required to incorporate all deductions, which are to have been agreed or determined under Sub-Clause 3.5, in Payment Certificates: which the Employer is then required to pay in full, without offsetting his claims against the Contractor until they have been agreed or determined.


16


Clause 12 covers the measurement and valuation of the Works. Irrespective of a "Variation", a Bill rate or price for an item of work may be amended if: i. the measured quantity of the item is changed by more than 25% (FIDIC

10%) from the quantity of this item in the Bill of Quantities of other Schedule,

ii. this change in quantity multiplied by such specified rate for this item exceeds 0.25% (FIDIC 0.01%) of the Accepted Contract Amount,

iii. this change in quantity directly changes the Cost per unit quantity of this item by more than 1%, and

iv. this item is not specified in the Contract as a "fixed rate item";


17


Clause 13 covers Variations and adjustments for changes in legislation and in cost.

Variations are not binding if the Contractor promptly notifies that he cannot readily obtain the required "Goods" or (MDB only) variations triggers a substantial change in the sequence or progress of the Works.


18


Sub-Clause 13.2 describes procedures for the Contractor's proposed Variations (Value Engineering).

Sub-paragraphs (a) to (c) specify general provisions in respect of any such proposals which involve amendments to the design of the Works, unless otherwise agreed by both Parties.

It is usually essential to agree these (or other) provisions before the Variation is approved or instructed.


19


Sub-Clause 13.8 specifies the adjustments for changes in cost, so as to avoid users having to write the necessary text in the Particular Conditions, These provisions are based upon the assumed availability of suitable cost indices. The formula defines the adjustment multiplier (Pn) to be applied to the contract value of each month's work. Note that Pn is the "multiplier" and is not the amount to be added to the contract value of each month's work. Pn will typically be more than unity, due to inflation.


20


The entitlement to financing charges under Sub-Clause 14.8 is based upon when the Engineer received the Statement, progress report and other supporting documents, irrespective of the date on which the interim Payment Certificate (if any) was issued.

Such certification date. could, for example, be after the date defined in Sub-Clause 14.7 (b) by which payment should have been made.


21


Sub-Clause 14.9 provides for an entitlement of the Contractor to substitute a guarantee for the second half of the Retention Money only for a value that represents the deficit between the second half of the Retention and the value of the Performance (Bank) Security (FIDIC: second half of retention is withheld until the end of the Defects Notification Period


22


Sub-Clause 14.10 provides for a Statement at completion, which is to include all amounts to which the Contractor considers he has or will become entitled.

Under Sub-Clause 14.14, the Employer's liability is limited to amounts included in this Statement and amounts arising after the issue of the Taking-Over Certificate for the Works.


23


Sub-Clause 15.2 entitles the Employer to terminate the Contract (not the employment of the Contractor) for specified cases of default of the Contractor.

Special care should be given to the Law governing the Contract.


24


Employer’s entitlement to terminate the Contract for convenience under Sub-Clause 15.5 is not allowed if the intention of the Employer is to execute the Works himself or to arrange for the Works to be executed by another contractor or (MDB only) to avoid a termination of the Contract by the Contractor under Clause 16.4 [Payment on Termination]


25


Under Sub-Clause 16.1, the Contractor is entitled to give notice of suspension in the event of specified defaults, which include the Engineer's failure to issue a Payment Certificate and (only MDB) the suspension of disbursements under the loan or credit by the Bank.

Clause 16 then continues by specifying the procedures for termination by the Contractor which also includes the above two cases.


26


Sub-Clause 17.6 specifies the limit to the liability of the Contractor not as the Accepted Contract Amount (FIDIC), but (MDB) the sum resulting from the application of a multiplier (less or grater than one) to the Accepted Contract Amount as stated in the Contract Data.

If no such multiplier is stated in the Contract Data then the limit is the Accepted Contract Amount.


27


Clause 18 covers insurances, most of which are required to be arranged by the "insuring Party".

It is subsequently named as the Contractor unless otherwise stated in the Particular Conditions.

The provisions thus provide for the possibility that, for some of the insurances (typically those for the Works); the Employer may wish to effect insurance: by defining himself (in the Particular Conditions) as the insuring Party in respect of the relevant insurances.


28


Clause 19 covers Force Majeure, which is defined in Sub-Clause 19.1 as an exceptional event or circumstance beyond a Party’s control which such Party could not have provided against, could not control, avoid or overcome, and not attributed to the other Party.

The Clause includes general protection to the Contractor in respect of legal or physical impossibility.


29


Clause 20 covers the submission of claims and-the settlement of disputes.

This will be discussed in further detail later in this session.


30


The General Conditions of Contract - FIDIC RED BOOK

1. General Provisions

2. The Employer

3. The Engineer

4. The Contractor

5. Nominated Sub-Contractors

6. Staff & Labour

7. Plant, Materials and Workmanship


9. Tests on Completion

10. Employer’s Taking Over

11. Defects Liability

12. Measurement & Evaluation

13. Variations and Adjustments

14. Contract Price & Payment

15. Termination by Employer

16. Suspension and Termination by Contractor

17. Risk and Responsibility

18. Insurance

19. Force Majeure

20. Claims, Disputes and Arbitration

Twenty (20) Clauses in the General Conditions

31


1. General Provisions - Some selected Definitions and provisions

DB (Dispute Board) Base Date Defects Notification Period Accepted Contract Amount vs. Contract Price Works, Section and part Profit (%) Ruling language of the Contract (only one) Inspection and Audit by the Bank

The General Conditions of Contract - FIDIC RED BOOK – Selected Provisions

32


3. The Engineer - No authority to amend the Contract Employer to advise Contractor of Engineer’s Authority and

change thereto Deemed to act for Employer Approval, check, certificate,…. shall not relieve Contractor… Engineer to obtain Employer’s specific approval before

determining time extensions for unforeseeable physical conditions, , issuing or approving proposed variations, on

Engineer’s Assistants (not ER) Replacement of The Engineer Determinations

The General Conditions of Contract - FIDIC RED BOOK – Selected Provisions-cont.

33



Commencement of Works - (By Engineer’s order after: signature of Contract, Employer’s financial arrangements, possession of Site, AP & Guarantee) – no later than 180 days from Letter of Acceptance otherwise terminate

Time for Completion - Includes Tests on Completion Programme - (no approval or consent required anymore) Extension of Time for Completion - (variation, causes under Contract, exceptionally

adverse climatic conditions, unforeseeable shortages in personnel or Goods, delay by Employer)

Delay Caused by Authorities Rate of Progress Delay Damages Suspension of Work & Consequences - (by Engineer, time and cost only, more than

84 days omission or termination)

The General Conditions of Contract -FIDIC RED BOOK – Selected Provisions

34


13. Variations and Adjustments Right to Vary (No right to vary if variation involves Goods that cannot readily be obtained,

or variation triggers a substantial change in the sequence or progress of the Works)

(Variations may include changes to quantities, quality, levels, positions and dimensions, omissions, additional work, and changes to sequence or timing of execution)

Value Engineering (savings split between Employer and Contractor) Payment in Applicable Currencies Provisional Sums (used only by instruction, executed directly and/or indirectly

by Contractor) Daywork (for work of minor on incidental nature, valued in accordance with

Daywork Schedule, daily records and supporting documents for work) Adjustments for Changes in Legislation (Employer’s risk) Adjustments for Changes in Cost (formulae and adjustment multiplier)



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14. Contract Price & Payment Contract Price (subject to valuation and adjustments as per Contract) Advance Payment (As per Contract Data and against guarantee, paid

within Interim Payment Certificate, repayment starts once interim payments exceed 30% of Accepted Contract Amount and ends before or at 90% of same)

Application for Interim Payment Certificates (monthly, including Contractual deductions..)

Plant and Materials intended for the Works (80% of cost documented and determined by Engineer taking into consideration the contract value)

Issue of Interim Payment Certificates (within 28 days if value exceeds Contractual minimum, correctable in future certificates)


36


14. Contract Price & Payment – cont.

Payment (AP within 42 days from Letter of Acceptance or 21 days after

receiving related documents) (Other interim certificates within 56 days of receiving Contractor’s

statement) (Final Payment Certificate within 56 days of issuing Certificate)

Delayed Payment (interest due at 3% above Central Bank discount rate if not specified in Particular Conditions)

Payment of Retention Money (Half at Taking-Over, other half can be replaced by Guarantee value of which equals the deficit between value of Performance Security and remaining retention)

Statement at Completion (Submitted within 84 days after Taking-Over Certificate, to include work, claims and potential claims)

Application for Final Payment Certificat (Within 56 days after Performance Certificate, to include value of Works and claims arising during DNP)


37


14. Contract Price & Payment - cont. Discharge (To be submitted with Final Statement, effective upon

payment)

Issue of Final Payment Certificate (within 28 days after receiving Statement & Discharge)

Cessation of Employer’s Liability (Apart from indemnification obligations, or liabilities for Fraud deliberate default or reckless misconduct, Employer not liable for anything unless included in Statement at Completion and Final Statement)

Currencies of Payment (As per Schedule of Payment Currencies and provisions in this Sub-Clause)

The General Conditions of Contract - cont. 38


18. Insurance General Requirements for Insurance (Insuring Party, copies of policies and

payment, insufficiency completed at the cost of the Insuring Party, insurers from any eligible source country)

Insurance for Works and Contractor’s Equipment

(Works: full reinstatement cost basis, including extended maintenance cover. Equipment: full replacement value)

(Deductibles not more than specified in Contract Data)

Insurance Against Injury to Persons and Damage to Property (Other than Works, Contractor’s Equipment and Contractor’s Personnel, limit per occurrence as in Contract Data)

Insurance for Contractor’s Personnel (To include the Employer and the Engineer)

The General Conditions of Contract – cont.

39


20. Claims, Disputes and Arbitration Contractor’s Claims (Notice mandatory otherwise no entitlement, details

mandatory but no explicit time bar, Engineer’s determination within 42 days otherwise deemed rejected

Appointment of Dispute Board (DB)

(Member should be a professional experienced in the type of construction involved in the Works and with the interpretation of contractual documents)

(3 if not expressly stated as one in the Contract Data)

(Agreement with each member by both parties in accordance with General Conditions of DB Agreement – Appendix to GC)

(Responsibility for payment to members 50% each party)

(DB may be consulted jointly by parties for opinion on matters)

(Appointment expires upon Discharge being effective

Failure to Agree on the Composition of the Dispute Board (Appointing entity named in the Contract Data)

The General Conditions of Contract – cont. 40


20. Claims, Disputes and Arbitration – cont.

Obtaining Dispute Board’s Decision (Either party may refer dispute in writing to DB, Decision within 84 days) (Dissatisfaction with Decision or lack of decision within 28 days therefrom and

intention to commence arbitration)s Amicable Settlement (56 days must elapse prior to resort to arbitration Arbitration

(Foreign Contractors: international institution and rules as per Contract Data) (Domestic Contractors: laws of the Employer’s country)

Failure to Comply with Dispute Board’s Decision (failure may be referred to arbitration)

Expiry of Dispute Board’s Appointmen (If dispute arises and no DB is there, dispute may be referred directly to arbitration)

The General Conditions of Contract – cont. 41


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