session 1 - astae zoltan wb... · session 1: fidic and fidic contracts . ... use the fidic mdb....

Session 1 by Zoltán Záhonyi, FIDIC AIT, [email protected]

Contents of Session 1

Session 1: FIDIC and FIDIC Contracts

Introduction of FIDIC

The FIDIC Conditions of Contracts - a general overview

Selecting a contract type

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Founded in 1913

Headquarters in Geneva

Mission: Work closely with stakeholders to

improve the business climate in which members operate and enable them to contribute to

making the world a better place to live in, now and in the future

Vision: Enabling the development of a

sustainable world, as the recognised global voice for the

consulting engineering industry


International Federation of Consulting Engineers

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Representing more than 1 million CE professionals in 102 countries [one Member Association per country] 60,000 consulting firms

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GAMA Group of Africa Member Associations

http://fidic.org/node/827

ASPAC Asia-Pacific group

http://fidic.org/node/830

FEPAC Panamerican Federation of Consultants

www.fepac.org

EFCA European Federation of Engineering

Consultancy Associations

www.efcanet.org

Groups of Member Associations

Regional Federations

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FIDIC Strategic Objectives

Be the authority on issues relating to business practice Promote the development of a global and viable consulting engineering industry - Offering training and development, and supporting Young Professionals

Represent globally the consulting engineering industry Enhance the image of consulting engineers Maintain FIDIC Forms of Contract as best practice

Promote quality Actively promote conformance to a code of ethics and to integrity Promote commitment to sustainable development

What FIDIC does

What FIDIC offers the industry

What are FIDIC’s governing principles

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Keep the CE industry’s concerns on the agenda Regular meetings as the industry’s voice The World Bank WB Asian Development Bank ADB European Bank for Reconstruction and Development EBRD Inter-American Development Bank IADB African Development Bank ADB Islamic Development Bank IDB

Strategic partnerships Joint activities to develop business practice International Standards Organization ISO International Labour Organization ILO World Federation of Engineering Organizations WFEO United Nations Environment Program UNEP Confederation of International Contstruction Associations CICA Transparency International TI Federation of Consultants from Islamic Countries FCIC Organisation for Economic Co-operation and Development OECD

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FIDIC World Consulting Engineering Conference

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President Jae-Wan Lee, Korea Vice-President Alain Bentéjac, France Secretariat World Trade Center II Geneva Airport Box 311 CH-1215 Geneva 15 Switzerland Tel: +41 22 799 49 00 Fax: +41 22 799 49 01 [email protected] www.fidic.org Managing Director Enrico Vink Commercial Director François Baillon

International Federation of Consulting Engineers

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Use of FIDIC Contracts

Why FIDIC Contracts? • Development funded projects – bi- and multi-lateral • Reduce corruption – balanced, well understood • International standard used extensively • 50 year track record • Private & public sector support • Extensive training options • Backed up by FIDIC best business practices

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Construction Procurement Operation & Maintenance

Life-Cycle Cost

Impact on Project Success

Life-Cycle Cost and Impact on Project Success

The procurement phase has the greatest impact on the life-cycle cost of the project, yet it is the least costly component.

The Impact of Added Engineering Value

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FIDIC Contracts - Advantages

Essential clauses. Detailed definitions. Consistent structure.

Risk allocated to party best placed to control it, bear it, and deal with it.

Drafted by consulting engineers who design and manage projects.

Range covers most needs. Readily adaptable to fit requirements.

Positive FIDIC image. World-wide acceptance Tested for more than 60 years.

CLEAR, COHERENT

FAIR, EQUITABLE

THIRD PARTY

COMPLETE, FLEXIBLE

RECOGNISED

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Professional Services Agreements

FIDIC publishes model agreements for professionals services: - Client/Consultant - Joint Venture/Consortium - Sub-Consultancy - Representative/Agent


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Works Contracts – Rainbow Collection

FIDIC publishes internationally recognised forms of contract for infrastructure works.

More than 40,000 copies supplied each year


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FIDIC Contracts – MDB Harmonised Construction Contract

Since May 2005 Multilateral Development Banks use the FIDIC MDB Harmonised Construction Contract

Adopted by bilateral development agencies (Australia, France, Japan, Korea, USA, …) MDB Supplement to Contracts Guide available


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Background to FIDIC Contracts – The Stakeholders:

Employer Contractor

Engineer*

Administrative relation

* ”Employer’s Representative” in certain FIDIC contracts

DAB

Contractual relation

Settlement of disputes: Dispute Adjudication Board!

Tripartite agreement

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Features of the 1999 editions ► Harmonisation of terms and clauses ► Wide application: common law / civil law ► Wide applicability under various project delivery

and contracting systems ► More specific provisions regarding the

obligations of the parties and their rights ► Improved management procedures ► Tackle the problem of late payment ► Role of the Engineer updated ► Dispute resolution made more effective


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The 1999 editions – some examples of the most important differences compared with the 1987 FIDIC Editions


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1987 1999

Main difference: by subject of Works Main difference: by responsibility for design Different structure for the GCC Uniform structure for the GCC – to the

extent possible No procedures for Employer’s claims Procedures for Employer’s claims inserted “Independent” Engineer Engineer is deemed to act for the Employer

New procedures for: » Replacement of the Engineer » Adjustment of the Contract Price » Value Engineering » Contractor’s claims (Time bar for Notice) » Resolution of disputes

AND MANY MORE !

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Features of the 1999 editions Red Book

Building and engineering works;

Designed by (or on behalf of) the Employer

The Contract is administered by the Engineer, appointed by the Employer.

Disputes are referred to the Dispute Adjudication Board

Electrical and/or mechanical plant and building and engineering works;

Designed by (or on behalf of) the Contractor

The Contract is administered by the Engineer, appointed by the Employer.


Process or power plant, a factory or similar facility, or an infrastructure project;

Contractor takes total responsibility for the design and execution

The Contract is administered by the Employer



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Features of the 1999 editions Red Book

Contractor to complete the Works in accordance with the Contract and the Engineer’s instructions

Interim and final payments are certified by the Engineer, (determined by measurement of the actual quantities of the works and applying the rates and prices in the Bill of Quantities or other Schedules )

Contractor provides plant, and designs (except as specified) and executes the other works, all in accordance with the Contract, which includes his Proposal and the Employer's Requirements

Interim and final payments are certified by the Engineer, typically determined by reference to a Schedule of Payments

Contractor provides plant, and designs and executes the other works, ready for operation in accordance with the Contract, which includes his Tender and the Employer's Requirements

Interim and final payments are made without any certification: typically determined by reference to a Schedule of Payments


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Structure of the 1999 FIDIC contracts Each includes:

» General Conditions » Guidance for the Preparation of the Particular Conditions » Letter of Tender, Contract Agreement and Dispute

Adjudication Agreements

General Conditions used unchanged. Changes to suit an Employer’s own requirements are illegal and in breach of copyright. Include the Appendix to Tender, which gives essential project information. All project- and country-specific changes in Particular Conditions.


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Structure of the 1999 FIDIC contracts General Conditions comprise 20 Clauses, covering similar subject matter in all three contracts, except:

Construction: Cl. 3 The Engineer; Cl. 5 Nominated Subcontractors; Cl. 12 Measurement and Evaluation

: Cl. 3 The Engineer; Cl. 5 Design; Cl.12 Tests after Completion

: Cl. 3 The Employer’s Administration, Cl. 5 Design; Cl. 12 Tests after Completion


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Structure of the 1999 FIDIC contracts Similar defined words and phrases are used in all 1999 editions, the main exception being descriptions of the documents in the Contract:

Construction : Contract Agreement, Letter of Acceptance, Letter of Tender, Conditions of Contract, Specification, Drawings, Schedules

: Contract Agreement, Letter of Acceptance, Letter of Tender, Conditions of Contract, Employer’s Requirements, Schedules, Contractor’s Proposal

: Contract Agreement, Conditions of Contract, Employer’s Requirements, Tender


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Structure of the 1999 FIDIC contracts Essential Documents to form part of a FIDIC Contract

► General Conditions (of Contract) (This is always the relevant part of the FIDIC book chosen) ► Particular Conditions (of Contract) (Include modifications and supplements to the GC as

necessary due to the legislation of the Country and as a result of the Project)

► Appendix to Tender (Except EPCT) (A list of most important data in the Contract) ► Technical Documents of the Contract (Designs, Bills of Quantities, Technical Specifications,

Employer’s Requirements etc.)


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Forms – In the Construction and Contracts, the

Appendix to Tender provides a convenient check-list of all the essential data required for the various sub-clauses.

– Example texts for six forms of securities: Parent Company Guarantee; Tender Security; Performance Security; Advance Payment Guarantee; Retention Money Guarantee; Payment Guarantee by Employer.

– Dispute Adjudication Agreements (one member; three member) are short, because they reference General Conditions of Dispute Adjudication Agreement appended to the General Conditions.


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Contract Preparation: How to choose the most suitable conditions of contract?

Questions to analyse and answer:

» Subject / type of the contract (construction only, design-manufacture-installation, design only etc.)?

» Type of risk sharing (Contractor to construct only OR he is involved also in the design)?

» How the contract / project is intended to be managed?

» What will be the type / method of payment?


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Preliminary Designs

Designs for Approval

Construction (Detailed) Designs

As Built Drawings

Approval procedure

D & B Contractor’s Entry

Construction „only” Contractor’s Entry

RISKS for Late / Early Entry!


Contract Preparation: How to choose the most suitable conditions of contract?

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Contract Preparation: Choice of appropriate form

CONTRACTOR DESIGN

STRAIGHTFORWARD PROJECT

EMPLOYER DESIGN

Plant and/or high unforeseen risks

Fixed price - lump sum Little employer involvement

No major unforeseen risks

no

no

DISCUSS IN DETAIL

Employer’s Requirements with the

Contractor, and negotiate a modified

FIDIC contract

yes

yes

yes yes


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Contract Preparation: Conditions of Contract ► FIDIC conditions do not just give the rights and

obligations of the Parties, but also include project management procedures essential for the administration of the project.

► The (General) conditions shall be completed. Certain items of information must be provided in other documents: Appendix to Tender, Particular Conditions and Specifications.

► Information must be co-ordinated with the other documents in order to ensure that the contract, as a whole, will serve its intended purpose.


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Contract Preparation: Conditions of Contract ► Employer and Tenderer insert information in the

Appendix to Tender. ► General Conditions may be modified for project

circumstances and requirements by Particular Conditions.

► Check the sub-clauses that refer to a) information in the Specification / Employer’s requirements and b) information that may be included elsewhere in the Contract.

► Modify standard Contract Agreement to suit the Employer’s requirements.

► Decide for a one-person or three-person DAB and whether to nominate potential members.


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Contract Preparation: Conditions of Contract ► Consider the use of Annexes A to G for the forms

of securities that are referred to in the General Conditions and the Appendix to Tender (may need to be modified to suit the Employer’s requirements and the applicable law).

► Consider the use of a standard Letter of Tender for use by tenderers when submitting their Tender. The information given in the conditions of contract must be included.


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Risk allocation

► Key issues concerning risk that should be checked by the Parties:

-» Employers’ risks -» Contractors’ risks -» Shared risks


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Risks: Should the Contractor bear them all? ► If risks allocated to the Contractor become

excessively high, the following may occur: » Higher tender price, » Failure of the tender and disruption of project

implementation, » Non-participation in the tender of conscientious and capable

contractors, » Contract award to a tenderer incapable of estimating risks, » Poor construction quality and delay to the progress of the

work, » Undermining the relationship of mutual trust, » A number of groundless claims from the Contractor, » Frequent disputes, » In an extreme case, termination of the contract.


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Risks - Which contract to use: Risk sharing* ► If a risk is not allocated to one of the contracting

parties either by the applicable law or by the terms of the contract then courts will ask the following questions:

- Which party can best foresee the risk? - Which party can best control the risk? - Which party can best bear the risk? - Which party most benefits or suffers if the risk

eventuates? ► It is foolish to allocate a risk to a party who cannot

bear the risk unless that party is able to shift the risk to others who can. This shift or spread is usually done through insurance.

* by Abrahamson & Nael G. Bunni


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Risks - Which contract to use: Risk sharing ► Project risks are divided into:

- Mainly insurable risks (risks of loss, damage or injury occurring during the contract, including: consequences of accidents due to defective design, defective material and defective workmanship; acts of God; fire; human error; failure to take adequate precautions).

- Mainly not insurable risks (risks leading to financial and/or time loss with their impact on the project, including: late possession of the site; delay in receipt of necessary information; changes in design; variations in the original contract).


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Thank you for your kind attention!

Zoltán Záhonyi [email protected]
