WELCOME

International Construction Contracting: Use and Application of the FIDIC Form

Contracts and Trends in International Construction Contracting

Robert C. Epstein

Co-Chair, Global Construction Law Practice

Greenberg Traurig, LLP

William J. Wray

Shareholder

Holley, Driggs, Walch, Fine, Wray, Puzey & Thompson

Mike Carrato

Vice President, Legal & Contract Management

Alstom Transport

Mike Kolloway

Deputy General Counsel

Parsons Corporation

Our Panelists

Robert C. Epstein - Moderator– Co-Chair, Global Construction Law Practice

– Greenberg Traurig, LLP

William J. Wray– Member

– Holley, Driggs, Walch, Fine, Wray, Puzey & Thompson

Mike Carrato– Vice President, Legal & Contract Management

– Alstom Transport

Mike Kolloway– Deputy General Counsel

– Parsons Corporation

Worldwide Construction

$7.5 Trillion or 13% of Global Gross Domestic Product

Revenues of the World’s Biggest Contractors from Projects Outside Their Home Countries

Increased by $40 Billion in 2013 over 2012

Chinese Firms — largest revenue share

U.S. Firms — third place

Decreased by $22 Billion in 2014 over 2013

Chinese Firms — largest revenue shares

U.S. Firms — second place

Risks on International Projects

Political Risks– War, civil war, terrorism, social unrest, especially in developing countries

– Expropriation

– Leadership changes

Economic/Financial Risks– Fluctuations in economic conditions in host country (inflation, fluctuating prices)

– Foreign exchange rates

– Material and labor supply shortages

– Repatriation of profits back to home country

– Multi-cultural environment

– Financing complexity

– International joint ventures

What is FIDIC?

FIDIC is the International Federation of Consulting Engineers

The acronym derives from its French name - Fédération

Internationale des Ingénieurs-Conseils (FIDIC)

Founded originally in 1913 by France, Belgium and Switzerland

Aims to promote the interests of engineers, design

professionals and construction industry professions

Originally Europe based, but has grown into a leading global

construction industry organization

Now has 97 member countries around the world

FIDIC’s Stated Objectives

Be the recognized international authority on issues relating to consulting

engineering best practice.

Actively promote high standards of ethics and integrity among all stakeholders

involved in the development of infrastructure worldwide.

Maintain and enhance FIDIC’s representation of the consulting engineering

industry worldwide.

Enhance the image of consulting engineering.

Promote and assist the worldwide development of viable consulting engineering

industries.

Promote and enhance the leading position of FIDIC’s Forms of Contract.

Improve and develop FIDIC’s training and publishing activities.

To promote and encourage the development of Young Professionals in the

Consulting Engineering Industry.

Pertinent FIDIC Publications

International standard contracts forms for construction

Related materials such as standard pre-qualification forms

Business practice documents such as:– Policy Statements

– Position Papers

– Guidelines

– Training Manuals and Training Resource Kits in the areas of:

management systems (quality management, risk management, business

integrity management, environment management, sustainability)

business processes (consultant selection, quality based selection,

tendering, procurement, insurance, liability, technology transfer, capacity

building)

Copyrights

FIDIC is the sole owner of all Copyrights pertaining to the

FIDIC publications.

FIDIC is protective of its Copyrights and requires license

fees and/or subscription fees for use of its books, forms

and other documents and publications (similar to AIA in

the US).

Languages and Translations

All FIDIC documents are published primarily in English.

FIDIC sometimes translates its documents into other languages, but English

remains the official language of reference in case of legal dispute.

Other organizations sometimes translate and modify FIDIC documents to conform

to particular needs. Some examples include:– The Multilateral Development Banks (“MDB” an organization of international banking

institutions) developed a Harmonized Edition of the Construction Contract based on

FIDIC’s form that is used by MDB Banks, including the World Bank, for their projects.

– Some governmental Owners/Employers require that project contracts be in the official

language of the applicable nation or locality.

Notwithstanding, the English language version is considered by FIDIC as the

official version AND the authentic original source text for the purposes of

translation into other languages.

Unique Vocabulary

FIDIC and international construction documents sometimes utilize unique or

differing vocabulary.

Some examples include:– Employer: Synonymous with “Owner”

– Engineer: In FIDIC docs is generally analogous to “Architect” (or Architect of Record or

AOR) in AIA and other typical US construction contracts. NOTE: In FIDIC contracts and other typical international construction contracts, the roles of all project

engineering work, including architectural work, are generally contracted to a single engineering firm.

– Bespoke Contracts or Bespoke Terms: Contracts or contract terms which are specially

or specifically drafted or prepared for a particular purpose. Non-standard or non-

boilerplate contacts or terms are sometimes referred to as Bespoke contracts or terms.

– Re-measurement Contract: Analogous to “Cost-Plus” or “Time & Materials (T&M)” types

of contracts are sometimes referred to as Re-measurement Contracts.

– Facilities: Equipment, items and facilities (other than the Project land) necessary to

facilitate completion of the contemplated works.

FIDIC Construction Contract Forms Books

The primary FIDIC Rainbow Suite of New Contracts was published in

1999, and comprises most of the typical FIDIC form contracts currently

in use, including the following Books for the stated situations and

circumstances:

– The Green Book: Conditions of Short Form of Contract

– The Red Book: Conditions of Contract for Construction for Building and Engineering Works Designed

by the Employer

– The Yellow Book: Conditions of Contract for Plant and Design-Build

– The Silver Book: Conditions of Contract for EPC Turnkey Projects

FIDIC Flowchart

Additional FIDIC Books

The additional range of the FIDIC Rainbow of

construction contracting Books includes:

– The Blue Book: Contract for Dredging and Reclamation

Works

– The Pink Book: (or the MDB/FIDIC Contract): Modified

FIDIC Contract incorporating special conditions terms for

use where MDBs are providing financing

– The White Book: Client/Consultant Model Services

Agreement

– The Gold Book: FIDIC Design, Build and Operate Projects

Project Engineer: Critical Role in FIDIC Contracts

The standard FIDIC Books/forms typically provide that the

Project Engineer (which includes the Architect’s roles)

oversees:– project administration functions

– certain dispute resolution functions

The FIDIC Books define the role of Project Engineer as

agent of the Employer (Owner).

The Project Engineer typically:– issues instructions and notices

– monitors the works

– acts as certifier/commissioner of completed works

Project Engineer: Critical Role in FIDIC Contracts (cont.)

The Engineer is often assigned initial adjudication and

resolution authority concerning project disputes, AND is

supposed to act impartially when the rights and

obligations of the parties are affected.

– However, absence of bias is not in reality practical:

Firstly, a FIDIC Project Engineer will primarily (as expected)

protect its own interests; and

Secondly, under FIDIC Contracts the Engineer is deemed to,

and in practice typical does, act for and in the best interests of

the Employer.

Role of the Contractor in FIDIC Book Contracts

The Contractor's main obligation under any construction contract

is the construction and completion of the works in accordance

with the contract terms, conditions and specifications.

Under the FIDIC Red and Yellow Books, the Contractor’s

obligations include:– Fitness for purpose – ensuring that the design will meet the employer's requirements

– Design responsibility (limited in the Red Book, more comprehensive in the Yellow Book)

– Carrying out the works in a proper and workmanlike manner with properly equipped

Facilities and non-hazardous materials

– Providing the requisite Facilities (equipment, etc.)

– Responsibility for choosing the Facilities and means, materials and methods of

completing the work

Other Typical Contractor Functions

FIDIC Project Contractors are assigned other typical

administrative and performance facilitating functions, including:

– Providing information needed for the execution and completion of

the works

– The issuing of typical project and claims related notices, including

notice of any events that impact costs or completion time

– NOTE: The Claims notice period in FIDIC Books is typically very

short, e.g., “not later than 28 days after the Contractor became

aware, or should have become aware, of the event or circumstance”

giving rise to a right to claim (FIDIC Red Book and Yellow Book,

Clause 20.1).

The FIDIC Books Are Not “Set in Stone”

As is typical with the use of boilerplate-based forms in the U.S.,

bespoke terms, conditions, variations and adjustments can be

applied to the FIDIC Books contact forms.

Such bespoke terms can be negotiated and included based

upon a Project’s and/or an Employer’s specific needs and

circumstances.

Modifications typically arise, for example, by:

– Employer's instruction

– Employer's request for a proposal

– Contractor's value engineering proposal

Which FIDIC Contract is right for a specific Project?

(Source: http://fidic.org/bookshop/about-bookshop/which-fidic-contract-should-i-us)

Additional Review & Analysis:

Use & Application of the Key FIDIC Contracting Books-

The Red Book

The Yellow Book

The Silver Book

The Red Book: Conditions of Contract for Construction forBuilding and Engineering Works Designed by the Employer

This is the typical basic contract for construction between

an Employer (Owner) and its prime contractor.

In its standard form, The Red Book is a Re-measurement

Contract (cost-plus or T&M contract), meaning that the

Employer and the Contractor typically negotiate the rates

for types or schedules of work and those rates will be

applied to the quantity of that work that the contractor

carries out.

The Red Book: Conditions of Contract for Construction forBuilding and Engineering Works Designed by the Employer

Under standard Red Book contracts, the Employer

typically takes the risk that the quantity estimates are

accurate, while the Contractor must ensure that its unit

prices for the quantities are adequate.

By bespoke terms and conditions the Red Book contract

can be modified and adopted to a lump-sum type

contract.

The Yellow Book: Conditions of Contract for Plant and Design-Build

Intended for use where the works are designed by the

Contractor.

In its standard form, the Yellow Book is a lump sum

contract, in which the Contractor promises to deliver the

project for a set price.

The Contractor takes the risk of quantities.

The Silver Book: Conditions of Contract for EPC Turnkey Projects

EPC Contract – Engineering Procurement and Construction

Intended where Employer looks to the Contractor to take total

responsibility for the design, procurement, construction and

turnkey completion of the Project.

Often used in large Infrastructure Projects (e.g., road, rail,

bridge, airport, water/sewage plant, transmission line or power

plant projects) or in international markets where the Employer,

who provides or secures the project financing, wishes to

implement the Project on a Fixed-Price Turnkey Basis.

The Silver Book: Conditions of Contract for EPC Turnkey Projects

Almost universally used in developing world large

Infrastructure Projects.

Increasingly used in the U.S. in projects, particularly

large infrastructure projects where specialized,

experienced international contractors are called in.

The Silver Book: Employer Centric Benefits

“Turnkey” and “End Result” Driven:

The Employer gets a higher degree of certainty that the agreed contract

price and time will not be exceeded, except for the risk of certain limited

and usually unforeseen conditions.

The Employer avoids involvement in the day-to-day progress of the

construction work, providing simply for an end result that meets the

Employer’s specified performance criteria.

The Employer typically and willingly pays more for the construction of a

Project (than would be the case if other contract forms were used) in

return for the Contractor bearing the extra risks associated with

enhanced certainty of final price and time.

The Silver Book: Trend Toward EPC Turnkey Contracts in Large International Projects

We live in an increasing, “end result”, “turnkey”, consumer-

driven world where purchasers of a product or service just want

it done and working right.

– Example 1: Consumer electronics products.

– Example 2: Current farm and irrigation equipment.

Many project Owners (or “Employers” international construction

nomenclature) in this “new world” are looking for this kind of

simple, “turnkey”, just “get it done and working right” type of

construction.

And they are willing to pay more for it!

Q & A

Robert C. EpsteinEmail: epsteinr@gtlaw.com

Phone: (973) 360-7945

William J. WrayEmail: wwray@nevadafirm.com

Phone: (702) 791-0308

Mike CarratoEmail: mike.carrato@power.alstom.com

Phone: (423) 902-5578

Mike KollowayEmail: michael.kolloway@parsons.com

Phone: (312) 930-5100

THANK YOU