FIDIC (the International Federation of Consulting Engineers) is an organisation that has given its name to a series of standard contracts used in France and internationally on construction and engineering projects. Designed by a panel of engineers and lawyers, these contract templates are intended to allocate roles, responsibilities and risks between the parties (contractor and employer).
FIDIC in fact offers several contract templates, commonly known as “books” and distinguished by colour according to their purpose:
- Red Book: for traditional projects where the employer designs and the contractor builds.
- Silver Book: for EPC/Turnkey contracts.
- Green Book: for small projects.
- Yellow Book: for design and build projects.
In this article we focus on the Yellow Book, entitled “Conditions of contract for plant and design-build”, in other words the design-and-build contract.
Why use the FIDIC Yellow Book?
The Yellow Book is particularly suited to projects in which the contractor is responsible for both designing and building the works. It is widely used in sectors such as infrastructure, energy and industrial plant, and all the more so on projects with an international dimension.
Among the good reasons to use the Yellow Book for design-and-build works contracts, here is a top 5:
- Making negotiations easier: by starting from a template drafted by a non-profit organisation, accepted and known by all the major players across the world.
- Simplifying onboarding for project teams: by using a template that a great many project managers, contract managers, planners and package managers have already worked with on previous contracts.
- Using a robust template: academic reviews, legal commentary and case law are plentiful and provide a reliable framework for interpreting the clauses of a FIDIC contract.
- Reassuring funders: by using a template commonly accepted by most bank and institutional funders of major projects in many regions of the world.
- Fostering the relationship between the parties: FIDIC contracts may not be as collaborative as NEC contracts (see this article on the subject), but they still provide a foundation that creates moments of dialogue and standardises the exchange of notices between the parties.
Yellow Book: the key clauses to negotiate
The question is complex and the answer depends on the sector, but also on the position you are in (here, “Employer” or “Contractor”). Either way, here is a selection of key Yellow Book clauses that you should take the time to analyse properly before committing:
a. The role of the Engineer
The Engineer plays a central role in administering the contract. Under Clause 3 of the Yellow Book, the Engineer is responsible for supervising the works, issuing instructions and certifying payments. It is essential that the Engineer acts impartially between the Employer and the Contractor. Concerns may nonetheless arise about that impartiality, particularly where the Engineer is employed by the Employer. It is therefore advisable to define the Engineer’s role and independence clearly in the contract.
b. Liability and indemnities
Clause 17 of the Yellow Book deals with risks and liabilities, including indemnities. It is crucial to clarify each party’s obligations regarding property damage, personal injury and financial loss. A fair allocation of risk ensures that the Contractor does not take on excessive liabilities that could jeopardise the viability of the project.
c. Time and liquidated damages
Clause 8 covers the time for completion and the damages payable in the event of delay. It is essential to set realistic deadlines and to establish clear mechanisms for extensions of time in unforeseen circumstances. Liquidated damages must be proportionate to the real impacts on the project, so as to avoid excessive penalties for the Contractor.
d. Claims and notices
Clause 20 sets out the claim procedures for both parties. The Contractor must understand the strict deadlines for serving notices of claim. Missing those deadlines can mean losing the right to legitimate compensation. Rigorous documentation and transparent communication are essential to managing claims effectively. Notices, for their part, are numerous and are dealt with across many FIDIC clauses. You will need to make sure that the procedures and arrangements suit the way the parties work together.
e. Variations and changes
Clause 13 deals with changes to the contract. It is important to read and understand the processes for notifying, instructing and approving variations, the associated financial adjustments and the potential impacts on the project schedule. Managing variations effectively ensures that the Contractor is properly paid for additional work and that deadlines are adjusted accordingly.
f. Limitation of liability
Clause 1.15 introduces limitations of liability (with some new features that we cover in the sections below). It is essential to make sure these limitations are reasonable and reflect a fair allocation of risk, but also that the exclusions and limitations in Clause 1.15 are realistic given what is at stake on the project.
g. Dispute resolution
Clause 21 covers the mechanism and processes for resolving disputes, including the role of the Dispute Avoidance/Adjudication Board (DAAB). It is advisable to understand these mechanisms and to provide for mediation or arbitration procedures so that disputes can be resolved effectively and efficiently.
These seven points are must-reads, but many other subjects and themes – sources of risk, but also of opportunity – should be read, negotiated and taken into account when using the Yellow Book.
What changed in the 2017 Yellow Book?
On form, the first thing you notice is that the 2017 version has put on weight compared with its predecessor: the 2017 Yellow Book grew by almost 50% in 18 years. On substance, the 2017 Yellow Book brought rigour and precision to various key moments in the contract lifecycle (helping the contract manager role to emerge), as well as greater reciprocity in the parties’ rights and obligations. This translates into several important changes that are worth knowing well, not least so that they can be adjusted where necessary.
The list of changes between the 1999 Yellow Book and the 2017 Yellow Book is long. Among them, however, the following are worth revisiting:
a. Notices (Clause 1.3):
the notice mechanism is now used far more widely (and notices must be in writing and clearly identified as notices), which in theory encourages dialogue between the parties (see the previous paragraph).
b. Liability (Clause 1.15):
Liquidated damages for delay and damages relating to intellectual property are now excluded (by default) from the liability cap
c. Design risks (Clause 17.4):
The addition of compensation payable by the Contractor to the Employer for design errors that render the design not “fit for purpose”, excluded from the liability cap.
d. Changes or Variations (Clause 13):
Clarifications have been made to the mechanisms by which the Employer instructs and requests changes, and these are bound to be hotly debated in contract negotiations.
e. Extensions of time, or “EoT” (Clauses 4.15 / 8.5):
The Contractor may now be entitled to an extension of the time for completion where access routes are unavailable or unusable
f. Latent defects (Clause 11):
Whereas the 1999 version referred back to the general law, the 2017 FIDIC Yellow Book now adds that the Contractor’s liability for latent defects ends after a period of two years.
g. Claims (Clause 20):
Claims are now separated from the provisions on disputes (new definitions of “Claim” and “Dispute” are given). In particular, the deadlines for bringing claims ahead of a dispute apply to the Contractor and the Employer alike.
h. The Dispute Avoidance/Adjudication Board, or DAAB, becomes institutional (Clause 21):
The 1999 DAB becomes the DAAB, but beyond this change of name the DAAB is now a standing body by default, allowing pre-dispute issues to be addressed earlier.
Why and how to get trained on FIDIC contracts
Training on the FIDIC contract templates, their subtleties and the good practice to apply when negotiating or managing these contracts is essential for any contract manager (or indeed project manager) working, or hoping to work, in construction and major projects.
The step up may look steep at first, but a good deal of training is available in various formats, including:
- Syntec Ingénierie: which offers high-quality French-language training on using FIDIC contracts.
- FIDIC: the organisation itself delivers online and in-person training on the various Books, in French or English.
Conclusion
The FIDIC Yellow Book is (alongside the NEC templates) an essential contract model for design-and-build projects and, more broadly, a working tool that contract managers must master in order to operate in construction, energy or major projects.
Feel free to contact the Prime Conseil teams for any further information, or to request our summary sheets on FIDIC contracts!