In contract management, and particularly in the construction and energy sectors, you frequently come across so-called “FIDIC” contracts.
Over recent decades these FIDIC contracts have become (alongside NEC contracts) the standard for complex construction works, EPC contracts and public-private partnerships. They punctuate the life of a great many projects and, as a result, the working life of contract managers.
This article revisits some of the basics of FIDIC contracts.
A. FIDIC contracts: some basics and definitions
The first question to answer is: what does FIDIC stand for? It is an acronym (a French one – a small point of national pride!) for the International Federation of Consulting Engineers. Founded in 1913 by the Belgian, French and Swiss national federations, it now brings together close to 90 federations across 5 continents!
The federation has worked for many years with a clear ambition: to produce standard contracts for construction projects (build-only, design-and-build, turnkey and so on). To do so, FIDIC started from the premise that every construction project, whatever its technical and geographical specifics around the world, rests on the same fundamental principles.
Drawing on decades of experience in the sector, FIDIC developed these standard contracts to provide a robust, adaptable contractual framework that makes construction and installation projects easier to manage in a variety of contexts, while encouraging cooperation and efficiency across the industry.
These templates are the product of multidisciplinary work over several years (many experts – lawyers, in-house counsel, engineers and finance specialists – contribute to the drafting).
To illustrate the sheer scale of the work FIDIC does, publishing the latest version of the standard contracts (in 2017) mobilised more than 320 experts from 35 different countries. The Red Book grew from 62 pages in the 2009 version to 106 pages in its 2017 version, a mark of these contracts’ success on the international stage, of increasingly professional practice… and of ever more complex business relationships.
B. Why use FIDIC contracts?
There are a thousand and one reasons to use FIDIC contract templates on construction works and complex projects.
The first is that the FIDIC suite is used all over the world, by every stakeholder in construction (funders, insurers, clients, subcontractors and others), and has been for more than 50 years! That global recognition makes exchanges and cross-border cooperation between construction players far easier.
The second argument stems from how these templates came about and how they are revised. FIDIC contract templates are the result of collaborative work between lawyers, construction experts and finance specialists. So, while there is always room for improvement, they have the advantage of being drafted by experts with real experience of construction projects, and therefore of providing terms and, more generally, answers to the difficulties and contingencies likely to arise during a project.
Another argument – disputed by some – is that FIDIC templates are drafted with the ambition of being neutral or agnostic, that is, favouring neither one party nor the other. Roles and responsibilities are therefore (in theory) allocated fairly and evenly, which makes a good starting point – the anchor – for negotiation between the parties.
Finally, the existence of “guidelines” that clarify certain clauses and guide FIDIC users in drafting particular conditions is one more good reason to take FIDIC as a working basis.
C. What are the different types of FIDIC contract?
In 1957 there was only one contract template. It was entitled “The Form of contract for works of Civil Engineering construction” and was quickly nicknamed the “Red Book” because of the colour of its cover.
Over the years, as construction project practice (and funding methods) evolved, the number of FIDIC contract templates grew. These templates are now known by the colour of their covers. To date they are:
– The “Green Book”: also known as the “short contract”, this template is, as the name suggests, a lighter version of the contract dedicated to small works and projects. The notes accompanying the Green Book even recommend using it for projects worth less than $500,000. The latest version of the Green Book dates from 2021.
– The “Red Book”: the first template published by FIDIC. It is dedicated to build-only works (in which the employer takes care of the design). A new version of this template was released in 2017 (revised in 2022); applicable to a wide range of contracts, it is the most widely used.
– The “Yellow Book”: officially named “Conditions of Contract for Plant and Design-Build”, it is designed specifically for projects where the contractor is responsible for both the design and the construction of the works.
– The “Orange Book”: officially named “Conditions of Contract for Design-Build and Turnkey”, it is designed for construction projects where the contractor is responsible not only for design and construction, but often also for supplying all the necessary plant and equipment. The first turnkey contract template published by FIDIC, it has gradually been replaced by the Silver Book.
– The “Silver Book”: officially named “Conditions of Contract for EPC/Turnkey Projects”, the Silver Book is designed for EPC (Engineering, Procurement, Construction) or turnkey contracts, where the contractor is responsible for the whole of the design, procurement and construction, and often for commissioning, with little or no client input after contract award, in return for payment of a lump sum.
– The “Gold Book”: going by the charming name of “Conditions of Contract for Design, Build and Operate Projects”, the Gold Book is designed specifically for projects where the contractor is responsible not only for design and construction, but also for operating and maintaining the works for a set period after construction. This contract template is ideal for public-private partnerships (PPPs) and other projects where long-term durability and performance are essential.
D. FIDIC contracts: points to watch
Listing every point to watch exhaustively is impossible, as they vary so much from case to case (is the project in France? abroad? does it involve a long chain of consortium partners? of subcontractors? and so on).
a. Dispute resolution
FIDIC contracts provide for adjudication as the first step in resolving disputes. Understanding this process, often run by a Dispute Adjudication Board (DAB), is crucial. The parties must be aware of the deadlines and procedures for referring a dispute to adjudication, as well as of the implications of the adjudicator’s decision, which is generally binding but temporary until the matter is settled by arbitration or agreement.
b. Managing changes
FIDIC contracts contain detailed clauses on managing claims and changes. It is important to understand how and when to submit a claim, the acceptable grounds for claims (such as delays or changes in working conditions), and the processes for assessing and approving them. Contract changes must be handled with care to avoid misunderstandings and disputes.
c. Managing deadlines
FIDIC contracts place heavy emphasis on strict compliance with the deadlines for notices, claims, responses and other contractual actions. Missing these deadlines can mean losing rights or remedies. It is therefore essential to track and document every contractual deadline carefully.
d. Freedom of contract
The freedom FIDIC contracts offer is an undeniable advantage, allowing the templates to be adapted to the most exotic situations, but that freedom can also create difficulties. FIDIC templates allow amendments through Particular Conditions. However, amending them without an adequate understanding or the necessary expertise can introduce risks and ambiguities. The parties must make sure they have the skills and the time needed to make relevant, coherent amendments.
e. Risk management and allocation
Before using them, a thorough understanding of risk allocation in FIDIC contracts is essential. The parties must be able to assess carefully how risks are allocated, particularly as regards site conditions, delays, cost increases and liability for default, and to draft particular conditions where needed. Clear risk allocation helps prevent disputes and ensures better preparedness for managing them if they arise.
f. The induced cost of managing FIDIC contracts
As we have seen in this article, FIDIC contract templates have grown richer (and more complex) over the years, becoming denser and more precise. That can bring additional administrative and management costs. Before opting for a FIDIC template, the parties must be prepared to absorb those costs, which include contract monitoring, documentation, managing claims and disputes, and potentially engaging experts such as contract managers (you can see where we are going with this!).
Conclusion:
FIDIC contracts are an essential tool in construction and energy, offering a proven, internationally recognised contractual framework.
Using them, however, calls for heightened vigilance and specific contract management expertise, not least to handle the challenges of dispute resolution, change management, compliance with deadlines, and risk management and allocation.
The freedom the FIDIC templates offer, though beneficial, can also introduce complexity and even cumbersome processes, which need to be used wisely.