The Most Popular General Conditions of Contract

Fidic’s General Conditions of Contract may be liked or disliked, but it is widely agreed upon that they are the most popular General Conditions of Contract used for large construction projects, for which the invitations to tender is open to contractors who operate internationally. They may then be awarded to a non-domestic contractor and for this reason have been drafted taking into account that they may have a foreign element, such as the determination of the applicable law. Contracts between parties whose places of business are in different states are generally referred to as international.

This, while in many jurisdictions, construction contracts which have a limited local relevance, are governed by local standard contracts and in some of them there is not even a standard contract.

Frequent Amendments to General Conditions

As it is well known, the Fidic General Conditions are frequently not only completed by Particular Conditions, but also amended through the latter by replacements, additions and omissions.

This is sometimes due to the need to adjust their structure to a less specific approach.

Need to Protect the Genuinity of the Fidic Contract

It is quite understandable then that Fidic has felt it necessary to protect its own Conditions of Contract, in order to avoid that a contract be considered as a Fidic Contract even when, due to material amendments to it, it has lost its precise balance between duties and rights, its balance of risks and its careful selection of the time periods for the performance of the contract and for the exercise of rights.

This has brought Fidic to launch its Golden Principles, through which it rightly aims to avoid that one may be induced to accept as a Fidic Contract, a contract which is no more in line with its essence.

A protection which reminds of one of the purposes of the registration of a trademark.

The Five Golden Principles

The best source of information as to these principles is of course the first edition 2019 of the Golden Principles, which may be consulted on the Fidic’s site, reference to which is made here below.

They may be very roughly summarized as follows:

  • Principle 1 deals with the duties, rights, obligations, rules and responsibilities of all the Contract Participants, set out by the Fidic General Conditions, which are not to be significantly changed;
  • Principle 2 provides that the drafting of the Particular Conditions must be clear and not ambiguous;
  • Principle 3 states that the balance of allocation of risks and rewards is not to be changed;
  • Principle 4 states that a time period provided for by the Fidic Conditions may be modified provided its duration remains reasonable;
  • Principle 5 requires that all the disputes be referred to a Dispute Avoidance/Adjudication Board or to a Dispute Adjudication Board, the provisionally binding decision of which may be referred to arbitration.

Fidic rightly describes these principles as “the essence of a Fidic Contracts”.

It fortifies its message to users by stressing that the Fidic General Conditions are equitable and balanced.

The Inevitable Impact of the Applicable Law

The Fidic Golden Principles recognize that the Fidic General Conditions may be superseded by the applicable law.

To assess this impact, it may be useful to review very quickly the ambit of the applicable law.

In the majority of construction contracts, launched by an invitation to bid, the Principal has selected its national law. As it is known, it will not be frequent that a bidder qualifies its bid by not accepting the law selected by the Principal and, if this occurs, it is very likely that such a contractor will not be awarded that contract.

In the general conditions attached to its invitation to bid,  if the Principal provides that its national law prevails on any different contractual term, the automatic consequence of this will be that the contract entered into through its acceptance of a bid may not be in line with the Golden Principles.

In the absence of a selection of the proper law in the contract, it will be determined by applying the usual conflicts rules.

The immediate consequence of the applicable law is of course that its mandatory provisions prevail on any different contractual provision.

Effects of Non-Compliance

It is suggested that non-compliance with the Golden Principles, while not affecting the validity of the contract by itself, produces the result that it should not be described as a Fidic Contract and should not be seen as such.

In an analysis to establish the applicable law, when not selected by the parties, a first aspect concerns the traditional distinction between a sale and a contract for services, the former consisting in the provision of goods manufactured by the seller or by a third party (this performance being described in latin as dare) and the latter in the rendering of services, which include the use of goods purchased or manufactured by the contractor (in Latin a “facere”).

The United Nations Convention on Contracts for the International Sale of Goods[1] provides that

This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services”.

Under European law, Regulation Rome 1[2], which applies to contractual obligations, in civil and commercial matters, which involve a conflict of law, art. 4 provides that the law governing the contract as to provision of services shall be

            “the law of the country where the service provider has his habitual residence

what is in line with its general attitude to select the law of the country where the party required to affect the characteristic performance of the contract has his habitual residence.

A rule which, as it is known, has replaced the Rome Convention[3] which at art. 4 selected

            “the law of the country with which it is more closely connected”.

The conclusion might then be that in transnational (international) construction contracts, the applicable law should be the law of the contractor, with the consequence that the Principal, when sending the invitation to bid, would not know which would be the applicable law. A solution which would not have, it is submitted, much commercial sense.

However, it is suggested that the provision of art. 4(b) of the Rome Regulation 1 has to be interpreted starting from the scope of letters (a) and (b) of art. 4 which is to ensure that the contract is governed by the place where the goods are manufactured or the service is provided, which is generally the place where they have their habitual residence, in other words of the country where they operate.

In transnational construction contracts, the place where the contractor operates is not the place of his habitual residence, but the country where the project has to be erected.

It is suggested that this remark allows to apply art. 4[4] of the Regulation, which provides

where it is clear from all circumstances of the case that the contract is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply”.

Conflict of law rules outside the European Union

Subject to the possible specific provisions in some jurisdictions, in general it seems that outside the European Union the closest connection principle is called to apply, what will frequently lead to the application of the law of the place where the works are erected.

Mandatory provisions

Whether the applicable law has been agreed upon by the parties, or established based on conflicts-of-law rules, the mandatory provisions of that law will automatically replace any different statutory or contractual provision.

In addition to this, the mandatory provisions of the law of the place where the dispute is decided (the lex fori) will of course have to be taken into account by the judge or arbitrator.