The publication last December of the second editions of FIDIC's contracts for international construction and engineering projects marks the 60th anniversary of its first construction contract, the FIDIC Red Book, issued in 1957. The new editions also arrive 18 years after FIDIC's first Rainbow Suite from 1999 – so-called because it comprises the Red, Yellow and Silver Book forms of contract.
Reflecting significant experience from almost two decades of widespread international use, the second editions introduce substantial changes and are much more comprehensive than their predecessors, with the General Conditions each spanning more than 100 pages and containing 21 clauses. This article looks at some of the significant changes.
Describing the rainbow
The Red Book is based on the traditional employer-design procurement model and embodies the measurement and valuation payment mechanism, with alternative provision being made for payment on a lump-sum basis. Historically, it has been FIDIC's most widely used contract.
The Yellow Book is FIDIC's design and build contract and is intended for use on a wide variety of projects, for instance for the provision of electrical and mechanical plant or the design and execution of building and engineering projects. Payment is on a lump-sum basis.
The Silver Book is an engineering, procurement and construction or turnkey contract, under which the Contractor assumes considerable responsibility for the completion of a functioning plant or facility and the achievement of agreed performance standards; as such, the Employer is afforded a greater degree of certainty of the final price and time. Also a lump-sum contract, it is characterised by the allocation of much greater risk to the Contractor.
Of note in the Red and Yellow Books is a new Sub-Clause 3.7, which requires the Engineer to consult with and encourage discussions between the Parties to reach agreement as a mandatory preliminary to any Engineer's determination. This Sub-Clause also stipulates specific time periods for the consultation process and issue of determinations.
Additionally, it imposes a positive obligation on the Engineer to act “neutrally” between the Parties when working under the Sub-Clause, and provides that they shall not be deemed to act for the Employer when exercising those functions. This duty is described in the contract guidance as requiring the Engineer to treat both Parties even-handedly, in a fair-minded and unbiased manner.
By contrast, the Silver Book was conceived on the basis that the contract would be administered by the Employer without appointment of an independent Engineer. The new edition differs somewhat with the mandatory appointment, in Sub-Clause 3.1, of an Employer's Representative. Under Sub-Clause 3.5, there is no obligation on this representative to act “neutrally” when consulting with and encouraging discussions between the Parties or issuing determinations, as there is in the Red and Yellow Books under Sub-Clause 3.7; however, the representative shall not be deemed to act for the Employer when exercising these functions.
New Sub-Clause 4.1 in all three books places the Contractor under an obligation to ensure that the Works are fit for the purpose or purposes identified in the Employer's Requirements or, where this is not specified, fit for their ordinary purpose; under the Red Book, this applies to the extent, if any, that the Contractor is responsible for part of the design of the Permanent Works.
New Sub-Clause 17.4 requires the Contractor to indemnify the Employer against all acts, errors or omissions it has made in fulfilling its design obligations that result in the Works not being fit for the purpose intended under Sub-Clause 4.1. New Sub-Clause 19.2.3 meanwhile obliges the Contractor to take out and maintain professional indemnity insurance sufficient to cover this obligation, if stated in the Contract Data.
In the Yellow and Silver Books, new Sub-Clause 12.4 clarifies the Employer's entitlement to Performance Damages from the Contractor in the event that the Works, or a section of them, fail to pass any or all of the Tests after Completion. Performance Damages are also an express remedy under new Sub-Clause 9.4, which deals with the Contractor's failure to Pass the Tests on Completion, and new Sub-Clause 11.4, concerning the Contractor's Failure to Remedy Defects.