The International Federation of Consulting Engineers ("Fédération Internationale des Ingénieurs-Conseils" or "FIDIC") is planning to publish in 2008 new Conditions of Contract for Design, Build and Operate Projects (the "DBO form"). This new model contract will supplement FIDIC's existing forms of contract for major works, namely the Conditions of Contract for Construction (the "Red Book"), the Conditions of Contract for Plant and Design-Build (the "Yellow Book"), and the Conditions of Contract for EPC Turnkey Projects (the "Silver Book") issued in 1999. A pre-press seminar edition of the DBO form has recently been circulated for comments.
In its current draft form, the new DBO form will be suitable for projects combining design, construction, and long-term operation and maintenance of a facility, which are awarded to a single contractor (typically, a joint-venture or consortium). While being responsible for the project's design, construction and operation, the contractor will have no responsibility for its financing or for its ultimate commercial success. The facility's output (for example, electricity, in the case of a power plant) will be the project owner's property and not the contractor's, as is generally the case in concession arrangements.
The overall contract duration will be divided into two distinct periods:
1) the Design-Build Period, at the end of which the facility will be handed over to the project owner (through issuance of a taking over or commissioning certificate); and
2) a 20-year Operation Period, during which the contractor will maintain and operate the facility for the project owner's benefit and will be required to respect pre-defined output criteria. Parties will be free to choose a shorter or longer Operation Period, but FIDIC has warned that the DBO form should not be used for projects where the Operation Period differs significantly from 20 years.
The contractor will be compensated for its work during the Design-Build Period as in regular design-build projects (presumably, a lump sum), and receive separate compensation for operating and maintaining the facility during the Operation Period. As FIDIC has pointed out, the contractor will have an incentive to design and build a facility that is both reliable and cost effective (i.e., with low operation and maintenance costs) as it will be responsible for maintaining the facility at its cost during the Operation Period. An asset replacement fund will provide the necessary funding for the replacement of important pieces of equipment. At the end of the Operation Period, the responsibility for operation and maintenance will be transferred to the project owner for the facility's residual life.
In its current draft form, the DBO form follows the traditional format and layout of previous FIDIC model contracts. Its contains many traditional FIDIC clauses. For example, an Employer's Representative will be appointed prior to the signing of the contract. The Employer's Representative will have the authority to make decisions on behalf of the project owner, but not to relieve either party from its contractual duties. Thus, the Employer's Representative will be able to grant extensions of time postponing the date of issuance of the commissioning certificate (and the overall project completion date). The determinations of the Employer's Representative will be binding on the parties unless and until reversed by the Dispute Adjudication Board ("DAB"). If one (or both) party(ies) elect(s) to contest the DAB's ruling, and assuming that the parties are unable to settle the matter amicably, the dispute may then be referred to arbitration under the ICC Rules of Arbitration.