This article is written by Harsh Kedia, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com.

FIDIC contract 

The word FIDIC stands for Federation Internationale des Ingenieurs-Conseil which is a French version of the federation’s name. This federation was formed on 22nd July, 1913 by three countries Belgium, France and Switzerland. Till date, FIDIC has 102 members. FIDIC is a global representative for the consulting engineering industry, promoting the business interests of firms supplying technology-based intellectual services for built and natural environments alike. FIDIC is widely famous for its contracts are the basic and most commonly used contracts throughout the world in the field of consulting engineering industry. FIDIC’s contracts are treated as a standard form of contract which are used in this industry. 

Types of FIDIC contract

One of the most interesting and distinctive features about this federation is that all the various contracts which are made by this federation are named after the colour of the cover of the book in which such rules and regulations regarding the particular contracts are mentioned. Such includes:

1. Red Book which mainly deals with conditions of contract for construction for building and engineering works designed by the employer. 
2. Pink book which sets out the conditions of contract for construction MDB Harmonised editions for building and engineering works designed by the employer. 
3. Yellow book for electrical and mechanical plants which are designed by the contractor.
4. Orange book for turnkey and contract for design-build.
5. Green book which is a flexible document containing all the essential administrative and commercial arrangements. 
6. Silver book which is used for conditions of contract for EPC/Turnkey projects. 

These are the books which are published by this federation regarding various types of construction and engineering works. According to the type of the projects, each book can be used to form a standardised form of agreement. 

General features of FIDIC contracts

As mentioned in the above paragraph, FIDIC covers a wide range of projects which are mentioned under different books. However, like every other general contract, FIDIC too has some common features in every of its contracts. FIDIC contracts are divided into two parts. Part I of the contract contains General Conditions (GCs) while Part II contains Particular Conditions (PCs). GCs specify the obligations, rights of the parties involved in the contract, payment procedures, etc. On the other hand, PCs are framed according to the type of the projects. For example, PCs contain the name of the project, organizations involved, language of the contract, governing laws etc. As said, no two projects are the same and for this reason GCs are modified accordingly.

In most FIDIC forms there is a default hierarchy for the documents forming the contract. The order of priority is as stated below and in the event of inconsistency the first on the list takes precedence:

1. The Contract Agreement.
2. The Letter of Acceptance (this is the formal acceptance of the contractor’s tender and marks the formation of the contract).
3. The Letter of Tender.
4. Part II – the conditions of particular application.
5. Part I – general conditions of contract.
6. The Specification and Drawings (Red Book), The Employer’s Requirements (Yellow Book), the Schedules (Red and Yellow Books).
7. Further documents (if any), listed in the Contract Agreement or in the Letter of Acceptance.

The parties are allowed to rearrange the priority of documents or stipulate that no priority or order of hierarchy will apply to the contract. This can be done in Part II of the contract.

Need for golden principles 

FIDIC contracts were formed to maintain uniformity in the projects relating to engineering, construction works, etc. Gradually it was found that to avoid the GCs in the contract and to minimise the obligations involved in such contracts, often the contractors, employers or any such person involved in such type of projects tries to replace or modify the GCs in such a way that the final contract no longer represents the FIDIC contract and thus violating the principles of FIDIC. These contracts were formed keeping in mind the risks or issues which may happen during the tendering as well as in the execution phase. But due to the practice of the contractors or the employers to change the nature of the FIDIC contracts by removing or modifying the general provisions, it became very necessary for the implementation of such rules which shall act as a barrier in modifying or removing some General Conditions. 

To solve this issue the Contracts Committee of FIDIC federation made a special Task Group (TG15) who primarily involved in identifying the major changes the parties make in FIDIC contracts and to form such principles which shall not be amended by the parties. These principles were published in June 2019 in the name of Golden Principles (GPs).

Golden principles of FIDIC contract 

Following are the Golden Principles of FIDIC Contract:

• The duties, rights, obligations, roles and responsibilities of all the Contract Participants must be generally as implied in the General Conditions, and appropriate to the requirements of the project.

There are many participants involved in any contract and according to FIDIC GP1 all the duties, rights and other obligations and roles shall be specified in clear terms according to the type and requirement of the projects. Often there are some differences in the requirements of different projects. For example, there must be some provisions in the Silver book which does not match with the Yellow book and so on.  

• The Particular Conditions must be drafted clearly and unambiguously.

According to this principle all the conditions mentioned under the PCs must be drafted in clear terms. For example, if there is any agreement or understanding between the parties then it should contain in PCs. The PCs should clearly show that all modifications are made under GCs and accordingly the new clauses should indicate the clear meaning of the newly added clauses. 

• The Particular Conditions must not change the balance of risk/reward allocation provided for in the GCs.

As every contract is made for the benefits of both the parties, therefore it becomes important to determine the risks involved in any contract such that it does not affect only one party. According to this GP3, risks involved in every construction project are very high and therefore in order to execute such projects, the parties should balance the risk equally. This will not only benefit the parties in sharing the risks or rewards but it will also increase the quality of the works. 

• All time periods specified in the Contract for Contract Participants to perform their obligations must be of reasonable duration.

As it is brightly said, time is the essence of any contact. Therefore, to make any contract effective it is very important to specify the time or period of the contact. Through this Golden Principle the participants are required to perform their duty or any obligations as required for the completion of the project in a timely manner. The period mentioned for such a project should be genuinely determined. For example, if the period mentioned is insufficient then there are chances of poor performances. On the other hand, if the period specified is more than enough then it will affect the other party in terms of payment.

• Unless there is a conflict with the governing law of the Contract, all formal disputes must be referred to a Dispute Avoidance/Adjudication Board (or a Dispute Adjudication Board, if applicable) for a provisionally binding decision as a condition precedent to arbitration.

Under this GP5, all the FIDIC contracts should be governed by the Dispute Avoidance/Adjudication Board (DAAB) or Dispute Adjudication Board (DAB). If the contracts provide for provision, then it complies with GP5. All the decisions made by the DAAB or DAB shall be final and legally binding on the parties. 

Relevance of FIDIC contract in today’s world 

Due to the growth of infrastructures around the globe, the method of construction has become more complex, international and creative. To execute any big projects which require high skilled labour and creativity, people from every corner of the world are involved. Due to this the risk involved has also increased and now every contractor, engineer, or any other person wants his rights to be protected. 

To minimize the risk and to act as a standard for any such projects, FIDIC comes into play. FIDIC contracts acts as a standardised form of any construction, infrastructure or any real estate projects which clearly identifies how the work is to be carried out and safeguarding the interest of all the parties involved in it. FIDIC has proved to be very effective from the past 70-80 years. Before globalization actually happened, the complexity of any such projects was lower as compared to today’s scenario. Before to execute any projects, limited people were involved and that too from their home territory but now due to advancement in technology and construction more and more people get involved from every country and it becomes very difficult to come to a mutual understanding. 

Conclusion

The main motive behind this article was to provide a basic framework of FIDIC contracts. As we know these contracts act as a standard form of contract which are used in the engineering or construction works and therefore it helps in the successful execution of the work. Laws keep changing from territory to territory and it’s very difficult to come at a common conclusion. As there are some international laws whose jurisdiction is not only restricted to a single territory but it acts as a basic law across the world, in the similar manner The International Federation of Consulting Engineers was formed to bring uniformity among consulting engineers and in the construction projects. Through this article I’ve tried to explain the basics of FIDIC and its most important golden principles which are often referred to as the guiding principles of FIDIC contracts. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

References

1. Wikipedia
2. CharlesRussellSpeechlys- Top things you need to know about FIDIC
3. Fidic.org
4. Investopedia
5. NBS- A brief introduction to FIDIC

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