Conditions of Contract for EPC Turnkey Projects (First Edition, 1999). General Conditions; Guidance for the Preparation of Conditions Particular Application; Forms of Tender and Agreement, etc.
FIDIC Contracts Guide to the Construction, Plant and Design-Build and EPC/Turnkey Contracts (1st Edition, 2000).
European International Contractors (EIC) Contractors Guide to the FIDIC Conditions of Contract for EPC/Turnkey Projects (The EIC Silver Book Guide), 2nd Edition, 2003.
Turnkey Contract - Conditions of Contract for EPC/Turnkey Projects
ADDED APRIL 2013: FIDIC Guidance Memorandum to Users of the 1999 Conditions of Contract dated 1st April 2013
Conditions of Contract for EPC Turnkey Projects, which are recommended where one entity takes total responsibility for the design and execution of an engineering project. Under the usual arrangements for this type of contract, the entity carries out all the Engineering, Procurement and Construction: providing a fully-equipped facility, ready for operation (at the "turn of the key"). This type of contract is usually negotiated between the parties. Available as:
FIDIC's Red and Yellow Books (i.e. standard forms of contract for works of civil engineering construction and for electrical and mechanical works) have been in widespread use for several decades, and have been recognised - among other things - for their principles of fair and equitable risk sharing between the Employer and the Contractor. These risk sharing principles have been beneficial for both parties, the Employer signing a contract at a lower price and only having further costs when particular unusual risks actually eventuate, and the Contractor avoiding pricing such risks which are hard to evaluate. These risk sharing principles are continued in the new updated versions of the Red and Yellow Books.
During recent years it has been noticed that much of the construction market requires a form of contract where certainty of final price, and often of completion date, are of extreme importance. Employers on such turnkey projects are willing to pay more - often considerably more - for their project if they can be more certain that the agreed final price will not be exceeded. Among such projects can be found many projects financed by private funds, where the lenders require greater certainty about a project's costs to the Employer than is allowed for under the allocation of risks provided for by FIDIC's traditional forms of contracts. Often the construction project (the EPC - Engineer, Procure, Construct - Contract) is only one part of a complicated commercial venture, and financial or other failure of this construction project will jeopardize the whole venture.
For such projects it is necessary for the Contractor to assume responsibility for a wider range of risks than under the traditional Red and Yellow Books. To obtain increased certainty of the final price, the Contractor is often asked to cover such risks as the occurrence of poor or unexpected ground conditions, and that what is set out in the requirements prepared by the Employer actually will result in the desired objective. If the Contractor is to carry such risks, the Employer obviously must give him the time and opportunity to obtain and consider all relevant information before the Contractor is asked to sign on a fixed contract price. The Employer must also realize that asking serious contractors to price such risks will increase the construction cost and result in some projects not being commercially viable.
Even under such contracts the Employer does carry certain risks such as the risks of war, terrorism and the like and the other risks of Force Majeure, and it is always possible, and sometimes advisable, for the Parties to discuss other risk sharing arrangements before entering into the Contract. In the case of BOT (Build - Operate - Transfer) projects, which are normally negotiated as a package, the allocation of risk provided for in the turnkey construction Contract negotiated initially between the Sponsors and the EPC Contractor may need to be adjusted in order to take into account the final allocation of all risks between the various contracts forming the BOT package.
Apart from the more recent and rapid development of privately financed projects demanding contract terms ensuring increased certainty of price and performance, it has long been apparent that many employers, particularly in the public sector, in a wide range of countries have demanded similar contract terms, at least for turnkey contracts. They have often irreverently taken the FIDIC Red or Yellow Books and altered the terms so that risks placed on the Employer in the FIDIC Books have been transferred to the Contractor, thus effectively removing FIDIC's traditional principles of fair and equitable risk sharing. This need of many employers has not gone unnoticed, and FIDIC has considered it better for all parties for this need to be openly recognised and regularised. By providing a standard FIDIC form for use in such contracts, the Employer's requirements for more risk to be taken by the Contractor are clearly stated. Thus the Employer does not have to attempt to alter a standard form intended for another risk arrangement, and the Contractor is fully aware of the increased risks he must bear. Clearly the Contractor will rightly increase his tender price to account for such extra risks.
This form for EPC Turnkey Projects is thus intended to be suitable, not only for EPC Contracts within a BOT or similar type venture, but also for all the many projects, both large and smaller, particularly E & M (Electrical and Mechanical) and other process plant projects, being carried out around the world by all types of employers, often in a civil law environment, where the government departments or private developers wish to implement their project on a fixed-price turnkey basis and with a strictly two party approach.
Employers using this form must realise that the ‘Employer's Requirements' which they prepare should describe the principle and basic design of the plant on a functional basis. The Tenderer should then be permitted and required to verify all relevant information and data and make any necessary investigations. He shall also carry out any necessary design and detailing of the specific equipment and plant he is offering, allowing him to offer solutions best suited to his equipment and experience. Therefore the tendering procedure has to permit discussions between the Tenderer and the Employer about technical matters and commercial conditions. All such matters, when agreed, shall then form part of the signed Contract.
Thereafter the Contractor should be given freedom to carry out the work in his chosen manner, provided the end result meets the performance criteria specified by the Employer. Consequently, the Employer should only exercise limited control over and should in general not interfere with the Contractor's work. Clearly the Employer will wish to know and follow progress of the work and be assured that the time programme is being followed. He will also wish to know that the work quality is as specified, that third parties are not being disturbed, that performance tests are met, and otherwise that the ‘Employer's Requirements' are being complied with.
A feature of this type of contract is that the Contractor has to prove the reliability and performance of his plant and equipment.Therefore special attention is given to the ‘Tests on Completion', which often take place over a considerable time period, and Taking Over shall take place only after successful completion of these tests.
FIDIC recognizes that privately-financed projects are usually subject to more negotiation than publicly-financed ones and that therefore changes are likely to have to be made in any standard form of contract proposed for projects within a BOT or similar type venture. Among other things, such form may need to be adapted to take account of the special, if not unique, characteristics of each project, as well as the requirements of lenders and others providing financing. Nevertheless, such changes do not do away with the need of having a standard form.
The preparation was carried out under the general direction of the FIDIC Contracts Committee comprising John B Bowcock, Consulting Engineer, UK (Chairman); Michael Mortimer-Hawkins, SwedPower, Sweden; Axel-Volkmar Jaeger, Schmidt Reuter Partner, Germany; and Hiroyuki Endo, Pacific Consultants, Japan.
Various drafts were reviewed by the following persons or organisations: Mushtaq Ahmad, NESPAK, Pakistan; Peter Batty, Post Buckley International, USA; Manfred Breege, Lahmeyer International, Germany; Pablo Bueno, TYPSA, Spain; Nael G Bunni, Consulting Engineer, Ireland; Ian Fraser, Beca Carter Hollings & Ferner, New Zealand; Roy Goode, Oxford University, UK; Dan W Graham, Bristows Cooke & Carpmael, UK; Mark Griffiths, Griffiths & Armour, UK; Geoffrey F Hawker, Consulting Engineer, UK; Hesse & Steinberger, VDMA, Germany; Poul E Hvilsted, Elsamprojekt, Denmark; Gordon L Jaynes, Whitman Breed Abbott & Morgan, UK; Tonny Jensen (Chairman of FIDIC Quality Management Committee), COWI, Denmark; Philip Loots & Associates, South Africa; Neil McCole, Merz and McLellan, UK; K B (Tony) Norris, Consulting Engineer, UK; Eric Petersen, CEGELEC, France; Matthew Needham-Laing, Victoria Russell & Paul J Taylor, Berrymans Lace Mawer, UK; David R Wightman & Gerlando Butera, Nabarro Nathanson, UK; the Association of Japanese Consulting Engineers; European International Contractors; Organisme de Liaison Industries Métalliques Européennes ("ORGALIME"); the International Association of Dredging Contractors; the International Bar Association; the Asian Development Bank; and the World Bank.
FIDIC wishes to record its appreciation of the time and effort devoted by all the above.
The ultimate decision on the form and content of the document rests with FIDIC.
In the preparation of these Conditions of Contract for EPC/Turnkey Projects, it was recognised that, while there are many sub-clauses which will be generally applicable, there are some sub-clauses which must necessarily vary to take account of the circumstances relevant to the particular contract. The sub-clauses which were considered to be applicable to many (but not all) contracts have been included in the General Conditions, which will facilitate their incorporation into each contract. The General Conditions and the Particular Conditions will together comprise the Conditions of Contract governing the rights and obligations of the parties. It will be necessary to prepare the Particular Conditions for each individual contract, and to take account of those sub-clauses in the General Conditions which mention the Particular Conditions.
For this publication, the General Conditions were prepared on the following basis:
(i) interim payments, in respect of the lump sum Contract Price, will be made as work proceeds, and will typically be based on instalments specified in a schedule;(ii) if the wording in the General Conditions necessitates further data which would typically be prescribed by the Employer, then the sub-clause makes reference to this data being contained in the Particular Conditions or in the Employer's Requirements;(iii) where a sub-clause in the General Conditions deals with a matter on which different contract terms are likely to be applicable for different contracts, the principles applied in writing the sub-clause were:(a) users would find it more convenient if any provisions which they did not wish to apply could simply be disregarded or deleted, than if additional text had to be written (in the Particular Conditions) because the General Conditions did not cover their requirements; or(b) in other cases, where the application of (a) was thought to be inappropriate, the sub-clause contains the provisions which were considered applicable to most contracts.
(i) interim payments, in respect of the lump sum Contract Price, will be made as work proceeds, and will typically be based on instalments specified in a schedule;
(ii) if the wording in the General Conditions necessitates further data which would typically be prescribed by the Employer, then the sub-clause makes reference to this data being contained in the Particular Conditions or in the Employer's Requirements;
(iii) where a sub-clause in the General Conditions deals with a matter on which different contract terms are likely to be applicable for different contracts, the principles applied in writing the sub-clause were:
(a) users would find it more convenient if any provisions which they did not wish to apply could simply be disregarded or deleted, than if additional text had to be written (in the Particular Conditions) because the General Conditions did not cover their requirements; or(b) in other cases, where the application of (a) was thought to be inappropriate, the sub-clause contains the provisions which were considered applicable to most contracts.
(a) users would find it more convenient if any provisions which they did not wish to apply could simply be disregarded or deleted, than if additional text had to be written (in the Particular Conditions) because the General Conditions did not cover their requirements; or
(b) in other cases, where the application of (a) was thought to be inappropriate, the sub-clause contains the provisions which were considered applicable to most contracts.
Further information on these aspects, example wording for other arrangements, and other explanatory material and example wording to assist in the preparation of the Particular Conditions and the other tender documents, are included within this publication as Guidance for the Preparation of the Particular Conditions. Before incorporating any example wording, it must be checked to ensure that it is wholly suitable for the particular circumstances; if not, it must be amended.
Where example wording is amended, and in all cases where other amendments or additions are made, care must be taken to ensure that no ambiguity is created, either with the General Conditions or between the clauses in the Particular Conditions. It is essential that all these drafting tasks, and the entire preparation of the tender documents, are entrusted to personnel with the relevant expertise, including the contractual, technical and procurement aspects.
This publication concludes with example forms for the Letter of Tender, the Contract Agreement, and alternatives for the Dispute Adjudication Agreement. This Dispute Adjudication Agreement provides text for the agreement between the Employer, the Contractor and the person appointed to act either as sole adjudicator or as a member of a three-person dispute adjudication board; and incorporates (by reference) the terms in the Appendix to the General Conditions.
FIDIC intends to publish guides to the above Conditions of Contract. Another relevant FIDIC publication is "Tendering Procedure", which presents a systematic approach to the selection of tenderers and the obtaining and evaluation of tenders.
In order to clarify the sequence of Contract activities, reference may be made to the charts on the next two pages and to the Sub-Clauses listed below (some Sub-Clause numbers are also stated in the charts). The charts are illustrative and must not be taken into consideration in the interpretation of the Conditions of Contract.
22.214.171.124 & 13.7 Base Date 126.96.36.199 & 8.1 Commencement Date 188.8.131.52 & 4.2 Performance Security 184.108.40.206 & 8.2 Time for Completion (as extended under 8.4) 220.127.116.11 & 9.1 Tests on Completion 18.104.22.168 & 10.1 Taking-Over Certificate 22.214.171.124 & 12.1 Tests after Completion (if any) 126.96.36.199 & 11.1 Defects Notification Period (as extended under 11.3) 188.8.131.52 & 11.9 Performance Certificate
Major turnkey projects may require some negotiation between the parties. Having studied the variety of options offered by tenderers, the Employer may consider it essential to meet and discuss with them the technical options which the Employer considers preferable. Under the usual arrangements for this type of contract, the Contractor carries out the Engineering, Procurement and Construction, and provides a fully-equipped facility, ready for operation (at the "turn of the key"). The Employer's representative, if there is one, is not required to act impartially.
The guidance hereafter is intended to assist writers of the Particular Conditions by giving options for various sub-clauses where appropriate. As far as possible, example wording is included, in italics. In some cases, however, only an aide-memoire is given.
Before incorporating any example wording, it must be checked to ensure that it is wholly suitable for the particular circumstances. Unless it is considered suitable, example wording should not be used without amendment.
Where example wording is amended, and in all cases where other amendments or additions are made, care must be taken to ensure that no ambiguity is created, either with the General Conditions or between the clauses in the Particular Conditions.
In the preparation of the Conditions of Contract to be included in the tender documents for a contract, the following text can be used:
The Conditions of Contract comprise the "General Conditions", which form part of the "Conditions of Contract for EPC Turnkey Projects" First Edition 1999 published by the Fédération Internationale des Ingénieurs-Conseils (FIDIC), and the following "Particular Conditions", which include amendments and additions to such General Conditions.
FIDIC has published a document entitled "Tendering Procedure" which presents a systematic approach to the selection of tenderers and the obtaining and evaluation of tenders; the second edition was published in 1994. The document is intended to assist the Employer to receive sound competitive tenders with a minimum of qualifications. FIDIC intends to update Tendering Procedure and to publish a guide to the use of these Conditions of Contract for EPC Turnkey Projects.
1.1 Definitions 1.2 Interpretation 1.3 Communications1.4 Law and Language1.5 Priority of Documents1.6 Contract Agreement1.7 Assignment1.8 Care and Supply of Documents1.9 Confidentiality1.10 Employer's Use of Contractor's Documents1.11 Contractor's Use of Employer's Documents1.12 Confidential Details1.13 Compliance with Laws1.14 Joint and Several Liability
2 THE EMPLOYER
2.1 Right of Access to the Site2.2 Permits, Licences or Approvals2.3 Employer's Personnel2.4 Employer's Financial Arrangements2.5 Employer's Claims
3 THE EMPLOYER'S ADMINISTRATION
3.1 The Employer's Representative3.2 Other Employer's Personnel3.3 Delegated Persons3.4 Instructions3.5 Determinations
4 THE CONTRACTOR
4.1 Contractor's General Obligations4.2 Performance Security4.3 Contractor's Representative4.4 Subcontractors4.5 Nominated Subcontractors4.6 Co-operation4.7 Setting Out4.8 Safety Procedures4.9 Quality Assurance4.10 Site Data4.11 Sufficiency of the Contract Price4.12 Unforeseeable Difficulties4.13 Rights of Way and Facilities4.14 Avoidance of Interference4.15 Access Route4.16 Transport of Goods4.17 Contractor's Equipment4.18 Protection of the Environment4.19 Electricity, Water and Gas4.20 Employer's Equipment and Free-Issue Material4.21 Progress Reports4.22 Security of the Site4.23 Contractor's Operations on Site4.24 Fossils
5.1 General Design Obligations5.2 Contractor's Documents5.3 Contractor's Undertaking5.4 Technical Standards and Regulations5.5 Training5.6 As-Built Documents5.7 Operation and Maintenance Manuals5.8 Design Error
6 STAFF AND LABOUR
6.1 Engagement of Staff and Labour6.2 Rates of Wages and Conditions of Labour6.3 Persons in the Service of Others6.4 Labour Laws6.5 Working Hours6.6 Facilities for Staff and Labour 6.7 Health and Safety6.8 Contractor's Superintendence6.9 Contractor's Personnel6.10 Records of Contractor's Personnel and Equipment6.11 Disorderly Conduct
7 PLANT, MATERIALS AND WORKMANSHIP
7.1 Manner of Execution7.2 Samples7.3 Inspection7.4 Testing7.5 Rejection7.6 Remedial Work7.7 Ownership of Plant and Materials7.8 Royalties
8 COMMENCEMENT, DELAYS AND SUSPENSION
8.1 Commencement of Works8.2 Time for Completion8.3 Programme8.4 Extension of Time for Completion8.5 Delays Caused by Authorities8.6 Rate of Progress8.7 Delay Damages8.8 Suspension of Work8.9 Consequences of Suspension8.10 Payment for Plant and Materials in Event of Suspension8.11 Prolonged Suspension8.12 Resumption of Work
9 TESTS ON COMPLETION
9.1 Contractor's Obligations9.2 Delayed Tests9.3 Retesting9.4 Failure to Pass Tests on Completion
10 EMPLOYER'S TAKING OVER
10.1 Taking Over of the Works and Sections10.2 Taking Over of Parts of the Works10.3 Interference with Tests on Completion
11 DEFECTS LIABILITY
11.1 Completion of Outstanding Work and Remedying Defects11.2 Cost of Remedying Defects11.3 Extension of Defects Notification Period11.4 Failure to Remedy Defects11.5 Removal of Defective Work11.6 Further Tests11.7 Right of Access11.8 Contractor to Search11.9 Performance Certificate11.10 Unfulfilled Obligations11.11 Clearance of Site
12 TESTS AFTER COMPLETION
12.1 Procedure for Tests after Completion12.2 Delayed Tests12.3 Retesting12.4 Failure to Pass Tests after Completion
13 VARIATIONS AND ADJUSTMENTS
13.1 Right to Vary
13.2 Value Engineering13.3 Variation Procedure13.4 Payment in Applicable Currencies13.5 Provisional Sums13.6 Daywork13.7 Adjustments for Changes in Legislation13.8 Adjustments for Changes in Cost
14 CONTRACT PRICE AND PAYMENT
14.1 The Contract Price14.2 Advance Payment14.3 Application for Interim Payments14.4 Schedule of Payments14.5 Plant and Materials intended for the Works14.6 Interim Payments14.7 Timing of Payments14.8 Delayed Payment14.9 Payment of Retention Money14.10 Statement at Completion14.11 Application for Final Payment14.12 Discharge14.13 Final Payment14.14 Cessation of Employer's Liability14.15 Currencies of Payment
15 TERMINATION BY EMPLOYER
15.1 Notice to Correct15.2 Termination by Employer15.3 Valuation at Date of Termination15.4 Payment after Termination15.5 Employer's Entitlement to Termination
16 SUSPENSIN AND TERMINATION BY CONTRACTOR
16.1 Contractor's Entitlement to Suspend Work16.2 Termination by Contractor16.3 Cessation of Work and Removal of Contractor's Equipment16.4 Payment on Termination
17 RISK AND RESPONSIBILITY
17.1 Indemnities17.2 Contractor's Care of the Works17.3 Employer's Risks17.4 Consequences of Employer's Risks17.5 Intellectual and Industrial Property Rights17.6 Limitation of Liability
18.1 General Requirements for Insurances18.2 Insurance for Works and Contractor's Equipment18.3 Insurance against Injury to Persons and Damage to Property18.4 Insurance for Workers
19 FORCE MAJEURE
19.1 Definition of Force Majeure19.2 Notice of Force Majeure19.3 Time of Notice19.4 Duty to Minimise Delay19.5 Consequences of Force Majeure19.6 Optional Termination, Payment and Release19.7 Release from Performance under the Law
20 CLAIMS, DISPUTES AND ARBITRATION
20.1 Contractor's Claims20.2 Appointment of the Dispute Adjudication Board20.3 Failure to Agree Dispute Adjudication Board20.4 Obtaining Dispute Adjudication Board's Decision20.5 Amicable Settlement20.6 Arbitration20.7 Failure to Comply with Dispute Adjudication Board's Decision20.8 Expiry of Dispute Adjudication Board's Appointment
GENERAL CONDITIONS OF DISPUTE ADJUDICATION AGREEMENT
2. GUIDANCE FOR THE PREPARATION OF THE PARTICULAR CONDITIONS
1 GENERAL PROVISIONS 2 THE EMPLOYER 3 THE EMPLOYER'S ADMINISTRATION 4 THE CONTRACTOR 5 DESIGN 6 STAFF AND LABOUR 7 PLANT, MATERIALS AND WORKMANSHIP 8 COMMENCEMENT, DELAYS AND SUSPENSION 9 TESTS ON COMPLETION 10 EMPLOYER'S TAKING OVER 11 DEFECTS LIABILITY 12 TESTS AFTER COMPLETION 13 VARIATIONS AND ADJUSTMENTS 14 CONTRACT PRICE AND PAYMENT 15 DEFAULT OF CONTRACTOR 16 DEFAULT OF EMPLOYER 17 RISK AND RESPONSIBILITY 18 INSURANCE 19 FORCE MAJEURE 20 CLAIMS, DISPUTES AND ARBITRATION
FORMS OF SECURITIES
Conditions of Contract for Design-Build and Turnkey (1st Edition, 1995). Part 1: General Conditions; Part 2: Guidance for the Preparation of Conditions Particular Application.
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