Guide to the Use of FIDIC Conditions of Contract for Design-Build and Turnkey (1996). A clause by clause commentary on the provisions contained in Part 1 of the Orange Book.
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.
Federation Internationale des Ingenieurs-Conseils (FIDIC) has published three forms of international conditions of contract, informally titled the Red, Yellow, and Orange Books. The Red Book is the "Conditions of Contract for Works of Civil Engineering Construction": the fourth edition was published in 1987 and amended in 1988 and 1992. The Yellow Book is the "Conditions of Contract for Electrical and Mechanical Works": the third edition was published in 1987 and amended in 1988.
Recognizing that some Employers wanted to procure the construction of project works on a lump-sum contractor-design basis, FDIC initiated the preparation of an appropriate form of contract: it became known as the Orange Book.
In 1995, FIDIC published the Orange Book, the "Conditions of Contract for Design-Build and Turnkey". It had been prepared by a drafting committee referred to as the Orange Book Task Group, which consisted of. Axel-Volkmar Jaeger (Task Group Leader), Schmidt Reuter Partner, Germany; Peter L Booen, Sir Alexander Gibb & Partners Ltd, UK; Philip Jenkinson, W S Atkins, UK; Bob Kavanagh, Stanley Industrial Consultants Ltd, Canada; and Charles B Molineaux, Wickwire Gavin PC, USA. The preparation was carried out under the general direction of the FIDIC Contracts Committee which then comprised: K B (Tony) Norris, Consulting Engineer, UK (Chairman); Michael Mortimer-Hawkins, SwedPower AB, Sweden; and John B Bowcock, Sir Alexander Gibb & Partners Ltd, UK.
Drafts of the Orange Book had previously been reviewed by the following persons or organizations: Peter Batty, TAMS Consultants Inc., USA; Geoffrey F Hawker, Consulting Engineer, UK; Joseph A Huse, Freshfields, France; Gordon L Jaynes, Whitman Breed Abbott & Morgan, UK; A E J (Tony) Sanders, Mouchel Management Ltd, UK; R J (Rob) Falconi, Delcan Corporation, Canada; Harold Fairfull, European Capital, UK; Martyn J Nixon, Willis Corroon, UK; Per Fagerholt, COWIConsult A/S, Denmark; Christopher Wade, VBB VIAK AB, Sweden; Dr GroBekatthofer, Germany; Christopher R Seppala, White & Case, France; R Mark H Griffiths, Griffiths & Armour, UK; A J M (Tony) Blackler, Rowe & Maw, UK; the World Bank, and the International Bar Association. Many of these reviewers gave valuable advice on legal, financial or insurance aspects. Immediately prior to publication, David R Wightman and Andrew Inkester (Nabarro Nathanson, UK) carried out the final review to ensure legal conformity of the entire document.
Subsequently, FIDIC published its "Model Terms of Appointment for a Dispute Adjudication Board", which had been prepared by A J M (Tony) Blackler and reviewed by Peter L Booen and the FIDIC, Contracts Committee listed above. These Model Terms are reproduced towards the end of this Guide, after the comments on Clause 20.
This Guide was prepared by Peter L Booen and reviewed by K B (Tony) Norris, Charles B Molineaux, R Mark H Griffiths and the FIDIC Contracts Committee which now comprises John B Bowcock (Chairman), Michael Mortimer-Hawkins and Axel-Volkmar Jaeger Immediately prior to publication, David R Wightman and Andrew Inkester carried out a final legal review.
FIDIC wishes to record its appreciation of the time and effort devoted by all the above.
FIDIC Secretariat receives requests from time to time to assist in the interpretation of individual contracts which are based upon conditions of contract incorporating the FIDIC publications. It should be evident that, as an international federation of consulting engineers, FIDIC cannot undertake to give legal advice. In any event, the legal interpretation of a contract will depend upon such matters as its precise wording and the law governing the particular contract.
This Guide does not, therefore, attempt to give legal interpretations of the Orange Book, although it does indicate some relevant legal issues. The Guide also indicates what the drafting committees (the Orange Book Task Group and the Contracts Committee) intended in drafting particular clauses. The interpretation of individual clauses in a specific contract falls to be determined in accordance with the law applicable to the contract, and may also be affected by other parts of the contract.
The final section of this Guide contains a photo reproduction of FIDIC's Orange Book. the "Conditions of Contract for Design-Build and Turnkey, First Edition 1995". Within the text of this Guide, the various sub-clauses from the Orange Book are copied and are shown in italics. The italicized text should be identical to the corresponding text in the Orange Book as reproduced in the final section. If any discrepancy is found between the corresponding texts. the reader should refer to the photo-reproduced final section in order to determine the authentic wording.
In the majority of cases, the contracting parties will react favourably to such a standardized form of contract, which will do much to reduce the likelihood of unsatisfactory performance, increased costs and disputes. With the contract being based on an acceptable standard form, tenderers will be less inclined to make financial provision for unfamiliar contract conditions, whose consequences they may have difficulty in assessing. The widespread use of standard conditions also provides a stable base for training personnel in contract management, reducing the need for them having to work with ever-changing contract conditions.
The Orange BookThe object of this Guide is to comment on the provisions contained in Part 1 of the first edition of the "Conditions of Contract for Design-Build and Turnkey". Informally titled "the Orange Book", it was published by the Federation Intemationale des Ingenieurs-Conseils (FIDIC) in 1995. A Test Edition had been published in 1994, and the many reactions to it were reviewed before the first edition was completed. This Guide (informally titled "the Orange Book Guide") is intended to assist the users of the Orange Book, namely those who write, and those who administer, contracts based on these Conditions of Contract. This assistance is focused on particular features of the Orange Book: the Guide is not intended to provide complete training material for the expertise required for the preparation of tender documents. Also, the comments are not intended to provide an authoritative legal interpretation of every aspect of each subject, which must depend on the law applicable to the particular contract.
It is envisaged that the Orange Book can be the basis of all contracts which involve the provision of facilities designed by the Contractor, whether such facilities comprise building, civil engineering, chemical engineering, electrical engineering, mechanical engineering, or any combination. Throughout the drafting, the intention was to incorporate provisions applicable to (for example) housing, roads, refineries, generators, turbines, treatment works, etc. However, the Orange Book is not appropriate for the provision of facilities designed by the Employer or his consulting engineer, or for similar arrangements where the Contractor is not to be responsible for design.
Project Procurement - the Design-Build Option Under the Orange Book design-build form of contract, design is the responsibility of the construction organization. This arrangement reduces the problems which may on occasions arise from the division of responsibility between designer and constructor. Design-build may also encourage economies, not only in terms of price, but at the expense of quality. Therefore, it is considered essential that the Employer has (or procures) expert technical services, in order to ensure that his requirements are elaborated in the tender documents and are achieved in practice. If expertise is unavailable, problems may arise, particularly in respect of the need for variations.
Ideally, variations under a design-build contract should be instructed by reference to requirements (not by a redesign by the Employer); and their costs and other consequences should be agreed in advance, in order to minimize disputes. In practice, these aspects can make the design-build process appear somewhat inflexible. The design-build process is thus less amenable to variations initiated by the Employer, compared with the alternative where the designer is separately employed by the Employer and is independent of the Contractor.
The design-build option prevents the Employer from having a close involvement in the design process. However, it enables him to have the benefits of lump-sum pricing, of the Contractor's undivided liability for the works (including design), and of the potential savings (in cost and time) due to a degree of overlap of design and construction. The latter overlap may (or may not) lessen the total period between the commencement of the preparation of tender documents and the completion of construction. The saving in time due to this overlap may be offset by the effects of the lack of continuity of the design processes during the pre-contract stages.
Project Procurement Options At the inception stage of a project, procurement options should be reviewed and a decision made as to the most appropriate option; FIDIC's publication of the Orange Book does not constitute any indication of a preferred option. The Employer should first analyze the project financing arrangements, their consequences, the risks inherent in the type(s) of works and the other factors which affect the procurement process. After that analysis, decisions can be made as to which procurement option is appropriate; and as to which standard form of contract is closest to the Employer's requirements and will thus require less text in Part 11 than would be the case if another form were to be used.
FIDIC publishes three forms of international conditions of contract, informally titled the Red, Yellow and Orange Books:
The Red Book is the "Conditions of Contract for Works of Civil Engineering Construction", the fourth edition having been published in 1987 and amended in 1988 and 1992. It is intended for the construction of works which are mostly designed by (or on behalf of) the Employer. Interim and final payments for the works are evaluated by an impartial Engineer appointed by the Employer, the evaluation being based on measured quantities and contract rates. Part 1 of the Red Book does not include specific arrangements for the Tests on Completion and does not mention any tests after completion. The defects liability period is of fixed duration.
The Yellow Book is the "Conditions of Contract for Electrical and Mechanical Works", the third edition having been published in 1987 and amended in 1988. The Yellow Book is intended for the provision and erection of plant, often for items which are to be part of a large project. Interim payments, including the cost of shipped Plant, are evaluated by an impartial Engineer appointed by the Employer; the final payment for the works is also evaluated by the Engineer, but the method of evaluation is not defined (if not lump-sum, Part 11 text would be required). Part 1 of the Yellow Book contains specific arrangements for the provision of facilities by the Employer, for the prior agreement of variations and for Tests on Completion; it does not mention any tests after completion. The defects liability period is extended in certain circumstances.
The Orange Book is intended for the provision and erection of plant and for the construction of works which are designed by (or on behalf of) the Contractor. Except as may be defined in a schedule of payments, interim and final payments for the works are evaluated by the Employer's Representative, but the method of evaluation is not defined (if not lump-sum, Part 11 text would be required). Part I of the Orange Book contains specific arrangements for copyrights, for progress reporting, for the provision of facilities by the Employer, for the prior agreement of variations and for Tests on Completion and Tests after Completion. The defects liability period is extended in certain circumstances.
If the result of the above analysis is a decision to procure the works on the basis of design-build or turnkey, the Orange Book provides an internationally acceptable basis for the contract. The Orange Book may be used for projects constructed under a single contract and also for a contract (for the provision of plant or for construction) which is part of a multi-contract project, although the latter type of project may give rise to significant co-ordination problems. The Orange Book may be used for individual items of plant, for individual structures and for complete facilities, including the provision of facilities under turnkey contracts.
Turnkey contracts include most or all of the fixtures, fittings and equipment (f.Le.) required for the provision of a fully-equipped-facility, ready for operation (at the turn of the "key"). The Orange Book is equally appropriate for all design-build contracts, bu~ the particular features of the actual project may have a major effect on the drafting of the contract Part II and the other tender documents.
The tender documents must be drafted with care, particularly in respect of quality, performance criteria and tests. If the tender documents are deficient, the Employer may pay an exorbitant price for unacceptable works. He must therefore ensure that adequate resources are allocated to the skilled tasks of drafting the technical and commercial aspects of the tender documents, and of analyzing the tenderers' proposals.
Notes for Clarification (except where the context requires otherwise)
(a) In Part 1 of the Orange Book and in the Tender and Appendix:
(i) references to "Part W' refer to the Part 11 as written for the particular contract, and(ii) references to Clauses and Sub-Clauses refer to Clauses and Sub-Clauses in the Conditions of Contract for the particular contract, which will consist of the published Part 1 and the contract Part II.
(i) references to "Part W' refer to the Part 11 as written for the particular contract, and
(ii) references to Clauses and Sub-Clauses refer to Clauses and Sub-Clauses in the Conditions of Contract for the particular contract, which will consist of the published Part 1 and the contract Part II.
(b) In the comments contained in this Orange Book Guide:
(i) references to "Part I" refer to the Part 1 as published in the Orange Book,(ii) references to "the published Part X refer to the "Guidance for the Preparation of Conditions of Particular Application" as published in the Orange Book,(iii) references to "the contract Part X refer to the Part 11 as written for the particular contract,(iv) references to Clauses and Sub-Clauses refer to Clauses and Sub-Clauses in the Part 1 as published in the Orange Book,(v) the commentary relates to the Part 1 text, which is shown in italics.
(i) references to "Part I" refer to the Part 1 as published in the Orange Book,
(ii) references to "the published Part X refer to the "Guidance for the Preparation of Conditions of Particular Application" as published in the Orange Book,
(iii) references to "the contract Part X refer to the Part 11 as written for the particular contract,
(iv) references to Clauses and Sub-Clauses refer to Clauses and Sub-Clauses in the Part 1 as published in the Orange Book,
(v) the commentary relates to the Part 1 text, which is shown in italics.
1 The Contract 2 The Employer 3 The Employer's Representative 4 The Contractor 5 Design 6 Staff and Labour 7 Plant, Materials and Workmanship8 Commencement, Delays and Suspension 9 Tests on Completion 10 Employer's Taking Over 11 Tests after Completion 12 Defects Liability 13 Contract Price and Payment 14 Variations 15 Default of Contractor 16 Default of Employer 17 Risk and Responsibility 18 Insurance 19 Force Majeure 20 Claims, Disputes and Arbitration
FIDIC Model Terms of Appointment for a Dispute Adjudication Board
Conditions of Contract for Design-Build and Turnkey:
Part I General Conditions Part II Guidance for the preparation of Conditions of Particular Application Forms of Tender and Agreement
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