Contracts: advanced questions Orange Book

Orange Book (Design-Build and Turnkey)

Obtaining permits


We are working on a project in Turkey which has to be performed according to FIDIC Conditions of Contract for Design - Build and Turnkey. In our case the project was sponsored by the KFW (Germany).
This subject is not referred to in the Guide to the use of FIDIC which we have ordered already.
The FIDIC Contract states under 2,3: "The Employer shall, at the request and cost of the contractor, assist him in applying for permits, licences or approvals, which are required for any part of the works, for delivery (including clearance through customs) of plant materials and contractor's equipment and for the completion of the works. Such requests may also include requests for the employees assistance in applying for any necessary government consent to the export of contractors equipment when it is removed from site."
We experience now that the Employer refuses to sign an application letter to obtain a construction permit from the neighbouring municipality. Contractor are of the opinion, that Contractor is neither the owner of the future project nor of the construction site which has been taken from the former owner by law enforcement and belongs now to the Employer.
There is no question for the Contractor to comply with the contract as far permits/licences for technical equipment and so forth are concerned. This we see as our obligation.
Contractor is however of the opinion:
- that the owner (Employer) has to obtain the Construction Permit to erect the project (as far as technical information is required, the Contractor will assist the Employer);
- that the same applies for the Discharge Permit (as far as technical information are required, the Contractor will assist the Employer).
- (Part 11) Conditions of Particular Application that the Employer may not charge the Contractor rental cost during the time of construction on Employer's property, handed over by Access and Possession of the site. 


The feeling of the drafting committee was that the Employer was best placed to help the Contractor in obtaining the various permits and approvals etc. required to perform the Works and the intention was that he would assist the Contractor to get these as and when requested to do so by the Contractor. It was not foreseen that the Employer would refuse since it is the Contractor who bears any costs involved. The problem is perhaps "what does assist mean?", but I would have thought that to sign an application letter was a very reasonable request. The question is perhaps whether the issuing authority will issue the permit (or whatever) without the signature of the Employer. If he will, maybe there is no problem. If he will not, then a further approach (and explanation) to the Employer will be necessary. You also mention than under the Particular Conditions, the Employer is charging the Contractor rental for using the Site. This is most unusual, but if it was stated in the Particular Conditions that this would be the case, then I would think he has the right to do so. We are sorry that we cannot be more helpful, but your understanding of Clause 2.3 follows very much what the drafting committee intended.

Underestimated work


I am contacting you in order to resolve some controversies that we have faced during the preparation of a Design-Build tender documents for a 64 Km water transmission tunnel project. We chose the FIDIC Design-Build contract as the appropriate form of the contract for which we have applied the FIDIC Conditions of the Contract for Plant and Design-Build for the General conditions of the contract. As far as we, the Employer's Representative, were concerned, the increase of the amount of the works due to the underestimation of the Phase one preliminary studies during the construction period is quite possible.

If during the construction period it is clarified that the amount of work must increase (due to the underestimation of the design done by the construction firm as the winner of the contract) is it under the general obligations of the contractor to perform the tasks that exceed the contract price on his own money or not?

If the answer of the abovementioned question is YES then what is the purpose of the variation Clause 13. And if the answer is NO what percentage of the increase of the contract price is reasonable?.

Anyways, I would like you to guide us in order to amend the Clause 13 for this type of the variation, if it is possible.


Basically the answer is probably found in Clause 5.1 of the Plant and Design-Build Contract, where the Contractor is given a period at commencement of work to "scrutinize the Employer's Requirements". If he finds errors, etc. he shall give notice, and the Engineer shall then determine "whether an experienced contractor exercising due care would have discovered the error.." before submitting the Tender. If he should have discovered the error, there is no variation - and vice versa.

From the question we do not know what was in the Employer's Requirements, nor how it ties in with the preliminary studies which were apparently part of the Contractor's work.

We therefore have difficulty in giving an answer based on the information supplied, and it probably would entail a more detailed study of the actual circumstances to give a reliable reply. If those seeking a reply wish it, FIDIC could arrange for someone to undertake to study the matter, but it would have to be on a commercial basis.

Late completion


For the Orange Book: how can the Employer recover additional costs which are due to late completion of the Works where the the Contractor has made little effort to expedite progress ? The Liquidated Damages under Sub - Clause 8.6 do not adequately cover the costs and Termination is not an option.


Normally the liquidated damages named in Clause 8.6 represent the Employer's sole compensation for delayed completion. The amount named in the Appendix is the pre-agreed (by signing the Contract) compensation for delay whatever the amount of the loss suffered by the Employer may be - on the one hand, the Employer does not have to prove any loss, and on the other, he cannot generally claim additional compensation if his losses exceed the amount in the Contract.

The intention of Clause 8.5 is to get the Contractor to expedite progress (during the execution of the Works) if he is running behind programme, in order to avoid a delay in actually completing the Works. He could, for example, bring on more labour and plant, he could work longer shifts or weekends, he could change his method of working. If any of these measures(but not the fact that he is behind programme as such) cause the Employer additional costs - e.g. additional supervision to cover longer shifts or weekends - then the Employer is entitled to recover such costs from the Contractor and may make a direct deduction from monies which become payable.

The provisions in the last paragraph of Clause 8.6 cover the situation when the Contractor is already late and seems to be further delaying completion through lack of expedition. In this case the Contractor will of course pay more in liquidated damages (which is intended to compensate the Employer for the longer delay), but the Employer does have the right to terminate under Clause 15.2 if he so wishes. If termination is not an option, then one would guess that the Employer will have to rely on the payments he receives from liquidated damages.

There could well be circumstances, of which we are unaware, which could put a different legal interpretation on Clause 8.5 and 8.6, but you would have to consult your legal adviser to get his views on this.

Notice of Claim


The contract conditions Clause 20 requires the Contractor to give notice of an event causing a claim, and within 28 days to substantiate the claim. There is no requirement for the Employer's Representative to reply to a claim within a specified time. Is it sufficient to acknowledge receipt of the claim and to state that it will be investigated, and responded to as soon as possible? Your advice will be appreciated.


The Engineer has to endeavour to reach agreement, and determine the matter fairly, without unreasonable delay. Therefore, when the Engineer has received a claim (not just a notice of intention to claim) it is insufficient simply to acknowledge it and defer investigation and detailed response, which seems to be the course of action you describe. The Engineer should proceed to deal with the claim expeditiously, and also ensure compliance with Sub-Clause 20.2.

The best design-build contract to use


In Conditions of Contract for Design-Build for a major highway, my country is in the process of upgrading its infrastructure, with particular emphasis on highways and bridges. In an effort to "fast" the Works, we have been advised to go down the contractor design and build route using international contractors. The questions I have at the moment is: What is the appropriate Conditions of Contract to use? Conditions of Contract for Design – Build and Turnkey, 1st Edition 1995, or Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Works and for Building and Engineering Works designed by the Contractor, First Edition, 1999. Whatever the choice, it will involve some modifications to suit our laws and procedures.


Since you are planning to let the work on a design and build basis, we would suggest that of the two books you mention, the Conditions of Contract for Plant and Design Build for Electrical and Mechanical Works Designed by the Contractor (First Edition, 1999) is definitely the more suitable. This document in effect replaces and up-dates the 1995 document Conditions of Contract for Design-Build and Turnkey.
Although the title may suggest that the document is more appropriate for electrical and mechanical works, it is specifically written for works designed by the Contractor, whatever the discipline of the works involved, and is therefore very suitable for Contractor-designed civil works. It also retains the use of the Engineer, and maintains appropriate involvement of the Employer during the execution of the Works.
If you are intending to use the new FIDIC forms of Contract for future projects, and feel that some form of training seminar for the staff involved could be of benefit, FIDIC can arrange, for example, a one- or two-day seminar covering the use of the new documents for international construction projects. The seminar leaders are members of the FIDIC Contracts Committee which was responsible for writing and preparing the new documents and thus have a unique insight into their content and use.
Additional comments: we understand that you consider using a FIDIC contract as the standard for infrastructure works, although "it will involve some modifications to suit (your) Laws and Procedures". The FIDIC contracts are known and respected all over the world, in particular for their fair and transparent apportioning of risks and responsibilities between the Employer and the Contractor. Any modification of this is likely to be noted by prospective contractors, who usually take this as a reason to significantly raise their bid prices, in order to compensate for a perceived increase in their risk.From a procedural point of view, any changes which are considered necessary should be made by using appropriately worded Particular Conditions, leaving the General Conditions unchanged. This would also apply to changes necessary for conforming to local laws and procedures. With this in mind, we also highlight the importance of using duly purchased original FIDIC documents. This is in order for Employers and Contractors to be certain that the original FIDIC General Conditions apply, with only those modifications that are clearly set out in the Particular Conditions. FIDIOC is convinced that this will be of benefit to the cost and quality of the infrastructure investments that you are undertaking.