Model forms of contract are used on major projects – think JCT, DEFCONS, FARs, NEC3 – but the daddy of them all is FIDIC, the International Federation of Consulting Engineers, set up way back in 1913 and reflecting the global application typically referred to by its French acronym – naturellement 🙂
Rather grandly, FIDIC has a ‘rainbow suite’ of model forms of contract – different colours for different types of contracts.
I’m gonna focus here on the Yellow Book – Conditions of Contract for Plant and Design-Build.
This is the basis of a Contract between the Employer and the Contractor and is used on projects where the contractor carries out the majority of the design i.e. the Contractor carries out the detailed design of the project so that it meets the outline or performance specification prepared by the Employer.
The Yellow Book is a lump sum price contract with payments made according to achieved milestones on the basis of certification by a third party appointed by the Employer and referred to in the Yellow Book as the Engineer.
Before I go on, can you imagine the risks involved in the process, detail, timing and consequences of the Engineer giving ‘certification’?
Meantime, who am I tell you anything about the yellow book?
I’m no lawyer!
I’ve been working on the world’s largest public transportation program in Jeddah, Saudi Arabia (which I’ve loved!) and applied the Yellow book to a series of Tender packages. Only 20 conditions (I recall DEFCONS had 118 last time I looked) but by Jove there is some complexity in there.
For the avoidance of misunderstanding (and in case my employer or the client- or the contractors – are looking in) I’ll be making no reference to the program detail or indeed any other projects I’ve worked on.
Here’s my take on 4 facets of FIDIC that kinda blow me away:
- It’s full of holes!
Let’s start right off the bat with ‘definitions’.
The contract is silent (as the lawyers would say) on a raft of terms that I really do think would benefit from being defined. For example ‘supplier’ (although to be fair ‘contractor’ and ‘subcontractor’ are defined), ‘stakeholders’, ‘authority’ and ‘neighbours’. I could go on.
When you use FIDIC you need a full set of ‘particular conditions’ to fill the holes – or tailor, I suppose – the contract to meet your specific needs and appetite for risk.
Maybe this is the whole(!) point of model forms of contract…does NEC3 need this level of special terms and conditions? To manage the allocation of risks some real finessing of the FIDIC is needed. This is no off-the shelf solution.
2. For the Engineer, with great power comes great responsibility.
The Engineer is primarily responsible for contract administration.
Curiously, the Engineer, a third-party, is appointed by the Employer (and acts on behalf of the Employer – FIDIC doesn’t state the need for the Engineer to be impartial – except when fair determinations are required). But under FIDIC the Engineer must act fairly. Of course ‘fairly’ is not defined in the contract (he said, tartly).
When the Engineer issues instructions and notices and acts as certified (I shudder at the implication of ‘approval’) it’s to be in the best interests of the project. Tough gig!
3. The importance of the Employer’s relationship with the Engineer.
As mentioned in 2., above the Engineer is not ‘impartial’ but is ‘deemed to act for the Employer’.
It’s absolutely key that the Employer designates a staff member, separate from the Engineer, to represent him (the Employer) whenever the Contract requires, notice to, or action by, the Employer.
Why am I making a thing of this?
Well, the Engineer needs the Employer for a whole host of approvals and instructions e.g. determinations, Subcontractors, extension of time, performance certificates, variations. It’s a long list if you check out the detail. The impact is that rather than working in some kind of collaborative spirit of the contract, FIDIC demands utter rigour that each and all contractual obligations are fully met…or there will be consequences.
And this relates very much to the need to create and maintain formal and yet positive relationships between the Engineer and Employer, never mind with the Contractor. A good example is effectively managing contract variation to avoid undermining the negotiated intent.
And not forgetting to maintain an impeccable documented audit trail of key decisions and outputs e.g. in case of dispute.
4. The Letter of Conditional Acceptance.
Back in the UK, I was taught, nay, ordered, to steer clear of letters of intent or anything that wasn’t the signed, written contract – to mitigate risk of entering into agreement by accident. Ensuring there was no evidence of terms that would supplement or contradict the one and only contract document. Nothing else to be admissible!
And yet there is the Letter of Conditional Acceptance?
Inevitably shortened to LoCA – infrastructure projects love acronym soup. The LoCA is issued to the preferred tenderer and, fingers crossed they sign it with full compliance. Then the one and only contract is issued and signed by both parties.
Did you see what I did there?
I referenced a ‘contractual’ document that is outside the one and only final contract. Risk! Of course the purpose of the LoCA is to mitigate risk…but still… you can see where issues can arise with (any) conflicting provisions of the final contract taking precedence over the LoCA… as I said, fingers crossed.
4 facets of FIDIC that kinda blow me away.
Hopefully calling out these 4 facets of FIDIC stimulates your approach to managing projects. As I write them, I’m reminded of their risks (and opportunities) and my aspiration to effectively deploy the whole of FIDIC for my clients.
Does FIDIC stimulate disputes?
Maybe no more than other contracts for high-risk, high-value projects. Although, there appears to be few dispute case reviews related to the Yellow Book, as the majority are conducted through arbitration and are not in the public domain.
Good news then, and fingers crossed…hopefully, all will go well. Such fine words, noting, as a previous colleague (hello Jon!) might add when it comes to FIDIC:
‘hopefully doth butter no parsnips’
What lessons have you learned while managing projects? Please share your thoughts in the comments section below as I learn just as much from you as (hopefully) you do from me.
Image: taken with an Iphone 5 by the author when out and about in North London, July 2015 – thought it fitted quite well with the theatrical quotes 🙂