Are you about to enter a construction contract and do not know how to draft your contract? You are in the right place. In this blog post, we discuss about the different types of FIDIC contract forms and which one is suitable for which transaction.
When drafting a construction contract, you do not need to start from scratch. Instead, you can adapt an already existing standard form of contracts, which reduces individual transaction costs and ensure clarity in the contractual provisions. The first standard form of a construction contract, designed for international use, was published by the International Federation of Consulting Engineers (hereinafter ´FIDIC´). Now, FIDIC contracts are the most commonly used standard form of international construction contracts in the world today.
Established in 1913 by France, Belgium and Switzerland, FIDIC represents the global consulting engineering industry, comprised of Member Associations from around 100 countries worldwide. Today, FIDIC is a leading authority on publishing standard conditions of contract and publishes a family of standard forms of contracts suitable for international use, including standard forms of contract for works.1 Standard FIDIC contracts are frequently used in both large and small construction projects, being suitable for parties of different nationalities, and coming from different jurisdictions. One of the key advantages of FIDIC forms of contract is that contracting parties are generally familiar with their standardized terms and value the legal certainty which their anticipated uniform application across jurisdictions offers.
Below is a general overview of the five main types of FIDIC contract templates. It is important to note that FIDIC now focuses on the method of procurement rather than the nature of the works.
1. Red Book
The Red Book was the first FIDIC contract template in 1957. In those early days, the Red Book was most commonly used for civil engineering projects such as the construction of pipelines, bridges and buildings.
Today, the Red Book provides conditions of contract for construction works where the design is carried out by the Employer, even though it allows the contractor to carry out the design of some elements. The administration of the project and supervision of the works is carried out by an Engineer who is employed by the Employer. Under the Red Book, contractors are generally paid on a measurement basis.
The Red Book has a Multilateral Development Bank edition, which is also referred to as the Pink Book. This is generally used in tender documents of projects financed by credit institutions, and banks are also entitled to inspect the project.
2. Yellow Book
The Yellow Book lays down the ´Conditions of Contract for Plant and Design-Build´. Unlike in the Red Book, the design and construction work under the Yellow Book is carried out by the Contractor. The Yellow Book is now often used for the provision of electrical and mechanical plants as well as for the design and execution of building and engineering works.
Similar to the Red Book, the administration of the project and supervision of the works is carried out by an Engineer who is employed by the Employer, who is responsible for eg. issuing instructions, certifying payments, or determining completion. Under the Yellow Book, the contractor is paid on a lump-sum basis.
3. Silver Book
The Silver Book provides for the ´Conditions of Contract for EPC/Turnkey Projects´. As the title suggests, this template is predominantly used in turnkey projects for process and power plants and private infrastructure works. This template is particularly suitable for experienced contractors who are capable of managing complex risks.
That is because, under the Silver Book, the contractor carries out the project’s design and bears all risks, except for war, terrorism, and force majeure, with respect to the project’s completion time, costs, and work quality. Consequently, the Silver Book also allows the Contractor more flexibility, as long as the performance criteria set out by the Employer are fulfilled. Under the Silver Book, the contractor is usually paid on a lump sum basis.
4. Green Book
The Green Book is the ´Short Form of Contract – General Conditions´. This template is recommended for projects that require a relatively small capital (less than USD 500,000) and particularly, in repetitive or short-term and simple construction works. The Green Book is a flexible template with administrative and commercial provisions and can be revised easily in accordance with the parties’ needs. Under the Green Book, the Contractor carries out the works in accordance with the design provided by the Employer.
5. Gold (DBO) Book
The Gold (DBO) Book provides for the ´Conditions of Contract for Design, Build and Operate Projects´. This template is suitable for international projects with high capital needs and long operation periods such as 20 years. The Gold (DBO) Book also lays down special provisions for parties that wish to replace or supplement certain contractual clauses. That is because employers or governments may require special conditions or particular procedures for the contract.
Under the usual arrangements for this template, the Contractor assumes the design and construction work as well as the operation obligations. However, the Contractor has no responsibility for either financing the project or for its ultimate commercial success.