Model Contract Used in The Construction Sector Series
I- FIDIC (International Federation of Consulting Engineers) Types of Model Contracts of General Information
The International Federation of Consulting Engineers is a professional association established in 1913, known as the FIDIC (Fédération Internationale Des Ingénieurs-Counseils). Its members are duly elected from consultant-engineer associations of various countries, and membership to the association is limited with the inclusion of one professional association from every country. Today, the FIDIC is comprised of associations representing 97 different countries from all around the world, including Turkey. Turkey became a member of the FIDIC in 1987 via the Union of Chambers of Turkish Engineers and Architects. The FIDIC plays a significant role in determination and implementation of the strategic goals of the consultancy-engineering sector in the name of its member associations, and in providing resources and information to its members regarding the sector. Additionally, the FIDIC develops sector-related policies and professional principles, and is engaged in activities meeting the needs of each member country’s associations.
The ultimate goal of the FIDIC is to preserve the benefits of its members, and to contribute to the professional development, both nationally and internationally. In order to pursue and expand the scope of its goals, the FIDIC publishes standard contracts, procedures, recommendations and informational documentation for its customers, consultants, sub-contractors, consortiums and their representatives to use. In addition to the mentioned publications, the FIDIC prepares model contracts, declarations of principles, and work-practice documents, position papers, guidelines, training manuals of management systems (quality management, risk management, business integrity management, environment management and sustainability), and information regarding business steps, such as consultant selection, quality based selection, tender processes, supply, insurance, liability, technology transfer, and capacity development for its members. The main purposes of the publication of these documents are to standardize the terminology, to make the documents more user-friendly and uniform, and to organize the relationship between the parties (the Employer – Contractor – Representative/Consultant/Engineers) of sector-related operations.
The most popular and frequently used documents among the FIDIC publications are the model contracts. Within this context, Conditions of Contract of Works of Civil Engineering Construction (the Red Book), Conditions of Contract for Plant & Design-Build Works for Electrical and Mechanical Works (the Yellow Book), Conditions of Contract for Design-Build and Turnkey Works (the Orange Book), Guide to the Joint Venture and Sub-Consultancy Agreements (the Blue Book), Client/Consultant Model Services Agreement (the White Book) and Conditions of Contracts for EPC Turnkey Projects (the Silver Book), are exemplified as some of the model contract publications of the FIDIC.
In order to meet the sectoral needs, the FIDIC revises the model contracts, and collects and creates new model contracts. In this context, “the Pink Book,” which was published in 2010, is mainly preferred by the banks, and places particular focus on project finance necessities. Again, by virtue of similar reasons, the Form of Contract for Dredging and Reclamation Works, in other words, “the Turquoise Book,” Conditions of Contract for Design, Build and Operate Projects, i.e. “the Gold Book,” and Conditions of Subcontracts for Construction, were published respectively in 2006, 2008, and 2011.
Summary information regarding the most popular of these aforementioned books is as follows:
The Red Book
The Red Book, which is the FIDIC book with the broadest scope of application, mainly regulates the relationship between the employer and the contractor. The first edition of this book was published in 1957, and the fourth one in 1987. Minor changes on the latest edition were made in 1992. Consequently, the fifth edition, which is the current one, was published in 1999. Along with this edition, the book’s name was changed to its present name, Conditions of Contract of Works of Civil Engineering Construction. The Red Book was envisaged for works where the employer handles the general design works, while the contractor designs and carries out the construction operations of some of the plants. In light of the regulations available in the fifth edition, it is acknowledged that the Red Book is more suitable for relatively simple works, which are mostly comprised of civil engineering works, such as water and sewerage systems, pipelines and building construction.
The Yellow Book
The Yellow Book that was formed by joining of the Conditions of Contract for Plant & Design-Build Works for Electrical and Mechanical Works (the Yellow Book) and the Conditions of Contract for Design-Build and Turnkey Works (the Orange Book) regulates the relationship between employers and the contractors, as with the Red Book. However, the Yellow Book is specifically used for construction and installation operations that are performed by the contractor. In construction works that are subjected to the Yellow Book, the contractor performs plant design, construction and engineering operations. The Yellow Book is recommended for works that are based upon the know-how and experience of contractors who are not bound by the designs and the standards created by the employer. Within this context, the Yellow Book is suggested for construction of pumping stations, water and waste purification, as well as industrial plants and waste gas filtration plants.
The Silver Book
The Silver Book entitled “Conditions of Contract for EPC Turnkey Projects” was published in 1999 by virtue of the insufficiency of the Orange Book in satisfying the needs of the sector. It was prepared with the purpose of providing rules that apply to all infrastructure works of projects in which the term, turnkey, is in question. With respect to construction projects to be considered within the scope of the Silver Book, the contractor carries out the engineering, procurement and construction works until the fully equipped facility is completed and commences operations. The employer does not usually concern itself with the designs of the works to be considered within the scope of this book. However, the employer will concern itself with the construction works. Within the framework of its regulations, the Silver Book is more suitable for the construction of the plants used for procurement and purification of drinking water, or the burning of solid wastes and power plants.
The Green Book
The Green Book is used for the design works of the construction project being performed by both by the employer and the contractor in accordance with the employer’s requests. This is referred to as the short contract, and is generally preferred in order to be used in accordance with short-term, recurring, and simple construction works. With respect to various of the works within the scope of the Green Book, the usage of sub-contractors or engineers may not be necessary in some cases. Moreover, the contractor usually carries out both the design and construction works. The Green Book is used for works that are planned to be concluded within a 6 month period, with a value of USD 500 000 or less. Due to this fact, the Green Book it is rather short and concise.
In the light of the above-mentioned information, the general structure, including the content and regulations of the model contracts that are envisaged, are set forth below:
- Clause 1: “General Provisions” – matters that apply to the contract, in general, such as; general definitions, applicable language and law, priority of documentation, joint and several liability, interpretation of the clauses, confidentiality, and compliance with the law, are stipulated within this clause.
- Clause 2-4: The duties and obligations of “The Employer,” “The Engineer” (Red and Yellow Book) and “The Contractor,” administration and implementation of the Employer (Silver Book) and the duties and obligations of those that play a part in the execution of the works are determined in these clauses.
- Clause 5: Provisions regarding “Nominated Subcontractors” (Red Book) and the “Design” (Yellow and Silver Book) are be found in this clause.
- Clause 6: Provisions concerning the liability and necessities regarding “Personnel and Labor” concerning the project under both the Contractor and the Employer are found in this clause.
- Clause 7: The provisions regarding “Plant, Materials and Workmanship,” governs the materials that the Contractor may bring to the site, as well as test processes to be performed, are found in this clause.
- Clause 8-11: Provisions of “Commencement, Delays, Suspension, Tests on Completion, Employer’s Taking Over and Defects,” and the consequences of these events, are found in these clauses.
- Clause 12: “Measurements and Evaluation” (Red Book) and “Tests After Completion,” (Yellow and Silver Book) are the subjects envisaged within this clause.
- Clause 13-14: Provisions regarding the “Variations and Adjustments,” “Contract Prices and Payments,” and the relevant procedures thereto are found within these clauses.
- Clause 15-16: “Termination by Employer,” and “Termination by Contractor,” the procedure and consequences of the usage of these rights are found in these clauses.
- Clause 17: The “Risk and Responsibility” clause determines the risks that the parties have undertaken, the risk limitations, and the procedure to follow in the event of a situation considered to be a risk.
- Clause 18: The clause regarding the “Insurance” includes provisions under the Contractor or the Employer at or before the commencement of the work.
- Clause 19: The “Force Majeure” clause determines the scope of the force majeure and the procedure to follow upon such occurrence.
- Clause 20: The of “Claims/Demands, Disputes and Arbitration,” includes the procedure to follow in the event one of the parties demands, and the procedures for, the appointment and functioning of the Dispute Adjudication Board, followed by the Arbitration Board.
Additionally, every single model contract contains an Appendix List and example forms in compliance with its content.
The amendments to these model contracts are made by the parties via negotiation, and the most suitable provisions for the specific project are adopted. However, due to the fact that the clauses and the structure of the model contracts are edited within a certain order, the effects of the amendments to the contract shall be scrutinized, and consequences to each of the amendments shall be approached with the utmost care.
Within the framework of the explanations, above, both in terms of the Employer and the Contractor, in order for the legal and commercial relationships to function properly, without any problems, the works must be built on solid legal grounds. Therefore, by using model contracts that are internationally accepted and recognized by the players of the markets, these works and relations can be performed most efficiently.