FIDIC Red Book

Chapter 1: General Provision

Ø Contract agreement includes Letter of acceptance contractor includes his/her legal successors

Ø ‘Subcontractor’ is recognised as an entity if so named in the contract

Ø ‘Base Date’ is 28 days prior to the latest date for submission of tender

Ø ‘Commencement date’ is the date so notified

Ø ‘Cost’ means all expenditure reasonably incurred including overheads but excluding profits

Ø ‘Local Currency’ means the currency of the country, where project is executed.

Ø ‘Provisional sum’ is amount reserved to be spent at client’s discretion.

Ø ‘Communications’ are in writting delivered against receipt by recipient.

Ø ‘Priority of Documents’ is well established to avoid disputes.

Ø ‘Assignment’ of contract as a whole or in part possible only with consent of other party.

Ø ‘Defect notification period’ starts from the day on which the works or section is completed as certified.

Chapter 2: The Employer

Ø Contractor right of access to site is not exclusive and is subject performance security being provided.

Ø Contractor’s claims is applicable in case of Delay by Employer.

Ø Employer to provide reasonable assistance to contractor to obtain local permits/approvals.

Ø Employer to confirm financial arrangement for payment to contractor within 28 days of request for information. Also to convey any changes in Employer’s financial arrangement.

Ø Employer’s claims ratified by Engineer can be deducted from payment certificate issued to the contractor.

Chapter 3: The Engineer

Ø The Engineer has no authority to amend the contract

Ø The Engineer’s authority & limitations can be defined in the contract, but Employer shall not impose further constraints on the Engineer’s authority.

Ø Engineer’s approval does not relieve the contractor from any responsibility, he has under contract.

Ø Employer can replace the ‘Engineer’ by any other person against whom contractor does not have any reasonable objections.

Ø Engineer shall consult both parties to reach agreement on claims otherwise proceed to make a fair determination in accordance with the contract.

Chapter 4: The Contractor

Ø The contractor shall design if required to the extend specified, even though it is a construction contract.

Ø The contractor shall deliver the performance security to Employer within 28 days of receipt of the Letter of Acceptance

Ø The Employer shall return the Performance Security to the contractor within 21 days of Performance certificate issued on completion of the contract.

Ø The contractor shall not revoke the appointment of contractor’s representative without prior consent of the Engineer.

Ø The contractor shall not subcontract the whole of works.

Ø The subcontractor can be named in the tender for other subcontractors proposed during execution, the Engineer’s approval is required.

Ø Though Employer shall be responsible for any error any notified items of reference an experienced contractor should discover the error in time and seek the amendment.

Ø Claims due to above errors shall be entertained only if an experienced contractor could not have foreseen these errors.

Ø The contractor shall comply with applicable safety regulations.

Ø The contractor shall institute a Quality Assurance System to demonstrate compliance.

Ø Compliance with Quality assurance system shall not relieve the contractor of any of his duties or responsibilities.

Ø The Employer provided site data to be checked & interpreted by contractor before use.

Ø The contractor to ascertain all necessary information regarding risks & contingencies including, nature of site & subsurface conditions the laws, procedures, & labour practices of the country.

Ø If the contractor encounters adverse physical conditions, which were unforeseeable, the contractor to give notice to the Engineer.

Ø The contractor shall bear all costs for special and or temporary rights of way & shall be deemed to have been satisfied as to the suitability and availability of access routes to the site.

Ø Contractor’s equipment when brought to site shall be exclusively intended for the execution of the works & shall not be removed without the Engineer’s consent.

Ø The monthly process report shall be prepared by contractor containing charts, photographs & other documents showing progress of the works.

Ø The progress report shall cover details of contractor’s personnel & equipment, personnel & equipment, quality assurance documents, safety statistics and comparison of actual & planned. Also measures adopted to overcome delays are listed

Ø All articles of antiquity found at the site shall be placed under the care & authority of Employer, if found by contractor, Any delay and extension of time due to delay on this account along with cost can be claimed.

Chapter 5 :Nominated Subcontractor

Ø The contractor shall not be under any obligation to employ a nominated subcontractor, against whom he raises reasonable objection.

Ø The employer may pay direct to the nominated subcontractor, if not paid by contractor without justification, and deduct it from Contractor’s money dues.

Chapter 6: Staff and Labour.

Ø Wages and conditions of employment for labour shall not be less than minimum prescribed or those paid in the local trade or industry in that country.

Ø Contractor shall comply with all labour laws including those relating to health, safety, welfare and immigration.

Ø No work shall be carried out at site on locally recognised holidays & days of rest unless specially permitted.

Ø The contractor’s personnel shall be qualified & experienced in their trades and provide necessary super intendance to manage the work.

Chapter 7: Plant Materials and Workmanship.

Ø If contractor suffers delay due to delay by Employer’s Engineer, claims can be raised.

Ø The contractor shall comply with the remedial instructions within a reasonable time, otherwise Employer shall be entailed to employ & pay other persons to carry out the work.

Ø The contractor shall pay all royalties rents and other payments for natural materials obtained from outside the site.

Chapter. 8: Commencement, Delays & Supervisions.

Ø Notice of 7 days from Engineer to contractor necessary for commencement of work.

Ø Contractor to start the work as soon as reasonably possible but within 42 days from the Letter of Acceptance.

Ø Contractor’s planning schedule is considered approved if not commented by client’s engineer within 21 days.

Ø Contractor is entitled to extension of time for variation of scope of work.

Ø For exceptionally adverse climatic conditions also extension can be considered.

Ø Unforeseeable shortages in the availability of personnel or goods caused by epidemic or government action can be the reason for extension.

Ø Any additional mobilization for catching up with delayed project execution by contractor is at the risk and cost of the contractor.

Ø If contractor fails to comply with time for completion he shall pay delay damages to the Employer for this default as per rate stated in the tender.

Ø Suspension of work by Engineer is permitted. Contractor can claim time extension and cost for complying with the Engineer’s instructions provided suspension is not for reasons on the contractor’s side.

Ø Contractor entitled to payment of the value of undelivered plant and or Materials if work is suspended for more than 28 days.

Ø If work is suspended beyond 84 days, the contractor may give 28 days notice to resume the work, beyond which the work (whole/part) shall be treated as omission or contractor may give notice of termination.

Chapter 9: Test on Completion

Ø Notice of 21 days from contractor is necessary for conducting Tests on Completion. The test may be conducted within 14 days thereafter even if client’s engineer is not available.

Ø If contractor fails to pass the Tests on Completion within 21 days of notice from Engineer to carry out the test. Client is free to proceed with tests at the risk and cost of the contractor.

Chapter 10: Employer’s taking Over

Ø Employer is required to take over the work when completed according to the contract within 14 days of notice form contractor.

Ø The Engineer is required to issue the Taking Over Certificate to the contractor within 28 days of above notice or reject the application giving reasons.

Ø If Engineer fails in either to take over or to reject, with 28 days, but the work is substantially complete; the certificate shall be deemed to have been issued on the last day of that period.

Ø When Taking Over Certificate has been issued for a part of the work, the delay damages are proportionately reduced.

Ø If contractor is prevented for more than 14 days from carrying out the Test on Completion, the Employer shall be deemed to have taken over, the works or section.

Chapter 11: Defects Liability

Ø Any work by contractor within Defects Notification Period as pointed out by Employer, well within contract requirement is to be carried at the risk and cost of the contractor.

Ø The Employer can seek extension of Defects Notification Period if a major item of plant cannot be used for purposes for which they are intended, but not exceeding Two years in extension.

Ø If above remedy is not carried out the Employer can carry out the work himself or by others at contractor’s cost, but the contractor shall have no responsibility for this work.

Ø If Employer agrees the defective material can be removed for the site for repairs.

Ø The contractor can be asked by the Engineer to search for the cause of any defect. The cost plus profit shall be paid to the contractor unless the cause noticed is due to defective workmanship of contractor.

Ø Contractor’s obligations are not complete until Engineer issued Performance certificate with 28 days of expiry date of Defects Notification Period.

Ø Only the performance certificate constitutes acceptance of the work.

Ø Both parties are liable for any unperformed obligation & contract remains in force to that extent.

Chapter 12: Measurement and Evaluation

Ø Method of measurement is net actual quantities basis not with standing local practices, in that country.

Ø Evaluation of work shall be carried out by new rate other than agreed in the BOQ if the quantity is increased by more than 10% and value by more than 0.01% of accepted contract amount provided the rate revision sought by contractor exceed 1% of the cost per unit quantity as per rate schedule.

Chapter 13: Variation and Adjustment

Ø Variation of work can be initiated by the Engineer at any time upto Taking over stage.

Ø Contractor is required to execute each variation unless contractor writes to Engineer about his inability to perform.

Ø Contractor may propose improvement or changes if beneficial to Employer due to lower value or better performance.

Ø The reduction in cost to contract price due to above change shall be shared between Employer & the contract after adjusting for loss if any in quality, life and operational performance.

Ø The provisional sum available in the contract price shall be used as per Engineer’s instructions, after obtaining quotations, invoices, vouchers and receipts in substantiation.

Ø The contract price is adjusted for any increase or decrease in cost resulting from a change in the Laws of the Country made after the Base Date in the contract.

Ø Escalation clause applies only if provided for in the contract. Such clause may or may not be sufficient for compensation due to rise in costs which have gone up compared to ‘Base Date’ data.

Ø If contractor fails to complete works within Time for Completion adjustment of price will be linked to date 49 days prior to Date of Completion or current prices whichever more favorable to Employer under Escalation clause.

Chapter 14: Contract Price and Payment

Ø Any quantities as per BOQ are estimated quantities and are not be taken as the actual & correct quantities.

Ø The Employer shall make an advance payment as interest free loan for mobilisation, when contractor submits. Advance payment guarantee, when such a provision of advance payment is made in the Appendix to Tender.

Ø If contract includes schedule of payment, it shall include an amount for plant & Materials which have been sent to the site for incorporation in the permanent works.

Ø If contract does not includes schedule of payments, contractor to submit non-binding estimate of payment during each quarterly periods, starting from 42 days after the commencement date.

Ø The Engineer may make any correction if necessary to any previous payment certificate since payment certificate shall not be deemed to indicate Engineer’s acceptance of work

Ø If contractor does not receive payments within 56 days of submission to Engineer with necessary supporting document. He shall be entitled to receive financing charges compounded monthly on the amount unpaid.

Ø Financing charges for delayed payments is 3% above central bank’s discount rate.

Chapter 15: Termination by Employer

Ø Employer can terminate contract on many grounds such as failure to carry out the contract, subcontracting the whole of works or assign the contract without agreement.

Ø The bribing for undue favour can be the basis for Termination.

Ø Even Employer can terminate the contract with 28 days notice without any reason but not for executing the work himself or to appoint another contractor.

Chapter. 16: Suspension & Termination by Contractor

Ø Contractor is allowed to terminate the contract if contractor is not provided with

–       Employer’s financial arrangement

–       Lack of interim payment when due

–       Prolonged suspension of work by Employer

–       Bankruptcy or insolvent Employer

–       Substantial failure of Employer to perform his obligation under contract.

Chapter 17: Risk & Responsibility

Ø The contractor indemnifies and holds harmless the Employer on following issues.

–       Injury, Disease or Death due to contractor’s execution of work (including design if any) or during remedy of defects in works offer completion.

–       Damages or Losses to property arising out of execution of work (including design if any) or attributable to negligence, willful act or breach of the contact by the contractor.

Ø The Employer to indemnify and hold harmless the contractor for similar actions carried out by Employer’s personnel during execution or after completion during remedial work.

Ø The contractor takes full responsibility for the care of the works from commencement Date till taking over by client, after which the responsibility passes to the Employer.

Ø In case of loss or damage during care of the works from commencement Date till taking over by client, after which the responsibility on contractor continues even after Hand over to Employer, if some balance work is still being carried.

Ø Employer is required to meet the risks arising out

·        War, Hostilities & invasion

·        Rebellion, Terrorism & civil war

·        Riot, Commotion or disorder (provided it is not caused by contractor’s personnel)

·        Explosives, ionising radiation or contamination by radio activity except for those caused due to use of such material by contractor, for construction purposes.

·        Pressure waves caused by aircraft caused by sonic or supersonic speeds.

·        Design of any part of works by the Employer.

·        Forces of Nature, which an experienced contractor could not have foreseen.

Ø Contractor is expected to make good loss or damage caused by above issues, but will be reimbursed for the same along with time extension for delays.

Ø The Employer shall indemnify Contractor from any claim arising out compliance of the contract conditions or works being used for the Employer. Similarly Contractor shall indemnity Employer for any claim arising out design or supply of goods made under the scope of the contract.

Ø The total liability of the Contractor under above issues shall not exceed the value of contract except for in case of fraud, misconduct & default.

Chapter 18: Insurance

Ø The terms of Insurance to be effected by any Insuring Party shall be consistent with any terms agreed by both parties before the date of Letter of Acceptance. This type of agreement shall take precedence over the provisions of this clause.

Ø The relevant insuring party shall within the respective periods stated in Tender Submit to other party evidence of insurance being effected along with details of premium.

Ø Neither party shall change terms of insurance without approval of other party. Also payment not made by one party despite being due, can be made by other party and adjusted in contract value or adjusted against payment due.

Ø Any insurance claim, uninsured obligation, not received fully from Insurance shall be borne by the party, which is responsible for these issues as per contract.

Ø Payment by one party to the other party shall be subject to ‘Employer’s claim’ or ‘contractor’s claim’ as applicable.

Ø Insurance for works & Contractor's equipment shall be effected by the contractor as insuring party in the joint name for the full value of cost of replacement. The payment shall be jointly received & allocated between the parties for the sole purpose if rectifying the loss or damage. Such insurance excludes losses due to defects in design, materials and workmanship.

Ø Such insurance cover excludes part of work taken over by the Employer. If one year after the Base date the insurance cover is not available at commercially reasonable terms. The contractor shall give the notice to the Employer with supporting particulars.

Ø The contractor shall also insure against injury to Persons & Damage to Employer’s Property arising out of contractor is performance of the contract other than already covered under Insurance of Works & Contractor’s Equipment or personnel As stated earlier, the insurance will be in joint name of both the parties.

Ø Similar to Works & Contractor’s equipment, contractor’s personnel shall be insured by contractor for injury, sickness, disease or death.

Ø The insurance shall be maintained in full force in effect through out the execution of works. For subcontractor’s employees subcontractor may draw insurance, but contractor shall be responsible for the compliance by the subcontractor.

Chapter 19: Force Majeure

Ø Force Majeure is an exceptional event or circumstance, which concerned party could not have provided against & even could not have avoided having arisen in the given circumstances.

Ø Force Majeure includes, war, hostilities or invasion, rebellion, terrorism or civil war.

Ø It also covers riots commotion, disorder or strike & lockout other than those by contractor’s or subcontractor’s personnel.

Ø It includes issues such as explosives, ionising radiation or contamination by radio activity except those specifically utilised by contractor for construction.

Ø It does cover natural catastrophes, such as earthquake, hurricane, typhoon or volcanic activity.

Ø If a party is prevented from performing any of its obligations, a notice shall be given within 14days of the event constituting Force Majeure.

Ø The party shall be excused from performance of its obligations as long as Force Majeure persists except for obligation of the party to make payments if due.

Ø If contractor suffers delays & costs due to Force Majeure he shall be compensated by necessary time extension & cost compensation.

Ø If Force Majeure clauses for subcontractor are broader/wider than contractor’s projections under this clause, then those issues cannot be the excuse of contractor for non-performance or basis for relief under the clause.

Ø If a single Force Majeure event persists for 84 days or  cumulatively for 140 days due to multiple occasions, then either Party may give notice to the other party a notice of 7 days for termination of contract. In such situation further process of determining the value of work done shall commence and will include.

·        Value of completed item of work for which price is stated in the contract.

·        Cost of Plant & Material delivered or which has left vendors for delivery.

·        Any other cost/liability reasonably incurred by the contractor for completing the works.

·        Cost of removal of Temporary Works & contractor’s Equipment.

·        Cost of repatriation of the contractor’s staff & labour employed wholly in connection with the work.

Ø Notwithstanding above if any event outside the control of parties arises, which makes if impossible or unlawful for either party to fulfill its contract obligations parties are entitled to be released from further performance of the contract. Monies payable to the contractor by employer shall be same as stated above.

Chapter 20: Claim, Disputes & Arbitration

Ø If contractor considers himself eligible for any extension of the Time and or additional payment, a notice shall be given within 28 days of the event. Any claims beyond this period will not be effective and the Employer shall be discharged of any liability on that account.

Ø Contractor shall maintain all relevant and contemporary record to substantiate his claims to the engineer. Without admitting the Employer’s liability the Engineer may inspect the record and seek necessary details to verify such claims.

Ø Within 42 days of becoming aware of claims contractor shall send to the Engineer a fully detailed claim, which includes full supporting particulars of the basis of the claim. For any further details can be provided within the time agreed between Contractor & Employer.

Ø The parties shall jointly appoint a DAB by the date stated in the Appendix to Tender, Disputes shall be adjudicated by a Dispute Adjudication Board consisting of one or three suitably qualified persons. In case of three member DAB, one member each shall be appointed by the Employer and the contractor & third member shall be appointed by mutual consultation to act as chairman. However, if a list of potential members is included in the contract, the member shall be selected from those on the list.

Ø In case of failure to appoint DAB, due to any disagreements, the appointing entity or official named in the particular conditions shall appoint member/members of DAB.

Ø Appointment of any existing member of the DAB may be terminated by mutual agreement of both the parties.

Ø If a dispute arises between parties under the contract, either party can refer the dispute to DAB for its decisions with copies to other party. Within 84 days of such reference or such other period as may be proposed by the DAB & approved by both parties, DAB shall give the reasoned decision. The decision shall be binding on both parties who shall act on it unless it is revised in an amicable settlement or arbitral award.

Ø If either party is dissatisfied with decision, then within 28 days of decision shall give notice to the other party of its dissatisfaction. Also if DAB fails to give decision within above stipulated period, then within 28 days of expiry of the period, notice of dissatisfaction can be issued.

Ø DAB’s decision is final & binding if no notice of dissatisfaction is issued by either party. If notice of dissatisfaction is issued in time, Parties shall attempt to settle the dispute amicably before the commencement of arbitration.

Ø Arbitration shall be carried out as per rules of arbitration of the International Chamber of Commerce. (in the language stated in sub clause 1.4 about Law & Language).

Ø Arbitrators shall have full power to open up, review & revise any decision by DAB or engineer. Neither party shall be limited by the arguments previously put before the DAB.

Ø Arbitration may commence prior to or after completion of works. The obligation of all parties shall not be altered by reason of any arbitration being conducted during the progress of works.

Ø In case of award of DAB not being implemented without giving notice of dissatisfaction, the failure can be refered to arbitration.

Ø In case of any dispute not getting resolved due to absence or expiry of DAB arrangement, the matter may be refered directly to arbitration.