FIDIC DBO Contract The FIDI DIC C Co ntra ntr a c ts G Guide u id e
for the FIDIC Conditions of Contract for Design, Build and Operate Projects 1st Edition 2011
The FIDIC DBO Contract Guide for the FIDIC Conditions of Contract for Design, Build and Operate Projects First Edition, 2011
FEDERATION INTERNATIONALE DES INGENIEURS-CONSEILS INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS INTERNATIONALE VEREINIGUNG BERATENDER INGENIEURE FEDERACION INTERNACIONAL DE INGENIEROS CONSOLTORES
The FIDIC DBO Contract Guide for the FIDIC Conditions of Contract for Design, Build and Operate Projects First Edition, 2011
FEDERATION INTERNATIONALE DES INGENIEURS-CONSEILS INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS INTERNATIONALE VEREINIGUNG BERATENDER INGENIEURE FEDERACION INTERNACIONAL DE INGENIEROS CONSOLTORES
Contents
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Ackno Acknowl wled edgem gemen ents ts .... ....... ..... ..... ..... .... ..... ..... ..... ..... .... ..... ..... ..... ..... .... ..... ..... ..... ..... .... ..... ..... ..... ..... ..... ..... .... ..... ..... ..... ..... .... ..... ..... ..... ..... .... 1
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FIDIC FIDIC DBO Contra Contract ct ....... ........... ....... ....... ....... ....... ........ ....... ....... ....... ....... ........ ....... ....... ........ ....... ....... ....... ....... ........ ....... ....... ....... ....... ...... 2
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Introdu Introductio ction n and Forewo Foreword rd .... ........ ....... ....... ........ ....... ....... ....... ....... ........ ....... ....... ........ ....... ....... ....... ....... ........ ....... ....... ....... ....... ...... 3
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Parti Parties es involv involved ed in a DBO Projec Projectt ..... ........ ..... .... ..... ..... ..... ..... .... ..... ..... ..... ..... .... ..... ..... ..... ..... .... ..... ..... ..... ..... .... ..... ..... ..... ..... .... 5
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Gene General ral Cond Condit ition ions s – Clau Clause se-b -byy-Cl Clau ause se Com Commen menta tary ry ....... ......... .... ..... ..... ..... ..... .... ..... ..... ..... ..... .... ..... ..... .. 9 Clau Clause se 1
Gener eneral al Prov Provis isio ions ns
Clause 2
The Em Employer
Clau Clause se 3
The The Emplo Employe yer’ r’s s Repr Repres esen enta tati tive ve
Claus ause 4
The Con Conttractor ctor
Clause 5
Design
Clause 6
Staff and Labour
Clau Clause se 7
Plant Plant,, Mat Materi erials als and and Work Workma mans nshi hip p
Clau Clause se 8
Comme Commenc nceme ement nt Dat Date, e, Comp Complet letion ion and and Progr Programm amme e
Claus ause 9
Design ign-Build
Clau Clause se 10 10 Opera Operati tion on Serv Service ice Clau Clause se 11 Test Testin ing g Clau Clause se 12 Defe Defect cts s Clause Clause 13 Variati Variations ons and Adjustm Adjustment ents s Clause Clause 14 14 Contrac Contractt Price Price and Paymen Paymentt Clau Clause se 15 Termi Termina nati tion on by Empl Employ oyer er Clause Clause 16 Suspen Suspension sion and and Termina Terminatio tion n by Contrac Contractor tor Clau Clause se 17 Risk Risk Alloca Allocati tion on Clau Clause se 18 18 Excep Excepti tion onal al Ris Risks ks Clau Clause se 19 Insu Insura ranc nce e Clause Clause 20 Claims, Claims, Disput Disputes es and and Arbitra Arbitratio tion n 6
Parti Particu cular lar Cond Condit ition ions s Part Part A – Comp Complet leting ing the the Con Contr tract act Data Data .... ....... ..... .... ..... ..... ..... ..... .... .... .. 141
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Parti Particu cular lar Cond Condit ition ions s Part Part B – Prepa Preparin ring g Spe Specia ciall Prov Provisi ision ons s ..... ....... ..... ..... ..... ..... .... ..... ..... ..... ... 142
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Stru Struct ctur ure e of the the Disp Disput ute e Adju Adjudi dicat cation ion Board Board ..... ....... ..... ..... ..... ..... .... ..... ..... ..... ..... .... ..... ..... ..... ..... .... ..... ..... .... .. 143
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Index Index of of Claus Clauses es and and SubSub-Cl Clau ause ses s ..... ....... .... ..... ..... ..... ..... .... ..... ..... ..... ..... .... ..... ..... ..... ..... .... ..... ..... ..... ..... .... ..... ..... .... .. 145
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Acknowledgements
FIDIC would like to thank the principal author of this Guide, Michael Mortimer-Hawkins, who was Chair of the task group responsible for drafting the DBO Conditions of Contract, Axel Jaeger who was Chair of the Contracts Committee during this time, Nael Bunni for his help and words of wisdom in connection with the provisions relating to risks and insurance and his work in modernising the procedures for dealing with claims and disputes, Chris Seppala who reviewed the Guide for legal aspects, and the other members of the DBO task group. The FIDIC DBO Contract Guide was prepared by the FIDIC Secretariat under the guidance of the FIDIC Executive Committee and the FIDIC Contracts Committee whose members over the period that the Guide was drafted and published were: Nael Bunni, Chartered Engineer, Ireland (Legal Adviser); Axel-Volkmar Jaeger, Consulting Engineer, Germany; Philip Jenkinson, Atkins, UK; Michael Mortimer-Hawkins, Consulting Engineer, UK and Sweden; João Prego, Viaponte, Portugal; Christopher Seppala, White and Case LLP, France (Special Adviser); Christoph Theune, Pöyry Environment GmbH, Germany; Christopher Wade, Consulting Engineer, UK; Zoltan Zahonyi, Hungary. FIDIC wishes to record its appreciation of the time and effort devoted by all the above.
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FIDIC DBO Contract
In 1999, the Fédération Internationale des Ingénieurs-Conseils (FIDIC) published a new series of Conditions of Contract: (a) for Construction; (b) for Plant and Design- Build; and (c) for EPC/Turnkey Projects. A guide for these contracts,The FIDIC Contracts Guide, was also published by FIDIC. This was followed by the Short Form of Contract for lower value or less complex projects, and the Form of Contract for Dredging and Reclamation Works. Following their publication, it became clear that there was a growing need for a document which combined a design-build obligation with a long-term operation commitment. Whilst it was recognised that there are alternative scenarios encompassing the Design, Build and Operate (DBO) concept, for example the “green field” scenario of Design - Build Operate, and the “brown field” scenario of Operate - Design - Build, it was also recognised that different scenarios required different contract conditions. Moreover, the conditions applicable to short-term operation differed considerably to those applicable to long-term operation. A further consideration was whether it was best to approach a DBO project as a single long-term contract or as two separate or linked contracts. For the FIDIC Conditions of Contract for Design, Build and Operate Projects FIDIC chose to adopt the green-field Design - Build - Operate scenario, with a 20-year operation period, and opted for a single contract awarded to a single contracting entity (which would almost certainly be a consortium or joint venture) to optimise the coordination of innovation, quality and performance, rather than award separate contracts for design-build and for operation. The Contractor had no responsibility for either financing the project or for its ultimate commercial success. The document, as written, is not suitable for contracts which are not based on the traditional Design - Build - Operate sequence, or where the Operation Period differs significantly from the 20 years adopted.
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Introduction and Foreword
In 1999, the Fédération Internationale des Ingénieurs-Conseils (FIDIC) published substantially updated Conditions of Contract (a) for Construction and (b) for Plant and Design-Build, and a new form for EPC/Turnkey Projects. This was followed by the Short Form of Contract for lower value or less complex projects, and a form of Contract for Dredging and Reclamation Works. Following their publication, it became clear that there was a growing need for a document which combined a design-build obligation with a long-term operation commitment. Thus in 2008, FIDIC published the first edition of Conditions of Contract for Design, Des ign, Build and Operate Projects Contract. Whilst it is recognised that there are alternative scenarios which encompass the Design - Build - Operate (DBO) concept, FIDIC chose to base its document on the “green field” scenario. The Conditions of Contract have thus been prepared for projects leading to the creation and development of a completely new facility from scratch. The type t ype of projects which w hich could benefit from adopting the DBO form of procurement are typically infrastructure projects where the resulting facility will often produce an income or revenue for the Employer and where the Employer might not have the resources or experience to operate the facility himself and might otherwise consider engaging an service provider or operator. The feasibility and environmental studies and the economic viability studies will normally have been made by, or on behalf of, the Employer before he makes his decision on whether or not to proceed with the Project, and it will also be the Employer who will be responsible for land acquisition, financing, planning and other permissions. The Contract awarded to the Contractor will then be for the design and construction of the Project or facility, followed by the long-term operation and maintenance of that facility for a period of 20 years. At the time of commissioning and the issue of the Commissioning Certificate, ownership of the facility reverts to the Employer, and during the 20-year Operation Service Period, the Contractor will be operating and maintaining the facility under an operating licence from the Employer. The document also assumes that the Contract will be awarded as a single contract to a single contracting entity (which will almost certainly be a consortium or joint venture) rather than adopt the alternative arrangement of one contract for the design-build of the Works, and a separate service contract for the operation. It was felt that this arrangement would help to optimise the coordination of innovation, quality and performance, and provide the Employer with a facility which is not only ‘fit for purpose’, which is a fundamental requirement of the Contract, but also a facility which is built to last, since the Contractor knows that he has the responsibility to operate and maintain the facility for around 20 years. The document, as written, is not suitable for contracts which are not not based on the assumed Design - Build - Operate sequence, or where the Operation Period differs significantly from the 20 years adopted, and parties who are considering undertaking a project incorporating the elements of design, build and operation which is not based on the ‘green field’ scenario, or where the planned operation period is significantly greater than or less than 20 years, should not use this document without careful modification. FIDIC can provide assistance and guidance if required. A common alternative to the DBO ‘green field’ approach for the creation of a new facility © FIDIC 2011
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is the ‘brown field’ scenario for the up-grading of an existing facility. The current document is not suitable for use for ‘brown field’ projects without careful amendment, and FIDIC intends to produce a Part C to the Particular Conditions which will provide guidance as to the changes which would need to be made before using the document for ‘brown field’ projects. The DBO form of contract is based on the same structure and layout as the earlier (1999) documents published by FIDIC, with General Conditions, Particular Conditions and a variety of Sample Forms. It is based on a 20-clause layout and, where appropriate, it uses the same terminology and same definitions as are found in the 1999 documents. However, the document contains a number of improvements and innovations not found in the earlier documents which make the document more user-friendly and more aligned to the requirements of today’s construction industry. These can be briefly identified as follows: -
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up-graded visual timelines showing key activities; definitions listed alphabetically; risk and insurance provisions restructured and up-dated; claims procedures up-dated with emphasis on dispute avoidance; Particular Conditions containing two Parts: Part A – Contract Data Part B – Special Provisions with a Part C to be added for the “brown field” scenario; additional sample forms provided.
Each of these aspects, and much more, is covered in this Guide. As with its other contract documents, the DBO document is recommended by FIDIC for general use where tenders are invited on an international basis. When preparing these Conditions of Contract for Design, Build and Operate Projects, the drafting task group has attempted to include all conditions of a general nature, which are likely to apply to the majority of DBO contracts, into General Conditions. However it was recognised that there are many essential provisions which are particular to each individual project, and these have been included as Contract Data and are t o be found in the Particular Conditions Part A – Contract Data. In addition, it is recognised that many Employers or governments or even different jurisdictions, particularly if the Conditions were to be used on domestic contracts, may require special conditions of contract, or indeed particular procedures, which differ from those included in the General Conditions. For this reason, the document also includes Particular Conditions Part B – Special Provisions where users may add Special Provisions to replace or supplement the clauses to be found in the General Conditions. This Guide however, provides commentary only on t he clauses and sub-clauses of the General Conditions. It is also recognised that, although the document includes clauses and procedures which are written with the intention of having a common interpretation and use, different jurisdictions based on, for example, common law or civil law, may well have different interpretations of the written text. This Guide has tried to identify some areas where experience has shown that this happens. However, users must be aware that wherever there is a conflict between the provisions of the Contract and applicable mandatory law, which should be fairly infrequent, then applicable mandatory law will prevail. The purpose of this Guide is to provide users with some commentary by the drafting committee as to their thoughts and intentions when preparing the document. However, users should note that it will only be the actual terms of the Contract which is entered into by the Parties which will be binding on them. FIDIC considers the official and authentic text of the FIDIC DBO Contract Guide for the purposes of translation to be the version written in the English language.
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Parties involved in a DBO Project
There are a number of persons and parties who are involved in a DBO project and who are named somewhere in the Contract Documents. Some of these persons and parties are defined in Sub-Clause 1.1 [Definitions] of the General Conditions and some are not. However even those with no formal definition have an important role to play. Signatories to the Contract Only two Parties sign the Contract and are thereby bound by the terms of the Contract. They are: the Employer (see Definition 1.1.32) and the Contractor (see Definition 1.1.17). They each have obligations, duties and rights towards one another under the Contract, and each of these obligations, duties and rights is governed by the use of the word ”shall” or “may” (see Sub-Clause 1.2 [Interpretation]). By Sub-Clause 1.8 [ Assignment ], neither Party may assign the whole or any part of the Contract to a third party without the prior written agreement of the other Party to do so, and the Contract is written assuming that both Parties fulfil the duties and obligations assigned to them. Assignment means the transfer of rights under a contract to a third party and this should not be confused with other relationships such as subcontracting (where, in order to perform a construction contract, a contractor purchases services from another contractor, called a subcontractor, who performs the services under the responsibility of the contractor) or horizontal cooperation such as a joint venture (where two or more contractors agree to perform a project together and share the corresponding risks and rewards of performance). If either the Employer or the Contractor is to be called by another title such as ‘Owner’ or ‘Ministry’ or ‘Client’, or ‘Builder’ or ‘Constructor’, this revised terminology must be clearly explained in the Contract Data or elsewhere in the Contract. Unless such explanation contains any revisions to the foreseen roles of the parties concerned, then such parties shall be deemed to have the roles of the Employer and Contractor as respectively give n assigned to them in the Contract. It is essential that each Party is a legal person or entity under the law of the country under which it has been constituted, as only legal persons or entities can enter into contracts. Thus, to take some examples: a branch of a company is not normally a legal person or entity, only the company itself is one, and an administration, authority or ministry of a state may not be a legal person or entity, only the state itself may be one. Where there is any uncertainty about whether a particular body is a legal person or entity, it is advisable to seek a legal opinion. Other defined parties (in alphabetical order) Auditing Body The Auditing Body (see Definition 1.1.4) is a jointly appointed (by the Employer and the Contractor) and totally impartial body which is active during the Operation Service Period to monitor the performance of both Parties during the Operation Service Period. The body may be one or more persons and their role is to check that both Parties are performing the Contract in a properly way during the Operation Service Period. This role should not be © FIDIC 2011
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left to the Employer’s Representative as he will not have the required independence and impartiality to fulfil the duties of the Auditing Body. The Auditing Body is there to monitor and identify possible failings in the performance of both Parties, but it cannot instruct the failing Party on how or when to rectify the failure. Such instruction must be given by the Employer’s Representative – so the Auditing Body will advise the Parties and the Employer’s Representative of the failure and the Employer’s Representative will take the necessary action to see that the failure is rectified. If the Parties choose to appoint another person, such as an inspector or controller inste ad of the Auditing Body, that person’s role and authority must be clearly identified in the C ontract. However, unless something else is stated, such person would be required to act impartially and independently and fulfil all the duties assigned to the Auditing Body under the Contract. Contractor’s Representative The Contractor’s Representative (see Definition 1.1.22) is appointed by the Contractor to represent the Contractor on Site in the day-to-day running of the Contract. Once the Contractor has chosen his Representative, such person must have the consent of the Employer’s Representative before commencing his duties. Once appointed, it is not intended that such person shall be changed or replaced, but if replacement is necessary for reasons of illness or death or leaving the company, then a replacement must be appointed and again, such appointment is subject to the consent of the Employer’s Representative. Certain jurisdictions require the Contractor’s Representative to possess a kind of licence or specific experience. Should this be the case, the Special Provisions shall incorporate these additional requirements. Note the use of the word ‘co nsent’ rather than ‘approval’. ‘Consent’ is a nother way of saying ’no objection’, but makes it quite clear that the choice of the Contractor’s Representative, and his subsequent actions and behaviour, are the sole responsibility of the Contractor. Most Contractors refer to their Representative as Site Agent, Site Manager, Project Manager, Construction Manager or some similar title. Whatever title they choose to use, the person concerned has the complete duties and responsibilities which are assigned to the Contractor’s Representative in the Contract, and it must be made quite clear where the lines of communication and responsibility lie. Any delegation of responsibility or authority within the Contractor’s organisation, for example the authority to receive day-to-day work instructions by the Site foremen, must be clearly recorded in writing and notified to the Employer and his Representative. However, any such delegation will not relieve the Contractor of any of his obligations or duties under the Contract. Dispute Adjudication Board The role and appointment of the DAB or Dispute Adjudication Board (see Definition 1.1.27) is covered in detail in Clause 20 [Claims, Disputes and Arbitration]. The General Conditions of the Dispute Adjudication Agreement follow the General Conditions of Contract in the DBO document and give the general obligations of the DAB member towards the Employer and the Contractor, and the general obligation of these two Parties towards the member. It is not intended that these General Conditions should be changed, but if there are special provisions which the Employer wishes to, or needs to, include in relation to the status or role of the DAB, these should be se parately given as Special Conditions to the DAB General Conditions in a similar way to the use of the Particular Conditions to the Contract. A key requirement in appointing DAB members in accordance with Sub-Clause 20.3 Appointment [ of the Dispute Adjudication Board ], is that such persons shall be independent of the two Parties, and Article 3 of the General Conditions of the Dispute Adjudication Agreement addresses the question of challenges of independence of a DAB member by either Party. The Procedural Rules concerning the performance and behaviour of the DAB are also
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given, and again, if these are to be changed or revised, it is most important to see that the members of the DAB retain their complete independence and integrity. Employer’s Representative An important member of the Employer’s team is the Employer’s Representative (see Definition 1.1.35). This person is appointed by the Employer and should be named in the Contract Data so that tenderers know, when preparing their tenders, who the Employer is intending to appoint as his Representative. The Employer has various options when making this appointment, and the choice is entirely his. If his organisation (such as the Ministry of Works or the government electricity authority) contains an appropriate Engineering Department which has possibly been involved in the planning and development of the project, the Employer may well select a senior member of his Engineering Department to be his Employer’s Representative. Alternatively, if the Employer has engaged an international or domestic firm of consulting engineers in the planning or conceptual design of the project, he may choose to appoint that firm as his Representative. Whoever he appoints must have a clear understanding of his role which, according to Sub-Clause 3.1 [Employer’s Representative’s Duties and Authority ], is to “act for the Employer” and in the best interests of the Employer, but at the same time, he must act with fairness and integrity when making determinations under Sub-Clause 3.5 [Determinations]. If the Employer chooses to call his Representative by another title, such as Site Inspector or Administrator or Project Officer or whatever, this must be clearly stated, and unless the documents give a different role or different duties and responsibilities to such person, then it will be assumed that he has the same duties and responsibilities as are allotted to the Employer’ Representative in the Contract. It is not intended that the Employer should split or divide the role of his Representative as it is foreseen in the Contract, but if he does, for example, by appointing a Design Engineer to review the design of the Works and a Supervision Engineer to oversee their construction or installation, then each of these persons must be clearly named and identified in the Contract and their role and authority carefully described. Subcontractors It is more than likely that the Contractor will wish to engage one or more Subcontractors (see Definition 1.1.74) to help him during the execution of the Works. However there are strict regulations regarding the appointment of Subcontractors. Firstly, the Contractor is not permitted to subcontract the whole of the Works or the provision of the Operation Service, and if he does, then by Sub-Clause 15.2(d), these are grounds for the Employer to terminate the Contract. In any event the Contractor must obtain the consent of the Employer’s Representative prior to engaging any Subcontractor unless the Subcontractor (or supplier) is named in the Contract. Note that this is ‘consent’ not ‘approval’ and reinforces the point that the Contractor is fully responsible for any actions, omissions or failures of his Subcontractors, notwithstanding any consent. If the Employer wishes the Contractor to use a particular subcontractor or supplier for a particular part of the Works (a nominated Subcontractor) – for example to give work to a local contractor, or to standardise on the use of equipment with other similar facilit ies owned by the Employer – then he can require the Contractor to engage such persons by naming them in the Employer’s Requirements (see Sub-Clause 4.5 [Nominated Subcontractors]). However, the Employer cannot force the Contractor to accept a nominated Subcontractor against whom the Contractor raises reasonable objection. Such objections could, for example, be lack of production capacity or inability to meet the safety requirements carried by the Contractor under the Contract. In such cases the Contractor must give Notice to the Employer’s Representative, and if the Employer insists on the use of the nominated Subcontractor, then the Contractor would probably be released from certain liabilities in respect of the nominated Subcontractor’s performance. © FIDIC 2011
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Other parties involved in the Contract Financing. It is the Employer’s responsibility to arrange adequate and available financing to pay the Contractor for performing the Contract, and he is required to provide evidence that such financing is available when issuing tender documents and inviting tenders. Tenderers will need reassurance when tendering that financing will be available for the complete project, and the Employer is required to provide a Financial Memorandum (see Definition 1.1.43). Whether financing for the project is being provided by one of the International Financial Institutions (such as the World Bank) or governmental loans or grants, the Employer must attach evidence of his financial arrangements to the Employer’s Requirements. Such evidence could be in the form of copies of financing agreements or irrevocable letters of credit, sufficient for tenderers to have confidence that funding is, or will be, in place for the complete project. If financing is being provided by a third party, such as in financing institution, it is important for the Employer to check that the procedures and routines required by the financing institution are compatible with the Employer’s obligations to pay the Contractor under Clause 14 [Contract Price and Payment ]. For example, if the Employer will be unable to meet the times for payment given in the Contract (Sub-Clause 14.8 [Payment ]) due to the requirements of the financing institution, it is important that he revises the times for payment by including a revised text in the Particular Conditions Part B – Special Provisions. Insurance. The DBO Contract assumes that all the insurances required (see Clause 19 [Insurance]) will be provided by the Contractor. Prior to effecting the insurances, the Contractor is required to obtain the approval of the Employer to both the insurance company the Contractor is intending to use, and the terms and conditions of the policies he intends to take out. In this case, the Employer is required to give his ‘approval’ – not his consent – and the reason for this is that in many cases the insurance has to be taken out in the joint names of the Contractor and the Employer, so it is very important for the Employer to have the policies checked by a competent insurance expert to see that he will be adequately protected. Normally the Employer’s Representative will not have the expertise to check insurance policies and he should not be asked to carry out this function. However, when approving the insurance provisions being proposed by the Contractor, it is important to remember that the currency of payments made by the insurance company must be in a suitably convertible currency such that it can be used by the beneficiary (be it the Employer or the Contractor) to compensate the losses he has suffered. Other Persons or Parties. If the Contract includes persons or parties who are not named or defined in the FIDIC General Conditions such as ’project manager’, ’inspector’, ’manager’, or any other person or party, their titles, positions, authority and role must be clearly indentified and defined in the Particular Conditions Part B – Special Provisions. In addition to their role, their relationship to their principal (the Employer or the Contractor) must be explained and their authority to issue and receive instructions must be clearly stated. If these details are not provided in the tender documents, then they must be agreed and made clear in the Contract documents (if necessary in the form of a memorandum) prior to signature of the Contract.
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General Conditions – Clause-by-Clause Commentary
The notes which follow the individual clauses of the DBO Conditions of Contract are made by the drafting committee and are intended to serve as a practical guide to the intended operation and use of the various clauses and explain how they inter-relate with each other. The text from the DBO Contract is shown indented; the commentary by the drafting task group is shown below the indented text. Not all sub-clauses have commentary. Where the drafting committee felt that no explanation or comment would help in the understanding of the text, no commentary is given. Clause 1 1.1
General Conditions Definitions In the Conditions of Contract (“these Conditions”), which include Particular Conditions and these General Conditions, the following words and expressions shall have the meanings stated. Words indicating persons or parties include corporations and other legal entities, except where the context requires otherwise. The defined words are listed alphabetically and they are identifiable in the text of the various clauses and sub-clauses by the use of capital initial letters. 1.1.1
“Accepted Contract Amount” means the amount accepted in the Letter of Acceptance for the Design-Build of the Works and the provision of the Operation Service, including the amount of the Asset Replacement Fund.
It is important that the “Accepted Contract Amount” is stated in the Letter of Acceptance or, if there is no Letter of Acceptance, then in the Contract Agreement. If this is not done, it could be argued that the Accepted Contract Amount is the same as the Tender Sum offered by the Contractor to whom the Contract is being awarded. The Accepted Contract Amount should separately identify the amounts applying to the Design-Build of the Works, the Operation Service and the amount of the Asset Replacement Fund. 1.1.2
“Asset Replacement Fund” means the fund provided for under Sub-Clause 14.18 [Asset Replacement Fund ].
1.1.3
“Asset Replacement Schedule” means the schedule referred to in Sub-Clause 14.5 [Asset Replacement Schedule] prepared by the Contractor covering the identification and timing of asset replacements.
It is recognised that during an operation commitment lasting 20 years, a number of items of Plant or Materials will need replacing. The frequency of replacement will depend on the quality of the initial installation included by the Contractor in his basic design. Since the content and value of the Schedule and Fund will be prepared by the Contractor, it is very important that this is checked against the Contractor’s basic design to see that it meets the requirements of Sub-Clauses 14.5 [Asset Replacement Schedule] and 14.18 [Asset Replacement Fund ]. 1.1.4
“Auditing Body” means the independent and impartial body appointed to conduct the Independent Compliance Audit in accordance with Sub-Clause 10.3 [Independent Compliance Audit ].
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Employer and the Contractor and has the role to monitor the performance of both during the Operation Service Period. The Auditing Body cannot issue instructions, but it can identify failures of either Party and notify the Employer’s Representative, who still retains an active role during the Operation Service Period, of the failure and the possible consequences. The Employer’s Representative must then take the appropriate action against the failing Party. 1.1.5
“Base Date” means the date 28 days prior to the latest date for submission of the Tender.
The Base Date assumes that tenderers will not have had the opportunity, from a practical point of view, to take account of any events which may have an effect on their tender and which occur less than 28 days before the date by which tenders have to be submitted. Any such events occurring after the Base Date will normally allow the Contractor to claim additional time and/or compensation of costs (plus reasonable profit), if appropriate. 1.1.6
“Commencement Date” means the date notified under Sub-Clause 8.1 [Commencement Date].
It is important that the Commencement Date is properly recorded in the Employer’s Representative’s Notice under Sub-Clause 8.1 [Commencement Date]. The Time for Completion of the Design-Build is calculated from the Commencement Date (see Definition 1.1.78), and not from the date on which the Letter of Acceptance is issued or the Contract Agreement is signed. Furthermore, in order to protect the Contractor from a delayed start once the Contract has been awarded, the Commencement Date must be within 42 days after the Contractor receives the Letter of Acceptance. If it is later than this the Contractor can claim that his rates and prices which were agreed and accepted when the Contract was awarded, are no longer valid and claim an appropriate adjustment. 1.1.7
“Commercial Risk” means a risk which results in financial loss and/or time loss for either of the Parties, where insurance is not generally or commercially available.
There are two types of risk which the Parties face; one is Commercial Risk where insurance is not readily or generally available; and the other is Risk of Damage (see Definition 1.1.67) where insurance is normally commercially available. See also commentary under Clause 19 [Insurance]. 1.1.8
“Commissioning Certificate” means the certificate issued by the Employer’s Representative to the Contractor under Sub-Clause 11.7 [Commissioning Certificate] marking the end of the Design-Build Period under Sub-Clause 9.12 [Completion of Design-Build ], and the commencement of the Operation Service Period.
The Commissioning Certificate is the equivalent of the Taking Over Certificate in the more conventional FIDIC forms of contract. It serves various purposes. Not only does it record the end of the Design-Build Period and the commencement of the Operation Service Period, but it also triggers the Operating Licence (see Definition 1.1.54), and establishes the date when the Employer takes over ownership of the facility. 1.1.9
“Commissioning Period” means that period of time when commissioning tests are being carried out.
1.1.10 “Contract” means the Contract Agreement, the Letter of Acceptance, the Letter of Tender, these Conditions, the Employer’s Requirements, the Schedules, the Contractor’s Proposal, the Operating Licence, and the further documents (if any) which are listed in the Contract Agreement or in the Letter of Acceptance. The Contract is made up of a number of documents which are listed. If there are other documents which the Parties require to be included, for example specific pre-award letters or records or other agreements, these must be named and identified in the Letter of
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Acceptance or Contract Agreement. If they are not so mentioned, they will not be deemed to be part of the Contract. 1.1.11 “Contract Agreement” means the Contract Agreement (if any) referred to in SubClause 1.6 [Contract Agreement ]. 1.1.12 “Contract Completion Certificate” means the certificate issued by the Employer’s Representative under Sub-Clause 8.6 [Contract Completion Certificate]. 1.1.13 “Contract Completion Date” means the date contained in the Contract Completion Certificate as being the date on which the Operation Service has been completed. Whereas the Commissioning Certificate is issued at the end of the Design-Build Period, the Contract Completion Certificate is issued at the end of the Operation Service Period, and certifies that the Employer is satisfied that the Contractor has fulfilled all his obligations under the Contract. Since no extension of the Operation Service Period is provided for in the Contract, the Contract Completion Certificate must be issued at this time provided that the Contractor has fulfilled all the pre-conditions listed in Sub-Clause 10.8 [Completion of Operation Service]. Furthermore the Contract Completion Certificate must state the date on which the Operation Service ended and the fact that the Contractor has met the required pre-conditions. 1.1.14 “Contract Data” means the pages completed by the Employer entitled Contract Data which constitute Part A of the Particular Conditions. The Contract Data is essential information which is given as Part A of the Particular Conditions (in previous FIDIC Conditions of Contracts it is referred to as “Appendix to Tender”). It is normal that all this Data is provided by the Employer and included in the tender documents, as tenderers will need this information in order to prepare and submit responsive tenders. If there are any elements of the Contract Data which the Employer requires tenderers to fill in prior to submitting their tenders, this must be clearly stated. Also if there are any items which the Employer requires to be filled in prior to the award of the Contract, as agreed terms (for example, the Time for Completion, or the agreement of Sections), these must also be clearly identified. If any items of Contract Data are inadvertently left blank at the time the Contract is signed, then either the ‘fall-back’ provision included in the Contract (if any) will apply, or if there is no such provision, the Contract will be deemed to be silent on that point and, if the matter gives rise to a Dispute, the provisions of the Contract relating to Disputes will apply. 1.1.13 “Contract Period” means the Design-Build Period plus the Operation Service Period. 1.1.16 “Contract Price” means the price defined in Sub-Clause 14.1 [The Contract Price], and includes adjustments in accordance with the Contract. The Contract Price is the amount which the Contractor is actually paid, and should not be confused with the Accepted Contract Amount (see Definition 1.1.1). 1.1.17 “Contractor” means the person named as Contractor in the Letter of Tender accepted by the Employer and the legal successors in title to this person. 1.1.18 “Contractor’s Equipment” means all apparatus, machinery, vehicles and other things required for the execution and completion of the Works and the remedying of any defects. However, Contractor’s Equipment excludes Temporary Works, Employer’s Equipment (if any), Plant, Materials and any other things intended to form or forming part of the Works. 1.1.19 “Contractor’s Documents” means the calculations, computer programs and other software, drawings, manuals, models and other documents of a technical nature © FIDIC 2011
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supplied by the Contractor under the Contract; as described in Sub-Clause 5.2 [Contractor’s Documents]. 1.1.20 “Contractor’s Proposal” means the document entitled proposal, which the Contractor submitted with the Letter of Tender, as included in the Contract. 1.1.21 “Contractor’s Personnel” means the Contractor’s Representative and all personnel whom the Contractor utilises on Site, including the staff, labour and other employees of the Contractor and of each Subcontractor, and any other personnel assisting the Contractor in the execution of the Works and provision of the Operation Service. 1.1.22 “Contractor’s Representative” means the person named as such by the Contractor in the Contract or appointed from time to time by the Contractor under Sub-Clause 4.3 [Contractor’s Representative], who acts on behalf of the Contractor. All these six definitions concern the Contractor and matters for which the Contractor is basically responsible. 1.1.23 “Cost” means all expenditure reasonably incurred (or to be incurred) by the Contractor, whether on or off the Site, including overhead and similar charges, but does not include profit. 1.1.24 “Cost Plus Profit” means Cost plus the applicable percentage agreed and stated in the Contract Data. Such percentage shall only be added where the Sub-Clause states that the Contractor is entitled to Cost Plus Profit. When determining the Contractor’s right to additional reimbursement, it is important to understand when he is entitled simply to Cost (i.e. his actual cost plus an allowance for overheads), and when he is entitled to include a percentage for profit. Each Sub-Clause entitling the Contractor to claim additional reimbursement clearly states ‘Cost’ or ‘Cost Plus Profit’. The reasoning behind allowing the Contractor to include profit depends on whether the event or occurrence causing the Contractor extra cost was an action or failure of the Employer (in which case profit is allowed) or whether it was some other cause (in which case profit is not allowed). The purpose of naming a percentage in the Contract Data is to avoid the need to agree a figure every time the right of the Contractor to ‘Cost Plus Profit’ occurs. 1.1.25 “Country” means the country in which the Site (or most of it) is located, where the Permanent Works are to be executed. 1.1.26 “Cut-Off Date” means the date, at the end of a specified period stated in the Contract Data, after the Time for Completion of the Design-Build or any extension thereto granted under Sub-Clause 9.3 [Extension of Time for Completion of DesignBuild ]. The purpose of the Cut-Off Date is to protect the Employer against a prolonged failure of the Contractor to complete the Design-Build work. Under Sub-Clause 15.2 [Termination for Contractor’s Default ], the Employer may terminate the Contract if the Contractor fails to complete the Design-Build by the Cut-Off Date. 1.1.27 “DAB” means the person or three persons so named in the Contract, or other person(s) appointed under Sub-Clause 20.3 [Appointment of the Dispute Adjudication Board ] or Sub-Clause 20.4 [Failure to Agree Dispute Adjudication Board ], or Sub-Clause 20.10 [Disputes Arising During the Operation Service Period ]. The role of the DAB is to adjudicate Disputes which arise under the Contract. However, according to Sub-Clause 20.5 [Avoidance of Disputes], the Parties may jointly and at any time, refer a matter to the DAB to informally discuss the matter and try to reach an
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amicable solution. This means that the Contractor, for example, may discuss with the DAB (jointly with the Employer) his right to claim in a given situation, or the Parties may informally discuss with the DAB a determination of the Employer’s Representative given under SubClause 3.5 [Determinations], before deciding whether to formally refer the matter to the DAB for a formal decision under Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision]. This provision under Sub-Clause 20.5 [Avoidance of Disputes], called Avoidance of Disputes, is intended to increase the understanding of the Parties as to their rights under the Contract, and to minimise the occurrence and cost of Disputes. 1.1.28 “day” means a calendar day. As “day” means a calendar day, this definition ties in with the definition of “year” (see Definition 1.1.83) meaning 365 days. These two words are the only definitions which do not begin with a capital letter in the text. It should also be noted that all references to days are in multiples of seven, i.e., easily convertible to weeks. However, weeks and months are not used as measurements of time. 1.1.29 “Design-Build” means all work to be performed by the Contractor under the Contract to design, build, test and complete the Works and obtain the Commissioning Certificate issued in accordance with Sub-Clause 9.12 [Completion of Design-Build ]. 1.1.30 “Design-Build Period” means the period from the Commencement Date to the date stated in the Commissioning Certificate. 1.1.31 ”Dispute” means any situation where: (a) one Party makes a claim against the other Party, (b) the other Party rejects the claim in whole or in part, and (c) the first Party does not acquiesce, provided however that a failure by the other Party to oppose or respond to the claim, in whole or in part, may constitute a rejection if, in the circumstances, the DAB or the arbitrator(s), as the c ase may be, deem it reasonable for it to do so. It is important for the Parties to know if and when they are in Dispute, and what constitutes a Dispute under the Contract. A simple disagreement of fact is not necessarily a Dispute. The Contractor’s right to claim under Sub-Clause 20.1 [Contractor’s Claims], or the Employer’s right to claim under Sub-Clause 20.2 [Employer’s Claims], does not necessarily mean that a Dispute is in the making. It is often only when a claim from one Party, which, according to Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision], can be in respect of “any certificate, determination, instruction, opinion or valuation” is rejected by the other Party, and the claiming Party does not accept the rejection, that we have a Dispute. Under the Contract there are a number of circumstances which give a Party the contractual right to claim, and Sub-Clauses 20.1 [Contractor’s Claims] and 20.2 [Employer’s Claims] provide for the procedure which each Party must follow if it wishes to pursue the claim. Typically it is only when the other Party does not accept the contractual or other basis of a claim or the quantum of a claim, in whole or in part, or the Employer’s Representative’s evaluation thereof, that there may exist a Dispute, and Clause 20 [Claims, Disputes and Arbitration] contains the mechanism for resolving such Disputes. 1.1.32 “Employer” means the person named as Employer in the Contract Data and the legal successors in title to this person. 1.1.33 “Employer’s Equipment” means the apparatus, machinery and vehicles (if any) made available by the Employer for the use of the Contractor in the execution of the Works and/or the Operation Service, as stated in the Employer’s Requirements, but does not include Plant which has not been taken over by the Employer. 1.1.34 “Employer’s Personnel” means the Employer’s Representative, the assistants referred to in Sub-Clause 3.2 [Delegation by the Employer’s Representative] and all other staff, labour and other employees of the Employer’s Representativ e and of the © FIDIC 2011
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Employer; and any other personnel notified to the Contractor, by the Employer or the Employer’s Representative, as Employer’s Personnel. 1.1.35 “Employer’s Representative” means the person appointed by the Employer to act as Employer’s Representative for the purposes of the Contract and named as such in the Contract Data, or other person appointed from time to time by the Employer and notified as such to the Contractor under Sub-Clause 3.4 [Replacement of the Employer’s Representative]. The DBO form of contract does not include an Engineer as is to be found in the FIDIC Construction and Plant and Design-Build forms of contract documents. The Employer appoints an Employer’s Representative who acts for him in administering the Contract and in ensuring that the Contractor abides by the terms of the Contract and fulfils his obligations therein. The Employer’s Representative may be anybody of the Employer’s choice, but he must be qualified and experienced (in the subject matter of the Contract, although this is not specifically stated). The Employer has the right to choose a member of his own staff from, for example, his engineering department, or he may appoint an independent firm of consulting engineers. However, whoever is appointed must have a clear understanding of the need for integrity and fairness especially when acting under Sub-Clause 3.5 [Determinations]. 1.1.36 “Employer’s Requirements” means the document entitled Employer’s Requirements, as included in the Contract, and any additions and modifications made thereto in accordance with the Contract. Such document specifies the purpose, scope, and/or design and/or other technical criteria, for the execution of the Works and provision of the Operation Service. The Employer’s Requirements is one of the most important documents to form part of the Contract, and it is the responsibility of the Employer to make sure the document is complete in all respects when the tender documents are sent out to tenderers. In this document the Employer gives his precise requirements for the completed Works including all matters in t he various clauses of the Contract which ma ke reference to the Employer’s Requirements, and all matters which he wishes to include even if they are not covered in t he General Conditions. In particular the Employer must clearly state the purpose of the Works when they are completed so that the Contractor can fulfil his undertaking in Sub-Clause 4.1 [Contractor’s General Obligations] that the Works will be ‘fit for the purposes for which the Works are intended’. The Employer must also make sure that details of his financial arrangements are included in or attached to the Employer’s Requirements (see Definition 1.1.43). 1.1.37 “Exceptional Event” means an event or circumstance which is (a) beyond a Party’s control; (b) which the Party could not reasonably have provided against before entering into the Contract; (c) which having arisen, such Party could not reasonably have avoided or overcome; and (d) which is not substantially attributable to the ot her Party. Users who are familiar with the other FIDIC forms of Contract (for example, Construction, Plant and Design-Build and EPC) may be aware of difficulties which have arisen with regard to the term ‘Force Majeure’. Although to many this is a reco gnised term used to describe an event which is effectively beyond the control of a Party and affects such Party’s performance, some may be confused in cases where, under the law governing the Contract, the term has a different legal meaning from that given in the FIDIC conditions. To avoid the use of legal terminology which some may find confusing, the DBO form of contract has replaced the term ‘Force Majeure’ with the term “Ex ceptional Event”, and Clause 19 [Insurance] has been revised somewhat to simplify the treatment of such events. 1.1.38 “FIDIC” means the Fédération Internationale des Ingénieurs-Conseils, the International Federation of Consulting Engineers. 1.1.39 “Final Payment Certificate Design-Build” means the payment certificate issued
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for the Design-Build under Sub-Clause 14.12 [Issue of Final Payment Certificate Design-Build ]. 1.1.40 “Final Payment Certificate Operation Service” means the payment certificate issued for the Operation Service under Sub-Clause 14.15 [Issue of Final Payment Certificate Operation Service]. 1.1.41 “Final Statement Design-Build” means the Statement defined in Sub-Clause 14.11 [Application for Final Payment Certificate Design-Build ]. 1.1.42 “Final Statement Operation Service” means the Statement defined in Sub-Clause 14.13 [Application for Final Payment Certificate Operation Service]. The Final Payment Certificate Design-Build is issued following the Contractor’s application (Final Statement Design-Build) at the end of the Retention Period following the completion of the Design-Build. The Certificate includes ‘the amount which is finally due for the DesignBuild’. With his application the Contractor gives a written undertaking that the amount claimed is in ‘full and final settlement’ of all work done in connection with the Design-Build. The Final Payment Operation Service is dealt with in a similar way, but the Contractor’s application is made within 56 days after the Contract Completion Certificate is issued. The Certificate includes “the amount which is finally due for the Operation Service” and “the amount which is finally due for the Contract”. With his application the Contractor provides a written discharge (see Sub-Clause 14.14 [Discharge]) that the amount claimed is in “full and final settlement of all monies due to the Contractor under or in connection with the Contract”. 1.1.43 “Financial Memorandum” means the document which details the Employer’s financial arrangements and is attached to or forms part of the Employer’s Requirements. It is important that tenderers are assured, at the time of tendering, that the Employer is expected to have sufficient long-term funding to cover both the design and construction of the facility, and the 20-year operation period. Thus the Employer is required to include in, or attach to his Employer’s Requirements, evidence of his financial arrangements – for example in the form of a written loan agreement from his funding agency or bank – confirming that adequate funding will be available. Tenderers need to know this to be able to confidently submit competitive tenders without the worry that funding will fail somewhere along the way. 1.1.44 “Foreign Currency” means a currency in which part (or all) of the Contract Price is payable, but not the Local Currency. 1.1.45 “Goods” means Contractor’s Equipment, Materials, Plant and Temporary Works, or any of them as appropriate. 1.1.46 “Interim Payment Certificate” means a payment certificate issued under Clause 14 [Contract Price and Payment ], other than the Final Payment Certificate. 1.1.47 “Laws” means all national (or state) legislation, statutes, ordinances and other laws, and regulations and by-laws of any legally constituted public authority. ‘Laws’ covers all manner of laws, by-laws, regulations and ‘other laws’ which the Parties have to abide by and of which they must be aware. Very often, but not always, the Laws are those in the Country (see Definition 1.1.25), so that it will be the Laws of the Country which will rule. The country whose Laws will govern the Contract will normally be selected by the Employer and will usually be his country. It is assumed that the Contractor will have familiarised himself with such Laws, since (a) ignorance of the Laws is no excuse for failing to abide by them, and (b) if there is an ambiguity between the Laws and the Contract, the provisions of the Laws, where they are of a mandatory nature, will overrule provisions of the Contract.
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1.1.48 “Letter of Acceptance” means the letter of formal acceptance, signed by the Employer, of the Letter of Tender, including any annexed memoranda comprising agreements between and signed by both Parties. If there is no such Letter of Acceptance, the expression “Letter of Acceptance” means the Contract Agreement and the date of issuing or receiving the Letter of Acceptance means the date of signing the Contract Agreement. 1.1.49 “Letter of Tender” means the document entitled Letter of Tender, which was completed by the Contractor and includes the signed offer to the Employer for the execution of the Works and provision of the Operation Service. These two documents are the key to the whole Contract, and they are likely together to create a legally binding contract between the Parties – as a result of the Contractor submitting his Letter of Tender, and the Employer responding with his Letter of Acceptance. However, it is not sufficient to call a letter accepting a tender a “Letter of Acceptance” in order for it to have that effect if the text of the letter does not clearly and unconditionally accept the tender or offer from the Contractor. A sample form for a Letter of Acceptance is included in the Sample Forms section of the document. 1.1.50 “Local Currency” means the currency of the Country. 1.1.51 “Maintenance Retention Fund” and “Maintenance Retention Guarantee” mean the fund and guarantee provided for under Sub-Clause 14.19 [Maintenance Retention Fund ]. At the end of the Operation Service Period, it is required that the facility will be in a condition to meet the handback requirements specified in Sub-Clause 8.7 [Handback Requirements]. To achieve this it is important that the facility is properly maintained a nd kept in good repair right up to the end of the Operation Service Period, and the Maintenance Retention Fund (which can be replaced by a Maintenance Retention Guarantee) is built up to provide a fund to enable the Employer to do this work if the Contractor fails to do so. If the Contractor does carry out proper maintenance etc., then the value of the Fund will be included in the Final Payment Certificate Operation Service and repaid to the Contractor. 1.1.52 “Materials” means things of all kinds (other than Plant) whether on the Site or otherwise allocated to the Contract and intended to form or forming part of the Works, including the supply-only Materials (if any) to be supplied by the Contractor under the Contract. 1.1.53 ”Notice” means a written communication identified as a Notice and issued in accordance with the provisions of Sub-Clause 1.3 [Notices and Communications]. There are over 70 sub-clauses requiring one Party to give Notice to the other Party regarding some occurrence or event. Most of these will result in further action or the establishment of further rights to payment or time extension. It is therefore essentia l to know what constitutes a Notice and what is a simple communication. This is further clarified in Sub-Clause 1.3 [Notices and Other Communications]. 1.1.54 “Operating Licence” means the licence referred to in Sub-Clause 1.7 [Operating Licence] by which the Employer grants a royalty-free licence to the Contractor to operate and maintain the Works during the Operation Service. Once the Design-Build is complete and the Commissioning Certificate has been issued, the ownership of the facility passes to the Employer. To allow the Employer to authorise the Contractor access to operate and maintain the facility in accordance with the Contract, the Employer must provide the Contractor with an Operating Licence. The Operating Licence is provided at the time the Letter of Acceptance is issued, although it does not come into effect until the Commissioning Certificate is issued on completion of the Design-Build. © FIDIC 2011
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1 .1.55 “Operation Management Requirements” means the set of procedures and requirements, provided by the Employer, included in the Employer’s Requirements for the proper implementation of the Operation Service. 1.1.56 “Operation and Maintenance Plan” means the plan for operating and maintaining the facility, submitted by the Contractor, and agreed and included in the Contract. The Operation Management Requirements is a document prepared by the Employer as part of the Employer’s Requirements and included in the tender documents which informs tenderers what the Employer expects from the Contractor and from the facility during the Operation Service. The Operation and Maintenance Plan is the Contractor’s response to the Operation Management Requirements showing how he plans to operate and maintain the facility. 1.1.57 “Operation Service” means the operation and maintenance of the facility as set out in the Operation Management Requirements. 1.1.58 “Operation Service Period” means the period from the date stated in the Commissioning Certificate as provided for under Sub-Clause 10.2 [Commencement of Operation Service] to the date stated in the Contract Completion Certificate. The DBO Contract is written assuming an Operation Service Period of 20 years. This time period can be adjusted by, say plus or minus five years and the document can still be used without major adjustment or problem. However, if the Operation Service Period is more than five years either side of the 20 years, then major changes to the provisions ma y be necessary and there are a number of clauses and sub-clauses which will need amending. These issues are addressed briefly at the end of this Guide in sections dealing with Particular Conditions. 1.1.59 “Party” means the Employer or the Contractor, as the context requires. 1.1.60 “Performance Security” means the security under Sub-Clause 4.2 [Performance Security ]. 1.1.61 “Permanent Works” means the permanent works to be designed, executed and operated by the Contractor under the Contract. 1.1.62 “Plant” means the apparatus, machinery and vehicles intended to form or forming part of the Permanent Works. 1.1.63 “Provisional Sum” means a sum (if any) which is specified in the Contract by the Employer as a Provisional Sum, for the execution of any part of the Works or for the supply of Plant, Materials or services under Sub-Clause 13.5 [Provisional Sums]. Provisional Sums may be included in the Contract by the Employer for various reasons. Either he may wish to provide a sum of money for the execution of additional work or the provision of additional services, or he may wish to provide a sum of money for the purchase of a particular item of equipment where he has not finally decided on all the details. It is he, the Employer, who decides how many Provisional Sums he wishes to include and their purpose, and it is he who puts a price against each one. The Contractor includes the items and the sums in his tender, but they are only used to the extent ordered by the Employer through his Representative. 1.1.64 “Rates and Prices” means the rates and prices inserted in the Schedules for the design, execution and completion of the Works and for the provision of the Operation Service as incorporated in the Contract. 1.1.65 “Retention Money” means the accumulated retention moneys which the Employer retains under Sub-Clause 14.3 [Application for Advance and Interim Payment Certificates]. © FIDIC 2011
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1.1.66 “Retention Period” means the period of 1 year after the date stated in the Commissioning Certificate for the completion of outstanding work. 1.1.67 “Risk of Damage” means a risk which results in physical loss or damage to the Works or other property belonging to either Party, other than a Commercial Risk. 1.1.68 “Schedules” means the document(s) entitled Schedules, completed by the Contractor and submitted with the Letter of Tender, as included in the Contract. Such document shall include the Asset Replacement Schedule, and may also include data, lists, Schedules of Payments and/or prices, and guarantees. 1.1.69 “Schedule of Payments” means those Schedules (if any) incorporated in the Contract showing the manner in which payments are to be made to the Contractor. It may be that payments to the Contrac tor are based on a pre-agreed Schedule of Payments based on either the achievement of key events or milestones, or simply on a breakdown of the Accepted Contract Amount into lump sum payments related to the Contractor’s expected progress as indicated by the Programme. If progress does not comply with the Programme, or if there are Variations or other external events which affect the performance of the Contractor, the Schedule of Payments will need up-dating as work proceeds. 1.1.70 “Section” means a part of the Works specified in the Contract Data as a Section (if any). 1.1.71 “Section Commissioning Certificate” means a certificate issued by the Employer’s Representative to the Contractor under Sub-Clause 11.7 [Commissioning Certificate]. 1.1.72 “Site” means the places where the Permanent Works are to be executed and to which Plant and Materials are to be delive red, and where the Operation Service is to be provided, and any other places as may be specified in the Contract as forming part of the Site. It should be noted that places chosen by the Contractor, e.g. for his workshops or camp, even if approved by the Employer, will not form part of the Site unless specifically mentioned or identified in the Contract as being part of the Site. 1.1.73 “Statement” means a financial Statement submitted by the Contractor as part of an application, under Clause 14 [Contract Price and Payment ], for a payment certificate. The use of the word ‘Statement’ in any form related to payment or money must not be confused with the use of the word in the context of making an oral statement. 1.1.74 “Subcontractor” means any person named in the Contract as a subcontractor, or any person appointed as a subcontractor, for a part of the Works; and the legal successors in title to each of these persons. By Sub-Clause 4.5 [Nominated Subcontractors], any person nominated by the Employer as a ‘nominated subcontractor’ is also considered as a Subcontractor, and the Contractor is responsible for such persons. 1.1.75 “Tender” means the Letter of Tender and all other documents which the Contractor submitted with the Letter of Tender, as included in the Contract. 1.1.76 “Tests on Completion of Design-Build” means the tests which are specified in the Contract or agreed by both Parties or instructed as a Variation, and which are to be carried out under Clause 11 [Testing] before the Works or a Section (as the case may be) are deemed to be fit for purpose as defined in the Employer’s Requirements.
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1.1.77 “Tests Prior to Contract Completion” means the tests (if any) which are specified in the Contract and any other such tests as may be agreed by the Employer’s Representative and the Contractor or instructed as a Variation and which are to be carried out under Clause 11 [Testing] before the expiry of the Contract Period. There are two sets of Tests which the Contractor is required to perform – one at the end of the Design-Build Period as a condition precedent to obtaining the Commissioning Certificate, and one at the end of the Operation Service Period. If these Tests are specified in the Employer’s Requirements, the Contractor will have included for them in the Accepted Contract Amount. If they have not been so specified and are ordered at a later date, the Contractor is still bound to carry them out, but he will be entitled to additional payment. 1.1.78 “Time for Completion of Design-Build“ means the time for completing the DesignBuild or a Section thereof (as the case may be) under Sub-Clause 9.2 [Time for Completion of Design-Build ], as stated in the Contract Data (with any extension under Sub-Clause 9.3 [Extension of Time for Completion of Design-Build ]), calculated from the Commencement Date. It is important to remember that the Time for Completion is calculated from the Commencement Date and not from the date on which the Contract is awarded. Thus it is very important to make sure that the Commencement Date is properly recorded in the Notice given by the Employer’s Representative under Sub-Clause 8.1 [Commencement Date]. 1 .1.79 “Temporary Works” means all temporary works of every kind (other than Contractor’s Equipment) required on Site for the execution, and completion and operation of the Works. 1.1.80 “Unforeseeable” means not reasonably foreseeable by an experienced contractor by the date for submission of the Tender. The Contractor may be entitled to claim additional time or cost if an event occurs which is described as “Unforeseeable”. When it is alleged that such an event has occurred, the Employer’s Representative must make an objective judgement as to whether an experienced contractor (i.e., experienced in the type of Works being executed) would or should have foreseen the possibility of such an event occurring. 1.1.81 “Variation” means any change to the Employer’s Requirements or the Works, which is instructed or approved as a Variation under Clause 13 [Variations and Adjustments]. 1.1.82 “Works” means the Permanent Works and Temporary Works or either of them as appropriate and the facility to be operated by the Contractor during the Operation Service Period. This definition introduces the word ‘facility’ as being another word frequently used to describe the Works, especially during the Operation Service Period. The word ‘facility’ has not been defined in its own right, since it may not always be appropriate to refer to the completed Works as the facility, but when they are so described, this definition of Works makes sure that they are properly encompassed and incorporated. 1.1.83 “year” means 365 days 1.2
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(c) provisions including the word “agree”, “agreed” or “agreement” require the agreement to be recorded in writing; (d) “written” or “in writing” means hand-written, type-written, printed or electronically made, and resulting in a permanent record; (e) “shall” means that the Party or person referred to has an obligation under the Contract to perform the duty referred to; and (f) “may” means that the Party or person referred to has the choice of whether to act or not in the matter referred to. The marginal words and other headings shall not be taken into consideration in the interpretation of these Conditions. The provisions are explanations as to how fairly common words used in the text are to be understood and interpreted. It is also necessary to explain why the words “shall” and “may” are used in respect of a Party’s rights and obligations under the Contract. The word “shall” indicates an obligation” and the word “may” indicates an option. 1.3
Notices and Other Communications Wherever these Conditions provide for the giving or issuing of a Notice or other communication including approvals, certificates, consents, determinations, instructions and requests, such Notice or communication shall be: (a) where it is a Notice, identified as a Notice and include reference to the Clause under which it is issued; (b) where it is another form of communication, identified as such, and include reference to the Clause under which it is issued where appropriate; (c) in writing and delivered by hand (against receipt), sent by mail or courier, or transmitted by using any of the agreed systems of electronic transmission as stated in the Contract Data; and (d) delivered, sent or transmitted to the address for the recipient’s communications as stated in the Contract Data. However: (i) if the recipient gives Notice of another address, communications shall thereafter be delivered accordingly; and (ii) if the recipient has not stated otherwise when requesting an approval or consent, it may be sent to the address from which the request was issued. Notices and other communications shall not be unreasonably withheld or delayed. When a certificate is issued to a Party, the certifier shall send a copy to the other Party. When a Notice is issued to a Party, by the other Party or the Employer’s Representative, a copy shall be sent to the Employer’s Representative or the other Party, as the case may be. A Notice is a special form of communication usually associated either with a Party establishing its right to additional compensation, or giving Notice to the other Party of important requirements or instructions affecting the structure or content of t he Contract or the work to be done. That is why ‘Notice’ is a defined term (see Definition 1.1.53). If it is intended that instructions or other communications given during a meeting and recorded in the minutes of that meeting, are intended to be Notices given by one Party to the other, this intention should be clearly stated in the minutes. By signing the minutes, both Parties have then accepted this provision. If this is not properly recorded, the minutes may well be construed simply as a record of a statement made during the meeting, and have no contractual weight.
1.4
Law and Language The Contract shall be governed by the law of the country (or other jurisdiction) stated in the Contract Data. If there are versions of any part of the Contract which are written in more than one language, the version which is in the ruling language stated in the Contract Data shall prevail. The language for communications shall be that stated in the Contract Data. If
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no language is stated there, the language for communications shall be the ruling language of the Contract. It is important to ensure that the national (or other) law which is to govern the Contract is specified (see comments to Definition 1.1.47). Sometimes different documents are written in different languages. For example, the Conditions of Contract may be written in one language familiar to the Employer, whilst the technical documents may be written in English where the other language cannot adequately describe the technical requirements. In such a case it is important to specify in the Contract Data which language will be used in the event that it becomes necessary to make a determination or decision concerning the interpretation of certain written words. If no ruling language is specified, then it is likely that the tribunal responsible for finally deciding the rights and obligations of the Parties (i.e., the Dispute Adjudication Board or an arbitration tribunal) will decide on the ruling language. 1.5
Priority of Documents The documents forming the Contract are to be taken as mutually explanatory of one another. For the purposes of interpretation, the priority of the documents shall be in accordance with the following sequence: (a) the Contract Agreement (if any), (b) the Letter of Acceptance, (c) the Letter of Tender, (d) the Particular Conditions – Part A (Contract Data), (e) the Particular Conditions – Part B (Special Conditions), (f) these General Conditions, (g) the Employer’s Requirements, (h) the Schedules, and (i) the Contractor’s Proposal and any other documents forming part of the Contract. If an ambiguity or discrepancy is found in the documents, the Employer’s Representative shall issue any necessary clarification or instruction. When preparing a Contract which consists of a number of both contractual and technical documents (see Definition 1.1.10), it is very likely that, however careful the drafters of the documents are, there will be discrepancies or ambiguities between them. This Sub-Clause requires that all the listed documents shall be considered together when ascertaining a particular meaning or requirement. Where two documents contain conflicting provisions, the meaning contained in the document which is higher in the given list shall be given priority. Where there is a discrepancy or ambiguity which cannot be resolved according to this principle, then the Employer’s Representative shall give a ruling and where necessary issue a written clarification. If, in the Employer’s Representatives’ opinion, a simple clarification is not sufficient to deal fairly with the ambiguity, he may issue a written instruction telling the Contractor what he requires. If the Contractor considers that such instruction entitles him to additional reimbursement or time, he can claim accordingly under Sub-Clause 20.1 [Contractor’s Claims].
1.6
Contract Agreement The Parties shall enter into a Contract Agreement within 28 days after the Contractor receives the Letter of Acceptance, unless they agree otherwise. The Contract Agreement shall be based upon the form annexed to the Particular Conditions. The costs of stamp duties and similar charges (if any) imposed by law in connection wit h entry into the Contract Agreement shall be borne by the Employer. This Sub-Clause requires the Parties to enter into a formal Contract Agreement, and a sample form of Contract Agreement is included at the end of the DBO document (Sample © FIDIC 2011
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Forms). In many cases this will need minor amendments to suit the needs of the Employer, but the amendments should not depart substantially from the sample given. Under the laws of many countries the Tender and Letter of Acceptance will be sufficient to create a binding contract between the Parties, and the Contract Agreement will merely further record or confirm the terms of that contract. 1.7
Operating Licence Together with the Letter of Acceptance, the Employer shall issue to the Contractor the Operating Licence or equivalent legal authorisation to enable the Contractor to operate and maintain the Works during the Operation Service Period. The Operating Licence shall automatically come into full force and effect upon the issue of the Commissioning Certificate upon completion of the Design-Build under Sub-Clause 9.12 [Completion of Design-Build ] and shall remain in force until the issue of the Contract Completion Certificate under Sub-Clause 8.6 [Contract Completion Certificate]. The Operating Licence shall only extend to those parts of the Site which it is required to occupy for the purposes of carrying out the Works and Operation Service as set out in the Contract. The Operating Licence granted pursuant to this Sub-Clause shall not operate nor be deemed to operate as a tenement or a demise of the Site or any part thereof. The Contractor shall not have or be entitled to any estate right, title, or interest in the Site. The licence will immediately terminate upon the termination of this Contract for whatever reason. Since the facility becomes the property of the Employer upon the issuance of the Commissioning Certificate, it is necessary for the Employer to authorise the Contractor to operate and maintain the facility during the Operation Service Period in order to enable the Contractor to fulfil his obligations under the Contract. This the Employer does by providing the Contractor with an Operating Licence. The Employer provides this at the start of the Contract when issuing the Letter of Acceptance so that the Contractor has the assurance that the Employer is committed to the complete project, but the Operating Licence does not come into effect until the Commissioning Certificate is issued which is when the Operation Service commences. The Sub-Clause makes it clear that the Operating Licence does not bestow any right of ownership or title or other interest in the Site on the Contractor.
1.8
Assignment Neither Party shall assign the whole or any part of the Contract or any benefit or interest in or under the Contract. However, either Party: (a) may assign the whole or any part with the prior agreement of the other Party, at the sole discretion of such other Party; and (b) may, as security in favour of a bank or financial institution, assign its right to any moneys due, or to become due, under the Contract. Neither Party is allowed to transfer or assign any of its rights or obligations under the Contract except with the written agreement of the other Party. An Employer who has chosen the Contractor based on his expertise, experience and reputation may be reluctant to allow the Contractor to assign any part of the Contract under this Sub-Clause. However the Contractor is permitted to assign payments due under the Contract to his bank or other source of financing.
1.9
Care and Supply of Documents Each of the Contractor’s Documents shall be in the custody and care of the Contractor, unless and until taken over by the Employer. Unless otherwise stated in the Contract, the Contractor shall supply to the Employer’s Representative six copies of each of the Contractor’s Documents. The Contractor shall keep, on the Site, a copy of the Contract, publications named © FIDIC 2011
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in the Employer’s Requirements, the Contractor’s Documents, and Variations and other communications given under the Contract. The Employer’s Personnel shall have the right of access to all these documents at all reasonable times. If a Party becomes aware of an error or defect of a technical nature in a document which was prepared for use in executing the Works, the Party shall promptly give Notice to the other Party of such error or defect. The Contractor is required to provide the Employer with Contractor’s Documents at various times during the Contract. Until such time as the documents are handed over, they remain in the care and custody of the Contractor. After they have been handed over they will be in the care and custody of the Employer. 1.10
Errors in the Employer’s Requirements Notwithstanding the Contractor’s obligations to scrutinise the Employer’s Requirements under Sub-Clause 5.1 [General Design Obligations], if the Contractor finds an error in the Employer’s Requirements, he shall immediately give a written Notice to the Employer’s Representative advising him of the nature and details of the error and requesting instruction regarding its rectification. After receiving this Notice, the Employer’s Representative shall, without prejudice to other rights and obligations of the Parties, promptly confirm to the Contractor: (a) whether or not there is an error in the Employer’s Requirements as stated in the Contractor’s Notice, (b) whether or not an experienced contractor should have discovered the error when scrutinising the Employer’s Requirements under Sub-Clause 5.1 [General Design Obligations], and (c) the measures which the Employer’s Representative requires the Contractor to take to rectify the error. If the Contractor suffers delay and/or incurs Cost as a result of an error in the Employer’s Requirements, and an experienced contractor exercising due care would not have discovered the error when scrutinising the Employer’s Requirements under Sub-Clause 5.1 [General Design Obligations], the Contractor shall be entitled, subject to Sub-Clause 20.1 [Contractor’s Claims] to: (i) an extension of time for any such delay, if completion is or will be delayed under Sub-Clause 9.3 [Extension of Time for Completion of Design-Build ] and (ii) payment of any such Cost Plus Profit, which shall be included in the Contract Price. Following the Commencement Date, the Contractor has a specified period (given in the Contract Data under Sub-Clause 5.1 [General Design Obligations]) in which to scrutinise the Employer’s Requirements and other information provided by the Employer to check for any errors or faults which he can find. By this Sub-Clause, if the Contractor finds errors or faults after the given scrutiny period, he is required to notify the Employer’s Representative and ask for instruction as to how to deal with the alleged error or fault. On receiving such a Notice, the Employer’s Representative is required to do three things: (a) confirm whether or not there is such a fault or error; (b) tell the Contractor if he considers that an experienced contractor should have discovered the error during the scrutiny period; and (c) tell the Contractor what measures he requires the Contractor to take. Note that under (b), it is a question of what ‘an experienced contractor’ should have discovered. If the answer is that an experienced contractor should have discovered the error, then the Contractor will not get any additional compensation. If the Employer’s Representative considers that an experienced contractor would not have discovered the error, then the Contractor will be entitled to compensation.
1.11
Employer’s Use of Contractor’s Documents As between the Parties, the Contractor shall retain the copyright and other intellectual property rights in the Contractor’s Documents and other design documents made by (or on behalf of) the Contractor.
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The Contractor shall be deemed (by signing the Contract) to give to the Employer a non-terminable transferable non-exclusive royalty-free licence to copy, use and communicate the Contractor’s Documents, including making and using modifications of them. This licence shall: (a) apply throughout the actual or intended working life (whichever is longer) of the relevant part of the Works; (b) entitle any person in proper possession of the relevant part of the Works to copy, use and communicate the Contractor’s Documents for the purposes of completing, operating, maintaining, altering, adjusting, repairing and demolishing the Works; (c) in the case of Contractor’s Documents which are in the form of computer programs and other software, permit their use on any computer on the Site and other places as envisaged by the Contract, including replacements of any computers supplied by the Contractor; and (d) enable the Employer to relet the Contract as provided for under Clause 15.2 [Termination for Contractor’s Default ]. The Contractor’s Documents and other design documents made by (or on behalf of) the Contractor shall not, without the Contractor’s consent, be used, copied or communicated to a third party by (or on behalf of) the Employer for purposes other than those permitted under this Sub-Clause. Since the Contractor is the originator of the Contractor’s Documents, it is he who retains the copyright or intellectual property right to those documents, and this Sub-Clause clarifies the extent to which the Employer can use such documents for the purposes of the Contract. If there are any Contractor’s Documents, such as computer programs or maintenance manuals etc. which the Employer may wish to use outside the scope of the Contract, then he must clearly indicate such requirement in the Employer’s Requirements, so the Contractor is aware of this at the time of preparing his tender. 1.12
Contractor’s Use of Employer’s Documents As between the Parties, the Employer shall retain the copyright and other intellectual property rights in the Employer’s Requirements and other documents made by (or on behalf of) the Employer. The Contractor may, at his cost, copy, use, and obtain communication of these documents for the purposes of the Contract. They shall not, without the Employer’s consent, be copied, used, or communicated to a third party by the Contractor, except as necessary for the purposes of the Contract. This Sub-Clause mirrors the provisions of Sub-Clause 1.11 [Employer’s Use of Contractor’s Documents].
1.13
Confidential Details The Contractor shall disclose all such confidential and other information as the Employer’s Representative may reasonably require in order to verify the Contractor’s compliance with the Contract. The Contractor shall treat the details of the Contract as private and confidential, except to the extent necessary to carry out his obligations under the Contract. The Contractor shall not publish, permit to be published, or disclose any particulars of the Contract in any trade or technical paper or elsewhere without the previous consent in writing of the Employer. The said consent shall not be unreasonably withheld. The Employer shall treat all information designated by the Contra ctor as confidential, as confidential, and shall not disclose it to third parties, except as maybe necessary when exercising his rights under 15.2 [Termination for Contractor’s Default ]. In this Sub-Clause, each Party undertakes to respect the confidentiality of documents supplied by the other Party which have been designated as ‘Confidential’. This is not intended as a
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blanket clause to cover everything either Party may produce, but recognises that there may be certain processes or design criteria which the Contractor or his Subcontractors consider as trade secrets and wish to keep confidential. Notwithstanding this provision, there is a requirement that the Contractor shall provide the Employer’s Representative with sufficient information, confidential of otherwise, which the Employer’s Representative may reasonably require to verify the Contractor’s designs, etc. Where this is the case, the Contractor may need to be assured that such information will be treated as confidential. 1.14
Compliance with Laws The Contractor shall, in performing the Contract, comply with applicable Laws. Unless otherwise stated in the Employer’s Requirements: (a) the Employer shall have obtained (or shall obtain) the planning, zoning, building permit, or similar permission for the Permanent Works and for the Operation Service, and any other permissions described in the Employer’s Requirements as having been (or being) obtained by the Employer; and the Employer shall indemnify and hold the Contractor harmless against and from the consequences of any failure to do so; (b) the Contractor shall give all notices, pay all taxes, duties and fees, and obtain all further permits, licences and approvals, as required by the Laws, in relation to the design, execution and completion of the Works and Operation Service and the remedying of any defects; and the Contractor shall indemnify and hold the Employer harmless against and from the consequences of any failure to do so; and (c) the Contractor shall at all times and in all respects comply with, give all notices under, and pay all fees required by any licence obtained by the Employer in respect of the Site or the Works or Operation Service, whether relating to the Works on or off the Site. By Definition 1.1.47, ‘Laws’ means all national (or state) legislation, statutes, ordinances, and other laws, and regulations and by-laws of any legally constituted public authority. Since by this Sub-Clause the Contractor must not only comply with the Laws, but, in accordance with paragraph (b), he must also pay all duties and fees, etc., it is very important that he knows what laws and by-laws etc exist, and it is not uncommon for the Employer to give tenderers some guidance about this in the tender documents. However, whether or not the Employer chooses to do this, the Contractor remains liable for the matters covered by the Sub-Clause, and he must remember that “ignorance of the law is no excuse”.
1.15
Joint and Several Liability If the Contractor constitutes (under applicable Laws) a joint venture, consortium or other unincorporated grouping of two or more persons: (a) these persons shall be deemed to be jointly and severally liable to the Employer for the performance of the Contract; (b) these persons shall notify the Employer of their leader who shall have authority to bind the Contractor and each of these persons; and (c) the Contractor shall not alter his composition or legal status without the prior consent of the Employer. It is quite common to find that the Party awarded the Contract as Contractor is in fact a joint venture or consortium of two or more contractors who together have the necessary skills and experience to cover all the disciplines called for by the Contract. In such a case, the contractors involved are likely to have entered into some form of joint venture or other agreement between them which sets out their duties and obligations towards each other, and also their responsibilities towards the Employer. This will include the appointment of a leader, who has the authority to take instructions and make decisions on their behalf, and also an acknowledgement that the members of the joint venture shall be jointly and severally liable to the Employer. © FIDIC 2011
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Clause 2 2.1
The Employer Right of Access to the Site The Employer shall give the Contractor right of access to, and possession of, all or part of the Site within the time (or times) stated in the Contract Data. The right and possession may not be exclusive to the Contractor. If, under the contract, the Employer is required to give (to the Contractor) possession of any foundation, structure, plant or means of access, the Employer shall do so in the time a nd manner stated in the Employer’s Requirements. However, the Employer may withhold any such right or possession until the Performance Security has been received. If no such time is stated in the Contract Data , the Employer shall give the Contractor right of access to, and possession of, the Site within such times as may be required to enable the Contractor to proceed in accordance with the programme submitted under Sub-Clause 8.3 [Programme]. If the Contractor suffers delay and/or incurs Cost as a result of a failure by the Employer to give any such right or possession within such time, the Contractor shall give Notice to the Employer’s Representative and shall be entitled subject to SubClause 20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 9.3 [Extension of Time for Completion of Design-Build ]; and (b) payment of any such Cost Plus Profit, which shall be included in the Contract Price. After receiving this Notice, the Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. However, if and to the extent that the Employer’s failure was caused by any error or delay by the Contractor, including an error in, or delay in the submission of, any of the Contractor’s Documents, the Contractor shall not be entitled to such extension of time or cost. One of the fundamental duties of the Employer is to make the Site available to the Contractor, either within a given time (if so stated in the Contract Data), or as indicated in the Contractor’s Programme (if not stated in the Contract Data). It is not necessary for the Employer to grant access to the whole Site right at the start: it is sufficient to enable the Contractor to proceed unhindered in accordance with his Programme. If, for example, the Contract involved the construction of a 100-km long toll road, it could be sufficient to initially give the Contractor access to the first 10 km. It should be noted that the Employer is only required to give the Contractor the ‘right’ of access to the Site. It is up to the Contractor to ensure that the means of access is either already available in conjunction with the ‘right’, and if so, that it is suitable for the Contractor’s needs, or if not, that suitable means of access can be constructed or otherwise provided or found by the Contractor. If the Employer fails to make the Site available as required by this Sub-Clause, the Contractor is entitled to be reimbursed Cost Plus Profit (see comment to Definition 1.1.24). These costs could include for disruption to the Contractor’s Programme or sequence of working. If access is delayed to the whole Site so that it is not possible for the Employer’s Representative to give the Notice to commence under Sub-Clause 8.1 [Commencement Date], the Contractor will not need a time extension since the Time for Completion does not start until the Commencement Date has been es tablished. However, if the delay exceeds the 42 days after the Letter of Acceptance allowed for in Sub-Clause 8.1 [Commencement Date], the Contractor could claim an adjustment to his rates and prices. Also if later releases of parts of the Site were delayed, the Contractor could in such cases also claim an extension of time.
2.2
Permits, Licences or Approvals The Employer shall provide, at the request of the Contractor, such reasonable
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assistance as to allow the Contractor to obtain: a) copies of the Laws of the Country which are relevant to the Contract but are not readily available, and (b) any permits, licences or approvals required by the Laws of the Country, including details of the information required to be submitted by the Contractor in order to obtain such permits, licences or approvals: (i) which the Contractor is required to obtain under Sub-Clause 1.14 [Compliance with Laws]; (ii) for the delivery of Goods, including clearance through customs; and (iii) for the export of Contractor’s Equipment when it is removed from the Site. Under the Laws of the Country, permits, licences or approvals may be required for certain aspects of the Works, such as the Contractor’s design, import of Goods and Materials, temporary import of equipment etc. Although it is an obligation of the Contractor to obtain these, the Contract recognises that he may need help in identifying the various laws and requirements which apply, and requires the Employer, when so requested by the Contractor, to provide ‘reasonable assistance’. It is difficult to define what ‘reasonable’ means in this context, as this may vary from case to case, but it is in the interests of the Employer to provide what assistance he can so that the Works can proceed without unnecessary hindrance from the authorities. 2.3
Employer’s Personnel The Employer shall be responsible for ensuring that the Employer’s Personnel and the Employer’s other contractors on the Site: (a) co-operate with the Contractor’s efforts under Sub-Clause 4.6 [Co-operation] and (b) take actions similar to those which the Contractor is required to take under sub-paragraphs (a), (b) and (c) of Sub-Clause 4.8 [Safety Procedures] and under Sub-Clause 4.18 [Protection of the Environment ]. There are certain sub-clauses where the Employer and his personnel are required to act in a proper manner to fulfil the various provisions of the Contract – for example, when it comes to safety and environmental matters, or maintaining the integrity of the insurance provisions where the Employer is named as a joint insured or beneficiary.
2.4
Employer’s Financial Arrangements The Employer’s arrangements for financing the design, execution and operation of the Works, including the provision of the Asset Replacement Fund, shall be detailed in the Financial Memorandum. If the Employer intends to make any material changes to the financial arrangements or has to do so because of changes in his financial or economic situation the Employer shall give Notice to the Contractor with detailed particulars. Within 28 days after receiving any request of the Contractor the Employer shall give reasonable evidence that financial arrangements have been made and are being maintained which will enable the Employer to pay the Contract Price. See comments to Definition 1.1.43. The nature of the evidence may often depend upon the source of funding. If funding is being provided as a loan or grant from an International Financing Institution (IFI) such as one of the multilateral development banks, it should be possible to provide copies of loan documentation evidencing the arrangements. Similarly, if funding is coming from a national or governmental source, a letter confirming the arrangements and availability of funds should be provided with the Employer’s Requirements so that tenderers know that funding has been secured.
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Clause 3 3.1
The Employer’s Representative Employer’s Representative’s Duties and Authority The Employer shall appoint the Employer’s Representative prior to the signing of the Contract, who shall be suitably qualified and experienced and who shall carry out the duties assigned to him in the Contract. The Employer’s Representative’s staff shall include suitably qualified engineers and other professionals who are competent to carry out these duties. The Employer’s Representative shall have no authority to amend the Contract. The Employer’s Representative may exercise the authority attributable to the Employer’s Representative as specified in or necessarily to be implied from the Contract. The Employer undertakes not to impose further constraints on the Employer’s Representative’s authority, except as agreed with the Contractor. However, whenever the Employer’s Representative exercises a specified authority for which the Employer’s approval is required, then (for the purposes of the Contract) the Employer shall be deemed to have given approval. Except as otherwise stated in these Conditions: (a) whenever carrying out duties or exercising authority, specified in or implied by the Contract, the Employer’s Representative shall be deemed to act for the Employer; (b) the Employer’s Representative has no authority to relieve either Party of any duties, obligations or responsibilities under the Contract; and (c) any approval, check, certificate, consent, examination, inspection, instruction, Notice, proposal, request, test, or similar act by the Employer’s Representative (including absence of disapproval) shall not relieve the Contractor from any responsibility he has under the Contract, including responsibility for errors, omissions, discrepancies and non-compliances. As mentioned under Definition 1.1.35, the Employer’s Representative is appointed by the Employer before the Contract with the Contractor is signed. Normally the Employer’s Representative will be known before the tender documents are issued, and it is a requirement that he shall be identified and named in the Contract Data (1.1.35). Under the Contract the Employer’s Representative has duties which he must perform, and authority which he may exercise. However he is not empowered to amend the Contract in any way, and he may not relieve either Party from any of the duties, obligations or responsibilities assigned to it under the Contract. By signing the Contract, both Parties have accepted the role of the Employer’s Represe ntative in the Contract, and the Contractor accepts that the Employer’s Representative is acting for the Employer. However, the Employer’s Representative has a responsibility to see that he does not exceed the authority assigned to him and, when acting under Sub-Clause 3.5 [Determinations], he is required to “make a fair determination in accordance with the Contract”. If his determination is not seen to be ‘fair’, the Contractor may submit the determination to the DAB who in their turn may correct it.
3.2
Delegation by the Employer’s Representative The Employer’s Representative may from time to time assign duties and delegate authority to assistants, and may also revoke such assignment or delegation. These assistants may include independent inspectors (other than the Auditing Body) appointed to inspect and/or test items of Plant and/or Materials and/or workmanship or monitor the provision of the Operation Service. The assignment, delegation or revocation shall be in writing and shall not take effect until copies have been received by both Parties. However, unless otherwise agreed by both Parties, the Employer’s Representative shall not delegate the authority to determine any matter in accordance with Sub-Clause 3.5 [Determinations].
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Assistants shall be suitably qualified persons, who are competent to carry out these duties and exercise this authority, and who are fluent in the language for communications defined in Sub-Clause 1.4 [Law and Language]. Each assistant, to whom duties have been assigned or authority has been delegat ed, shall only be authorised to issue instructions to the Contractor to the extent defined by the delegation. Any approval, check, certificate, consent, examination, inspection, instruction, Notice, proposal, request, test or similar act by an assistant, in accordance with the delegation, shall have the same effect as though the act had been an act of the Employer’s Representative. However: (a) any failure to disapprove any work, Plant, Materials or any part of the Operation Service shall not constitute approval, and shall therefore not prejudice the right of the Employer’s Representative to reject the work, Plant, Materials or any part of the Operation Service; and (b) if the Contractor questions any determination or instruction of an assistant, the Contractor may refer the matter to the Employer’s Representative, who shall promptly confirm, reverse or vary the determination or instruction. It is clear that the Employer’s Representative cannot perform all the duties assigned to him under the Contract by himself, and he will certainly need to appoint assistants to help him. By this Sub-Clause he is entitled to delegate any of his duties and authority except in connection with making a determination under Sub-Clause 3.5 [Determinations]. This determination must be made by the appointed Employer’s Representative and cannot be delegated by him to others. Clearly the assistants have an important role to play, and any instruction or other authority given or exercised by them in accordance with the terms of his delegated authority shall carry the same weight as if it had been given by the Employer’s Representative himself. So assistants must be carefully selected, and they must be aware of the authority they have and the limits of that authority. The Employer’s Representative can however step in and act where an assistant has failed to act, and the Contractor can question any instruction from an assistant by referring the matter directly to the Employer’s Representative with the request that he reviews and, if appropriate, overrules the instruction. 3.3
Instructions of the Employer’s Representative The Employer’s Representative may issue to the Contractor (at any time) instructions which may be necessary for the execution of the Works and the remedying of any defects, all in accordance with the C ontract. The Contractor shall only take instructions from the Employer’s Representative, or from an assistant to whom the appropriate authority has been delegated under this Clause. If an instruction constitutes a Variation, Clause 13 [Variations and Adjustments] shall apply. The Contractor shall comply with the instructions given by the Employer’s Representative or delegated assistant, on any matter related to the Contract. These instructions shall be given in writing. If the Contractor considers that any instruction of the Employer’s Representative does not comply with applicable Laws or is technically impossible, he shall immediately notify the Employer’s Representative in writing. The Employer’s Representative shall then either confirm or amend such instruction. The Employer’s Representative is the centre of communications on the project, and the Contract does not allow, except in a limited number of identified cases, direct communication between the Employer and the Contractor. The Contractor must comply wit h all instructions from the Employer’s Representative (or from an assistant with delegated authority), except in cases where there may be specific provisions permitting non-compliance. All instructions must be in writing, and where the Contractor believes there are reasons to justify non-compliance, he must notify the Employer’s Representative in writing with details of the reasons which he believes relieve or excuse him from compliance. © FIDIC 2011
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3.3
Replacement of the Employer’s Representative If the Employer intends to replace the Employer’s Representative, the Employer shall, not less than 42 days before the intended date of replacement, give Notice to the Contractor of the name, address, and relevant experience of the intended replacement Employer’s Representative. The Employer shall not replace the Employer’s Representative with a person against whom the Contractor raises reasonable objection by Notice to the Employer, with supporting particulars. As mentioned in the commentary to Sub-Clause 3.1 [Employer’s Representative’s Duties and Authority ] above, the Employer’s Representative is named in the Contract Data, and tenderers will have taken note of this when preparing their tenders. The Contractor is therefore entitled to be informed if the Employer is planning to change his Representative, and he is also entitled to raise ‘reasonable objection’, giving appropriate details, if he is not happy with the proposed replacement. If, for example, the original Representative was an external firm of consulting engineers, and the Employer wishes to replace them by a person from his ‘engineering department’, the Contractor may consider that such person will not have the managerial and technical skills or experience of the original Representative, and he could object on those grounds. The Employer should not make any such replacement if the Contractor has raised ‘reasonable objection’, but the question remains as to what constitutes ‘reasonable objection’. This will depend on the facts of the case.
3.5
Determinations Whenever these Conditions provide that the Employer’s Representative shall proceed in accordance with this Sub-Clause to agree or determine any matter, the Employer’s Representative shall consult with each Party in an endeavour to reach agreement. If agreement is not achieved, the Employer’s Representative shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances. The Employer’s Representative s hall give Notice to both Parties of each agreement or determination, with supporting particulars. Each Party shall give effect to each agreement or determination unless and until revised under Clause 20 [Claims, Disputes and Arbitration]. This Sub-Clause specifies the procedure which is to be followed whenever there is a reference in any other sub-clause of the Contract to a requirement for the Employer’s Representative to “proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters”. This reference occurs in a number of sub-clauses in cases where the Contractor (or the Employer) is given an entitlement to claim for additional financial compensation or a time extension, and where the Employer’s Representative is required to make a determination of what is fair and reasonable in the circumstances. The Employer’s Representative is required to consult with both Parties – not just the claiming Party – so that he understands both sides, and then he is required to try and help the Parties reach an agreement or an agreed settlement. Such agreement may be based on what the Employer’s Representative considers to be reasonable in the circumstances, having listened to both Parties but the actual agreement, if any, is between the Parties and is not considered as a determination by the Employer’s Representative. If agreement is reached, then there will be no opening for either Party to refer the matter to the DAB at a later date. The terms of any such agreement should in any event be recorded in a Notice from the Employer’s Representative to both Parties. However, if there is no agreement between the Parties, then the Employer’s Representative has to make his own determination, which must be fair and which must be based on the Contract. Such a determination must be recorded in a Notice to both Parties. If, in making his determination, the Employer’s Representative is obliged to take into account the Law of
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the Contract (see Sub-Clause 1.4 [Law and Language]), he may need to take legal advice before issuing his determination. However, when the determination is given, it is important that it is given as the determination of the Employer’s Representative, and not of anyone else. There is no time limit in which the Employer’s Representative has to respond and give his determination, and this is sensible, since the time needed may depend, amongst other things, on the time the two Parties took in trying to reach an amicable agreement before the Employer’s Representative was required to make his own determination. However, by SubClause 1.4 [Law and Language], the Notice (of determination) shall not be unreasonably delayed. Once a determination is given, both Parties are required to give immediate effect to that determination: monies must be certified and paid, and time extensions granted in accordance with the determination. Even if a Party is dissatisfied with the determination, it must still give immediate effect to the determination as given, but may refer the matter as a claim under Sub-Clause 20.1 [Contractor’s Claims] (or Sub-Clause 20.2 [Employer’s Claims]), and thereafter follow the procedures provided in that Sub-Clause.
Clause 4 4.1
The Contractor Contractor’s General Obligations The Contractor shall design, execute and complete the Works and provide the Operation Service in accordance with the Contract and shall remedy any defects in the Works. When completed, the Works shall be fit for the purposes for which the Works are intended as defined in the Contract, and the Contractor shall be responsible for ensuring that the Works remain fit for such purposes during the Operation Service Period. The Contractor shall provide the Plant and Contractor’s Documents specified in the Contract, and all Contractor’s Personnel, Goods, consumables and other things and services, whether of a temporary or permanent nature, required to meet the Contractor’s obligations under the Contract. The Works shall include any work which is necessary to satisfy the Employer’s Requirements, Contractor’s Proposal and Schedules, or is implied by the Contract, and all works which (although not mentioned in the Contract) are necessary for stability or for the completion, or safe and proper operation, of the Works. The Contractor shall be responsible for the adequacy, stability and safety of all Site operations, of all methods of construction and of all the Works during both the Design-Build Period and the Operation Service Period. The Contractor shall, whenever required by the Employer’s Representative, submit details of the arrangements and methods which the Contractor proposes to adopt for the execution of the Works. No significant alteration to these arrangements and methods shall be made without this having previously been notified to the Employer’s Representative. The Contractor shall attend all meetings as reasonably required by the Employer or the Employer’s Representative. This Sub-Clause summarises the Contractor’s overall obligation to design and carry out the Works and provide the Operation Service “in accordance with the Contract”. The requirement is that the Works shall be “fit for the purposes … defined in the Contract” when they are completed, and that they shall remain ‘fit for purpose’ during the complete Operation Service Period. This means that all work done by the Contractor during the Operation Service Period, and all materials and items replaced by him during this time must be of sufficient standard and quality to ensure that the Works remain ‘fit for purpose’ until the Contract Completion Certificate is issued. © FIDIC 2011
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It is up to the Employer to ensure that everything he requires the Contractor to take into account when designing the Works is covered in the Employer’s Requirements or elsewhere in the Contract, so that the Contractor can determine the ‘fitness’ criteria he is expected to meet. If something is missing, the Contractor may well be relieved of complying with that requirement unless he is properly compensated. However, if any work or requirement is not mentioned but can be reasonably understood as being necessary either for the completion of the Works, or for reasons of safety, stability or operation, then the Contractor is required to undertake such work at his own cost, even though it was not specifically mentioned or itemised. ‘Fitness for purpose’ is required, irrespective of the level of skill, care and diligence exercis ed by the Contractor’s designers, and irrespective of whet her such designers are able to obtain professional liability or other insurance to cover more than the usual professional duty of skill care and diligence. The Contractor carries the risk of ‘fitness for purpose’ irrespective of whether or not his designers were able to obtain the necessary professional insurances. 4.2
Performance Security The Contractor shall obtain at his cost the Performance Security for proper performance of the Contract, in the amounts and currencies set out in the Contract Data. If no amount is stated in the Contract Data, this Sub-Clause shall not apply. At the end of the Retention Period, the Contractor is entitled to a reduction of the amount of the Performance Security, as stated in the Contract Data. The Contractor shall deliver the Performance Security to the Employer within 28 days after receiving the Letter of Acceptance, and shall send a copy to the Employer’s Representative. The Performance Security shall be issued by an entity and from within a country (or other jurisdiction) approved by the Employer, and shall be based on the sample form included in the tender documents, or in another form approved by the Employer. The Contractor shall ensure that the Performance Security is valid and enforceable until the issue of the Contract Completion Certificate. If the terms of the Performance Security specify its expiry date, and the Contractor has not become entitled to receive the Contract Completion Certificate by the date 28 days prior to the expiry date, the Contractor shall extend the validity of the Performance Security until the Works and the Operation Service have been completed (or alternatively, until the Contractor has been entitled to receive the Contract Completion Certificate). Failure by the Contractor to maintain the validity of the Performance Security shall be grounds for termination in accordance with Sub-Clause 15.2 [Termination for Contractor’s Default ]. The Employer shall not make a claim under the Performance Security except for amounts to which the Employer is entitled under the Contract in the event of: (a) failure by the Contractor to extend the validity of the Performance Security as described in the preceding paragraph, in which event the Employer may claim the full or, in case of an earlier reduction, the reduced amount of the Performance Security; (b) failure by the Contractor to pay the Employer an amount due, as either agreed by the Contractor or determined under Sub-Clause 3.5 [Determinations] or Clause 20 [Claims, Disputes and Arbitration], within 42 days after this agreement or determination; (c) failure by the Contractor to remedy a default within 42 days after receiving the Employer’s Notice requiring the default to be remedied; or (d) circumstances which entitle the Employer to terminate under Sub-Clause 15.2 [Termination for Contractors Default ], irrespective of whether Notice of termination has been given. The Employer shall indemnify and hold the Contractor harmless against and from all damages, losses and expenses (including legal fees and expenses) resulting from a claim under the Performance Security which the Employer was not entitled to make.
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The Employer shall return the Performance Security to the Contractor within 21 days after receiving a copy of the Contract Completion Certificate. The requirement for a Performance Security is a common way for the Employer to protect himself against a possible failure or default of the Contractor during the performance of the Contract. Failure of the Employer to stat e the amount of the required security in the Contract Data will mean that no Performance Security is required, and the Employer will not be able to call for any such payment in the event of a failure or default of the Contractor. The Sub-Clause envisages that the Performance Security will be valid from commencement until the issue of the Contract Completion Certificate, with a permitted reduction in the value of the Security at the end of the Retention Period. It is recognised that there are other ways in which to arrange this Security during the Operation Service Period. For example, by requiring a separate long-term new Security, or by requiring a short term (e.g., 1-year or 5-year) renewable Security to cover this Period. Some Employers may choose not t o require a Performance Security during the Operation Service Period as they may see this phase of the Contract as being equivalent to a ‘service contract’ where a Performance Security is not appropriate. For this reason the DBO document includes two sample forms of Performance Security (see the section “Sample Forms”) – the Demand Guarantee and the Surety Bond. Each sample form incorporates (by reference) the Uniform Rules published by the International Chamber of Commerce (ICC) corresponding to that form of instrument. The wording of each sample reflects the requirements of the Uniform Rules, and if any changes are to be made in the sample forms, it is important to obtain ex pert advice to ensure that the revised forms remain consistent with the respective Uniform Rules and provide the proper security for the Employer. However, it should be noted that both sample forms are written to apply solely to the DesignBuild phase of the Contract and expire 70 days after the expected date for completion of the Design-Build. It is therefore up to the Employer, if he requires a Security during the Operation Service Period, to modify his chosen form of Security to suit the manner in which he wishes to secure the performance of the Contractor during the Operation Service, not forgetting that he should also approve the provider of the Security and – this is most important – where the Security is payable. There are listed a number of ‘failures’ of the Contractor or other circumstances which will entitle the Employer to call the Security, and under no circumstances should the Employer try to call the Security for other reasons. If the Employer is in any doubt as to whether he has the right to call the Security in a given situation, he should seek expert legal advice before acting. The final requirement is that the Employer shall (must) return the Security to the Contractor within 21 days of its expiry. Failure to do so could result in the Contractor being required to pay extended premiums (despite the Security’s specified expiry date) until the Security is returned, and this in turn will give the Contractor the right to claim the additional cost incurred. 4.3
Contractor’s Representative The Contractor shall appoint the Contractor’s Representative and shall give him all authority necessary to act on the Contractor’s behalf under the Contract. Unless the Contractor’s Representative is named in the Contract, the Contractor shall, prior to the Commencement Date, submit to the Employer’s Representative for consent the name and particulars of the person the Contractor proposes to appoint as Contractor’s Representative. If consent is withheld or subsequently revoked, or if the appointed person fails to act as Contractor’s Representative, the Contractor shall similarly submit the name and particulars of another suitable person for such appointment. The Contractor shall not, without the prior consent of the Employer’s Representative, © FIDIC 2011
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revoke the appointment of the Contractor’s Representative or appoint a replacement. The whole time of the Contractor’s Representative shall be given to directing the Contractor’s performance of the Contract. If the Contractor’s Representative is to be temporarily absent from the Site during the execution of the Works or provision of the Operation Service, a suitable replacement person shall be appointed, subject to the Employer’s Representative’s prior consent, and the Employer’s Representative shall be notified accordingly. The Contractor’s Representative shall, on behalf of the Contractor, receive instructions under Sub-Clause 3.3 [Instructions of the Employer’s Representative]. The Contractor’s Representative may delegate any powers, functions and authority to any competent person, and may at any time revoke the delegation. Any delegation or revocation shall not take effect until the Employer’s Representative has received prior Notice signed by the Contractor’s Representative, naming the person and specifying the powers, functions and authority being delegated or revoked. The Contractor’s Representative and all these persons shall be fluent in the language for communications defined in Sub-Clause 1.4 [Law and Language]. The Contractor is required to appoint a Contractor’s Representative who shall have full authority to act on behalf of the Contractor during the performance of the Contract. This includes receiving and acting on instructions and making decis ions and commitments in the name of the Contractor. Sometimes this person may be known as the Contractor’s Agent or Contractor’s Project Manager, but whatever the Contractor chooses to call him, he is the Contractor’s Representative under the Contract. There is no requirement that he should be named prior to the award of Contract, but there is a requirement that the proposed person shall have the consent of the Employer’s Representative prior to being appointed. Similarly, any changes or replacements must be consented to by the Employer’s Representative before being made. This requirement also applies to any replacement or deputy when the Contractor’s Representative is away from the Site for any reason. Furthermore, if the Contractor’s Representative intends to delegate any part of his role to any person, he must advise the Employer’s Representative of such delegation. The Contractor still remains responsible and liable for all actions and failures of his Representative or any persons to whom the Representative has delegated authority or power. 4.4
Subcontractors The Contractor shall not subcontract the whole of the Works. Unless otherwise agreed, the Contractor shall not subcontract the provision of the Operation Service. The Contractor shall be responsible for the acts or defaults of any Subcontractor, his agents or employees, as if they were the acts or defaults of the Contractor. Unless otherwise stated in the Particular Conditions: (a) the Contractor shall not be required to obtain consent to suppliers of Materials, or to a subcontract for which the Subcontractor is named in the Contract; (b) the prior consent of the Employer’s Representative shall be obtained to other proposed Subcontractors; and (c) the Contractor shall give the Employer’s Representative not less than 28 days’ Notice of the intended date of the commencement of each Subcontractor’s work, and of the commencement of such work on the Site. If any Subcontractor is entitled under any contract or agreement relating to the Works to relief from any risk on terms additional to or broader than those specified in the Contract, such additional or broader events or circumsta nces shall not excuse the Contractor’s non-performance or entitle him to relief under the Contract. The need of the Contractor to subcontract some of the Works is very common and widely accepted. By this Sub-Clause he retains that right, but with some restrictions and conditions. Firstly, he is not permitted to sub-let the whole of the Works. The Employer has, after a careful selection procedure which considers the Contractor’s experience and reputation, chosen to award the Contract to the Contractor, and he does not want the Contractor to then sub-let the whole of the Works to a third party. Furthermore, the Contractor is not
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permitted (unless specifically agreed) to sub-let the provision of the Operation Service. It is intended that if the Contractor requires to engage additional resources to provide this Service, such persons or party will be engaged as a joint venture partner and thus have joint and several liability with the other joint-venture partners for the full performance of the Contractor’s obligations. If any Subcontractor is named in the Contract, eit her as an agreed Subcontractor or supplier, or as a Nominated Subcontractor (see Sub-Clause 4.5 [Nominated Subcontractors].), then the Contractor does not require any consent to engage such persons. Any other Subcontractors which the Contractor plans to use must have the prior consent of the Employer’s Representative before they can be engaged. Each application for consent must include details of the work which the Contractor proposes to sub-let to the Subcontractor. Most importantly, even if and when consent is given, the Contractor is liable for any failures or misconduct by the Subcontractor, and this includes subcontractors, by reference to SubClause 4.5 [Nominated Subcontractors]. 4.5
Nominated Subcontractors In this Sub-Clause, “nominated Subcontractor” means a Subcontractor named as such in the Employer’s Requirements or whom the Employer’s Representative, under Clause 13 [Variations and Adjustments], instructs the Contractor to employ as a Subcontractor. The Contractor shall not be under any obligation to employ a nominated Subcontractor against whom the Contractor raises reasonable objection by Notice to the Employer’s Representative as soon as practicable, with supporting particulars. It is quite common for an Employer to nominate a particular Subcontractor or supplier which he requires the Contractor to use. If, for example, he already has similar equipment from a particular supplier, it makes the handling of spare parts easier and his personnel may already be trained in using that equipment, and it makes sense to use the same make of equipment in the new plant. Or it may simply be a wish to engage a local subcontractor or supplier. Ideally, any planned nominated Subcontractor should be identified in the Employer’s Requirements so that tenderers know about them when pricing their tenders. If the requirement arises during the performance of the Contract, then a nominated Subcontractor can be introduced as a Variation under Clause 13 [Variations and Adjustments]. For the Contractor, a nominated Subcontractor (unless objected to) is the same thing as a Subcontractor according to Sub-Clause 4.4 [Subcontractors] and the Contractor is responsible for their actions and failures. Thus it would be unfair for the Employer to impose such persons on the Contractor without him having the right to raise reasonable objection to engaging them. The term ‘reasonable objection’ could for example be if the nominated Subcontractor did not have sufficient experience or resources or financial capacity, or if the nominated Subcontractor refused to indemnify the Contractor against failures which could affect the Contractor’s ability to perform under the Contract. If the Contractor raises such reasonable objection, he must do so in writing as a Notice to the Employer’s Representative. In such cases he is not obliged to employ the proposed person or company.
4.6
Co-operation The Contractor shall, as specified in the Contract or as instructed by the Employer’s Representative, allow appropriate opportunities for carrying out work to: (a) the Employer’s Personnel; (b) any other contractors employed by the Employer; and (c) the personnel of any legally constituted public authorities. who may be employed in the execution on or near the Site of any work not included in the Contract. © FIDIC 2011
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Any such instruction shall constitute a Variation if and to the extent that it causes the Contractor to incur Unforeseeable cost. Services for these personnel and other contractors may include the use of Contractor’s Equipment, Temporary Works or access arrangements which are the responsibility of the Contractor. The Contractor shall be responsible for his construction and operation activities on the Site, and shall co-ordinate his own activities with those of other contractors to the extent (if any) specified in the Employer’s Requirements. If, under the Contract, the Employer is required to give to the Contractor possession of any foundation, structure, plant or means of access in accordance with Contractor’s Documents, the Contractor shall submit such documents to the Employer’s Representative in the time and manner stated in the Employer’s Requirements. As stated in Sub-Clause 2.1 [Right of Access to the Site], the Contractor may not have exclusive use or possession of the Site or the access thereto, and the Contractor must allow others involved in the project appropriate opportunity to carry out their work. As stated in Sub-Clause 2.3(a), this requirement is reciprocated in that the Employer’s Personnel as well as the Employer’s other contractors are required to cooperate with the Contractor as provided in this Sub-Clause. If the requirement in this Sub-Clause is detailed in the Contract, the Contractor is expected to have allowed for such cooperation in his price and no additional compensation will be due. However, if the requirement comes in the form of an instruction from the Employer’s Representative a t a later date, then this would be treat ed as a Variation under Clause 13 [Variations and Adjustments], and the Contractor may be entitled to additional compensation. 4.7
Setting Out The Contractor shall set out the Works in relation to original points, lines and levels of reference specified in the Contract or notified by the Employer’s Representative. The Contractor shall be responsible for the correct positioning of all parts of the Works, and shall rectify any error in the positions, levels, dimensions or alignment of the Works. The Employer shall be responsible for any errors in t hese specified or notified ite ms of reference, but the Contractor shall use reasonable efforts to verify their accuracy before they are used. If the Contractor suffers delay and/or incurs Cost from executing work which was necessitated by an error in these items of reference, and an experienced contractor could not reasonably have discovered such error and avoided this delay and/or Cost, the Contractor shall give Notice to the Employer’s Representative and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 9.3 [Extension of Time for Completion of Design-Build ]; and (b) payment of any such Cost Plus Profit, which shall be included in the Contract Price. After receiving this Notice, the Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine (i) whether and (if so) to what extent the error could not reasonably have been discovered, and (ii) the matters described in sub-paragraphs (a) and (b) above related to this extent. The Contractor is entirely responsible for the correct setting out of the Works and is responsible for any errors irrespective of whether the setting out has been checked and/or approved by the Employer’s Representative, or not. Setting out is based on reference points and levels provided by the Employer, and the Contractor is required to use reasonable efforts to verify their accuracy. However, if errors are subsequently found in the reference points provided by the Employer which could not have been discovered by the Contractor using reasonable efforts, the Employer shall be liable for the consequences including any Cost Plus Profit incurred by the Contractor.
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4.8
Safety Procedures The Contractor shall: (a) comply with all applicable safety regulations; (b) take care for the safety of all persons entitled to be on the Site; (c) use reasonable efforts to keep the Site and Works clear of unnecessary obstruction so as to avoid danger to these persons; (d) provide fencing, lighting, guarding and watching of the Works until the issue of the Contract Completion Certificate; and (e) provide any Temporary Works (including roadways, footways, guards and fences) which may be necessary, because of the execution of the Works, for the use and protection of the public and of owners and occupiers of adjacent land. This Sub-Clause places the responsibility of safety and security on the Site upon the Contractor. The listed requirements are not exclusive and the Contractor is expected to provide all safety measures required by law or necessary for the execution of the Works, such as scaffolding, ladders, etc., even if not specifically mentioned.
4.9
Quality Assurance The Contractor shall institute a quality assurance system to demonstrate compliance with the requirements of the Contract. The system shall be in accordance with the details stated in the Contract. The Employer’s Representative shall be entitled to audit any aspect of the system. Details of all procedures and compliance documents shall be submitted to the Employer’s Representative for information before each design, execution and operation stage is commenced. When any document of a technical nature is issued to the Employer’s Representative, evidence of the prior approval by the Contractor himself shall be apparent on the document itself. Compliance with the quality assurance system shall not relieve the Contractor of any of his duties, obligations or responsibilities under the Contract. The Contract should include details of the quality assurance system which the Contractor is required to institute. This will depend on the nature of the Works and Service to be provided, but if nothing is stated in the Contract, the inference is that no quality assurance system is required. Alternatively, Employers who are uncertain of how an appropriate quality assurance system should be set up, may require tenderers to propose suitable systems when submitting their tenders .
4.10
Site Data The Employer shall have made available to the Contractor for his information, prior to the Base Date, all relevant data in the Employer’s possession on sub-surface, hydrological and climatic conditions at the Site, including environmental aspects. The Employer shall similarly make available to the Contractor all such data which come into the Employer’s possession after the Base Date. The Contractor shall be responsible for interpreting all such data. To the extent which was practicable (taking account of cost and time), the Contractor shall be deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may influence or affect the Tender or Works or the provision of the Operation Service. To the same extent, the Contractor shall be deemed to have inspected and examined the Site, its surroundings, the above data and other available information, and to have been satisfied before submitting the Tender as to all relevant matters, including (without limitation): (a) the form and nature of the Site, including sub-surface conditions; (b) the hydrological and climatic conditions; (c) the extent and nature of the work and Goods necessary for the execution and completion of the Works and the remedying of any defects; © FIDIC 2011
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(d) the Laws, procedures of regulatory and other authorities and labour practices of the Country; and (e) the Contractor’s requirements for access, accommodation, facilities, personnel, power, transport, water and other services. It is a fundamental requirement of the Contract that the Employer shall provide tenderers with any relevant information he may have concerning sub-surface, hydrological or climatic conditions. It is not an option for the Employer and the Contract assumes that all such information was given to tenderers at the time of tender. However, the Employer is only required to provide the facts (i.e. ‘data’), and an Employer should not try to provide any interpretation of those facts, as interpretation is the responsibility of the Contractor. Also the Employer should be wary of providing any ‘expert opinions’ which he may have obtained. These are also ‘interpretations’ which should be left to the Contractor to make. However, a wise Employer will recognise that it is of no benefit to withhold information: the more information he is able to give tenderers, the more responsive and competitive the tenders are likely to be. The information to be provided by the Employer may be in the form of published weather records, or records from his own investigations when selecting the Site, such as geological records or borehole logs. The logic behind this requirement is firstly, that all tenderers will be basing their tenders on the same basic information, and secondly, it may not be practical or indeed desirable for a dozen or so tenderers to all start digging investigation pits and boreholes all over the intended Site. However, it is recognised that the information provided by the Employer will probably not be the only information available: there may be other records available from public sources which are not in his possession. It is up to the Contractor to obtain sight of any such additional records and make any other investigations he deems necessary to understand everything which could affect his obligations under the Contract. This could include data affecting his design criteria in the form of ‘codes of practice’ and other design standards, safety regulations, on-site procedures, location of quarries, etc., accommodation facilities and medical arrangements. He needs to be satisfied that his price covers all of these. However, this requirement is tempered by the statement “To the extent which was practicable (taking account of cost and time) ….......”. In other words, bearing in mind that only one tenderer will be awarded the Contract and be in position to recover his tendering costs, it is not reasonable, either time-wise or cost-wise, to expect all tenderers to undertake major and expensive Site and other investigations, even if such were physically possible. 4.11
Sufficiency of the Accepted Contract Amount The Contractor shall be deemed to: (a) have satisfied himself as to the correctness and sufficiency of the Accepted Contract Amount, and (b) have based the Accepted Contract Amount on the data, interpretations, necessary information, inspections, examinations and satisfaction as to all relevant matters referred to in Sub-Clause 4.10 [Site Data], and any further data relevant to the Contractor’s design. The Accepted Contract Amount covers all the Contractor’s obligations under the Contract (including those under Provisional Sums, if any) and all things necessary for the proper design, execution and completion of the Works, the reme dying of any defects and the provision of the Operation Service. This Sub-Clause simply emphasizes that the Accepted Contract Amount (see Definition 1.1.1) covers all of the Contractor’s obligations, including those covered in Sub-Clause 4.10 [Site Data].
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4.12
Unforeseeable Physical Conditions In this Sub-Clause, “physical conditions” means natural physical conditions and man-made and other physical obstructions and pollutants, which the Contractor encounters at the Site when executing the Works, including sub-surface and hydrological conditions but excluding climatic conditions. If the Contractor encounters adverse physical conditions which he considers to have been Unforeseeable, the Contractor shall give Notice to the Employer’s Representative as soon as practicable. This Notice shall describe the physical conditions, so that they can be inspected by the Employer’s Representative, and shall set out the reasons why the Contractor considers them to be Unforeseeable. The Contractor shall continue executing the Works, using such proper and reasonable measures as are appropriate for the physical conditions, and shall comply with any instructions which the Employer’s Representative may give. If an instruction constitutes a Variation, Clause 13 [Variations and Adjustments] shall apply. If and to the extent that the Contractor encounters physical conditions which are Unforeseeable, gives such a Notice, and suffers delay and/or incurs cost due to these conditions, the Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub- Sub-Clause 9.3 [Extension of Time for Completion of Design-Build ], and (b) payment of any such Cost, which shall be included in the Contract Price. After receiving such Notice and inspecting and/or investigating these physical conditions, the Employer’s Representative shall proceed in accordance with SubClause 3.5 [Determinations] to agree or determine (i) whether and (if so) to what extent these physical conditions were Unforeseeable, and (ii) the matters described in sub-paragraphs (a) and (b) above. However, before additional Cost is finally agreed or determined under subparagraph (ii), the Employer’s Representative may also review whether other physical conditions in similar parts of the Works (if any) were more favourable than could reasonably have been foreseen when the Contractor submitted the Tender. If and to the extent that these more favourable conditions were encountered, the Employer’s Representative may proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine the reductions in Cost which were due to these conditions, which may be included (as deductions) in the Contract Price and Payment Certificates. However, the net effect of all adjustments under subparagraph (b) and all these reductions, for all the physical conditions encountered in similar parts of the Works, shall not result in a net reduction in the Contract Price. The Employer’s Representative may take account of any evidence of the physical conditions foreseen by the Contractor when submitting the Tender, which may be made available by the Contractor, but shall not be bound by any such evidence. The first paragraph describes what is meant by ‘physical conditions’, and by referring to the Site, such conditions must occur on the Site (see Definition 1.1.72). If the conditions occur in a place or at a location which is not encompassed by the definition of Site, then the condition is not a ‘physical condition within the meaning of this Sub-Clause. The se cond paragraph describes the action which the Contractor is required to take if he considers that he has encountered such a condition which was Unforeseeable. It is important to look at the definition of ‘Unforeseeable’ (see Definition 1.1.80), since it does not mean that the Contractor himself did not or could not foresee the condition. It means that it was not reasonably foreseeable by an experienced contractor, i.e., a contractor experienced in the type of work covered by the Contract. Having given Notice to the Employer’s Representative, and unless the conditions encountered are considered to be an Exceptional Event (see Definition 1.1.37), in which case the Parties are referred to Clause 18 [Exceptional Risks], the Contractor shall continue © FIDIC 2011
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with executing the Works, and at the same time comply with any instructions which the Employer’s Representative may issue. If any instruction constitutes a Variation, then the Contractor is entitled to proceed in accordance with Clause 13 [Variations and Adjustments] and claim additional time and money, if appropriate. Upon receiving the Notice from the Contractor the Employer’s Representative must fairly determine (hence the reference to Sub-Clause 3.5 [Determinations]) whether the condition or event was indeed Unforeseeable and, if so, fairly determine the compensation and/or time extension due. It should be noted that not all Unforeseeable events or conditions are adverse, and the Contractor may encounter conditions which were more favourable than he could reasonably have anticipated, for example, rock conditions which allowed twice the rate of excavation than the Contractor had anticipated when preparing his Programme. In such a case, in the event that the Contractor subsequently meets further adverse conditions in similar parts of the Works which he considers were Unforeseeable and submits a Notice, the Employer’s Representative may take account of the effect of the more favourable conditions previously encountered by the Contractor when making his determination. This is a very fair provision, but the Contractor cannot lose because however favourable the conditions may prove to be, the total effect cannot result in a reduction in the Contract Price. 4.13
Rights of Way and Facilities The Contractor shall bear all costs and charges for special and/or temporary rightsof-way which he may require, including those for access to the Site. The Contractor shall also obtain, at his risk and cost, any additional facilities outside the Site which he may require for the purposes of the Works. Whilst under Sub-Clause 2.1 [Right of Access to the Site], the Employer gives the Contractor ‘right of access’ to the Site, and under Sub-Clause 4.15 [Access Route], the Contractor is responsible for making sure that such access is s uitable for his needs, this Sub-Clause 4.13 is dealing with the possible need of the Contractor for additional or special rights-of-way, for example for his camp or workshop area, which is outside the defined area of the Site. In such cases the Contractor is fully responsible for obtaining all permissions and paying all costs and land rents, etc., associated with such rights-of-way and access.
4.14
Avoidance of Interference The Contractor shall not interfere unnecessarily or improperly with: (a) the convenience of the public, or (b) the access to and use and occupation of all roads and footpaths, irrespective of whether they are public or in the possession of the Employer or of others. The Contractor shall indemnify and hold the Employer harmless against and from all damages, losses and expenses (including legal fees and expenses) resulting from any such unnecessary or improper interference. This is a fair requirement for the Contractor to be responsible for the way he uses public roads and facilities including indemnifying the Employer, especially as many claims from the public may well be directed to the Employer in such cases. However, if damage occurs which is unavoidable due to the nature of the work which the Contractor is performing under the Contract, then by Sub-Clause 17.3(b)(i), the Employer may be required to indemnify the Contractor against any such damage.
4.15
Access Route The Contractor shall be deemed to have been satisfied as to the suitability and availability of access routes to the Site. The Contractor shall use reasonable efforts to prevent any road or bridge from being damaged by the Contractor’s traffic or by
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the Contractor’s Personnel. These efforts shall include the proper use of appropriate vehicles and routes. Except as otherwise stated in these Conditions: (a) the Contractor shall (as between the Parties) be responsible for any maintenance which may be required as a result of his use of access routes; (b) the Contractor shall provide all necessary signs or directions along access routes, and shall obtain any permission which may be required from the relevant authorities for his use of routes, signs and directions; (c) the Employer shall not be responsible for any claims which may arise from the use or otherwise of any access route; (d) the Employer does not guarantee the suitability or availability of particular access routes; and (e) Costs due to non-suitability or non-availability, for the use required by the Contractor, of access routes shall be borne by the Contractor. Under Sub-Clause 2.1 [Right of Access to the Site], the Employer is required to give the Contractor ‘right-of-access’ to the Site such that the Contractor is legally entitled to go onto the Site. Such right must include the means of reaching the Site and is referred to in this Sub-Clause as ‘access routes’. Since the Employer cannot know what plant and equipment, etc., the Contractor will wish to transport along the access route, it is up to the Contractor (during his Site inspection under Sub-Clause 4.10 [Site Data]) to ascertain what, if any, upgrading or strengthening work will be necessary on the roads and bridges he will be using, and their proper maintenance. 4.16
Transport of Goods Unless otherwise stated in the Particular Conditions: (a) the Contractor shall give Notice to the Employer’s Representative not less than 21 days prior to the date on which any Plant or a major item of other Goods will be delivered to the Site; and (b) the Contractor shall be responsible for packing, loading, transporting, receiving, unloading, storing and protecting all Goods and other things required for the Works or provision of Operation Service; and (c) the Contractor shall indemnify and hold the Employer harmless against and from all damages, losses and expenses (including legal fees and expenses) resulting from the transport of Goods, and shall negotiate and pay all claims arising from their transport. On some projects with, for example, Plant deliveries being made to an existing Employer owned facility, it will be necessary for the Employer to have delivery details of Plant and Goods so that appropriate arrangements can be made to receive them. For some projects the Employer may change the requirements of this Sub-Clause in the Particular Conditions Part B, such that approval of the delivery conditions is made as a pre-requisite before delivery will be permitted. Damage to any part of the access route or public roads during transportation is covered in Sub-Clause 4.15 [Access Route].
4.17
Contractor’s Equipment The Contractor shall be responsible for all Contractor’s Equipment. When brought on to the Site, Contractor’s Equipment shall be deemed to be exclusively intended for the execution of the Works and provision of the Operation Service. The Contractor shall not remove from the Site any major items of Contractor’s Equipment without the consent of the Employer’s Representative. However, consent shall not be required for vehicles transporting Goods or Contractor’s Personnel off Site. Contractor’s Equipment, which includes equipment brought onto the Site by Subcontractors, is exclusively intended to be used for the execution of the Works on the Site and its use for this purpose is paid for in the Contract Price. There is therefore a control, in the form © FIDIC 2011
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of consent from the Employer’s Representative, as to when major items may be removed from the Site. However, by Sub-Clause 1.3 [Notices and Other Communications], any such consent cannot be unreasonably withheld. 4.18
Protection of the Environment The Contractor shall take all reasonable steps to protect the environment (both on and off the Site) and to limit damage and nuisance to people and property resulting from pollution, noise and other results of his operations. The Contractor shall ensure that emissions, surface discharges and effluent from the Contractor’s activities shall not exceed the values indicated in the Employer’s Requirements, and shall not exceed the values prescribed by applicable Laws. This Sub-Clause relates to noise and nuisance resulting from the Contractor’s activities and methods of working, rather than noise emanating from the facility he is constructing. Even if the Employer’s Requirements do not give any permitted maximum pollution or noise levels, the Contractor must still work within the limits prescribed by law, and he still has a duty to avoid nuisance to the public.
4.19
Electricity, Water and Gas Except as stated below, the Contractor shall be responsible for the provision of all electricity, water and other services he may require. The Contractor shall be entitled to use for the purposes of the Works and provision of the Operation Service such supplies of electricity, water, gas and other services as may be available on the Site and of which details are given in the Employer’s Requirements. In such a case the Contractor shall take over in his own name and shall be responsible for payment of the electricity, water, gas and other services to the utility provider. The Contractor will be allowed to take over the existing service entry and provision points and shall be responsible for taking and recording such information as is necessary for the utility providers to correctly charge the Contractor from the Commencement Date. Very often there are service facilities available, owned by the Employer, on the Site where the Works are being carried out. In such cases such services may or may not be available for use by the Contractor during the performance of the Contract. If they are, clear details of availability (e.g., power available, daily consumption of water permissible) should be given in the Employer’s Requirements, together with any restrictions, so that the Contractor knows what is available and what he is required to provide himself. If the Employer requires payment (rather than the Contractor paying the service provider directly), then details should also be given in the Employer’s Requirements.
4.20
Employer’s Equipment and Free-Issue Materials The Employer shall make the Employer’s Equipment (if any) available for the use of the Contractor in the execution of the Works in accordance with the details, arrangements and prices stated in the Employer’s Requirements. Unless otherwise stated in the Employer’s Requirements: (a) the Employer shall be responsible for the Employer’s Equipment, except that (b) the Contractor shall be responsible for each item of Employer’s Equipment whilst any of the Contractor’s Personnel is operating it, driving it, directing it or in possession or control of it. The appropriate quantities and the amounts due (at such stated prices) for the use of Employer’s Equipment shall be agreed or determined by the Employer’s Representative in accordance with Sub-Clause 20.2 [Employer’s Claims] and Sub- Clause 3.5 [Determinations]. The Contractor shall pay these amounts to the Employer.
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The Employer shall supply, free of charge, the “free-issue materials” (if any) in accordance with the details stated in the Employer’s Requirements. The Employer shall, at his risk and cost, provide these materials at the time and place specified in the Contract. The Contractor shall then visually inspect them, and shall promptly give Notice to the Employer’s Representative of any shortage, defect or default in these materials. Unless otherwise agreed by both Parties, the Employer shall immediately rectify the notified shortage, defect or default. After this visual inspection, the free-issue materials shall come under the care, custody and control of the Contractor. The Contractor’s obligations of inspection, care, custody and control shall not relieve the Employer of liability for any shortage, defect or default not apparent from a visual inspection. Similar to Sub-Clause 4.19 [Electricity, Water and Gas], this Sub-Clause covers Employer’s Equipment which the Employer may choose to make available to the Contractor. For example there may be Employer’s transport facilities or Employer’s cranes which he is prepared to allow the Contractor to use. Full details, including any restrictions and periods of non-availability should be given in the Employer’s Requirements, together with any particular requirements or regulations regarding their use. If the Employer is supplying any free-issue materials, these need to be listed in the Employer’s Requirements. However, notwithstanding any visual inspection of such materials, if there is any defect or fault which could not be seen from the visual inspection, the Employer is responsible and liable for correcting the defect or fault. This would also cover the situation where a free-issue material did not prove to be ‘fit for purpose’ (see Sub-Clause 4.1 [Contractor’s General Obligations]). 4.21
Progress Reports During the Design-Build Period, monthly progress reports, in a format agreed with the Employer’s Representative shall be prepared by the Contractor and submitted to the Employer’s Representative in one original and five copies, unless otherwise stated in the Employer’s Requirements. The first report shall cover the period up to the end of the first calendar month following the Commencement Date. Reports shall be submitted monthly thereafter, each within 7 days after the last day of the period to which it relates. Reporting on progress shall continue until the Contractor has received the Contract Completion Certificate. Details of the content of the progress reports for the Design-Build Period and the Operation Service Period shall be as specified in the Employer’s Requirements. Unless otherwise stated or agreed, each progress report shall include: (a) charts and detailed descriptions of progress, including each stage of design, Contractor’s Documents, procurement, manufacture, delivery to Site, construction or replacement, erection, testing, commissioning, trial operation and provision of Operation Service; (b) photographs showing the status of manufacture or replacement and of progress on the Site; (c) for the manufacture or replacement of each main item of Plant and Materials, the name of the manufacturer, manufacture location, percentage progress, and the actual or expected dates of: (i) commencement of manufacture, (ii) Contractor’s inspections, (iii) tests, and (iv) shipment and arrival at the Site; (d) the details described in Sub-Clause 6.10 [Records of Contractor’s Personnel and Equipment ]; (e) copies of quality assurance documents, test results and certificates of Materials; (f) list of Variations, Notices given under Sub-Clause 20.1 [Contractor’s Claims] and Notices given under Sub-Clause 20.2 [Employer’s Claims]; © FIDIC 2011
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(g) safety statistics, including details of any hazardous incidents and activities relating to environmental aspects and public relations; and (h) comparisons of actual and planned progress, with details of any events or circumstances which may jeopardise the completion in accordance with the Contract, and the measures being (or to be) adopted to overcome delays. The particular reporting requirements during the Operation Service Period shall be as specified in the Employer’s Requirements. This Sub-Clause requires the Contractor to submit Progress Reports on a monthly basis during the Design-Build Period. The main requirement is that the format of the Progress Reports shall be agreed with the Employer’s Representative – in other words, the Employer’s Representative will say what he wants and when he wants it, and the Contractor will submit Reports accordingly. Alternatively, the format can be detailed in the Employer’s Requirements. In either case there is a suggested list of matters which should be covered in the Progress Report, and it is a useful guideline as to what should be included. Although reporting is to continue until the issue of the Contract Completion Certificate, i.e., at the end of the Operation Service Period, it is recognised that the format of the Progress Report will need to be substantially modified during the Operation Service Period, and the required format will either need to be given in the Employer’s Requirements or agreed between the Parties, but clearly the reporting requirements will differ between constructional reporting and operational reporting. 4.22
Security of the Site The Contractor shall be responsible for the security of the Site. Unless otherwise stated in the Particular Conditions: (a) the Contractor shall be responsible for keeping unauthorised persons off the Site; and (b) authorised persons shall be limited to the Contractor’s Personnel and the Employer’s Personnel, and to any other personnel notified to the Contractor, by the Employer or the Employer’s Representative, as authorised personnel of the Employer’s other contractors on the Site. Security against trespass, theft and any other unlawful presence or activity, is the responsibility of the Contractor, and this Sub-Clause should be read in conjunction with Sub-Clause 4.8 [Safety Procedures]. If the Site is an existing property or facility under the ownership of the Employer, the Employer may wish to amend this Sub-Clause and accept responsibility for security. Such amendment should be made in the Particular Conditions Part B.
4.23
Contractor’s Operations on Site The Contractor shall confine his operations to the Site, and to any additional areas which may be obtained by the Contractor and agreed by the Employer’s Representative as working areas. The Contractor shall take all necessary precautions to keep Contractor’s Equipment and Contractor’s Personnel within the Site and these additional areas, and to keep them off adjacent land. At all times the Contractor shall keep the Site free from all unneces sary obstruction, and shall store or dispose of any Contractor’s Equipment or surplus materials. The Contractor shall promptly clear away and remove from t he Site any surplus material, wreckage, rubbish and Temporary Works which are no longer required. Upon the issue of a Commissioning Certificate, the Contractor shall clear away and remove, from that part of the Site and Works to which the Commissioning Certificate refers, all Contractor’s Equipment, surplus material, wreckage, rubbish and Temporary Works. The Contractor shall leave that part of the Site and the Works in a clean and safe condition.
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The Contract Completion Certificate shall not be issued until the Contractor has removed any remaining Contractor’s Equipment, surplus material, wreckage, rubbish and Temporary Works from the Site which are not required. The Contractor shall leave the Site and the Works in a clean and safe condition. Where the Site is surrounded by property owned by other land-owners, it is important that the Contractor restricts his activities to the land which he is authorised to occupy and use, i.e., the Site. This Sub-Clause is not only intended to minimise inconvenience to local land and property owners, but it should also be read in conjunction with Sub-Clauses 4.14 [Avoidance of Interference] and 4.18 [Protection of the Environment ]. 4.24
Fossils All fossils, coins, articles of value or antiquity, and structures and other remains or items of geological or archaeological interest found on the Site shall be placed under the care and authority of the Employer. The Contractor shall take reasonable precautions to prevent Contractor’s Personnel or other persons from removing or damaging any of these findings. The Contractor shall, upon discovery of any such finding, promptly give Notice to the Employer’s Representative, who shall issue instructions for dealing with it. If the Contractor suffers delay and/or incurs cost from complying with the instructions, the Contractor shall give a further Notice to the Employer’s Representative and shall be entitled, subject to Sub-Clause 20.1 [Contractor’s Claims], to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 9.3 [Extension of Time for Completion of Design-Build ]; and (b) payment of any such Cost, which shall be included in the Contract Price. After receiving this further Notice, the Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. Usually fossils and other antiquities are the property of the State. If any such articles are found on the Site during the life of the Contract, they are put under the care and responsibility of the Employer, and it is the Employer’s Representative who must find out from the appropriate authorities what needs to be done, and instruct the Contractor accordingly. Very often such discoveries result in delays and investigations, and if the Contractor suffers cost or delay, he is entitled to additional time and additional Cost. Note that since the occurrence was not caused by the Employer, there is no entitlement to profit, so the Contractor is only entitled to Cost (see comments to Definitions 1.1.23 and 1.1.24).
4.25
Changes in the Contractor’s Financial Situation If the Contractor becomes aware of any change in the Contractor’s financial situation which will or could adversely affect his ability to complete and fulfil all his obligations under the Contract, he shall immediately give Notice to the Employer with detailed particulars. Within 28 days of receiving such Notice, the Employer shall advise the Contractor of what action he intends to take and/or what action the Employer requires the Contractor to take. In any event, the Contractor shall provide the Employer annually with his audited financial statements and reports. Similar to the provisions to be found in Sub-Clause 2 .4 [Employer’s Financial Arrangements], where the Employer is obliged to inform the Contractor of any changes to the financial arrangements he has made for financing the project, this Sub-Clause requires the Contractor to inform the Employer if he (the Contractor) becomes aware of any change in the Contractor’s financial situation which could adversely affect his ability to complete the Works and the Operation Service. Note that if the Contractor is a joint venture, then this requirement will apply to all members of the joint venture. On receiving this Notice the Employer has the right to consider the circumstances and the Contractor’s potential ability © FIDIC 2011
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to complete his obligations under the Contract, and take action accordingly. Such action could be moves to improve the Contractor’s cash flow by perhaps changing the payment provisions, or, if it is a very serious situation from which the Employer concludes that the Contractor will not be able to recover or complete the Works, the Employer may terminate the Contract under Sub-Clause 15.2(e).
Clause 5
Design Although the General Conditions only refer to ‘the design of the Works’, the design generally comprises various stages as the project develops from conception to reality. The first stage, or conceptual design (if any), will usually be included in the Employer’s Requirements and will be a simple layout with possibly basic dimensions and defined criteria to identify the Works sufficiently for tenderers to be able to understand and develop the requirements in order to prepare a responsive tender. The second stage will usually be some form of preliminary design prepared by the tenderer and included in the tender to demonstrate his understanding of the Employer’s Requirements and his proposals for meeting those requirements. The level of detail required in the preliminary design should be stated in the tender documents but it should be limited to that necessary for the Employer to be able to understand the offer from the tenderer. Tenderers should not be asked for an elaborate detailed design at this stage since this would be very expensive to produce, and a waste of money for all except the successful tenderer. The final design stage is that made by the Contractor as part of his obligations under the Contract. Unless any changes have been agreed prior to the Contract award this will usually be a development of his preliminary design and will become a part of the Contractor’s Documents (see Definition 1.1.19). The provisions in this Clause 5 relate to this final design stage and the Contractor’s obligations under the Contract.
5.1
General Design Obligations The Contractor shall carry out, and be responsible for, the design of the Works. Design shall be prepared by qualified designers who are engineers or other professionals who comply with the criteria (if any) stated in the Employer’s Requirements. Unless otherwise stated in the Contract, the Contractor shall submit to the Employer’s Representative for consent the name and particulars of each proposed designer and design Subcontractor. The Contractor warrants that he, his designers and design Subcontractors have the experience and capability necessary for the design. The Contractor undertakes that the designers shall be available to attend discussions with the Employer’s Representative at all reasonable times. Upon receiving Notice under Sub-Clause 8.1 [Commencement Date], the Contractor shall scrutinise the Employer’s Requirements (including design criteria and calculations, if any) and the items of reference mentioned in Sub-Clause 4.7 [Setting Out ]. Within the period stated in the Contract Data, calculated from the Commencement Date, the Contractor shall give Notice to the Employer’s Representative of any error, fault or other defect found in the Employer’s Requirements or these items of reference. After receiving this Notice, the Employer’s Representative shall determine whether Clause 13 [Variations and Adjustments] shall be applied, and shall give Notice t o the Contractor accordingly. If and to the extent that (taking account of cost and time) an experienced contractor exercising due care would have discovered the error, fault
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or other defect when examining the Site and the Employer’s Requirements before submitting the Tender, the Time for Completion shall not be extended and the Contract Price shall not be adjusted. If the Contractor finds any error, fault or other defect in the Employer’s Requirements after the period stated in the Contract Data, then Sub-Clause 1.10 [Errors in the Employer’s Requirements] shall be applicable. The Contract assumes that the full responsibility and liability for the design lies with the Contractor. However, if the Employer’s Requirements contain any immutable provisions or require that any part of the design (e.g., plant foundations) be carried out by a third party (e.g. by a local building contractor), then the responsibility for those provisions or parts must be clearly separated from the general responsibilities of the Contractor under this SubClause. However if such third party is desig nated as a nominated designer (Nominated Subcontractor), then according to the provisions of Sub-Clauses 4.4 [Subcontractors] and 4.5 [Nominated Subcontractors], responsibility for the design will remain with the Contractor. Although the Contractor has a general ‘fitness for purpose’ obligation under Sub-Clause 4.1 [Contractor’s General Obligations] which includes his responsibility to see that his design is also ‘fit for purpose’, it may be difficult for the Contractor to obtain professional liability insurance (PLI) to cover this obligation. Very often PLI will only cover ‘due care and diligence’ which is not the same as ‘fitness for purpose’. However, this does not relieve the Contractor of his overall obligation. He must accept the additional risk in ensuring that he fulfils the requirement that the Works will be ‘fit for purpose’. There is a requirement that the Contractor’s designers and design subcontractors shall be subject to the consent of the Employer’s Representative, but again, any such consent does not relieve the Contractor of any of his design responsibilities. There are three stages of scrutiny of the Employer’s Requirements. The first covers errors which an experienced contractor would have discovered during the tendering process. These should have been brought to the atte ntion of the Employer during tendering and any corrective action required by the Employer would have been circulated to all tenderers in the form of an addendum to the tender documents so that all tenders would be based on the same amended tender documents. The second stage of scrutiny occurs after the award of the Contract. After receiving the Notice to commence the Works, the Contractor has a set time (given in the Contract Data) in which to scrutinise the Employer’s Requirements and search for any fault, error or defect. The purpose of this provision is to require the Contractor, with his experience of similar Works, to see if there are any obvious errors or faults in the Employer’s Requirement of which the Employer may not have been aware and which the Contractor did not discover or could not reasonably have discovered during the tendering process. If the Contractor discovers any such errors or faults, he is required to give Notice to the Employer’s Representative, and the Employer’s Representative will decide what needs to be done. The third stage comes after the second stage scrutiny period, when any fault or error discovered in the Employer’s Requirements is dealt with in accordance with the provisions of Sub-Clause 1.10 [Errors in the Employer’s Requirements]. Normally any faults or errors in the Employer’s Requirements are the responsibility of the Employer, unless it can be reasonably determined that an experienced contractor would or should have discovered them during the first two stages of scrutiny. Note again, that the judgement to be made is whether the errors could have been discovered by an ‘experienced’ contractor. 5.2
Contractor’s Documents The Contractor’s Documents shall comprise the technical documents specified © FIDIC 2011
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in the Employer’s Requirements, documents required to satisfy all regulatory approvals, and the documents described in Sub-Clause 5.5 [As-Built Documents] and Sub-Clause 5.6 [Operation and Maintenance Manuals]. Unless otherwise stated in the Employer’s Requirements, the Contractor’s Documents shall be written in the language for communications defined in Sub-Clause 1.4 [Law and Language]. The Contractor shall prepare all Contractor’s Documents, and shall also prepare any other documents necessary to instruct the Contractor’s Personnel. The Employer’s Personnel shall have the right to inspect the preparation of all these documents, wherever they are being prepared. If the Employer’s Requirements describe the Contractor’s Documents which are to be submitted to the Employer’s Representative for review leading to consent and/or for approval, they shall be submitted accordingly, together with a Notice as described below. The Employer’s Representative gives his consent to a document when he is satisfied that the Contractor’s Documents conform to the Employer’s Requirements. In the following provisions of this Sub-Clause, (i) “review period” means the period required by the Employer’s Representative for review leading to consent and (if so specified) for approval, and (ii) “Contractor’s Documents” exclude any documents which are not specified as being required to be submitted for review leading to consent and/or for approval. The Contractor’s Documents which require approval from the Employer’s Representative shall be as listed in the Contract Data. Unless otherwise stated in the Employer’s Requirements or agreed with the Employer’s Representative, each review period shall not exceed 21 days, calculated from the date on which the Employer’s Representative receives a Contractor’s Document and the Contractor’s Notice. This Notice shall state that the Contractor’s Document is considered ready for review leading to either approval (if so specified) or consent with regard to conformity with the Employer’s Requirements, in accordance with this Sub-Clause and for use. The Notice shall also state that the Contractor’s Document complies with the Contract, or the extent to which it does not comply. The Employer’s Representative may, within the review period, give Notice to the Contractor that a Contractor’s Document fails (to the extent stated) to conform with the Contract. If a Contractor’s Document so fails to conform, it shall be rectified, resubmitted and reviewed (and, if specified, approved) in accordance with this Sub-Clause, at the Contractor’s cost. If such re-submission and review causes the Employer to incur additional costs, the Contractor shall, subject to Sub-Clause 20.2 [Employer’s Claims], pay these costs to the Employer. For each part of the Works, and except to the extent that the prior approval or consent of the Employer’s Representative shall have been obtained: (a) in the case of a Contractor’s Document which has (as specified) been submitted for the Employer’s Representative’s approval or consent: (i) the Employer’s Representative shall give Notice to the Contractor that the Employer’s Representative gives his consent that the Contractor’s Document conforms with the Employer’s Requirements or is approved, or that it does not (to the extent stated) comply with the Contract; (ii) execution of such part of the Works shall not commence until the Employer’s Representative has either approved or given his consent t o the Contractor’s Document; and (iii) the Employer’s Representative shall be deemed to have approved the Contractor’s Documents or given his consent that the Contractor’s Documents conform to the Employer’s Requirements upon the expiry of the review periods for all the Contractor’s Documents which are relevant to the design and execution of such part, unless the Employer’s Representative has previously notified otherwise in accordance with sub-paragraph (i); (b) execution of such part of the Works shall not commence prior to the expiry of the review periods for all the Contractor’s Documents which are relevant to its design and execution; (c) execution of such part of the Works shall be in accordance with those
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Contractor’s Documents for which the Employer’s Representative has given his consent as to the conformity with the Employer’s Requirements, (and, if specified, approved); and (d) if the Contractor wishes to modify any design or document which has previously been submitted for review (and, if specified, approval), the Contractor shall immediately give Notice to the Employer’s Representative, accompanied by a written explanation of the need for such modification. Thereafter, the Contractor shall submit revised documents to the Employer’s Representative in accordance with the above procedure. Any such consent and/or approval (where specified) (under this Sub-Clause or otherwise) shall not relieve the Contractor from any obligation or responsibility. By definition, the Contractor’s Documents include “the calculations, computer programs and other software, drawings, manuals, models and other documents of a technical nature supplied by the Contractor under the Contract”. In other words everything of a technical nature which the Contractor is required to produce in connection with the Contract. In addition to the listed items, there will be documents which are specified in the Employer’s Requirements; documents required to satisfy regulatory approvals or consents; there will be as-built documentation to be provided under Sub-Clause 5.5 [Technical Standards and Regulations]; and there will be operation and maintenance manuals to be provided under Sub-Clause 5.6 [Operation and Maintenance Manuals]. All these, and any other documents of a technical nature which the Contractor is required to provide are separately and collectively known as Contractor’s Documents. The Contractor’s Documents must be in a language which is acceptable to the Employer and the persons who will be using the documents and, unless otherwise stated, that shall be the language for communications given in the Contract Data (Sub-Clause 1.4 [Law and Language]). As these documents form such an important part of the work to be done by the Contractor, the Contract gives the Employer’s Representative and/or his Personnel, the right to inspect, review, comment upon and give consent to the Contractor’s Documents, and the Contractor is not permitted to proceed until such consent is given. If the Contractor wishes to change or amend the Contractor’s Documents after they have been consented to by the Employer’s Representative, the Contractor is required to re-submit the amended document for consent before it can be used. Any consent (or where specified, approval or review) shall not relieve the Contractor of any of his responsibilities as to the correctness of such documents and his ultimate obligation that the Works will be ‘fit for purpose’. 5.3
Contractor’s Undertaking If the Employer’s Representative reasonably instructs that further Contractor’s Documents are required, the Contractor shall prepare them promptly at his own cost. The Contractor undertakes that the design, the Contractor’s Documents, the execution and the completed Works will be in accordance with: (a) the Laws of the Country; and (b) the documents forming the Contract, as altered or modified by Variations. Since the Contractor is responsible for producing the Contractor’s Documents, he is also responsible to see that they comply with the requirements of any law or by-law or other legislation or regulation which may apply to the design or construction or use and operation of the Works. He is also responsible for ensuring that the provisions contained in the Contractor’s Documents do not conflict with or compromise any other documents forming the Contract, and when a Variation is issued he must also ensure that the introduction of the Variation will also meet these requirements. © FIDIC 2011
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5.4
Technical Standards and Regulations Unless otherwise stated, the design, the Contractor’s Documents, the execution and the completed Works shall comply with the Country’s technical standards, building, construction and environmental Laws, Laws applicable to the product being produced from the Works, and other standards specified in the Employer’s Requirements, applicable to the Works, or defined by the applicable Laws. All these Laws shall, in respect of the Works and each Section, be those prevailing when the Commissioning Certificate is issued in accordance with Sub-Clause 11.7 [Commissioning Certificate]. References in the Contract to published standards shall be understood to be references to the edition applicable on the Base Date, unless stated otherwise. If changed or new applicable standards come into force in the Country after the Base Date, the Contractor shall give Notice to the Employer’s Representative and (if appropriate) submit proposals for compliance. In the event that: (a) the Employer’s Representative determines that compliance is required; and (b) the proposals for compliance constitute a variation, then the Employer’s Representative shall initiate a Variation in accordance with Clause 13 [Variations and Adjustments]. This requirement is similar to the preceding Sub-Clause in respect of compliance with laws and regulations, etc. However, the Works must comply with all the listed requirements at the time the Commissioning Certificate is issued. This ties in with the requirement in the preceding Sub-Clause that also Variations must also comply with all laws and regulations etc. In the event that new standards or regulations come into force after the Base Date (see Definition 1.1.5), the Employer’s Representative must decide how these are to be handled or incorporated, and if this involves a Variation, this must be issued in accordance with Clause 13 [Variations and Adjustments].
5.5
As-Built Documents The Contractor shall prepare, and keep up-to-date, a complete set of “as-built” records of the execution of the Works, showing the exact as-built locations, sizes and details of the work as executed. These records shall be kept on the Site and shall be used exclusively for the purposes of this Sub-Clause. At least two copies shall be supplied to the Employer’s Representative prior to the commencement of the Tests on Completion of Design-Build. In addition, the Contractor shall supply to the Employer’s Representative as-built drawings of the Works, showing all Works as executed, and submit them to the Employer’s Representative for review under Sub-Clause 5.2 [Contractor’s Documents]. The Contractor shall obtain the consent of the Employer’s Representative as to their size, the referencing system, and other relevant details. Prior to the issue of the Commissioning Certificate, the Contractor shall supply to the Employer’s Representative the specified numbers and types of copies of the relevant as-built drawings, in accordance with the Employer’s Requirements. The relevant work shall not be considered to be completed for the purposes of issuing the Commissioning Certificate under Sub-Clause 11.7 [Commissioning Certificate] until the Employer’s Representative has received these documents. Since there can be differing opinions as to what constitutes ‘as-built drawings’ it would be wise for the Employer to specify in the Employer’s Requirements, exactly what he requires both as regards details, scales and numbers. According to Sub-Clause 5.2 [Contractor’s Documents], as-built drawings come under the category of Contractor’s Documents, and they will thus need the Employer’s Representative’s consent before being accepted. It is important for the Contractor to commence the preparation of as-built drawings in good time since not only do they require ‘consent’ as mentioned above, but the Employer’s Representative will not issue the Commissioning Certificate until he has a complete set of these documents.
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5.6
Operation and Maintenance Manuals Prior to the commencement of the Commissioning Period, the Contractor shall supply to the Employer’s Representative two copies of all operation and maintenance manuals in sufficient detail for the Employer to operate, maintain, dismantle, reassemble, adjust and repair the Plant and the Works. The Contractor shall supply the balance of the required operation and maintenance manuals prior to the issue of the Commissioning Certificate. The Works or any Section shall not be considered to be completed for the purposes of issuing the Commissioning Certificate under Sub-Clause 11.7 [Commissioning Certificate] until the Employer’s Representative has received these documents. Similar to the provisions of Sub-Clause 5.5 [As-Built Documents] regarding ‘as-built drawings’, the Employer’s Representative will not issue the Commissioning Certificate until he has received two copies of the operation and maintenance manuals. Again, the Employer should consider giving full details of what he requires in the Employer’s Requirements, including the language in which he requires the manuals to be produced. 5.1
Design Error If errors, omissions, ambiguities, inconsistencies, inadequacies or other defects are found in the Contractor’s Documents, they and the Works shall be corrected at the Contractor’s cost, notwithstanding any consent or approval under this Clause. This Sub-Clause covers errors in the Contractor’s Documents. Sub-Clause 1.10 [Errors in the Employer’s Requirements] covers errors in the Employer’s Requirements. This SubClause also reiterates the principle that consent or approval of any document does not relieve the Contractor of his overall responsibility for the correctness of the document.
Clause 6
Staff and Labour Sub-Clauses 6.1 to 6.7 of this Clause deal with the Contractor’s basic obligations with regard to the employment of labour, working hours and matters concerning health and safety. All such arrangements are the responsibility of the Contractor, but there are certain restrictions and conditions which he must abide by. In particular he must comply in all respects with the local labour laws, which is a requirement consistent with the provisions of Sub-Clause 1.14, which is the overall requirement for the Contractor to comply with all laws and regulations, etc. In respect of working hours, the Contractor is required to respect the normal hours given in the Contract Data and also locally recognised days of rest, which will usually include locally recognised religious holidays and festivals. This Clause recognises that the provision of the Operation Service is not restricted by ‘normal working hours or locally recognised days of rest’, and the Employer’s Requirements or the Operation Management Requirements (see Definition 1.1.55) should give details of what is required and/or permissible. The Contractor is also required to provide facilities for the Employer’s Personnel, which includes the Employer’s Representative, and the Employer should make sure that details of his requirements (e.g., office space and furnishings) are given in the Employer’s Requirements so that Contractor can allow for providing such facilities when preparing his tender.
6.1
Engagement of Staff and Labour Except as otherwise stated in the Employer’s Requirements, the Contractor shall make arrangements for the engagement of all staff and labour, local or otherwise, and for their payment, housing, feeding and transport. © FIDIC 2011
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6.2
Rates of Wages and Conditions of Employment The Contractor shall pay rates of wages and observe conditions of labour which are not lower than those established for the trade or industry where the work is carried out. If no established rates or conditions are applicable, the Contractor shall pay rates of wages and observe conditions which are not lower than the general level of wages and conditions observed locally by employers whose trade or industry is similar to that of the Contractor.
6.3
Persons in the Service of Employer The Contractor shall not recruit, or attempt to recruit, staff and labour from amongst the Employer’s Personnel.
6.4
Labour Laws The Contractor shall comply with all the relevant labour Laws applicable to the Contractor’s Personnel, including Laws relating to their employment, health, safety, welfare, immigration and emigration, and shall allow them all their legal rights. The Contractor shall require the Contractor’s Personnel to obey all applicable Laws, including those concerning safety at work.
6.5
Working Hours No work shall be carried out on the Site on locally recognised days of rest or outside the normal working hours stated in the Contract Data, unless: (a) otherwise stated in the Contract; (b) the Employer’s Representative gives consent; (c) the work is unavoidable, or necessary for the protection of life or property or for the safety of the Works, in which case the Contractor shall immediately advise the Employer’s Representative; or (d) required for the proper fulfilment of the requirements of the Operation Service Period.
6.6
Facilities for Staff and Labour Except as otherwise stated in the Employer’s Requirements, the Contractor shall provide and maintain all necessary accommodation and welfare facilities for the Contractor’s Personnel. The Contractor shall also provide facilities for the Employer’s Personnel as stated in the Employer’s Requirements. The Contractor shall not permit any of the Contractor’s Personnel to maintain any temporary or permanent living quarters within the Site of the Works, save where the Employer has given the Contractor permission in writing.
6.7
Health and Safety The Contractor shall at all times during the Contract Period take all reasonable precautions to maintain the health and safety of the Contractor’s Personnel. In collaboration with local health authorities, the Contractor shall ensure that medical staff, first aid facilities, sick bay and ambulance service are available at all times at the Site and at any accommodation for Contractor’s and Employer’s Personnel, and that suitable arrangements are made for all necessary welfare and hygiene requirements and for the prevention of epidemics. The Contractor shall appoint an accident prevention officer at the Site, responsible for maintaining safety and protection against accidents. This person shall be qualified for this responsibility, and shall have the authority to issue instructions and take protective measures to prevent accidents. Throughout the execution and
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operation of the Works, the Contractor shall provide whatever is required by this person to exercise this responsibility and authority. The Contractor shall send details of any accident to the Employer’s Representative as soon as practicable after its occurrence. The Contractor shall maintain records and make reports concerning health, safety and welfare of persons, and damage to property, as the Employer’s Representative may reasonably require. Sub-Clauses 6.8 to 6.11 cover the superintendence and behaviour of the Contractor’s staff and labour. The Contractor’s Personnel must be experienced and qualified so he can fulfil his basic obligations in Sub-Clause 4.1 [Contractor’s General Obligations]. If the Employer’s Representative is of the opinion that any person employed by the Contractor is guilty of any of the defaults listed in Sub-Clause 6.9 [Contractor’s Personnel ], he is entitled to require the Contractor to remove them and engage a suitable replacement. Under Sub-Clause 6.11 [Disorderly Conduct ], the Contractor is required to take ‘reasonable precautions’ to see that the Contractor’s Personnel behave themselves and refrain from riotous and unlawful conduct. Although the Sub-Clause does not say what is meant by ‘reasonable precautions’, and despite any precautions or measures which the Contractor may or may not take, if any of the Contractor’s Personnel are involved in unlawful behaviour, then as between the Employer and the Contractor, the Contractor is liable. This does not mean that an employee of the Contract or can hide behind this Sub-Clause to avoid his legal obligations. On the contrary, if he is found guilty of any offence, be it a motoring offence, tax evasion, unruly behaviour or whatever, the employee will be directly liable for whatever punishment the Law prescribes. 6.8
Contractor’s Superintendence For the complete Contract Period, the Contractor shall provide all necessary superintendence to plan, arrange, direct, manage, inspect, test and monitor the design and execution of the Works and the provision of the Operation Service in accordance with his obligations under the Contract. Superintendence shall be given by a sufficient number of persons having adequate knowledge of the language for communications (defined in Sub-Clause 1.4 [Law and Language]) and of the operations to be carried out (including the methods and techniques required, the hazards likely to be encountered and methods of preventing accidents), for the satisfactory and safe execution of the Works and the provision of the Operation Service.
6.9
Contractor’s Personnel The Contractor’s Personnel shall be appropriately qualified, skilled and experienced in their respective trades or occupations. The Employer’s Representative may require the Contractor to remove (or cause to be removed) any person employed on the Site or Works, including the Contractor’s Representative if applicable, who: (a) persists in any misconduct or lack of care; (b) carries out duties incompetently or negligently; (c) fails to conform with any provisions of the Contract; or (d) persists in any conduct which is prejudicial to safety, health, or the protection of the environment. If appropriate, the Contractor shall then appoint (or ca use to be appointed) a suitable replacement person.
6.10
Records of Contractor’s Personnel and Equipment During the Design-Build Period, the Contractor shall submit, to the Employer’s Representative, details showing the number of each class of Contractor’s Personnel © FIDIC 2011
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and of each type of Contractor’s Equipment on the Site. Any changes to the Personnel or Equipment shall be notified at the end of each calendar month to the Employer’s Representative. During the Operation Service Period, any changes to the Personnel or Equipment shall be notified at the end of each calendar month to the Employer’s Representat ive. 6.11
Disorderly Conduct The Contractor shall at all times take all reasonable precautions to prevent any unlawful, riotous or disorderly conduct by or amongst the Contractor’s Personnel, and to preserve peace and protection of persons and property on and near the Site.
Clause 7 7.1
Plant, Materials and Workmanship Manner of Execution The Contractor shall carry out the manufacture and/or replace ment and/or repair of Plant, the production and manufacture of Materials, and all other activities during the execution of the Works and provision of the Operation Service: (a) in accordance with the applicable Laws in the manner (if any) specified in the Contract; (b) in a proper workmanlike and careful manner, in accordance with recognised good practice; and (c) with properly equipped facilities and non-hazardous Materials, except as otherwise specified in the Contract. This Sub-Clause contains the overall general requirement that all Plant, Materials and all other activities shall be in accordance with the Contract (which includes the applicable Laws), shall be carried out in a proper and workmanlike manner, and shall use non-hazardous Materials. These provisions are expanded and reflected in a number of other sub-clauses throughout the document, and all tie in with the requirements of Sub-Clause 4.1 [ Contractor’s General Obligations] that the Works must be ‘in accordance with the Contract’.
7.2
Samples The Contractor shall submit the following samples of Materials, and relevant information, to the Employer’s Representative for review in accordance with the procedures for Contractor’s Documents described in Sub-Clause 5.2 [Contractor’s Documents]: (a) manufacturer’s standard samples of Materials and samples specified in the Contract, all at the Contractor’s cost; and (b) additional samples instructed by the Employer’s Representative as a Variation. Each sample shall be labelled as to origin and intended use in the Works. The requirement for the Contractor to submit samples is a necessary control so that the Employer’s Representative can satisfy himself that the Materials being supplied by the Contractor are in accordance with the Contract as required by Sub-Clauses 7.1 [Manner of Execution] and 4.1 [Contractor’s General Obligations]. If the need for samples has been identified in the Employer’s Requirements, the Contractor must supply them at his own cost, but if the Employer’s Representative requires new or additional samples during the progress of the Works, he can order them as a Variation and the Contractor will be entitled to be paid for providing them. Although by Definition 1.1.19, samples are not considered to be a Contractor’s Document, the procedure for their submittal and review and consent is covered in Sub-Clause 5.2.
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7.3
Inspection The Employer’s Personnel and other persons authorised by the Employer shall at all reasonable times: (a) have full access to all parts of the Site and to all places from which natural Materials are being obtained; (b) during production, manufacture and construction (at the Site and elsewhere), operation and maintenance, be entitled to examine, inspect, measure and test the Materials and workmanship, and to check the progress of manufacture of Plant and production and manufacture of Materials; and (c) carry out other authorised duties and inspections. The Contractor shall give the Employer’s Personnel and other persons authorised by the Employer full opportunity to carry out these activities, including providing access, facilities, permissions and safety equipment. No such activity shall relieve the Contractor from any obligation or responsibility. The Contractor shall give Notice to the Employer’s Representative whenever any work is ready and before it is covered up, put out of sight, or packaged for storage or transport. The Employer’s Representative shall then either carry out the examination, inspection, measurement or testing without unreasonable delay, or promptly give Notice to the Contractor that the Employer’s Representative does not require to do so. If the Contractor fails to give the Notice, he shall, if and when required by the Employer’s Representative, uncover the work and thereafter reinstate and make good, all at the Contractor’s cost. This provision gives the Employer’s Personnel the right at all reasonable times, to visit all parts of the Site and all places where Materials and Goods are being manufactured, for the purposes of examining, inspecting, testing, and carrying out other authorised duties. The reference to ‘testing’ is a general reference during production, manufacture and construction, and is not limited to the tests referred to in Sub-Clause 7.4 [Testing] and Clause 11 [Testing]. Whereas the ‘test’ referred to in Sub-Clause 7.4 [Testing] and Clause 11 [Testing] may require the Contractor to provide facilities and materials (for which he is expected to made allowance in his tender), it is not anticipated that the Contractor will have made any such allowance for tests and inspections under this Sub-Clause. If it is foreseen that significant facilities will be required, these should be identified in the Employer’s Requirements.
7.4
Testing This Sub-Clause shall apply to all tests on Plant, Materials and workmanship specified in the Contract. The Contractor shall provide all apparatus, assistance, documents and other information, electricity, equipment, fuel, consumables, instruments, labour, materials, and suitably qualified and experienced staff, as are necessary to carry out the specified tests efficiently. The Contractor shall agree, with the Employer’s Representative, the time and place for the specified testing of any Plant, Materials and other parts of the Works. The Employer’s Representative may, under Clause 13 [Variations and Adjustments], vary the location or details of specified tests, or instruct the Contractor to carry out additional tests. If these varied or additional tests show that the tested Plant, Materials or workmanship is not in accordance with the Contract, the cost of carrying out this Variation shall be borne by the Contractor, notwithstanding other provisions of the Contract. The Employer’s Representative shall give Notice to the Contractor not less than 24 hours prior to the tests, of the Employer’s Representative’s intention to attend the tests. If the Employer’s Representative does not attend at the time and place agreed, the Contractor may proceed with the tests, unless otherwise instructed by the Employer’s Representative, and the tests shall then be deemed to have been made in the Employer’s Representative’s presence. © FIDIC 2011
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If the Contractor suffers delay in carrying out the tests and/or incurs cost from complying with these instructions or as a result of a delay for which the Employer is responsible, the Contractor shall give Notice to the Employer’s Representative and shall be entitled, subject to Sub-Clause 20.1 [Contractor’s Claims], to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 9.3 [Extension of Time for Completion of Design-Build ]; and (b payment of any such Cost Plus Profit, which shall be included in the Contract Price. After receiving this Notice, the Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. The Contractor shall promptly forward to the Employer’s Representative duly certified reports of the tests. When the specified tests have been passed, the Employer’s Representative shall endorse the Contractor’s test certificate, or issue a certificate to him, to that effect. If the Employer’s Representative has not attended the tests, he shall be deemed to have accepted the readings as accurate. This Sub-Clause applies primarily to tests which have been detailed and specified in the Contract. The Contractor knows what he is required to provide and his price is deemed to include for such costs. If the Employer’s Representative requires tests to be carried out which were not specified in the Employer’s Requirements, he may instruct the Contractor accordingly as a Variation. However, if the tests show that the tested Plant or Materials or workmanship were not in accordance with the Contract, then the Contractor is not e ntitled to claim any reimbursement and the provisions of Sub-Clause 7.5 [Rejection] will apply. If the (additional) tests show that the tested items were in accordance with the Contract, then the Contractor is entitled to claim reimbursement of related Cost (plus Profit) and extension of time (which is generally granted if carrying out of additional tests causes delay to critical path activities). 7.5
Rejection If, as a result of an examination, inspection, measurement or testing, any Plant, Materials, or workmanship is found to be defective or otherwise not in accordance with the Contract, the Employer’s Representative may reject the Plant, Materials, design or workmanship by giving Notice to the Contractor, with reasons. The Contractor shall then promptly make good the defect at the Contractor’s cost and ensure that the rejected item complies with the Contract. If the Employer’s Representative requires this Plant, Materials, or workmanship to be retested, the tests shall be repeated under the same terms and conditions. If the rejection and retesting cause the Employer to incur additional costs, the Contractor shall, subject to Sub-Clause 20.2 [Employer’s Claims], pay these costs to the Employer. This Sub-Clause describes the procedure if Plant, Materials or workmanship is found to be defective and fails any inspection or test under Sub-Clauses 7.3 [Inspection] or 7.4 [Testing]. If the Employer’s Representative finds any item to be defective, he must give Notice to the Contractor, with reasons. In other words he must tell the Contractor what has failed, and then the Contractor must ‘promptly’ (i.e., without delay) repair or replace the item concerned. The Employer’s Representative may then require the replaced item to be re-tested as described above. If the Contractor fails to rectify the item as instructed, the Employer has the right to terminate the Contract under Sub-Clause 15.2 [Termination for Contractor’s Default ].
7.6
Remedial Work At any time during the Contract Period, notwithstanding any previous test or certification, the Employer’s Representative may instruct the Contractor to:
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(a) repair, remove from the Site and replace, any Plant or Materials which is not in accordance with the Contract; (b) remove and re-execute any other work which is not in accordance with the Contract; and (c) execute any work which is urgently required for the safety of the Works or the provision of the Operation Service, whether because of an accident, unforeseeable event or otherwise. The Contractor shall comply with the instruction within a reasonable time, which shall be the time (if any) specified in the instruction, or immediately if urgency is specified under sub-paragraph (c). Except to the extent that the Contractor may be entitled to payment for the work required under sub-paragraph (c), the Contractor shall bear the cost of such remedial work. If the Contractor fails to comply with the instruction, the Employer shall be entitled to employ and pay other persons to carry out the work. Except to the extent that the Contractor would have been entitled to payment for the work, the Contractor shall, subject to Sub-Clause 20.2 [Employer’s Claims], pay to the Employer all costs arising from this failure. The provisions of this Sub-Clause go hand-in-hand with the provisions of Sub-Clause 7.5 [Rejection]. 7.7
Ownership of Plant and Materials Each item of Plant and Materials shall, to the extent consistent with the Laws of the Country, become the property of the Employer at whichever is the earlier of the following times, free from liens and other encumbrances: (a) when it is delivered to the Site; (b) when the Contractor is paid the value of the Plant and Materials under SubClause 9.9 [Payment for Plant and Materials in Event of Suspension]; and (c) when the Contractor is paid the value of the Plant and Materials under SubClause 14.6 [Payment for Plant and Materials intended for the Works]. As a legal requirement, it may be necessary to establish ownership of Plant and Materials at some point in time during the Contract, particularly in the case of bankruptcy or liquidation of one of the Parties. Subject to what the Laws of the Country may prescribe in such a situation, ownership passes from the Contractor to the Employer upon the earliest of the three named occurrences.
7.8
Royalties Unless otherwise stated in the Employer’s Requirements, the Contractor shall pay all royalties, rents and other payments for: (a) natural Materials obtained from outside the Site; and (b) the disposal of material from demolitions and excavations and of other surplus material (whether natural or man-made), except to the e xtent that disposal areas within the Site are specified in the Contract. Any natural materials found on the Site may normally be used by the Contractor for the purposes of executing the Works (such as excavation and other earthworks) without the requirement to pay the Employer (or others) any form of royalty. Likewise disposal of any material within the Site is normally royalty-free. However, if the Contractor is planning to use natural material (earth fill, rock etc) from quarries or borrow areas owned by third parties, or deposit waste material in spoil tips owned by others, he is responsible for making all arrangements including the payment of royalties and other costs.
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Clause 8
Commencement Date, Completion and Programme Clause 8 deals with commencement and completion of the complete Contract – the Design-Build and the Operation Service – and its provisions are of a general nature relating to the overall project. Clause 9 [Design-Build ] covers the particular requirements relating to the Design-Build, and Clause 10 covers the requirements relating to the Operation Service, and in some of the Sub-Clauses to Clause 8, the reader is referred directly to the more detailed provisions of Clauses 9 [Design-Build ] and 10 [Operation Service].
8.1
Commencement Date The Employer’s Representative shall give Notice stating the Commencement Date to the Contractor not less than 14 days prior to the Commencement Date. Unless otherwise stated in the Particular Conditions, the Commencement Date shall be within 42 days after the Contractor receives the Letter of Acceptance. It is important that the Notice clearly records the Commencement Date as this, according to Definition 1.1.78, is the starting point from which the Time for Completion is calculated. It is thus important for the Contractor to commence work as soon as he can after the Commencement Date is established. Commencement activities may not be immediately visible on Site for some (considerable) time as the Contractor’s first work under the Contract will probably be his obligation under Sub-Clause 5.1 [General Design Obligations] to scrutinise the Employer’s Requirements (including design criteria and calculations), then to progress the design, approvals, permitting and (possibly) land acquisition to the point where construction can start and the items of reference mentioned in Sub-Clause 4.7 [Setting Out ]. The consequences of a failure by the Employer’s Representative to provide the Commencement Date within 42 days of the Letter of Acceptance will depend on the magnitude of the failure, and probably the applicable Laws. If it is a mat ter of a few days, the Contractor will probably be entitled to financial compensation. However, if it is a substantial failure, the Contractor may have the right to claim an adjustment of his rates or, in the worst case, to terminate the Contract under Sub-Clause 16.2(e) [Termination by Contractor ].
8.2
Time for Completion The Contractor shall complete the whole of the Design-Build and each Section (if any), in accordance with Sub-Clause 9.2 [Time for Completion of Design-Build ], or as extended under Sub-Clause 9.3 [Extension of Time for Completion of DesignBuild ], and shall provide the Operation Service for the period stated in the Contract Data. The Time for Completion is stated in the Contract Data and is calculated from the Commencement Date which has been established in accordance with Sub-Clause 8.1 [Commencement Date]. Within this time the Contractor must ensure that the Works pass the Tests on Completion under Sub-Clause 11.1 [Testing of the Works] and make sure that all work which is stated in the Contract as being required under Sub-Clause 11.5 [Completion of the Works and Sections] has been completed. Moreover, all Contractor’s Documents required under Sub-Clause 5.2 [Contractor’s Documents] must be delivered to the Employer’s Representative within this time, the Time for Completion.
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8.3
Programme The Contractor shall submit a detailed time programme to the Employer’s Representative within 28 days after receiving the Notice under Sub-Clause 8.1 [Commencement Date]. The Contractor shall also submit a revised programme whenever the previous programme is inconsistent with actual progress or with the Contractor’s obligations. Each programme shall include: (a) the order in which the Contractor intends to carry out the Works, including the anticipated timing of each stage of design, Contractor’s Documents, procurement, manufacture, inspection, delivery to Site, construction, erection, testing, commissioning and trial operation; (b) the period of Operation Service; (c) the periods for reviews under Sub-Clause 5.2 [Contractor’s Documents] and for any other submissions, including the supply of samples in accordance with Sub-Clause 7.2 [Samples], approvals and consents specified in the Employer’s Requirements; (d) the sequence and timing of inspections and tests specified in the Contract, and (e) a supporting report which includes: (i) a general description of the methods which the Contractor intends to adopt for both the Design-Build and the Operation Service; (ii) details showing the Contractor’s reasonable estimate of the number of each class of Contractor’s Personnel and of each type of Contractor’s Equipment, required on the Site for each major stage; and (iii) the Contractor’s proposed manning schedule for the Operation Service. Unless the Employer’s Representative, within 21 days after receiving a programme, gives Notice to the Contractor stating the extent to which it does not comply with the Contract, the Contractor shall proceed in accordance with the programme, subject to his other obligations under the Contract. The Employer’s Personnel shall be entitled to rely upon the programme when planning their activities. If, at any time, the Employer’s Representative gives Notice to the Contractor that a programme fails (to the extent stated) to comply with the Contract or to be consistent with actual progress and the Contractor’s stated intentions, the Contractor shall submit, within 14 days, a revised programme to the Employer’s Representative in accordance with this Sub-Clause. The time programme required under this Sub-Clause is one of the most important documents which the Contractor is required to produce, and sometimes the Contractor is very slow in producing his programme. Not only does the programme give a detailed time plan of how the Contractor intends to carry out the Works, but it also gives a great deal of information about the associated events such as tests, inspections, reports – all as mentioned in this Sub-Clause. Furthermore the Contractor’s programme often forms basic supporting evidence according to which Contractor’s claims for time extension can be evaluated, so it is in the Contractor’s interests to ensure that the programme is properly prepared as required by this Sub-Clause. There is no requirement for the Employer’s Representative to approve or consent to the programme. The only action required from the Employer’s Representative is to give Notice to the Contractor in the event that the programme does not comply with the Contract (in which event the Contractor must submit a revis ed programme). If no such Notice is received within 21 days, the Contractor shall proceed in accordance with this programme. If the Employer requires the programme to be in a particular format by, for example showing the critical path, he must state this requirement in the Employer’s Requirements, otherwise the Contractor will be free to choose the format.
8.4
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or probable future events or circumstances which may adversely affect the work, increase the Contract Price or delay the execution of the Works or the Operation Service. The Employer’s Representative may require the Contractor to submit an estimate of the anticipated effect of the future events or circumstances, and/or a proposal under Sub-Clause 13.3 [Variation Procedure]. There may be a number of circumstances which could arise, either caused by the Employer, or by third parties or other events, which the Contractor can reasonably judge will cause him delay or additional cost. In such cases the Contractor shall endeavour to warn the Employer of such circumstances and the likely consequences. Likewise, the Employer may know of future events or circumstances which could delay or affect the performance of the Contractor, and he should also try to give advance warning to the Contractor. Although the Sub-Clause does not say how one Party shall ‘advise’ the other, such notification should certainly be in writing and would normally come under Sub-Clause 1.3 [Notices and Other Communications], and be considered as an ‘other communicat ion’ and thus should comply with the requirements accordingly. If special measures need to be taken, these can be treated as a Variation under Clause 13 [Variations and Adjustments] which gives the Parties the opportunity to mutually discuss and agree the most appropriate steps for each of them to take, and, if necessary, to agree an appropriate adjustment to the time for completion and cost. 8.5
Delay Damages If the Contractor fails to complete the Design-Build in accordance with the requirements of Sub-Clause 9.2 [Time for Completion of Design-Build ], he shall pay delay damages as detailed in Sub-Clause 9.6 [Delay Damages relating to DesignBuild ]. If the Contractor fails or is unable to provide the Operation Service for the complete period specified in the Contract, or parts of the Operation Service, and such failure is: (a) due to a cause for which the Contractor is responsible; and (b) results in the Employer losing revenue or income which the Employer would normally have expected to receive during the Operation Service Period; or (c) results in the Employer suffering any other loss which he would not have suffered but for such failure, then the Contractor shall pay to the Employer compensation in accordance with Sub-Clause 10.6 [Delays and Interruptions during the Operation Service]. This Sub-Clause refers the reader to two other Sub-Clauses: Sub-Clause 9.6 [Delay Damages relating to Design-Build ] in respect of delay damages payable for late completion of the Design-Build, and Sub-Clause 10.6 [Delays and Interruptions during the Operation Service] in respect of delays and interruptions occurring during the Operation Service Period.
8.6
Contract Completion Certificate Performance of the Contractor’s obligations in respect of the Contract shall not be considered to have been completed until the Contract Completion Certificate has been signed by the Employer’s Representative and issued to the Contractor, stating the date on which the Contractor completed his obligations in respect of both the Design-Build and the Operation Service (Contract Completion Date). The Employer’s Representative shall, subject to Sub-Clause 11.8 [Joint Inspection Prior to Contract Completion], Sub-Clause 10.8 [Completion of Operation Service] and Sub-Clause 4.23 [Contractor’s Operations on Site], issue the Contract Completion Certificate to the Contractor, with a copy to the Employer, within 21 days after the last day of the Contract Period. No extension of the Operation Service Period shall be allowed except by written agreement between the Parties. Only the Contract Completion Certificate shall be deemed to constitute the Employer’s acceptance of the Contractor’s completion of his obligations under the Contract.
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Following the issue of the Contract Completion Certificate the Employer shall be fully responsible for the care, safety, operation, servicing and maintenance of the Works. The Contract Completion Certificate is the document which is issued to the Contractor by the Employer’s Representative within 21 days following the end of the Operation Service Period. There are certain pre-conditions which must be fulfilled before the Certificate is issued and these are detailed in Sub-Clauses 10.8 [Completion of Operation Service], 11.8 [Joint Inspection Prior to Contract Completion] and 4.23 [Contractor’s Operations on Site]. This is the only Certificate which constitutes final approval or acceptance by the Employer that the Contractor has fulfilled all his obligations under the Contract. The wording of this Sub-Clause is consistent with other provisions in the Contract which clearly state that payments and approvals, consents and the like which are made by the Employer or his Representative during the progress of the Works and prior to the issuance of the Contract Completion Certificate, are of an interim nature and do not mean that work has accepted by the Employer. Full responsibility for the care, safety and operation of the Works passes to the Employer at this time. 8.7
Handback Requirements The Contractor shall ensure that the Works comply with the handback requirements specified in the Employer’s Requirements prior to the issue of the Contract Completion Certificate. The Employer will probably have certa in requirements regarding the condition o f the Works at the time he takes over full responsibility for the Works when the Contract Completion Certificate is issued. Such handback requirements must be stated in the Employer’s Requirements so that the Contractor is aware of what he is obliged to provide. It is clear that the Employer will not want a facility which ceases to function or be of any use as soon as the Operation Service Period has been completed, and he will certainly expect some residual life during which he can continue to derive benefit from the facility. One of the difficulties of specifying a particular period of residual life, e.g., that the facility will continue to operate at 95% efficiency for a period of t hree years, or whatever, is the problem of identifying responsibility if it fails. For exa mple, is it a design failure or an operational failure. The Contract foresees that the criteria to determine the condition of the facility (the handback requirements) prior to the issue of the Contract Completion Certificate shall be in the form of physical quantifiable criteria which can be measured and checked – and if needs be, corrected – before the Contract is concluded. Once these requirements have been met, the Contractor is relieved of any further obligation in respect of the future use or performance of the facility, subject always to the provisions of Sub-Clause 8.8 [Unfulfilled Obligations].
8.8
Unfulfilled Obligations After the Contract Completion Certificate has been issued, each Party shall remain liable for the fulfilment of any obligation under the Contract which remains unperformed at that time. For the purposes of determining the nature and extent of unperformed obligations, the Contract shall be deemed to remain in force. Despite the provisions of other sub-clauses such as Sub-Clauses 8.7 [Handback Requirements] and 10.8 [Completion of Operation Service], which refer to the completion of the Contract and the fulfilment by the Contractor of his various obligations under the Contract, this Sub-Clause covers the situation where, after the issue of the Contract Completion Certificate, it is discovered that either Party has not properly or fully performed © FIDIC 2011
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its obligations as required under the Contract. Such a failure may lie with either Party, for example, the Employer may not have paid the full amount due to the Contractor or the Contractor may not have completed some outstanding work or failed to provide some documents. However, just because the Contract Completion Certificate has been issued, it does not mean that the defaulting Party is relieved from performing that obligation. By this Sub-Clause he must make good the failure, and in order to determine what he is required to do to satisfy his contractual obligations, the Contract shall be deemed to remain in force and its provisions will be binding on the defaulting Party.
Clause 9 9.1
Design-Build Commencement of Design-Build The Contractor shall commence the design and execution of the Works within 28 days of the Commencement Date, and shall then proceed with the Design-Build with due expedition and without delay. The Commencement Date is established by the giving of a Notice under Sub-Clause 8.1 [Commencement Date]. The Contractor must commence work on the Design-Build activities within 28 days of receiving this Notice. The Contractor will normally satisfy the words “with due expedition and without delay” if he proceeds according to his programme which, according to Sub-Clause 8.3, also has to be issued within 28 days of receiving the Notice under Sub-Clause 8.1 [Commencement Date]. The provision in Sub-Clause 8.3 [Programme] giving the Employer’s Representative 21 days to comment on the programme does not mean that the Contractor must wait until the 21 days have passed before he commences his activities. It is unlikely that his initial activities will be the subject of any comment or change from t he Employer’s Representative, but if there are critical activities during this time, the Contractor would be well advised to draw them to the attention of the Employer’s Representative at the time the programme is submitted, and agree on how to proceed with them critical activities.
9.2
Time for Completion of Design-Build The Contractor shall complete the whole of the Design-Build of the Works, and each Section (if any), within the Time for Completion of Design-Build of the Works or Section (as the case may be) as set out in the Contract Data, including: (a) passing the Tests on Completion under Sub-Clause 11.1 [Testing of the Works]; (b) completing all work which is stated in the Contract as being required under Sub-Clause 11.5 [Completion of the Works and Sections]; and (c) preparation and delivery to the Employer’s Representative of Contractor’s Documents required under Sub-Clause 5.2 [Contractor’s Documents]. The Time for Completion of Design-Build is calculated from the Commencement Date (see Definition 1.1.78). This is one of the Contractor’s fundamental obligations under the Contract. If the Works are divided into Sections which have been identified in the Contract Data, then each such Section may have a separate Time for Completion which the Contractor must meet. The Sub-Clause contains three pre-conditions before the Works will be considered sufficiently complete for the Commissioning Certificate to be issued in accordance with Sub-Clause 11.7: (a) the Works must have passed the Tests on Completion; (b) all work must have been completed; and (c) all required documents must have been provided. It is understood that the Time for Completion may need to be changed in certain circumstances, and this situation is covered in Sub-Clause 9.3 [Extension of Time for Completion of Design-Build ].
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9.3
Extension of Time for Completion of Design-Build The Contractor shall be entitled, subject to Sub-Clause 20.1 [Contractor’s Claims], to an extension of the Time for Completion of Design-Build if and to the extent that completion for the purposes of Sub-Clause 11.5 [Completion of the Works and Sections] is or will be delayed by any of the following causes: (a) a Variation (unless an adjustment to the Time for Completion of Design-Build has been agreed under Sub-Clause 13.3 [Variation Procedure]); (b) a cause of delay giving an entitlement to extension of time under a Sub-Clause of these Conditions; (c) exceptionally adverse climatic conditions; (d) Unforeseeable shortages in the availability of personnel or Goods caused by epidemic or governmental actions; or (e) any delay, impediment or prevention caused by or attributable to the Employer, the Employer’s Personnel, or the Employer’s other contractors on the Site. If the Contractor considers himself to be entitled to an extension of the Time for Completion of Design-Build, the Contractor shall give Notice to the Employer’s Representative in accordance with Sub-Clause 20.1 [Contractor’s Claims]. When determining each extension of time, the Employer’s Representative shall review previous determinations and may increase, but shall not decrease, the total extension of time. If a Dispute regarding an extension of time has been referred to the DAB, the Contractor shall be immediately entitled t o any extension of the Time for Completion of Design-Build which is decided by the DAB under Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision]. As mentioned in the comments to Sub-Clause 9.2 [Time for Completion of Design-Build ], it is likely that the Time for Completion foreseen at the time the Contract comes into force, will need to be modified due to a variety of circumstances which will certainly arise during the progress of the Contract. If the Contractor feels that any of the listed events, or any other events or circumstances, have occurred and delayed him in following his programme (see Sub-Clause 8.3 [Programme]), he is entitled to give a Notice under Sub-Clause 20.1 [Contractor’s Claims] claiming an extension to the Time for Completion. As with any other claim which the Contractor may wish to make under the Contract, the burden of proof lies with the Contractor: he must substantiate his claim and show the Employer’s Representative that the events which have occurred are firstly, one of the causes listed in this Sub-Clause, and secondly, that they have caused or will cause a delay to the completion of the Works. One of the most useful tools for the Contractor in establishing that he has been delayed, is by making reference to his programme which was current at the time the delay occurred. It should be noted that this Sub-Clause does not address additional costs, and the point must be stressed that an extension of time does not automatically entitle the Contractor to additional reimbursement. If the Contractor feels that he has incurred additional cost as a result of the event which has delayed him, he must give a separate Notice under SubClause 20.1 [Contractor’s Claims] with details of his claim for reimbursement. All claims made under this Sub-Clause are subject to an assessment of the facts by the Employer’s Representative except an extension of time which has been granted by the Dispute Adjudication Board when giving a Decision under Sub-Clause 20.6 [ Obtaining Dispute Adjudication Board’s Decision]. Any such award of an extension of the Time for Completion must be made immediately following the Decision of the DAB, and is not subject to any opinion of the Employer, the Employer’s Representative, or indeed the Contractor.
9.4
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(a) the Contractor has diligently followed the procedures laid down by the relevant legally constituted public and/or local authorities in the Country; (b) these authorities delay or disrupt the Contractor’s work; and (c) the delay or disruption was Unforeseeable, then this delay or disruption will be considered as a cause of delay under sub-paragraph (b) of Sub-Clause 9.3 [Extension of Time for Completion of Design-Build ]. This Sub-Clause provides a further ground upon which the Contractor may seek an extension of time. However, before the Employer’s Representative will consider a claim under this Sub-Clause, he must satisfy himself that all of the listed pre-conditions have been met. 9.5
Rate of Progress If, in the opinion of the Employer’s Representative, at any time during the DesignBuild Period: (a) actual progress is too slow to complete within the Time for Completion of Design-Build; and/or (b) progress has fallen (or will fall) behind the current programme under SubClause 8.3 [Programme], other than as a result of a cause listed in Sub-Clause 9.3 [Extension of Time for Completion of Design-Build ], then the Employer’s Representative may instruct the Contractor to submit, under Sub-Clause 8.3 [Programme], a revised programme and supporting report describing the revised methods which the Contractor proposes to adopt in order to expedite progress and complete within the Time for Completion of Design-Build. Unless the Employer’s Representative notifies otherwise, the Contractor shall adopt these revised methods, which may require increases in the working hours and/or in the numbers of Contractor’s Personnel and/or Goods, at the risk and cost of the Contractor. If these revised methods cause the Employer to incur additional costs, the Contractor shall, subject to Sub-Clause 20.2 [Employer’s Claims], pay these costs to the Employer, in addition to delay damages (if any) under Sub-Clause 9.6 [Delay Damages relating to Design-Build ] below. This provision is a sensible requirement giving the Employer’s Representative an effective tool in the event that he is of the opinion that the Contractor is not keeping up with his programme. There is little point in the Contractor performing the Works in accordance with a programme that is so out of date as to be virtually useless, and the Employer’s Representative can use this Sub-Clause to make sure that the programme is appropriate and current in respect of the Contractor’ actual progress. Before issuing an instruction to the Contractor to submit a revised programme, the Employer’s Representative may well need to discuss the reasons and the proposed action to be taken by the Contractor, so that both Parties have a full understanding of the need to revise the programme.
9.6
Delay Damages relating to Design-Build If the Contractor fails to comply with Sub-Clause 9.2 [Time for Completion of DesignBuild ], the Contractor shall, subject to Sub-Clause 20.2 [Employer’s Claims], pay delay damages to the Employer for this default. These delay damages shall be the amount stated in the Contract Data, which shall be paid for every day which shall elapse between the relevant Time for Completion and the date stated in the Commissioning Certificate. However, the total amount due under this Sub-Clause shall not exceed the maximum amount of delay damages (if any) stated in the Contract Data. These delay damages shall be the only damages due from the Contractor for such default, other than in the event of termination under Clause 15 [Termination by Employer ] prior to completion of the Works. These damages shall not relieve the Contractor from his obligation to complete the Design-Build and the Operation
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Service, or from any other duties, obligations or responsibilities which he may have under the Contract. This Sub-Clause defines the extent of the compensation to be paid by the Contractor to the Employer in the event that the Design-Build is not completed within the Time for Completion or any extension thereto granted under Sub-Clause 9.3 [Extension of Time for Completion of Design-Build ] or 9.4 [Delays Caused by Authorities]. It is important to note that this SubClause is not intended to impose a penalty on the Contractor for not completing on time. Instead it is intended to provide compensation to the Employer for damages he is expected to suffer as a result of such delay. The Contract assumes that the amount of the damages has been pre-determined and stated in the Contract Data as an amount for each day of delay up to a given maximum amount. The Employer does not have to prove he has suffered any loss or damage and he does not have to substantiate the amount of a ny such loss or damage. Even if the Employer can show that the amount of loss or damage he has suffered exceeds the amount stated in the Contract Data, he cannot normally recover amounts in excess of the stated amount. However, it would be wise to check the provisions of the Law of the Contrac t in this respect, as this may over-rule the provisions of this Sub-Clause. 9.7
Suspension of Work The Employer’s Representative may at any time instruct the Contractor to suspend progress of part or all of the Works. During such suspension, the Contractor shall protect, store, secure and maintain such part or the Works against any deterioration, loss or damage. The Employer’s Representative shall also notify the cause for the suspension. If and to the extent that the cause is the responsibility of the Contractor, the following SubClauses 9.8 [Consequences of Suspension], 9.9 [Payment for Plant and Materials in Event of Suspension] and 9.10 [Prolonged Suspension] shall not apply. There are a number of reasons why it may be necessary for the Employer’s Representative to instruct the Contractor to suspend progress of the Works; natural events such as flooding or storm; events caused by one of the Parties such as a failure by the Contractor to attend to safety matters; or suspension for the convenience of the Employer if, for example, he is not ready to receive an item of Plant or if there is disruption due to war or conflict, or he wishes to make changes to the Works and needs time to consider what changes are necessary. In any event, the Employer’s Representative must give the reason or cause for the suspension. This is necessary because if, for example, the reason or cause of the suspension is a fault or failure of the Contractor, he needs to know so that he can correct the fault or failure. If the fault lies with the Contractor, then Sub-Clauses 9.8 [Consequences of Suspension], 9.9 [Payment for Plant and Materials in Event of Suspension] and 9.10 [Prolonged Suspension] will not apply, and the Contractor will have to bear all the consequences without compensation. If the reason is not the responsibility of the Contractor, then the provisions of Sub-Clauses 9.8 [Consequences of Suspension], 9.9 [Payment for Plant and Materials in Event of Suspension] and 9.10 [Prolonged Suspension] will apply.
9.8
Consequences of Suspension If, during the Design-Build Period, the Contractor suffers delay and/or incurs cost from complying with the Employer’s Representative’s instructions under SubClause 9.7 [Suspension of Work ] and/or from resuming the work, the Contractor shall give Notice to the Employer’s Representative and shall be entitled, subject to Sub-Clause 20.1 [Contractor’s Claims], to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 9.3 [Extension of Time for Completion of Design-Build ]; and © FIDIC 2011
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(b) payment of any such Cost, which shall be included in the Contract Price. After receiving this Notice, the Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. The Contractor shall not be entitled to an extension of time for, or to payment of the Cost incurred in, making good the consequences of the Contractor’s faulty design, workmanship or materials, or of the Contractor’s failure to If the reason for the suspension does not lie with the Contractor, then he is entitled to claim for any time extension he requires and any additional costs he has incurred as a result of the suspension. To do this the Contractor must follow the procedures laid down in Sub-Clause 20.1 [Contractor’s Claims]. Although no time is stated in this Sub-Clause for the Contractor to give Notice, reference to Sub-Clause 20.1 [Contractor’s Claims] makes it clear that Notice must be given within 28 days of the Contractor becoming aware of the event. A wise Contractor would therefore make sure that Notice is given immediately he receives such an instruction from the Employer’s Representative and follow this with details (as required by Sub-Clause 20.1 [Contractor’s Claims]) once the effects of the suspension can be determined. This Sub-Clause also makes it clear that if it is the Contractor who is at fault, then no time extension or compensation will be considered. 9.9
Payment for Plant and Materials in Event of Suspension The Contractor shall be entitled to payment of the value (as at the date of suspension) of Plant and/or Materials which have not been delivered to Site, if: (a) the work on Plant or delivery of Plant and/or Materials has been suspended for more than 28 days; and (b) the Contractor has marked the Plant and/or Materials as the Employer’s property in accordance with the Employer’s Representative’s instructions. Payment for Plant and/or Materials made pursuant to this Sub-Clause shall, if requested by the Employer’s Representative, be subject to the production of satisfactory evidence by the Contractor that the said Plant and/or Materials are fully owned by the Contractor and are not subject t o any retention of title by the supplier. This Sub-Clause entitles the Contractor to claim payment for Plant and Materials for which he would have been entitled to payment if it were not for the suspension.
9.10
Prolonged Suspension If the suspension under Sub-Clause 9.7 [Suspension of Work ] has continued for more than 84 days, the Contractor may request the Employer’s Representative’s permission to proceed. If the Employer’s Representative does not give permission within 28 days after being requested to do so, the Contractor may, by giving Notice to the Employer’s Representative, treat the suspension as an omission under Clause 13 [Variations and Adjustments] of the affected part of the Works. If the suspension affects the whole of the Works, the Contractor may give Notice of termination under Sub-Clause 16.2 [Termination by Contractor ]. If the reason for suspension (e.g. a war or economic disruption) has a continuing effect lasting more that 84 days (and such reason is not the responsibility of the Contractor), this Sub-Clause protects the Contractor against the effects of a long stoppage of work. At the end of the 84 day period the Contractor is required to request permission to proceed, but if this is denied, he can omit the suspended work from the work he is required to do under the Contract, or, if the suspension affects the whole of the Works (as it would probably do in the case of war or economic disruption), he can terminate the Contract under Sub-Clause 16.2 [Termination by Contractor ]. It is up to the Contractor whether he chooses to terminate or not.
9.11
Resumption of Work
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After the permission or instruction to proceed is given, the Contractor and the Employer’s Representative shall jointly examine the Works and the Plant and Materials affected by the suspension. The Contractor shall make good any deterioration or defect in or loss of the Works or Plant or Materials, which has occurred during the suspension. The Employer’s Representative shall make a written record of all making good required to be carried out by the Contractor. The requirement to examine the Works prior to proceeding after a suspension applies to both a suspension ordered under Sub-Clause 9.7 [Suspension of Work ] and a prolonged suspension under Sub-Clause 9.10 [Prolonged Suspension]. Under Sub-Clause 9.8 [Consequences of Suspension], the Contractor is entitled to claim any additional costs associated with the examination and making good required under this Sub-Clause, unless the suspension was due to a fault of the Contractor. 9.12
Completion of Design-Build The Design-Build shall not be considered as complete until all of the following are achieved: (a) the Works have been fully designed and executed in accordance with the Employer’s Requirements and other relevant provisions of the Contract; (b) the Works have passed the Tests on Completion of Design-Build in accordance with Sub-Clause 11.1 [Testing of the Works]; (c) Contractor’s Documents in accordance with Sub-Clause 5.5 As-Built [ Documents] and Sub-Clause 5.6 [Operation and Maintenance Manuals] have been supplied and approved by the Employer’s Representative; and (d) the Commissioning Certificate required under Sub-Clause 11.7 [Commissioning Certificate] has been issued stating the date upon which the Design-Build has been completed and the Operation Service shall commence. It is important to establish what constitutes ‘completion of Design-Build’ as this is the point in time when the Operation Service commences, and also the time when the Contractor is considered to have fulfilled his obligations in respect of the Design-Build, except for outstanding items of work which will not affect the operation of the facility and which the Employer’s Representative has agreed can be completed during the Retention Period (see Definition 1.1.66). The requirement is that not only that shall the Works shall have been physically completed and tested, but also that As-Built Drawings and Operation and Maintenance (O & M) Manuals shall have been given to and approved by the Employer’s Representative, and the Commissioning Certificate issued. When all this has been done, the Design-Build will be considered complete.
9.13
Failure to Complete Should the Contractor fail to complete the Design-Build prior to the Cut-Off Date, the Employer may, at his sole option, either: (a) permit the Contractor to continue the Design-Build for a further named period, with an absolute right to re-apply this Sub-Clause in the event that the Contractor fails to complete the Design-Build within the extended period; or (b) terminate the Contract in accordance with Sub-Clause 15.2 [Termination for Contractor’s Default ] and, if he so chooses, complete the work and subsequently execute the Operation Service himself or by engaging others. In either case, the Employer will be entitled to recover from the Contractor any direct loss incurred, including any loss resulting from the delayed operation of the Works, subject to the limitations contained in Sub-Clause 9.6 [Delay Damages Relating to Design-Build ] and Sub-Clause 17.8 [Limitation of Liability ]. If the Contractor fails to complete the Design-Build within the Time for Completion of DesignBuild (see Definition 1.1.78), the compensation to the Employer is in the form of Delay Damages (see Sub-Clauses 8.5 [Delay Damages] and 9.6 [Delay Damages relating to Design© FIDIC 2011
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Build ]). However if there is a prolonged delay and the Contractor fails to complete by the CutOff Date (see Definition 1.1.26), then the Employer has two options: either he can permit the Contractor to continue, which he would probably do if he can reasonably conclude that the Contractor will complete in the not too distant future, or if the Employer feels that there is little chance that the Contractor will or can complete, he can terminate the Contract in accordance with Sub-Clause 15.2 [Termination for Contractor’s Default ]. Note that it is the Employer and not the Employer’s Representative who makes the choice, although the Employer’s decision would be conveyed to the Contractor, in writing, by the Employer’s Representative. This Sub-Clause also protects the Employer against his direct loss and any loss (e.g. revenue) from the delayed operation of the facility, as he can recover these from the Contractor, subject to the limitations in Sub-Clauses 9.6 [Delay Damages relating to DesignBuild ] and 17.8 [Limitation of Liability ].
Clause 10 10.1
Operation Service General Requirements The Contractor shall comply with the Operation Management Requirements as provided for in the Contract and any revisions thereof which are agreed during the Contract Period. The Contractor shall follow the requirements of the Operation and Maintenance Plan and the operation and maintenance manuals. No significant alteration to such arrangements and methods shall be made without the prior approval of the Employer’s Representative. During the Operation Service, the Contractor shall be responsible for ensuring that the Works remain fit for the purposes for which they are intended. The operators and maintenance personnel for the Works, including Plant operators, shall have the appropriate experience and qualifications to perform the Operation Service. The names, with details of their qualifications and experience, of all operation and maintenance personnel shall be submitted to the Employer for approval, and no such personnel shall be engaged prior to receiving such approval. The Contractor is required to follow the Operation Management Requirements (see Definition 1.1.55) which give the Employer’s requirements as regards the operation of the facility. These will have been provided with the tender documents, and the Contractor will have provided his Operation and Maintenance Plan (see Definition 1.1.56) with his tender showing how he intends to fulfil the Operation Management Requirements. He will also have provided operation and maintenance manuals according to the requirements of Sub-Clause 5.6 [Operation and Maintenance Manuals], which he is also required to follow these during the operation and maintenance of the facility. An important requirement is that, having designed and built the Works so that they are ‘fit for purpose’ according to Sub-Clause 4.1 [Contractor’s General Obligations], the Contractor must operate and maintain them in such a way that they remain ‘fit for purpose’ during the complete Operation Service. This means that replacement items or materials must be selected and installed to maintain the ‘fit for purpose’ requirement. Finally, the Employer shall approve all the operation and maintenance personnel before they are engaged, but such approval does not relieve the Contractor of any responsibility for the actions and overall competence of his personnel.
10.2
Commencement of Operation Service Unless otherwise stated in the Employer’s Requirements, the commencement of the Operation Service shall be from the date sta ted in the Commissioning Certificate issued under Sub-Clause 11.7 [Commissioning Certificate]. The Operation Service shall not commence until the Design-Build of the Works or
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any Sections has been completed in ac cordance with Sub-Clause 9.12 [Completion of Design-Build ]. Should the Commissioning Certificate, or any Notice attached or pertaining thereto, contain requirements or restrictions over and above those in the Contract, the Contractor shall comply with such requirements and/or restrictions, and, to the extent that the Contractor suffers additional Cost as a result, and subject to the provisions of Sub-Clause 20.1 [Contractor’s Claims], he shall be reimbursed by the Employer unless such requirements or restrictions were as a result of a fault or failure of the Contractor. The Contractor shall thereafter provide the Operation Service in compliance with the Operation Management Requirements and in accordance with Sub-Clause 5.5 [As-Built Documents] and Sub-Clause 5.6 [Operation and Maintenance Manuals]. If the Contractor wishes to modify a document which has previously been submitted and approved, the Contractor shall immediately notify the Employer’s Representative, and shall subsequently submit revised document(s) to the Employer’s Representative for review accompanied by a written explanation of the need for such modification. The Contractor shall not implement any proposed modification in accordance with sub-paragraph (d) of Sub-Clause 5.2 [Contractor’s Documents] until such modification has been reviewed by the Employer’s Representative, and consent to proceed has been given in writing. However, any such approval or consent, or any review (under this Sub-Clause or otherwise), shall not relieve the Contractor from any obligation or responsibility. The Contract assumes that the Operation Service commences on the same day as the Design-Build is completed and that this date is re corded in the Commissioning Certificate. If this is not to be the case, and it is known to the Employer at the time tenders are invited, the Employer’s Requirements should give details of the planned start of the Operation Service so that the Contractor can make due allowance when planning and pricing his tender. If the Commissioning Certificate contains any particular requirements or restrictions which were not identified in the tender documents or agreed when the Contract was signed, and which are not as a result of some fault or failure by the Contractor, then the Contractor will be entitled to claim additional cost for complying with such requirements. The Sub-Clause also reiterates that the Contractor must comply with the Operation Management Requirements, and the various Contractor’s Documents mentioned. 10.3
Independent Compliance Audit At least 182 days prior to the commencement of the Operation Service, the Employer and the Contractor shall jointly appoint the Auditing Body to carry out an independent and impartial audit during the Operation Service. The terms of appointment of the Auditing Body shall be included in the Employer’s Requirements, and the purpose will be to audit and monitor the performance of both the Employer and the Contractor during the Operation Service in compliance with the Operation Management Requirements. If the Parties cannot agree on the appointment of the Auditing Body, the matter shall be referred to the DAB by the Parties. The DAB shall make the appointment and notify the Parties accordingly. The Auditing Body shall commence its duties on the same date as the Operation Service commences. Payment of the Auditing Body shall be made from the Provisional Sum included in the Contract for that purpose. Both Parties shall cooperate with the Auditing Body and give due regard to the matters raised in each report issued by the Auditing Body. Although the appointment of the Employer’s Representative also covers the Operation Service Period, there is an additional need for a totally independent and impartial body to © FIDIC 2011
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act during the Operation Service to fairly and independently monitor the performance of both Parties during this period. Both Parties are dependent on each other for the proper and successful performance of their respective obligations – for example, the Contractor to operate the facility, and the Employer to provide fuel or consumable materials. It is important that the person or persons comprising the Auditing Body is/are jointly agreed and appointed by both Parties. The Auditing Body is paid from a Provisional Sum in the Contract which will have been determined by the Employer and included by the Contractor in his price when tendering. However, if the provisions of Sub-Clause 13.5 [Provisional Sums] are to be amended with reference to payments to be made to the Auditing Body, such amendments should be included in the Particular Conditions Part B. Unless specifically mentioned in the terms of appointment of the Auditing Body (which must be included as part of the Employer’s Requirements), the Auditing Body has no power to instruct either Party in the event that it finds something which needs correcting or changing (i.e., something not in accordance with the Contract). If such a situation arises, the Auditing Body will advise the Parties in a report (copied to the Employer’s Representative) and it will be the Employer’s Representative who will instruct the Parties in respect of any matter which either of them needs to correct or address. 10.4
Delivery of Raw Materials The Employer shall be responsible for the free issue and supply and delivery to the Site (or other designated place) of the raw materials, fuels, consumables and other such items specified in the Employer’s Requirements. The Employer shall be responsible that all such items are fit for purpose and comply with the requirements of the Contract in respect of quality, purpose and function. In the event that any such item or product is not delivered in accordance with the agreed delivery programme or deviates from the specified quality, and such delay or deviation causes the Contractor to suffer additional cost, the Contractor shall be entitled to give due notice to the Employer of the nature of the costs which he has incurred and, subject to Sub-Clause 20.1 [Contractor’s Claims], be entitled to recover his Cost Plus Profit. The provisions of this Sub-Clause shall not apply in cases where delays are due to: (a) breakdown, maintenance, repair, replacement or other operational failure under the responsibility of the Contractor; (b) health, safety and environmental risks carried by the Contractor; or (c) any act or omission of the Contractor under the Contract. If the Employer is planning to supply any raw materials such as fuel or other consumables during the Operation Service, details must be given in the Employer’s Requirements. Details should include availability, quality, location, transportation and requirements for off-loading etc. Once the free issue material has been delivered to Site, it comes under the care and control of the Contractor, but the Employer remains responsible for ensuring that such items meet the requirements of the Contract in respect of quality and being ‘fit for purpose’. If the items delivered by the Employer are delivered la te or are not of the specified quality then the Contractor can claim compensation for the costs he incurs unless the shortcomings were due to a failure of the Contractor.
10.5
Training The Contractor shall carry out the training of Employer’s Personnel in the operation and maintenance of the Works to the extent specified in the Employer’s Requirements. The programme and scheduling of the training shall be agreed with the Employer, and the Contractor shall provide experienced training staff, and all training materials as stated in the Employer’s Requirements. The Employer shall be responsible for providing the training facilities and nominating and selecting suitable personnel for training.
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Although the Contractor is responsible for operating and maintaining the facility during the Operation Service Period, the Employer may wish to have some of his O & M staff trained so that they are able to operate and maintain t he facility when the Works are finally handed over to the Employer at the end of the Operation Service Period. If this is the case, details must be given in the Employer’s Requirements. The Contractor will have to prepare and agree a suitable programme based on the training required by the Employer, and he will have to supply competent training staff and proper materials to carry out the training. The Employer is responsible for selecting staff for the training programme and ensuring that they are suitably fit and competent to undergo the training programme. The Parties must agree where the division of responsibility lies between the process of teaching and the process of learning as it is not always clear how much responsibility the Contractor can carry as to how much the Employer’s Personnel will actually learn. 10.6
Delays and Interruptions during the Operation Service Delays and interruptions during the Operation Service shall be agreed and determined as follows: (a) Delays or Interruptions caused by the Contractor If there are any delays or interruptions during the Operation Service which are caused by the Contractor or by a cause for which the Contractor is responsible, the Contractor shall compensate the Employer for any losses including loss of revenue, loss of profit and overhead losses. The amount of compensation due shall be agreed or determined according to Sub-Clause 3.5 [Determinations], and the Employer shall be entitled to recover the amount due by making a corresponding deduction from the next payment due to the Contractor. However, the total amount of compensation payable by the Contractor to the Employer shall not exceed the amount stated in the Contract Data. There will be no extension of the period of the Operation Service as a result of any such delay or interruption. (b) Delays or Interruptions caused by the Employer If there are any delays or interruptions during the Operation Service which are caused by the Employer or by a cause for which the Employer is responsible, the Employer shall compensate the Contractor for any cost and losses including loss of revenue and loss of profit. The amount of compensation due shall be agreed or determined according to Sub-Clause 3.5 [Determinations], and the Employer shall pay the amount due by making a corresponding adjustment to the next payment due to the Contractor. In any event other than in the case of election by the Employer to terminate for his convenience pursuant to SubClause 15.5 [Termination for Employer’s Convenience], the total amount of compensation payable by the Employer to the Contractor shall not exceed the amount stated in the Contract Data. There will be no extension of the period of the Operation Service as a result of any such delay or interruption. (c) Suspension by the Employer The Employer’s Representative may at any time during the Operation Service instruct the Contractor to suspend progress of the Operation Service. During such suspension, the Contractor shall protect, store, secure and maintain the Plant against any deterioration, loss or damage. If the need to suspend the Operation Service by the Employer is due to any failure of the Contractor or circumstances for which the Contractor is responsible under the Contract, the provisions of paragraph (a) of this SubClause shall apply. If the need to suspend the Operation Service is a result neither of any failure by the Contractor nor of circumstances for which the Contractor is responsible under the Contract, the provisions of paragraph (b) of this Sub-Clause shall apply. If a suspension, which is due neither to any failure by the Contractor nor to circumstances for which the Contractor is responsible under the Contract, has © FIDIC 2011
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continued for more than 84 days, the Contractor may request the Employer’s Representative’s permission to proceed. If the Employer’s Representative does not give permission within 28 days after being requested to do so, the Contractor may give Notice of termination under Sub-Clause 16.2 [Termination by Contractor ]. After the permission or instruction to proceed is given, the Contractor and the Employer’s Representative shall jointly examine the Works. The Contractor shall make good any deterioration or defect in the Plant and the Employer’s Representative shall make a written record of all making good required to be carried out by the Contractor. If the suspension is due neither to any failure by the Contractor nor to circumstances for which the Contractor is responsible under the Contract, the Contractor shall be entitled to be paid the Cost Plus Profit of making good the Works prior to re-c ommencing the Operation Service. The Contract as no provisions for the Operation Service to be prolonged by an extension of the Operation Service Period in the event of delays or interruptions caused by either Party. However the suffering Party may be entitled to financial compensation under this Sub-Clause. This is one of the few occasions under the Contract where the Party who suffers from a delay or interruption caused by the other Party may claim compensation including loss of revenue and loss of profit. Compensation to the Parties will depend on the reason for the suspensio n. If the need is due to a failure by the Contractor, then paragraph (a) applies, and if it not due to the Contractor nor results from an event for which the Contractor is responsible under the Contract, then paragraph (b) applies. Suspension may only be inst ructed by the Employer’s Representative and compensation to the Parties again depends on the reason for the suspension. If the suspension lasts more than 84 days the s ituation is similar to that exist ing under Sub-Clause 9.10 [Prolonged Suspension], and the Contractor may terminate the Contract under SubClause 16.2 [Termination by Contractor ]. 10.7
Failure to Reach Production Outputs In the event that the Contractor fails to achieve the production outputs required under the Contract, the Parties shall jointly establish the cause of such failure. (a) If the cause of the failure lies with the Employer or any of his servants or agents, then, after consultation with the Contractor, the Employer shall give written instruction to the Contractor of the measures which the Employer requires the Contractor to take. If the Contractor suffers any additional cost as a result of the failure or the measures instructed by the Employer, the Employer, subject to Sub-Clause 3.5 [Determinations] and Sub-Clause 20.1 [Contractor’s Claims], shall pay the Contractor his Cost Plus Profit. (b) If the cause of the failure lies with the Contractor then, after due consultation with the Employer, the Contractor shall take all steps necessary to restore the output to the levels required under the Contract. If the Employer suffers any loss as a result of the failure or the measures taken by the Contractor, the Contractor, subject to Sub-Clause 3.5 [Determinations], shall pay the Employer the performance damages specified in the Contract Data. Unless otherwise stated in the C ontract Data, if the failure continues for a period of more than 84 days and the Contractor is unable to achieve the required production output, the Employer may either: (i) continue with the Operation Service at a reduced level of compensation determined in accordance with Sub-Clause 3.5 [Determinations]; or, (ii) if the production outputs fail to reach the minimum values required in the Contract Data, give Notice to the Contractor not less than 56 days prior to terminating the Contract, in accordance with Sub-Clause 15.2 [Termination for Contractor’s Default ].
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In such an event, the Employer shall be free to continue the Operation Service himself or by others. If the Contractor is unable to achieve the required production outputs, it will be necess ary to establish the reason for the failure. There may well be a number of reasons why production outputs have not been reached, some coming under the responsibility of the Contractor and some coming under the responsibility of the Employer. Once the cause is established, the Parties are required to consult with each other to decide on the action to be taken. If the Employer is responsible and the Contractor suffers additional cost, he is entitled to receive compensation including an element of profit. If the Contractor is responsible he must pay the performance damages specified in the Contract Data (under Sub-Clause 10.7 [Failure to Reach Production Outputs]) to the Employer. This is the only compensation due to the Employer for this failure, but if the failure continues for more than 84 days, he may either let the Contractor continue with the Operation Service at a reduced level of remuneration which the Parties will determine according to Sub-Clause 3.5 [Determinations], or he can terminate the Contract and continue the Operation with his own staff or engage others. 10.8
Completion of Operation Service Unless the Parties have mutually agreed to prolong the Operation Service, the obligation of the Contractor to operate and maintain the Plant under the Operation Service shall cease at the end of the period stated in the Contract as the Operation Service Period. Notwithstanding the foregoing, other services to be performed by the Contractor must be completed before the Contractor will be entitled to receive the Contract Completion Certificate in accordance with Sub-Clause 8.6 [Contract Completion Certificate]. Pre-conditions which must be fulfilled by the Contractor before the Contract Completion Certificate will be issued are: (a) Inspection in accordance with Sub-Clause 11.8 Joint [ Inspection Prior to Contract Completion]; (b) Testing in accordance with Sub-Clause 11.9 [Procedure for Tests Prior to Contract Completion]; (c) Updating Operation and Maintenance manuals providing performance records and data in accordance with Sub-Clause 5.6 [Operation and Maintenance Manuals]; and (d) Remedying defects found during inspection in accordance with Sub-Clause 11.8 [Joint Inspection Prior to Contract Completion]. As mentioned previously, there is no provision to extend the Operation Service beyond the period stated in the Contract. At the end of the Operation Service Period, the Contractor will receive the Contract Completion Certificate, but there are certain pre-conditions which have to be met before the Certificate will be issued. The timing of these activities (see SubClauses 11.8 [Joint Inspection Prior to Contract Completion] and 11.9 [Procedure for Tests Prior to Contract Completion]) is such to ensure that all required inspections, tests and any making good or replacements required as a result of the inspections or tests, can be completed within the Operation Service Period, so that no activities will normally fall outside this Period. If the Contractor fails to complete the pre-conditions, then the issue of the Contract Completion Certificate will be withheld until they have been completed.
10.9
Ownership of Output and Revenue During the Operation Service, any production output and revenue shall be the exclusive property of the Employer. This statement is included to make it quite clear that the Contractor has no claim to ownership of any revenue or other income resulting from his operation of the facility. © FIDIC 2011
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Clause 11 11.1
Testing Testing of the Works The Contractor shall carry out the Tests on Completion of Design-Build in accordance with this Clause and Sub-Clause 7.4 [Testing], after providing the documents in accordance with Sub-Clause 5.5 [As-Built Documents] and SubClause 5.6 [Operation and Maintenance Manuals]. The Contractor shall give Notice to the Employer’s Representative not less than 21 days prior to the date after which the Contractor will be ready to carry out each of the Tests on Completion of Design-Build. Unless otherwise agreed, Tests on Completion of Design-Build shall be carried out within 14 days after this date, on such day or days as the Employer’s Representative shall instruct. Unless otherwise stated in the Particular Conditions, the Tests on Completion of Design-Build shall be carried out in the following sequence and are further detailed in the Employer’s Requirements: (a) pre-commissioning tests, which shall include the appropriate inspections and (“dry” or “cold”) functional tests to demonstrate that each item of Plant can safely undertake the next stage, (b); (b) commissioning tests, which shall include the specified operational tests to demonstrate that the Works or Section can be operated safely and as spec ified, under all available operating conditions; and (c) trial operation, which shall demonstrate that the Works or Section perform reliably and in accordance with the Contract. The Employer shall be the sole beneficiary of any revenue or benefit resulting from the Tests on Completion of Design-Build. During trial operation, when the Works are operating under stable conditions, the Contractor shall give Notice to the Employer’s Representative that the Works are ready for any other Tests on Completion of Design-Build, including performance tests to demonstrate whether the Works conform with criteria specified in the Employer’s Requirements and with the Schedule of Guarantees. Trial operation shall not constitute a commencement of the Operation Service under Sub-Clause 10.2 [Commencement of Operation Service]. In considering the results of the Tests on Completion of Design-Build, the Employer’s Representative shall make allowances for the effect of any use of the Works by the Employer on the performance or other characteristics of the Works. As soon as the Works, or a Section, have passed each of the Tests on Completion of Design-Build described in sub-paragraph (a), (b) or (c) above, the Contractor shall submit a report certified by the Contractor of the results of these Tests to the Employer’s Representative. This Sub-Clause covers all tests which the Contractor is required to perform before the Commissioning Certificate will be issued, and before commencement of the Operation Service. The tests are divided into three types: the pre-commissioning tests; the commissioning tests; and the trial operation of the facility. The purpose of the tests is generally described in this Sub-Clause under paragraphs (a), (b) and (c), but the details of the required tests will be given elsewhere in the Contract. Sub-Clause 7.4 [Testing] relates to the general requirements regarding testing of Plant, Materials and workmanship, whilst this Sub-Clause relates to testing the completed Works. Although the Commissioning Certificate will not be issued until testing the Works has been successfully completed, if there is any revenue or benefit generated during or as a result of the tests, such revenue or benefit belongs to the Employer. As soon as the Works (or Section) passes the required tests, the Contractor is required to submit a report to the Employer’s Representative confirming the results, and this will be the
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evidence which the Employer’s Representative requires in order to confirm that the Works have been completed as required by Sub-Clause 9.2 [Time for Completion of Design-Build ]. 11.2
Delayed Tests on Completion of Design-Build If the Tests on Completion of Design-Build are being unduly delayed by the Employer, Sub-Clause 7.4 [Testing] (fifth paragraph) shall be applicable. If the Tests on Completion of Design-Build are being unduly delayed by the Contractor, the Employer’s Representative may by Notice require the Contractor to carry out such Tests within 21 days after receiving the Notice. The Contractor shall carry out such Tests on the day or days within that period as the Contractor may fix and of which he shall give Notice to the Employer’s Representative. If the Contractor fails to carry out the Tests on Completion of Design-Build within the period of 21 days, the Employer’s Personnel may proceed with the Tests at the risk and cost of the Contractor. The Tests on Completion shall then be deemed to have been carried out in the presence of the Contractor and the results of the Tests shall be accepted as accurate. If the tests covered by Sub-Clause 11.1 [Testing of the Works] are delayed, and the Employer is responsible, for example a delay by the Employer in attending the tests, then the Contractor is entitled to an extension of time, plus Cost Plus Profit as described in SubClause 7.4 [Testing]. However, if it is the Contractor who is delaying the tests (for example if he wants to delay the issue of the Commissioning Certificate as he does not have the personnel ready to commence the Operation Service), the Employer’s Representative can instruct the Contractor to carry out the tests and if the Contractor does not do so (within 21 days), the Employer’s Personnel (who by Definition 1.1.34 can be anybody appointed by the Employer) can perform the tests and thereby effectively prevent the Contractor from delaying the issue of the Commissioning Certificate for his own advantage.
11.3
Retesting of the Works If the Works, or a Section, fail to pass the Tests on Completion of Design-Build, Sub-Clause 7.5 [Rejection] shall apply, and the Employer’s Representative or the Contractor may require the failed Tests, and Tests on Completion of Design-Build on any related work, to be repeated under the same terms and conditions.
11.4
Failure to Pass Tests on Completion of the Design-Build If the Works, or a Section, fail to pass the Tests on Completion of DesignBuild repeated under Sub-Clause 11.3 [Retesting of the Works] the Employer’s Representative shall be entitled to: (a) order further repetition of Tests on Completion of Design-Build under SubClause 11.3 [Retesting of the Works]; or (b) issue a Notice under Sub-Clause 15.1 [Notice to Correct ]. If the Tests on Completion of Design-Build fail, either Party may require the tests to be repeated on the same terms and conditions as in Sub-Clause 11.2 [Delayed Tests on Completion of Design-Build ]. However, if they still fail, the Employer’s Representative has two choices:; if he feels there is still a chance that the Works can pass the tes ts he can order a further re-test under Sub-Clause 11.4(a); or, if the failure is more serious, he can proceed under via Sub-Clause 15.1 [Notice to Correct ] by giving the Contractor a formal Notice to correct the fault, and then, if the Contractor does not or cannot correct the fault, the Employer can, if he so wishes, terminate the Contract under Sub-Clause 15.2 [Termination for Contractor’s Default ]. Note that whilst it is the Employer’s Representative who gives the Notice under Sub-Clause © FIDIC 2011
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15.1 [Notice to Correct ], it is the Employer (not his Representative) who has the right to terminate under Sub-Clause 15.2 [Termination for Contractor’s Default ]. 11.5
Completion of the Works and Sections Except as stated in Sub-Clause 11.11 [Failure to Pass Tests Prior to Contract Completion], the Works shall be deemed by the Employer to be completed when: (a) the Works have been completed in accordance with the Contract, including the matters described in Sub-Clause 9.2 [Time for Completion of Design-Build ] and Sub-Clause 5.6 [Operation and Maintenance Manuals] and except as allowed in sub-paragraph (i) below; and (b) a Commissioning Certificate has been issued, or is deemed to have been issued, in accordance with this Sub-Clause. The Contractor may apply by Notice to the Employer’s Representative for a Commissioning Certificate not earlier than 14 days before the Works will, in the Contractor’s opinion, be complete and ready for commencement of the Operation Service Period. If the Works are divided into Sections, the Contractor may similarly apply for a Commissioning Certificate for each Section. The Employer’s Representative shall, within 28 days after receiving the Contractor’s application: (i) issue the Commissioning Certificate to the Contractor, stating the date on which the Works or Section were completed in accordance with the Contract, except for any minor outstanding work and defects which will not substantially affect the use of the Works or Section for their intended purpose (listing such outstanding work and defects which are to be remedied); or (ii) reject the application, giving reasons and specifying the work required to be done by the Contractor to enable the Commissioning Certificate to be issued. The Contractor shall then com plete the work referred to in sub-paragraph (ii) above before issuing a further Notice under this Sub-Clause. If the Employer’s Representative either fails to issue the Commissioning Certificate or reject the Contractor’s application within the period of 28 days, and if the Works or Section (as the case may be) are substantially in accordance with the Contract, the Commissioning Certificate shall be deemed to have been issued on the last day of that period. This Sub-Clause concerns the completion of the Design-Build of the Works, and this takes place when firstly when the Employer’s Representative is satisfied that the Works have been completed and passed the Tests on Completion and the required documentation has been supplied, and secondly when the Commissioning Certificate has been issued. It is the Contractor who makes the initial application for a Completion Certificate t o be issued, and he does this when, in his opinion, within 14 days, he and the Works will have fulfilled all the pre-requisites for the Commissioning Certificate to be issued. Then within 21 days from this application, the Employer’s Representative must either issue the Commissioning Certificate, or reject the application, giving his reasons. If he accepts the application, it is very important that the Commissioning Certificate records the date on which the Works were accepted as being complete (except for minor outstanding work), as this date, unless otherwise agreed between the Parties will be the commencement date for the Operation Service. If the application is rejected, the Contractor must make good and correct the failure before he can re-apply for the Commissioning Certificate to be issued. However, it is important for the Employer’s Representative to take action under either paragraph (i) or (ii), since if he neither issues the Certificate, nor formally rejects the application in accordance with the provisions of the Sub-Clause, then the Contractor can assume that the Commissioning Certificate has been issued by default.
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11.6
Commissioning of Parts of the Works The Employer’s Representative may, at the request of the Contractor, issue a Section Commissioning Certificate for any part of the Permanent Works. If a Section Commissioning Certificate has been issued for a part of the Works, the delay damages thereafter for completion of the remainder of the Works shall be reduced. Similarly, the delay damages for the remainder of the Section (if any) in which this part is included shall also be reduced. For any period of delay after the date stated in this Section Commissioning Certificate, the proportional reduction in these delay damages shall be calculated as the proportion which the value of the part so certified bears to the value of the Works or Section (as the case may be) as a whole. The Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these proportions. The provisions of this paragraph shall only apply to the daily rate of delay damages under Sub-Clause 9.6 [Delay Damages relating to Design-Build ], and shall not affect the maximum amount of these damages (if any). Completion of the whole of the Works or a Section (see Definition 1.1.70) is covered under Sub-Clause 11.5 [Completion of the Works and Sections]. This Sub-Clause covers the case where the Contractor requests, and the Employer’s Representative agrees, to commission a part (usually a substantial part) of the Works which has not been identified in the Contract as a Section. In such a case the Employer’s Representative may issue a Section Commissioning Certificate (se e Definition 1.1.71) for the part concerned, and the delay damages for the remaining Works or Section (if applicable) shall be reduced in proportion that the value of the part had to the value of the Works or Section as the case may be.
11.7
Commissioning Certificate Performance of the Contractor’s Design-Build obligations, including care of the Works, shall not be considered to have been completed until the Commissioning Certificate has been signed by the Employer’s Representative and delivered to the Contractor, stating the date on which the Contractor, in the opinion of the Employer’s Representative, completed all such obligations in accordance with the Contract (subject to the outstanding works and defects listed in accordance with Sub-Clause 11.5 [Completion of the Works and Sections]). The Employer’s Representative shall issue the Commissioning Certificate to the Contractor within 28 days after the application by the Contractor for the Commissioning Certificate subject to the provisions of Sub-Clause 11.5 [Completion of the Works and Sections]. Only the Commissioning Certificate shall be deemed to constitute acceptance of the Works. This is a very important Certificate . It has already been referred to in several sub-clauses as it records the completion date for the Design-Build and the commencement date for the Operation Service. This Sub-Clause states quite clearly that it is only the Commissioning Certificate which constitutes acceptance of the Works by the Employer – that is, that the Works have been designed and built in accordance with the Contract. However, the Commissioning Certificate does not constitute acceptance by the Employer that the Contractor has fulfilled all his obligations under the Contract (that is covered by the Contract Completion Certificate, see Sub-Clause 8.6 [Contract Completion Certificate]). After issue of the Commissioning Certificate the Contractor still has to provide the Operation Service, and he is still liable for any outstanding obligations which he failed to fulfil during the Design-Build Period. © FIDIC 2011
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11.8
Joint Inspection Prior to Contract Completion Not less than two years prior to the expiry date of the Operation Service Period, the Employer’s Representative and the Contractor shall carry out a joint inspection of the Works and, within 28 days of the completion of the joint inspection, the Contractor shall submit a report on the condition of the Works identifying maintenance works (excluding routine maintenance works and the correction of defects), replacements and other works required to be carried out to satisfy the requirements of the Operation and Maintenance Plan after the Contract Completion Date. The Contractor shall submit a programme for carrying out such works over the remainder of the Operation Service Period. Following receipt of the Contractor’s report, the Employer’s Representative may, throughout the remainder of the Operation Service Period, instruct the Contractor to carry out all or part of the works identified in the Contractor’s report. The quoted sums from the Asset Replacement Fund will be added to the monthly payments upon replacement of items of Plant in accordance with the Schedule of replacement prepared at Tender stage and the provisions of Sub-Clause 14.18 [Asset Replacement Fund ]. Other works shall be carried out at the Contractor’s cost. Upon satisfactory completion of the items identified in this Sub-Clause the Employer shall instruct the Contractor to commence the Tests Prior to Contract Completion in accordance with Sub-Clause 11.9 [Procedure for Tests Prior to Contract Completion]. Before the end of the Operation Service Period, it is necessary to carry out various tests and inspections to make sure that the Works are in the condition required by the Contract when they are handed over to the Employer at the end of the Operation Service Period. The handback requirements covered in Sub-Clause 8.7 [Handback Requirements] give the specific requirements of the Employer as to what he requires after he has taken over the operation of the facility after the issue of the Contract Completion Certificate. The provisions of Sub-Clauses 11.8 to 11.12 contain a general requirement to inspect and test the Works, irrespective of what the Employer may or may not have given as his handback requirements. The procedure begins more than to two years prior to the end of the Operation Service Period to ensure that all the necessary testing and making good (where required) can be completed before the Operation Service Period ends and thus avoid the need for delays and uncertainties before the Contract Completion Certificate can be issued. The procedure for testing and delayed tests, and the provisions regarding failure and the need for re-testing prior to Contract completion are very similar to those given in SubClauses 11.1 to 11.4 in respect of testing on completion of Design-Build.
11.9
Procedure for Tests Prior to Contract Completion The Tests Prior to Contract Completion (“Tests”) are to be carried out by the Contractor who shall provide all necessary labour, materials, electricity, fuel and water, other than items identified as being the responsibility of the Employer under Sub-Clause 10.4 [Delivery of Raw Materials] , and undertake any required remedial works as may be required. The Tests are to be carried out in accordance with the Employer’s Requirements. The Tests shall be carried out towards the end of the Operation Service Period. The Employer shall give Notice to the Contractor not less than 21 days prior to the date after which the Tests shall be carried out. Unless otherwise agreed, such Tests shall be commenced within 14 days after this date, o n the day or days determined by the Employer’s Representative. The results of the Tests shall be compiled and evaluated by the Employer’s Representative and the Contractor. The Contractor shall make the results of any tests, inspections or monitoring available to the Employer’s Representative within 7
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days of their receipt. Any effect on the results of the Tests which can reasonably be shown to be due to prior use of the Works by the Contractor during the Operation Service Period shall be taken into account in assessing such results. As soon as the Contractor has completed the Tests, the Contractor shall notify the Employer’s Representative that the Works are complete and ready for final inspection. Upon the Employer’s Representative being satisfied that the Contractor has satisfied the requirements of the Tests regarding such final inspection, the Employer’s Representative shall notify the Employer and the Contractor prior to the issue of the Contract Completion Certificate. See comments to Sub-Clause 11.8 [Joint Inspection Prior to Contract Completion] above. 11.10 Delayed Tests Prior to Contract Completion If the Employer incurs cost as a result of any unreasonable delay by the Contractor in carrying out the Tests Prior to Contract Completion (“Tests”), the Employer shall be entitled, subject to Sub-Clause 20.2 [Employer’s Claims], to payment of any such cost which shall be recoverable from the Contractor by the Employer, and may be deducted by the Employer from any monies due, or to become due, to the Contractor. If the Contractor fails to commence the Tests on the day or days determined under Sub-Clause 11.9 [Procedure for Tests Prior to Contract Completion], the Employer’s Representative shall give Notice to the Contractor that unless the Tests are commenced within 14 days of this Notice the Employer’s Representative may order that the Tests be undertaken by others on behalf of the Employer. In such event, the Contractor shall be bound by the results of such Tests as being accurate and the Employer shall be entitled to deduct the costs associated with the undertaking of the Tests by others from any monies due, or to become due, to the Contractor. If, for reasons not attributable to the Contractor, the Tests Prior to Contract Completion of the Works, or any Section, cannot be completed during the Contract Period (or any other period agreed upon by both Parties), then the Works or Sec tion shall be deemed to have passed the Tests. See comments to Sub-Clause 11.8 [Joint Inspection Prior to Contract Completion] above. 11.11 Failure to Pass Tests Prior to Contract Completion If the Works or a Section thereof, fails to pass the Tests Prior to Contract Completion (“Tests”) under Sub-Clause 11.9 [Procedure for Tests Prior to Contract Completion], the Employer’s Representative shall be entitled to: (a) order further repetition of Tests under Sub-Clause 11.12 [Retesting Prior to Contract Completion]; (b) reject the Works or a Section thereof (as the case may be), in which event the Employer shall have the same remedies against the Contractor as provided under Clause 15 [Termination by Employer ]; or (c) issue a Contract Completion Certificate, if the Employer so requires. The Contract Price shall then be reduced by such an amount as may be agreed by the Employer and the Contractor (in full satisfaction of such failure only), and the Contractor shall then proceed in accordance with his other obligations under the Contract. In the event of (c) above, if the Works, or a Section, fail to pass any of the Tests and the Contractor proposes to make adjustments or modifications to the Works or such Section, the Contractor may be instructed by (or on behalf of) the Employer that right of access to the Works or Section cannot be given until a time that is convenient to the Employer. The Contractor shall then remain liable to carry out the adjustments or modifications and to satisfy this Test, within a reasonable period of receiving Notice by (or on behalf of) the Employer of the time that is convenient to © FIDIC 2011
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the Employer. However, if the Contractor does not receive this Notice during the relevant Contract Period, the Contractor shall be relieved of this obligation and the Works or Section (as the case may be) shall be deemed to have passed the Tests. If the Contractor incurs additional cost as a result of any unreasonable delay by the Employer in permitting access to the Works or Plant by the Contractor after issue of the Contract Completion Certificate, either to investigate the causes of a failure to pass any of the Tests or to carry out any adjustments or modifications, the Contractor shall be paid the additional Cost Plus Profit, as determined or agreed in accordance with Sub-Clause 3.5 [Determinations], caused by such a delay. See comments to Sub-Clause 11.8 [Joint Inspection Prior to Contract Completion] above. 11.12 Retesting Prior to Contract Completion If the Works, or a Section, fail to pass the Tests Prior to Contract Completion: (a) sub-paragraph (b) of Sub-Clause 12.1 [Completion of Outstanding Work and Remedying Defects] shall apply; and (b) the Employer may require the failed Tests, and the Tests Prior to Contract Completion on any related work, to be repeated under the same terms and conditions. If such failure and retesting results from a default of the Contractor and causes the Employer to incur additional costs, such costs shall be recoverable from the Contractor by the Employer, subject to Sub-Clause 20.2 [Employer’s Claims], and may be deducted by the Employer from any monies due, or to become due, to the Contractor. The Employer’s Representative may carry out such additional tests, inspections and monitoring as he deems necessary. The costs of such tests, except where such tests are carried out for the purpose of remedying any damage, defect or failure to meet standards that are the responsibility of the Contractor under the Contract, shall be borne by the Employer. See comments to Sub-Clause 11.8 [Joint Inspection Prior to Contract Completion] above.
Clause 12 12.1
Defects Completion of Outstanding Work and Remedying Defects The requirements regarding the completion of outstanding work and the remedying of defects are as follows: (a) Design-Build Period: In order that the Works and Contractor’s Documents, and each Section, shall be in the condition required by the Contract, the Contractor shall: (i) complete any work which is outstanding on the date stated in the Commissioning Certificate as soon as practicable after such date, and not later than one year after such date; and (ii) execute all work required to remedy defects or damage, as may be notified by (or on behalf of) the Employer. Final payment for the Design-Build Period, in accordance with Clause 14 [Contract Price and Payment ], will not be certified until the above requirements have, in the opinion of the Employer’s Representative, been met. If a defect appears or damage occurs, the Contractor shall be notified accordingly, by (or on behalf of) the Employer. (b) Operation Service Period: The Contractor shall be responsible for repairing and making good any damage or defect occurring during the Operation Service Period, whether such defect or damage is notified by the Employer or his Representative, or observed by the Contractor himself.
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The Contract Completion Certificate issued under Sub-Clause 8.6 [Contract Completion Certificate] will not be issued until all defects and damage and all outstanding work, including all such items identified during the joint inspection made in accordance with Sub-Clause 11.8 [ Joint Inspection Prior to Contract Completion], have been completed. When the Commissioning Certificate is issued under Sub-Clause 11.7 [Commissioning Certificate], the Works will have been substantially completed even if there are some items which do not affect the performance of the Works, which are still outstanding. These will have been recorded in some form of ‘snag list’. This Sub-Clause requires the Contractor, under paragraph (a), to complete such outstanding work ‘as soon as practicable’, but at the latest within one year after the completion of the Design-Build. The Contractor’s final payment for the Design-Build is dependent on his completing this outstanding work, and if he has not done so within the one year period, he will not get his final payment for the Design-Build. There is no other provision in the Contract dealing with late completion of outstanding work. This is because such late completion should not affect the ability of the Contractor to operate the Works, and it should not affect the performance of the Works as such. It simply means that the Contractor will not get paid his final payment until the outstanding work has been completed. With regard to defects, there is no set period during which the Contractor is liable to make good and repair defects, as is to be found in the other FIDIC forms of contract. The Contractor is liable for repairing defects and damage, if and when they occur, during the whole Operation Service Period, whether they are identified and notified by the Employer or by the Contractor himself. So failure by the Employer’s Representative to spot a defect during the Operation Service Period does not relieve the Contractor of his obligation to make good such defect as may be necessary for the continued performance of the facility. This is a necessary requirement since it is the Contractor who is operating the Works, and it is the Contractor who is responsible for their continuing and efficient operation for the complete Operation Service Period. 12.2
Cost of Remedying Defects All work required to repair defects or damage shall be executed at the risk and cost of the Contractor, except: (a) where it is attributable to any act by the Employer or the Employer’s Personnel or agents; or (b) where it is as a result of an event that is covered under Clause 18 [Exceptional Risks]. Where the Contractor is required to remedy a defect or damage to the Works under sub-paragraphs (a) or (b) of this Sub-Clause, the Contractor shall notify the Employer’s Representative and shall be entitled to a Variation under Clause 13 [Variations and Adjustments]. Normally, it would be expected that any defect or damage will need to be repaired by the Contractor in order that he can continue to operate the Works as required during the Operation Service Period. If the cause of the defect or damage lies with the Employer or anyone for whom the Employer is responsible under the Contract, or if it is the result of an Exceptional Risk which, according to Clause 18 [Exceptional Risks] is a risk carried by the Employer, then the repair work will be covered by a Variation and the Contractor must wait until the Variation order has been issued or instructed or agreed before commencing the repair work. However the Contractor will be entitled to be compensated for the cost of the work involved. If such damage or defect occurs during the Design-Build Period, the Contractor will also be entitled to an extension of time. However, if it occurs during the Operation Service Period, where no time extension is allowed under the Contract, compensation will be purely financial reimbursement. Note that if the work is to be covered by a Variation during the Operation © FIDIC 2011
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Service Period, by Sub-Clause 13.1 [Right to Vary ], the cost of the Variation must be agreed before the Contractor is obliged to proceed with the repair work. If the cause of the defect or damage is not covered by paragraphs (a) or (b) of this SubClause, then the Contractor has to make the repair at his own risk and cost. He does not need any instruction from the Employer’s Engineer’s Representative, and no compensation or time extension should be requested or granted. 12.3
Failure to Remedy Defects If the Contractor fails to remedy any defect or damage arising during either the Design-Build Period or the Operation Service Period within a reasonable time, a date may be fixed by (or on behalf of) the Employer’s Representati ve, on or by which the defect or damage is to be remedied. The Contractor shall be given reasonable Notice of this date. If the Contractor fails to remedy the defect or damage by such date and the necessity for such work is due to the Contractor subject to Sub-Clause 12.2 [Cost of Remedying Defects], the Employer may (at his sole discretion): (a) require the Employer’s Representative to determine and certify a reasonable reduction in the Contract Price or the Rates and Prices submitted for the Operation Service Period in accordance with Sub-Clause 3.5 [Determinations]; or (b) if the defect or damage is such that the Contractor has been unable to commission the Works or continue providing the Operation Service and the Employer has been deprived of substantially the whole of the benefit of the Works or parts of the Works, the Employer shall be entitled to terminate the Contract in respect of such parts of the Works as cannot be put to the intended use in accordance with the provisions of Clause 15 [Termination by Employer ]. In the event of (b) above occurring, the Employer shall, notwithstanding the provisions of Sub-Clause 15.4 [Payment after Termination for Contractor’s Default ]: (i) during the Design-Build Period, be entitled to recover from the Contractor all sums paid for such parts of the Works plus financing costs together with the cost of dismantling the same, c learing the Site and returning Plant and Materials to the Contractor; or, if the Employer chooses to complete the Works himself or by engaging others, the Employer shall be entitled to recover the extra costs, if any, of completing the Works after allowing for any sum due to the Contractor under Sub-Clause 15.3 [Valuation at Date of Termination for Contractor’s Default ]. If there are no such extra costs, the Employer shall pay any balance to the Contractor; and (ii) during the Operation Service Period, not be liable to make any further payments to the Contractor until the costs of operation and maintenance, completion and remedying of any defects and all other costs incurred and to be incurred by the Employer have been established. Normally the Contractor will be keen to rectify and repair defects, especially during the Operation Service Period, in order that he can proceed with the Operation Service. However, if for any reason he does not do so ‘within a reasonable time’, the provisions of this Sub-Clause allow the Employer to take action against the Contractor. Firstly, if the Employer’s Representative considers that the Contractor has not corrected the defect ‘within a reasonable time’, he can set a date by which the Contractor must deal with the defect. If the Contractor fails to remedy, or indeed cannot remedy, the defect by the set date, the options open to the Employer depend whether the failure occurs during the Design-Build Period or the Operation Service Period. If the failure to remedy occurs during the Design-Build Period, the Employer may accept the facility, with the defect, at a reduced price to be determined by the Employer’s Representative. However, if the Works cannot be commissioned, or the Contractor cannot commence the Operation Service due to the defect, the Employer may terminate the
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Contract under Sub-Clause 15.2 [Termination for Contractor’s Default] and recover monies paid to the Contractor and the costs which the Employer has incurred as a result. 12.4
Further Tests If the work of remedying any defect or damage may affect the performance of the Works, the Employer’s Representative may require the repetition of any of the tests described in the Contract. The requirement shall be made by Notice within 28 days after the defect or damage is remedied. These tests shall be carried out in accordance with the terms applicable to the previous tests, except that they shall be carried out at the risk and cost of the Party liable, under Sub-Clause 12.2 [Cost of Remedying Defects], for the cost of the remedial work. This Sub-Clause allows the Employer’s Representative to require the Works, or parts of the Works, to be re-tested after remedial or repair work has been carried out.
12.5
Removal of Defective Work If the defect or damage cannot be remedied expeditiously on the Site and the Employer gives consent, the Contractor may remove from the Site for the purposes of repair such items of Plant as are defective or damaged. This consent may require the Contractor to increase the amount of the Performance Security by the full replacement cost of these items, or to provide other appropriate security. This provision allows the Contractor to remove items of Plant or equipment from the Site for the purposes of remedying defects, if it is not expedient for him to do so on Site. However, before doing so, he must have the Employer’s consent, which, according to Sub-Clause 1.3 [Notices and Other Communications], must be in writing and shall not be unreasonably withheld. So if the Contractor reasonably requests to remove an item of Plant from the Site for such purpose, it is unlikely that the Employer will refuse him. However the Employer is entitled to require the Contractor to provide appropriate security, since by this time, the Employer will have paid for the items and they are likely legally to be his property.
12.6
Contractor to Search The Contractor shall, if required by the Employer’s Representative, search for the cause of any defect, under the direction of the Employer’s Representative. Unless the defect is to be remedied at the cost of the Contractor under Sub-Clause 12.2 [Cost of Remedying Defects], the Cost Plus Profit of the search shall be agreed or determined by the Employer’s Representative in accordance with Sub-Clause 3.5 [Determinations] and shall be included in the Contract Price. It is not always clear what has caused a defect, and this Sub-Clause allows the Employer’s Representative to require the Contractor to investigate and search for the cause if a defect has been discovered. It is important to know the cause of a defect for two reasons: firstly it will help identify the Party responsible or liable for the costs of remedying the defect; and secondly it will help determine the action which needs to be taken to remedy the defect and ensure that it does not re-occur. If the Contractor is not responsible, he is entitled to be reimbursed the cost of the search in accordance with Sub-Clause 12.2 [Cost of Remedying Defects]. Note that the search has to be made “under the direction of the Employer’s Representative”. This is important since the Contractor should not be allowed to carry out this work, which will result in determining liability, unsupervised.
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Clause 13
Variations and Adjustments Very few contracts run their course without the need to introduce Variations, making changes to the form or nature of the Works as compared to what was foreseen at the time the Contract came into force. In this Clause 13, the Design-Build-Operate Contract addresses three ways in which Variations may be introduced. They may be initiated by the Employer’s Representative giving an instruction to the Contractor, or initiated by the Employer’s Representative requesting a proposal from the Contractor, or proposed by the Contractor. However, in each case, the decision as to whether the Variation is to be executed, lies with the Employer’s Representative. The Contractor is not permitted to introduce Variations without an order or instruction in writing from the Employer’s Representative.
13.1
Right to Vary Variations may be initiated by the Employer’s Representative at any time prior to issuing the Commissioning Certificate, either by an instruction to the Contractor by the Employer’s Representative or by a request for the Contractor to submit a proposal. A Variation shall not comprise the omission of any work which is to be carried out by others. The Contractor shall execute and be bound by each Variation; unless the Contractor promptly gives Notice to the Employer’s Representative stating (with supporting particulars) that (i) the Contractor cannot readily obtain the Goods required for the Variation, (ii) it will reduce the safety or suitability of the Works for the purposes for which they were intended under the Contract; (iii) it will have an adverse impact on the achievement of the Schedule of guarantees; or (iv) it will have an adverse effect on the provision of the Operation Service under the Contract. Upon receiving this Notice, the Employer’s Representative shall cancel, confirm or vary the instruction and the Contractor shall execute and be bound by it. If the Employer or the Employer’s Representative wishes to instruct a Variation during the Operation Service Period, he shall give the Contractor written details of his requirements. The Contractor shall then proceed in accordance with Sub-Clause 13.3 [Variation Procedure] sub-paragraphs (a), (b) and (c). However, the Contractor shall not be obliged to proceed with the Variation until the matters covered in SubClause 13.3 [Variation Procedure] sub-paragraphs (a), (b) and (c) have been agreed between the Employer and the Contractor. The Employer’s Representative may instruct or order a Variation at any time during the Contract Period. However the procedure is slightly different depending on whether the instruction comes during the Design-Build Period or the Operation Service Period. During the Design-Build Period the Contractor shall (must) comply with the instruction unless he can give good reason why he cannot do so. The reasons for not complying are (i) he cannot obtain the Goods required, (ii) the Variation will reduce safety or stability, (iii) it will adversely affect the guarantees. If the Contractor feels that one of these applies he must give written Notice to the Employer’s Representative with details. Failure to agree on cost or time extensions (see Sub-Clause 13.3 [Variation Procedure]) are not acceptable reasons for the Contractor to delay proceeding with the Variation. For Variations instructed during the Operation Service Period, the general procedure is the same but the Parties must have agreed upon the cost implications before the Contractor is obliged to proceed with executing the Variation. The Employer’s Representative cannot issue a Variation to omit work which the Employer then plans to give to a third party – for example, if the Employer finds that he can get the
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excavation work done more cheaply by a local contractor, he is not permitted to omit the excavation work from the Contractor’s scope and then award it to the local contractor. 13.2
Value Engineering The Contractor may, at any time, submit to the Employer’s Representative a written proposal, which (in the Contractor’s opinion) will, if adopted: (a) accelerate completion of the Works; (b) reduce the cost to the Employer of executing, maintaining or operating the Works; (c) improve the efficiency or value to the Employer of the completed Works; (d) improve the efficiency of the Operation Service being provided; or (e) otherwise be of benefit to the Employer. The proposal shall be prepared at the cost of the Contractor and shall include the items listed in Sub-Clause 13.3 [Variation Procedure]. Since it is the Contractor who will have designed the Works to suit the purposes defined in the Employer’s Requirements, it is not unlikely that the Contractor may become aware of changes or improvements to his design which will benefit the Works, but at the same time comply with the requirement of fitness for purpose. The benefits foreseen by the Contractor must be benefits to the Works or to the Employer. Benefits to the Contractor in the way of a cheaper design or modified function, are, by themselves, not enough. If the Contractor believes that he can fulfil the requirements of this Sub-Clause, he may submit details in the form of a proposal (in the form described in Sub-Clause 13.3 [Variation Procedure]) to the Employer’s Representative. However he shall not proceed with the proposed changes until he receives a formal instruction under Sub-Clause 13.3 [Variation Procedure]. If there are savings resulting from the value engineering, the share of this saving should be agreed prior to instructing the variation. Alternatively, it is even better if the Special Provisions fix these proportions.
13.3
Variation Procedure If the Employer’s Representative requests a proposal, prior to instructing a Variation, the Contractor shall respond in writing as soon as practicable, either by giving reasons why he cannot comply (if this is the case) or by submitting: (a) a description of the proposed design and/or work to be performed and a programme for its execution; (b) the Contractor’s proposal for any necessary modifications to the programme according to Sub-Clause 8.3 [Programme] and to the Time for Completion; and (c) the Contractor’s proposal for adjustment to the Contract Price. The Employer’s Representative shall, as soon as practicable after receiving such proposal (under Sub-Clause 13.2 [Value Engineering] or otherwise), respond with approval, disapproval or comments. The Contractor shall not delay any work whilst awaiting a response. Each instruction to execute a Variation, with any requirements for the recording of costs, shall be issued by the Employer’s Representat ive to the Contractor, who shall acknowledge receipt. Upon instructing or approving a Variation, the Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine adjustments to the Contract Price and the Schedule of Payments. These adjustments, except adjustments made under Sub-Clause 13.6 [Adjustments for Changes in Legislation] and Sub-Clause 13.7 [Adjustments for Changes in Technology ], shall include reasonable profit, and shall take account of the Contractor’s submissions under Sub-Clause 13.2 [Value Engineering] if applicable. © FIDIC 2011
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As mentioned, Variations may be initiated in three ways, but, however t hey are initiated, the Employer’s Representative will need to know how much they are going to cost and also the possible effect they may have on the programme. So in each case, the Contractor is required to give details of the effect which t he Variation will have on the programme (a nd this may be a saving of time if the proposal has come from the Contractor under Sub-Clause 13.2 [Value Engineering]), and the cost. Once the Employer’s Representative has these details, he shall as soon as practicable decide whether or not to proceed with the Variation. This decision will not necessarily depend on whether the Parties can agree the cost and time consequences. However it is likely that if the Employer, during consultations under Sub-Clause 3.5 [Provisional Sums], makes it clear that he does not wish to proceed (for example if he cannot get additional funds from his funding source) then the Employer’s Representative will not proceed with the instruction. However, if the Contractor and the Employer cannot agree on the price during consultations under Sub-Clause 3.5 [Provisional Sums], this is no reason to delay the work. Once the Variation instruction is issued, the Contractor must c omply (unless he gives Notice of a reason not to do so under Sub-Clause 13.1 [Right to Vary ]). If the Parties cannot agree on the cost, then the Employer’s Representative will determine what he considers to be a fair price, and this is what the Contractor will be paid. If the Contractor is not happy with the price, he can submit a claim to the Employer’s Representative under Sub-Clause 20.1 [Contractor’s Claims], but in the meantime he must proceed with the work. 13.4
Payment in Applicable Currencies If the Contract provides for payment of the Contract Price in more t han one currency, then whenever an adjustment is agreed, approved or determined as stated above, the amount payable in each of the applicable currencies shall be specified. For this purpose, reference shall be made to the actual or expected currency proportions of the cost of the varied work, and to the proportions of various currencies specified for payment of the Contract Price. If this Sub-Clause applies, the Variation instruction should specify the amount payable in each applicable currency.
13.5
Provisional Sums Each Provisional Sum shall only be used, in whole or in part, in accordance with the Employer’s Representative’s instructions, and the Contract Price shall be adjusted accordingly. The total sum paid to the Contractor shall include only such amounts, for the work, supplies or services to which the Provisional Sum relates, as the Employer’s Representative shall have instructed. For each Provisional Sum, the Employer’s Representative may instruct: (a) work to be executed (including Plant, Materials or services to be supplied) by the Contractor and valued under Sub-Clause 13.3 [Variation Procedure]; and/or (b) Plant, Materials or services to be purchased by the Contractor, for which there shall be included in the Contract Price: (i) the actual amounts paid (or due to be paid) by the Contractor; and (ii) a sum for overhead charges and profit, calculated as a percentage of these actual amounts by applying the relevant percentage rate (if any) stated in the appropriate Schedule. If there is no such rate, the percentage rate stated in the Contract Data shall be applied. The Contractor shall, when required by the Employer’s Representative, produce quotations, invoices, vouchers and accounts or receipts in substantiation. Provisional Sums are included in the Contract by the Employer to cover work or Plant or Materials or services for which the Employer wishes to make provision in the Contract, but does not ask the tenderer to price when submitting his tender. The tenderer simply includes
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the sum as instructed by the Employer. However, the money, and the items to which the money refers (if specified) can only be used upon the written instruction of the Employer’s Representative. He will instruct the Contractor of the work to be done or the services to be purchased, and the amount to be spent, which may be all or just a part of the Provisional Sum concerned. Sometimes the Contractor will be free to carry out the work himself, or choose a supplier himself, and sometimes the Employer’s Representative will name or nominate the person whom he requires shall be engaged by the Contractor for the work, such as nominating a Sub-Contractor (who will then become a nominated Sub-Contractor under Sub-Clause 4.5 [Nominated Subcontractors]). If the Employer’s Representative decides not to use a particular Provisional Sum, that money will remain unused and the Contractor has no right or claim to it. When work is ordered, the Contractor is entitled to be paid the actual amount he has paid for such work or service, plus a sum to cover his overheads and he is also entitled to an element of profit. Unless the schedule for which money from the Provisional Sum is being used specifically gives the sum or rate to be used for calculating the overheads and profit, then the percentage given in the Contract Data shall be used. If the amount due to the Contractor exceeds the amount of the Provisional Sum, the Employer must find additional funds to pay the Contractor. 13.6
Adjustments for Changes in Legislation Adjustments to the execution of the Works or provision of the Operation Service necessitated by a change in Law shall be dealt with as a Variation and as provided for under Clause 13 [Variations and Adjustments]. Either Party may, by written Notice to the other, require that adjustments shall be made to the provision of the Contract as are necessary to enable the Contractor to comply with changes in Law. The Contract Price and programme for design, execution and operation of the Works shall be adjusted to take account of any increase or decrease in cost resulting from a change in the Laws of the Country (including the introduction of new Laws and the repeal or modification of existing Laws) or in the judicial or official governmental interpretation of such Laws or changes to technical standards and regulations in accordance with Sub-Clause 5.4 [Technical Standards and Regulations], made after the Base Date, which affect the Contractor in the performance of obligations under the Contract. If the Contractor suffers (or will suffer) delay and/or incurs (or will incur) additional cost as a result of these changes in the Laws or in such interpretations, made after the Base Date, the Contractor shall give Notice to the Employer’s Representative providing evidence supporting any adjustment, an indication of the nature of change in cost and how the Contractor proposes to implement the necessary change. The Contractor shall be entitled, subject to Sub-Clause 20.1 [Contractor’s Claims], to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 9.3 [Extension of Time for Completion of Design-Build]; and (b) payment of any such additional Cost, which shall be included in the Contract Price. After receiving this Notice, the Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. This Sub-Clause protects both Parties in the event that there is a change in Law (see Definition 1.1.47), which occurs after the Base Date (see Definition 1.1.5) and which has an effect on the Works and results in a change in cost or programme. Normally such changes will either increase the cost of or delay the execution of the Works, and the Contractor can proceed according to Sub-Clause 20.1 [Contractor’s Claim] to claim the extra, provided he can substantiate his claim. © FIDIC 2011
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However, this Sub-Clause will also protect the Employer if there is a change in Law which, for example, exempts the Contractor’s work force from paying income tax. In such a case, the Employer could reasonably expect that the Contractor’s labour rates would be reduced, and under this Sub-Clause (via Sub-Clause 20.2 [Employer’s Claims]) he could claim a reduction in the Contract Price. 13.7
Adjustments for Changes in Technology The Contract Price and programme for design, execution and operation of the Works shall be adjusted to take into account any increase or decrease in cost resulting from any changes in technology, new materials or products which the Contractor is obliged to adopt, either: (a) where a proposal from the Contractor under Sub-Clause 13.2 [Value Engineering] is accepted by the Employer’s Representative; (b) where the Employer’s Representative instructs the Contractor to use new technology or new materials or products; or (c) there is a statutory requirement for the Contractor to use new technology or new materials or products. In any such case, the Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to: (i) an extension of time for any such delay, if the events delay the completion of the Design-Build; and (ii) any additional Cost, subject to an adjustment for any operational or other savings which the Contractor may make as a result of the introduction of such new technology, materials or products. After receiving a Notice of claim, the Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. Where appropriate, the Employer’s Representative shall issue a Variation to the Contractor with details of the required changes. If certain events (listed in paragraphs (a), (b) and (c) of this Sub-Clause) result in the Contractor being obliged to incorporate new technology or new products in the Works which results in either an increase or a decrease in the cost of the work, the Contractor will be entitled to claim his Cost and an extension of time if there is a delay to completion of the Design-Build. If the event occurs during the Operation Service Period, the Contractor is entitled to receive financial compensation, but no time extension, as the Operation Service Period is fixed and no time extensions allowed. Since the Sub-Clause also refers to a “decrease in cost”, the Employer may also make use of this Sub-Clause and claim for a reduction in the Contract Price under Sub-Clause 20.2 [Employer’s Claims]. If necessary, the Employer’s Representative must issue a Variation instruction (see SubClause 13.3 [Variation Procedure]) to cover the required changes.
13.8
Adjustments for Changes in Cost The Contract Price and the Rates and Prices shall be adjusted in accordance with the Schedules of cost indexation as contained in the Schedule of Payments. If there are no such Schedules of cost indexation included in the Contract, this Sub-Clause shall not apply. It would be normal for a long-term DBO contract to contain some provision for cost escalation, especially during the Operation Service Period. These provisions should be contained in the Schedule of Payments (see Definition 1.1.69). Normally the Contractor will need to know these provisions when pricing his tender. However, if they are not contained there or elsewhere in the Contract prior to the Contract coming into force, the Parties should agree some appropriate indices. If they do not, and the Contract remains silent regarding this
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issue, then this Sub-Clause 13.8 [Adjustments for Changes in Cost ] shall not apply and the Contract will in effect be on a fixed price basis for the entire duration of the Contract Period. The inclusion of a “hardship” clause may even be justified and appropriate during the Operation Service Period given its long (20-year) duration. In such a clause, the Parties recognise that it may be impracticable to make provision for every contingency which may arise, and state their intention that the Contract shall operate between them with fairness and without prejudice to the interests of either of them. If it is intended to include such a provision, then legal help should be sought when drafting the clause.
Clause 14
Contract Price and Payment There are a number of different ways in which the Contractor can be reimbursed under a DBO arrangement. The method of remuneration will be reflected in the manner in which tenderers are required to submit their prices when tendering. The sample Letter of Tender provided at the end of the DBO document, requires that tenderers submit their price to contain three component lump-sum amounts: one for the Design-Build of the Works, one for the Operation Service, and one covering the amount of the Asset Replacement Fund. This requirement reflects the manner in which the Contractor will be paid according to the provisions of this Clause 14 of the Contract. He is paid by the Employer for the work he does, and his reimbursement does not depend on the income or revenue generated by the operation of the facility. Other alternative methods of payment may include a situation where the Contractor is paid for designing and constructing the facility, but he is dependent on the revenue from the operation of the facility to finance his operation costs. Or, the financing of the project may be a joint financing arrangement where the Contractor is providing a part of the financing. If another method of remuneration is to be incorporated, not only will the provisions of Clause 14 need to be carefully re-drafted, but other factors such as ownership, risk and liability may need to be reviewed. In such a case it is recommended that expert help be sought to prepare and draft the necessary changes. Any such changes should be included in the Particular Conditions Part B – Special Provisions.
14.1
The Contract Price The Contract Price shall be the amount or amounts submitted by the Contractor for the Design-Build and the Operation Service including the Asset Replacement Fund, priced at the Base Date, and due to be paid to the Contractor in accordance with the Contract together with any adjustments as provided for under Clause 13 [Variations and Adjustments] or arising as a result of claims under Clause 20 [Claims, Disputes and Arbitration]. The Contractor shall pay all taxes, duties and fees required to be paid by him under the Contract and the Contract Price shall not be adjusted for changes in any of these costs, except as provided for in Sub-Clause 13.6 [Adjustments for Changes in Legislation] and to the extent allowed for under Clause 20 [Claims, Disputes and Arbitration]. The Contract Price is the amount which the Contractor actually receives and should not be confused with the Accepted Contract Amount (see Definition 1.1.1). It is made up of three elements: the price for the Design-Build; the price for the Operation Service; and the price of the Asset Replacement Fund. It includes any adjustments which are made under the Contract such as amounts due for Variations, any adjustments for costs made under Sub© FIDIC 2011
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Clause 13.8 [Adjustments for Changes in Cost], and any claims which have been agreed or determined in accordance with the provisions of Sub-Clause 3.5 [Determinations]. It will also include any decisions given by the Dispute Adjudication Board where a matter has been referred to the DAB. The Contract Price includes all taxes and fees and other impositions which the Contractor is required to pay, and the only reason the Contractor can claim additional costs in this respect is if there have been any changes in legislation as covered in Sub-Clause 13.6 [Adjustments for Changes in Legislation]. 14.2
Advance Payment The Employer shall make an advance payment, as an interest-free loan for mobilisation and design, when the Contractor submits a guarantee in accordance with this Sub-Clause that shall be based on the sample form included in the tender documents or in another form acceptable to the Employer. The amount of the advance payment and the applicable currencies shall be as stated in the Contract Data. Unless and until the Employer receives this guarantee, or if no advance payment is stated in the Contract Data, this Sub-Clause shall not apply. The Employer’s Representative shall issue an Interim Payment Certificate for the advance payment under Sub-Clause 14.7 [Issue of Advance and Interim Payment Certificates] after receiving an application under Sub-Clause 14.3 [Application for Advance and Interim Payment Certificates] and after the Employer receives (i) the Performance Security in accordance with Sub-Clause 4.2 [Performance Security ] and (ii) a guarantee in amounts and currencies equal to the advance payment. This guarantee shall be issued by an entity and from within a country (or other jurisdiction) approved by the Employer, and shall be based on the sample form included in the tender documents or in another form approved by the Employer. The Contractor shall ensure that the guarantee is valid and enforceable until the advance payment has been repaid, but its amount may be progressively reduced by the amount repaid by the Contractor as indicated in the Interim Payment Certificates. If the terms of the guarantee specify its expiry date, and the advance payment has not been repaid by the date 28 days prior to the expiry date, the Contractor shall extend the validity of the guarantee until the advance payment has been repaid. The advance payment shall be repaid through percentage deductions in Interim Payment Certificates. Unless other percentages are stated in the Contract Data: (a) deductions shall commence in the Interim Payment Certificate in which the total of all certified interim payments (excluding the advance payment and deductions and repayments of retention) exceeds ten percent (10%) of the Accepted Contract Amount for the Design-Build less Provisional Sums; and (b) deductions shall be made at the amortisation rate of one-quarter (25%) of the amount of each Interim Payment Certificate (excluding the advance payment and deductions and repayments of retention) issued during the Design-Build Period. If the advance payment has not been repaid prior to the is sue of the Commissioning Certificate or prior to termination under Clause 15 [Termination by Employer ], Clause 16 [Suspension and Termination by Contractor ] or Clause 18 [Exceptional Risks] (as the case may be), the whole of the balance then outstanding shall immediately become due and payable by the Contractor to the Employer. It is very common for the Employer to make some form of advance payment (sometimes called a mobilisation payment, or interest-free loan) in order to help the Contractor with some of his early costs and expenditures before he has reached the stage where he can submit an Interim Payment Certificate under Sub-Clause 14.3 [ Application for Advance and Interim Payment Certificates]. The amount of the advance payment needs to be given in the Contract Data and is very often (but not always) in the order of 10% of the Accepted Contract Amount. If no amount is given in the Contract Data, this Sub-Clause will not apply.
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A pre-requisite for paying the advance payment (apart from the amount being named in the Contract Data) is that the Contractor shall have given the Employer a guarantee in the form of the sample included in the Sample Forms section at the end of the document or in another form acceptable to the Employer. The guarantee must be initially for the amount of the advance payment, and it must be valid until the advance payment has been fully repaid. However, as the advance payment is progressively repaid by deductions in each Payment Certificate, as described in this Sub-Clause, the amount of the guarantee may be reduced by a similar amount. If the Employer wishes to change the manner in which the advance payment is to be re-paid, he must clearly state this in the Particular Conditions Part B, so that the Contractor had the opportunity of making due allowance when pricing his tender. A further requirement is that the Contractor has provided his Performance Security in accordance with Sub-Clause 4.2 [Performance Security ] before the Employer’s Representative will issue a Payment Certificate for the advance payment. Normally the provisions for repaying the advance payment by making deductions from each Interim Payment Certificate will be sufficient to ensure that the entire amount has been repaid before the Commissioning Certificate is issued, but if it has not, or if the Contract is terminated and there is still some of the advance payment outstanding, the full outstanding balance becomes immediately due to the Employer and should be deducted from the next applicable Payment Certificate. 14.3
Contractor’s Representative When submitting the advance payment guarantee required under Sub-Clause 14.2 [Advance Payment], the Contractor shall include his application for the advance payment. The Contractor shall thereafter submit a Statement in one original and five copies to the Employer’s Representative after the end of each month (unless otherwise stated in the Contract), in a form approved by the Employer’s Representative, showing in detail the amounts to which the Contract or considers himself to be entitled, together with supporting documents. The Statement shall include the following items, as applicable, which shall be expressed in the various currencies in which the Contract Price is payable: (a) the estimated contract value of the Works executed and the Contractor’s Documents produced up to the end of the month (including Variations but excluding items described in sub-paragraphs (b) to (j) below); (b) any amounts to be added and deducted for changes in legislation, changes in cost and changes in technology, in accordance with Sub-Clause 13.6 [Adjustments for Changes in Legislation], Sub-Clause 13.7 [Adjustments for Changes in Technology ] and Sub-Clause 13.8 [Adjustments for Changes in Cost]; (c) any amount to be deducted for retention, calculated by applying the percentage of retention stated in the Contract Data to the total of the above amounts, until the amount so retained by the Employer’s Representative reaches the limit of Retention Money (if any) stated in the Contract Data; (d) any amounts to be added and deducted for the advance payment and repayments in accordance with Sub-Clause 14.2 [Advance Payment ]; (e) any amounts to be added and deducted for Plant and Materials in accordance with Sub-Clause 14.6 [Payment for Plant and Materials intended for the Works]; (f) any amounts due for Plant, Materials or services purchased by the Contractor under Sub-Clause 13.5 [Provisional Sums]; (g) amounts due for the Operation Service; (h) amounts due from the Asset Replacement Fund; (i) adjustments due for the Maintenance Retention Fund; (j) any other additions or deductions which may have become due under the © FIDIC 2011
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Contract or otherwise, including those under Clause 20 [Claims, Disputes and Arbitration]; and (k) the deduction of amounts certified in all previous Interim Payment Certificates. This Sub-Clause gives the procedures to be followed by the Contractor in making application for payment. His application is submitted to the Employer’s Representative who, after checking its correctness, will issue a Payment Certificate to the Employer, and it is against this Payment Certificate that the Employer makes payment to the Contractor in accordance with Sub-Clause 14.8 [Payment ]. The Contractor’s first application for payment will be in respect of the advance payment and he submits this at the same time as he submits the advance payment guarantee required under Sub-Clause 14.2 [Advance Payment ]. This will normally be a simple application which he can submit as soon as the guarantee is ready. For normal interim payments, the Contractor will prepare applications in accordance with the payment provisions included in the Contract, and this will usually be at monthly intervals. The Contractor is required to submit his application in an original and five copies and he should have agreed the format of his application with the Employer’s Representative. In his application he is entitled to include “the amounts to which the Contractor considers himself to be entitled”, so, whether it is the amount of work he has done, or his entitlement to a claim, or in respect of other events which he feels entitle him to additional reimbursement, the Contractor is entitled to include all these in his application together with full supporting evidence and documentation. Whether all items will be included for payment in the Payment Certificate issued by the Employer’s Representative will depend on the Employer’s Representative’s evaluation of the facts and supporting evidence and the provisions of the Contract. Whatever the Contractor chooses to include in his application must be presented in a proper Statement and address each of the paragraphs (a) to (k) in the Sub-Clause. It is up to the Contractor to ensure that his application is complete with all supporting evidence such as reference to DAB decisions and arbitral awards under Sub-Clause 14.3(j) in order that the Employer’s Representative may verify the amount claimed for payment. 14.4
Schedule of Payments If the Contract includes a Schedule of Payments for the Design-Build Period and/ or the Operation Service Period specifying the instalments in which the Contract Price and/or the Rates and Prices will be paid, then, unless otherwise stated in this Schedule: (a) the instalments quoted in the Schedule of Payments shall be the estimated values for the purposes of Sub-Clause 14.3 [Application for Advance and Interim Payment Certificates]; (b) Sub-Clause 14.6 [Payment for Plant and Materials intended for the Works] shall not apply; and (c) if these instalments are not defined by reference to the actual progress achieved in executing the Works, and if actual progress is found to differ from that on which the Schedule of Payments was based, then the Employer’s Representative may proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine revised instalments which shall take account of the extent to which progress differs from that on which the instalments were previously based. If the Contract does not include a Schedule of Payments for the Design-Build Period and/or the Operation Service Period, the Contractor shall submit nonbinding estimates of the payments which he expects to become due during each quarterly period. The first estimate shall be submitted within 42 days after the
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Commencement Date. Revised estimates shall be submitted at quarterly intervals until the Contract Completion Certificate has been issued. If the Contract does not contain a Schedule of Payments, the only part of this Sub-Clause which will apply will be the last paragraph which addresses the particular case when there is no Schedule of Payments in the Contract and requires the Contractor to give a quarterly estimate of his expected income. This can not only be very useful for the Contractor when planning and analysing his cash flow, but also very useful for the Employer when planning his project budget. If a Schedule of Payments is planned, it may take various forms, for example: (a) an agreed amount per month based on the foreseen progress of the Contractor according to his programme; (b) a percentage of the Accepted Contract Amount (see Definition 1.1.1) to be paid to the Contractor every month; (c) foreseen achievement of milestones; or (d) actual achievement of milestones. All of these, except the actual achievement of milestones, assume the Contra ctor will follow his programme and that there will be no interruptions or disturbances caused by Variations or other hindrances during the progress of the Works. This means that the Schedule of Payments will need carefully monitoring and maybe adjusting as work proceeds to allow for such events. Such adjustments will need to be made by the Employer’s Representative acting in accordance with Sub-Clause 3.5 [Determinations], which means, ideally, that the adjustments should be agreed between the Parties before being implemented. A Schedule based on actual achievement of milestones will make payments dependent on the Contractor’s performance, but such a Schedule will need adjusting if and when Variations are introduced or other events occur entitling the Contractor to additional payment. The use of milestones or key events as payment criteria should be used wisely. If the monetary value of an event is very high, or the time for completing that event ve ry long, it will be necessary to introduce some stage payments in the interim in order that the Contractor receives due payment in due time and is not subjected to financial stress waiting for some minor works to be completed before he becomes entitled to payment for a major element of the Works. Some parts of the Contract are more readily suitable to the use of a Schedule of Payments than others, such as the Operation Service Period, where it would be simple to agree a monthly payment to be made to the Contractor. 14.5
Asset Replacement Schedule Payments from the Asset Replacement Fund shall be made in accordance with the provisions of Sub-Clause 14.18 [Asset Replacement Fund ]. On no account will payments be made for assets replaced which are not identified in the Asset Replacement Schedule unless they have been instructed as a Variation under Clause 13 [Variations and Adjustments]. If Assets are replaced in advance of the date given in the Asset Replacement Schedule, payment will not be released until the date stated in the Schedule has been reached. If Assets are not replaced on or before the scheduled date, payment will not be released until such replacements have been effected. Any monies remaining in the Asset Replacement Fund at the time of issue of the Contract Completion Certificate will be disbursed between the Parties as described in Sub-Clause 14.18 [Asset Replacement Fund ]. © FIDIC 2011
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An important part of the Contract comprises the provisions relating to the replacement of items which have a life of less than 20 years and will thus have to be replaced to ensure the continued efficient operation of the facility. The Asset Replacement Schedule is prepared by the Contractor and included as part of his tender for the Works. The content of the Schedule will depend on how often the Contractor foresees that Materials and Plant will need replacing during the Operation Service Period, which in turn will depend on the basic quality and life of plant and materials which he has incorporated in the design. It is expected that the Contractor will try to optimise the quality and cost of the basic design with the cost and frequency of the need to replace critical items during the Operation Service Period. Only items which the Contractor has identified for replacement in the Schedule will be paid from the Asset Replacement Fund under Sub-Clause 14.8 [Payment ]. If items need replacing which have not been so identified, the Contractor must replace them at his own cost unless he can reasonably show that the need for such replacement was due to an act or failure of the Employer or persons for whom the Employer is responsible. The reason for this is that the value of the Asset Replacement Fund is, by definition (see Definition 1.1.1) a part of the Accepted Contract Amount, and it is not acceptable for the Contractor to win the Contract by including an incomplete Asset Replacement Schedule (and thus a low value Fund) and try to recover this later. There are other conditions concerning the replacement of Assets. Firstly if it is necessary to replace an Asset before the date given in the Schedule, the Contractor is not entitled to payment from the Fund until the date stated in the Schedule has been reached. Secondly, if the Asset is replaced later than the date in the Schedule, payment will be released on the date of the actual replacement, and thirdly, if the Asset is not replaced by the time the Contract Completion Certificate is issued, then the remaining money shall be shared equally between the Employer and the Contractor, and the Contractor can include his share in his application for the Final Payment Certificate Operation Service submitted in accordance with Sub-Clause 14.13 [Application for Final Payment Certificate Operation Service]. 14.6
Payment for Plant and Materials intended for the Works If this Sub-Clause applies, Interim Payment Certificates shall include, under subparagraph (e) of Sub-Clause 14.3 [Application for Advance and Interim Payment Certificates ], (i) an amount for Plant and Materials which have been sent to the Site for incorporation in the Permanent Works, and (ii) a reduction when the contract value of such Plant and Materials is included as part of the Permanent Works under sub-paragraph (a) of Sub-Clause 14.3. If the lists referred to in sub-paragraphs (b)(i) or (c)(i) below are not included in the Contract Data, this Sub-Clause shall not apply. The Employer’s Representative shall determine and certify each addition if the following conditions are satisfied: (a) the Contractor has: (i) kept satisfactory records (including the orders, receipts, costs and use of Plant and Materials) which are available for inspection; and (ii) submitted a statement of the cost of acquiring and delivering the Plant and Materials to the Site, supported by satisfactory evidence; and either: (b) the relevant Plant and Materials: (i) are those listed in the Contract Data for payment when shipped; (ii) have been shipped to the Country, en route to the Site, in accordance with the Contract; and (iii) are described in a clean shipped bill of lading or other evidence of shipment, which has been submitted to the Employer’s Representative together with evidence of payment of freight and insurance, any other documents reasonably required, and a bank guarantee in a form and issued by an
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entity approved by the Employer in amounts and currencies equal to the amount due under this Sub-Clause. This guarantee may be in a similar form to the form referred to in Sub-Clause 14.2 [ Advance Payment ] and shall be valid until the Plant and Materials are properly stored on Site and protected against loss, damage or deterioration; or (c) the relevant Plant and Materials: (i) are those listed in the Contract Data for payment when delivered to the Site; and (ii) have been delivered to and are properly stored on the Site, are protected against loss, damage or deterioration, and appear to be in accordance with the Contract. The additional amount to be certified shall be the equivalent of eighty percent (80%) of the Employer’s Representative determination of the cost of the Plant and Materials (including delivery to Site), taking account of the documents mentioned in this Sub-Clause and of the contract value of the Plant and Materials. The currencies for this additional amount shall be the same as those in which payment will become due when the contract value is included under sub-paragraph (a) of Sub-Clause 14.3 [Application for Advance and Interim Payment Certificates]. At that time, the Interim Payment Certificate shall include the applicable reduction which shall be equivalent to, and in the same currencies and proportions as, this additional amount for the relevant Plant and Materials. This Sub-Clause recognizes that the Contractor will have paid his suppliers for most of the Plant and Materials before they have been shipped to the Site ready for installation, and makes provision for the Contractor to be paid for certain items prior to them reaching the Site. However there are certain conditions which the Contractor needs to fulfil before he is entitled to claim payment, and if he has not met those conditions then he cannot use the benefits of this Sub-Clause. Firstly, the Contractor must have identified those items for which he requires payment on shipping with prices, and these, once agreed must be listed in the Contract Data. Secondly, they must have actually been shipped: they cannot be items which are still at the Contractor’s or his supplier’s’ premises, even if they are ready for shipping. Under paragraph (c) this includes items which have already arrived at Site (but not yet installed) provided that they have been properly stored and protected. Thirdly, they must be in accordance with the Contract, and this will have been verified by the Employer’s Representative or Employer’s Personnel when carrying out inspections under Sub-Clause 7.3 [Inspection]. Fourthly, proper paper work is required in the form of receipts, shipping documents, evidence of insurance, and provision of a bank guarantee. If this has been provided, then the Contractor is entitled to claim eighty percent (80%) of the agreed value of the item including shipping costs. Once the item has been installed, and payment has been claimed and certified for the installed item at the rates in the Contract, then a reduction will need to be made to the payment to compensate for the monies which the Contractor has already been paid under this Sub-Clause. 14.7
Issue of Advance and Interim Payment Certificates No amount will be certified or paid until the Employer has received and approved the Performance Security provided for in Sub-Clause 4.2 [Performance Security ]. Upon receipt of the Contractor’s application for the advance payment, the Employer’s Representative shall, within 14 days of receiving the application, issue © FIDIC 2011
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to the Employer an Interim Payment Certificate in respect of such payment, with a copy to the Contractor. Thereafter, in respect of interim payment applications the Employer’s Representative shall, within 28 days after receiving a Statement and supporting documents, issue to the Employer an Interim Payment Certificate which shall state the amount which the Employer’s Representative fairly determines to be due, with supporting particulars, and shall include any amounts due to or from the Contractor in accordance with a decision by the DAB made under Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision]. Decision]. However, prior to issuing the Commissioning Certificate, the Employer’s Representative shall not be bound to issue an Interim Payment Certificate in an amount which would (after retention and other deductions) be less than the minimum amount of Interim Payment Certificates (if any) stated in the Contract Data. In this event, the Employer’s Representative shall give Notice to the Contractor accordingly. An Interim Payment Certificate shall not be withheld for any other reason, although: (a) if any thing thing supplied supplied or work work done by the Contracto Contractorr is not in accordance accordance with with the Contrac Contract, t, the cost of rectification rectification or replacement replacement may be withheld withheld until until rectification or replacement has been completed; and/or (b) if the Contractor Contractor was or is is failing failing to perform perform any work or obligatio obligation n in accordance accordance with the Contract, and had been so notified by the Employer’s Representative, the value of this work or obligation may be withheld until the work or obligation has been performed. The Employer’s Representative may in any Payment Certificate make any correction or modification that should properly be made to any previous Payment Certificate. An Interim Payment Certificate shall not be deemed to indicate the Employer’s Representative’s acceptance, approval, consent or satisfaction of the Works. This is a very important Sub-Clause, as a s it is the link between the Contractor’s application to be paid, and the Employer’s obligation to pay him, and it applies in respect of both the Contractor’s application for payment of the Advance Payment, and his applications for interim payments. As mentioned under Sub-Clause 14.2 Advance [Advance Payment ], ], the Employer has no obligation to pay the Advance Payment until he has received and approved the Performance Security, irrespective of whether the Employer’s Representative has submitted the Payment Certificate for the Advance Payment or not. If the Employer has not received the Performance Security he is under no obligation to make payment under Sub-Clause 14.8 [Payment [Payment ]: ]: in fact he can wait 21 days after he has received all the documents before making payment. Once the Employer’s Representative receives an application he must act expeditiously to check the application and issue the Payment Certificate. For the Advance Payment, he has 14 days after receiving the application to issue the Certificate, and in respect of interim payments, he has 28 days. During this time he must check the application for errors or for payments which in his (the Employer’s Representative’s) opinion are not due, and then prepare and issue a Payment Certificate for the amount which he “fairly determines to be due”. So the Certificate is for the amount which the Employer’s Representative considers to be correct, except when any amount is due following a decision of the DAB. In such cases the amount is not subject to the opinion of the Employer’s Representative, and he must include such amount as awarded, bearing in mind that such a decision may be in favour of the Employer and be in the form of a reduction in the amount due to the Contractor. (Although the Sub-Clause does not specifically mention it, the same would apply for arbitral awards). If the amount of the due payment is less than the minimum amount of Interim Payment Certificates stated in the Contract Data, he does not have to issue a Certificate, and the amount due will be held over and included in the next due Interim Certificate. In all other cases, the Employer’s Representative shall (must) issue a Certificate within the 28 days permitted under this Sub-Clause. If he is late, there is still a chance that the Employer can
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meet the requirements of the Contract and pay the Contractor within the time stipulated in Sub-Clause 14.8 [Payment [Payment ]. ]. But even if the Employer’s Representative needs to make a correction to the Contractor’s application, or finds that the Contractor has included items which should not have been included, the Employer’s Representative must issue a Certificate for the amount he can verify and justify. He cannot refuse to certify. If he does refuse or fails to issue a Certificate after receiving a proper application from the Contractor, the Contractor can firstly give 21 days Notice and suspend work under Sub-Clause 16.1 [Contractor’s Entitlement to Suspend Work ], ], or, if the delay is more serious and exceeds 56 days after receiving the application, the Contractor can terminate the Contract in accordance with Sub-Clause 16.2 [Termination [Termination by Contractor ]. ]. Finally under this Sub-Clause, the important point is made that certification of payment, or indeed payment itself, does not mean that the Works have been accepted or approved, and the Employer’s Representative is permitted to make any correction to any previously issued Certificate that he finds to be necessary. 14.8
Payment The Employer shall pay to the Contractor: (a) the advance advance payment payment within within 21 days days after receivin receiving g the documents documents in in accordance with Sub-Clause 4.2 [Performance [Performance Security ] and Sub-Clause 14.2 [Advance Payment ] and the Payment Certificate for the advance payment Advance issued in accordance with Sub-Clause 14.7 [Issue [Issue of Advance and Interim Payment Certificates]; Certificates]; (b) the amount amount certified certified in each Interim Interim Payment Payment Certificate Certificate within within 56 days after the Employer’s Representative receives the corresponding Statement and supporting documents, including any amounts due in accordance with a decision by the DAB which have been included in the Interim Payment Certificate; and (c) the amounts amounts certified certified in the Final Final Payment Payment Certificate Certificate Design-Buil Design-Build d and the Final Payment Certificate Operation Service within 56 days after the Employer receives each such Final Payment Certificate, including any amounts due in accordance with a decision by the DAB which have been included in the Final Payment Certificate. Payment of the amount due in each currency shall be made into the bank account, nominated by the Contractor, in the payment country (for this currency) specified in the Contract. This Sub-Clause makes it clear that once the Employer’s Representative has certified an amount as being due for payment, then the Employer must (shall) pay. He cannot refuse to pay or reduce the amount. Paragraph (b) also makes it clear that he must pay any amounts awarded by the DAB. Even if he intends to question a decision by the DAB or submit the matter further to arbitration, he must pay the amount awarded by the DAB as included in the Payment Certificate. If the decision of the DAB is later varied or reversed by arbitration, the Employer can at that time make the necessary correction, but not until the arbitral award is received. The Employer also has strict time limits within which to pay, and if he fails to meet these dates, then the Contractor has rights under Sub-Clauses 16.1 [Contractor’s [ Contractor’s Entitlement to Suspend Work ] and 16.2 [Termination [Termination by Contractor ] to firstly to suspend work until payment is received, then if payment has not been received within 42 days after the period stated in this Sub-Clause 14.8, the Contractor may terminate the Contract.
14.9 14 .9
Dela De laye yed d Pa Paym ymen entt If the Contractor does not receive payment in accordance with Sub-Clause 14.8 [Payment [Payment ], ], the Contractor shall be entitled to receive financing charges compounded monthly on the amount unpaid during the period of delay. This period © FIDIC 2011
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shall be deemed to commence on the date for payment specified in Sub-Clause 14.8 [Payment [Payment ], ], irrespective (in the case of its sub-paragraph (b)) of the date on which any Interim Payment Certificate is issued. Unless otherwise stated in the Contract Data, these financing charges shall be calculated at the annual rate of three percentage points above the discount rate of the central bank in the country of the currency (or currencies if more than one) of payment, and shall be paid in such currencies. The Contractor shall be entitled to this payment without formal Notice or certification, and without prejudice to any other right or remedy. The Contracto r’s rights to suspend and ultimately terminate the t he Contract under Clause 16 [Suspension and Termination by Comtractor ] if he is not paid relate to substantial delays beyond the time limits given in Sub-Clause 14.8 [Payment [Payment ]. ]. Sub-Clause 14.9 [Delayed [Delayed Payment ] covers the right of the Contractor to recover his ‘financing charges’ (sometimes called ‘interest’) as soon as payments are delayed beyond the times for payment given in Sub-Clause 14.8 [Payment [Payment ]. ]. This right is an automatic right which does not require him to give Notice. But he will be required to provide evidence of the delay in the form of either his Statement (Sub-Clause 14.3 Application [ for Advance and Interim Payment Certificates]) Certificates]) or the Employer’s Representative’s Payment Certificate (SubClause 14.7 [Issue [Issue of Advance and Interim Payment Certificates]), Certificates]), establishing the date from which the Employer’s time to pay is calculated, and a statement or other evidence from his bank establishing when payment was actually made (Sub-Clause 14.8 [Payment [Payment ]). ]). From these documents the Contractor can calculate, and the Employer’s Representative can verify, the amount of financing charges due. 14.10 14. 10 Pay Payment ment of Reten Retention tion Mone Money y When the Commissioning Certificate has been issued, the first half of the Retention Money shall be certified by the Employer’s Representative for payment to the Contractor. If a Section Commissioning Certificate is issued for a Section, the relevant percentage of the first half of the Retention Money shall be certified and paid to the Contractor. Such amount shall be included for payment in the next Interim Payment Certificate following the issue of the Commissioning Certificate. The Contractor shall be entitled to include the second half of the Retention Money in the Final Statement Design-Build. Retention Money (see Definition 1.1.65) is calculated and withheld at the rate given in the Contract Data. However this money is released back to the Contractor once the DesignBuild has been completed. There is no Retention during the Operation Service although Sub-Clause 14.19 [Maintenance [Maintenance Retention Fund ] gives details of the Maintenance Retention Fund which is established during the Operation Service Period. The Retention Money is released in two halves. The first half when the Commissioning Certificate has been issued, and this shall be included in the next Interim Payment Cert ificate, and the second half at the end of the Retention Period (provided that the Contractor has completed all outstanding work etc required to be done before the end of the Retention Period), and this shall be included in the Final Payment Certificate Design-Build. 14.11 Applica Application tion for for Final Payment Certif Certificate icate Design-B Design-Build uild Within 28 days after the end of the Retention Period, the Contractor shall submit to the Employer’s Representative one original and five copies of the Final Statement Design-Build with supporting documents showing: (a) the value value of all work done done in respect respect of the the Design-Bui Design-Build; ld; and (b) any furth further er sums sums which which the Contra Contractor ctor consider considers s to be be due to him under the Contract in respect of the Design-Build.
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Together with the Final Statement Design-Build, the Contractor shall submit a written undertaking that the Statement is in full and final settlement of all matters under or in connection with the Contract relating to the Design-Build. If the Employer’s Representative disagrees with or cannot verify any part of the Final Statement Design-Build, the Employer’s Representative and the Contractor shall attempt to agree such matters, and the Contractor shall re-submit his Final Statement based on the agreement with the Employer’s Representative. The Employer’s Representative shall then issue a Final Payment Certificate Design-Build under Sub-Clause 14.12 [Issue of Final Payment Certificate Design-Build ] for the agreed amount. If the Parties cannot agree on such matters, or if the Contractor has failed to submit his application for payment within the said 28 days, the Employer’s Representative shall issue an Interim Payment Certificate under Sub-Clause 14.7 [Issue of Advance and Interim Payment Certificates] for the amount which he considers to be due to the Contractor. If the Contractor is dissatisfied with the amount certified, he may refer the matter to the DAB for a decision in accordance with Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision]. Although the Contract is still on-going, and the Contractor still has a continuing requirement to operate the facility during the Operation Service Period and ensure that it remains ‘fit for purpose’ during that time, this Sub-Clause is intended to finalise the financial aspects of the Design-Build part of the Contract, leaving a facility, which is commissioned and approved as being in accordance with the Contract and fit for the purposes defined in the Contract. The remainder of the Contract requires the Contractor to operate that facility during the Operation Service Period. The Contractor is required to submit his application within 28 days after the end of the Retention Period, and in it he shall include the value of all the work he has done under the Contract, including all Variations, and also any other payment to which the Contractor considers himself to be entitled. This could be claims or other circumstances or events which he feels entitle him to additional payment. In order to ensure that the Contractor does not continue to come up with claims relating to the Design-Build during the Operation Service Period, he is required to provide a written undertaking with his application, that it is “full and final settlement” of all matters relating to the Design-Build and in effect saying that the Contractor will not be coming up with any more claims. As this application may well contain claims for payments which the Contractor has not previously submitted, the Employer’s Representative will need to verify them before including them in the Final Certificate Design-Build in accordance with Sub-Clause 14.12 [Issue of Final Payment Certificate Design-Build ], so if there are any such items the Contractor will also need to also enclose his evidence in support of those claims. If the Employer’s Representative cannot agree to any part of the Final Statement, and he and the Contractor cannot agree on what should be included, then the Employer’s Representative has to issue an Interim Payment Certificate (see Sub-Clause 14.7 [Currencies of Payment ]) for the amount he considers due, w hich the Employer will duly pay according to Sub-Clause 14.8 [Asset Replacement Fund ]. If the Contractor is not happy with the amount certified, he may submit the matter to the DAB for a decision on his entitlement. Once this decision is given, the amount decided by the DAB can be used for inclusion in a revised application by the Contractor, and by Sub-Clauses 14.7 [Currencies of Payment ] and 14.8 [Asset Replacement Fund ], this amount must be certified and paid. 14.12 Issue of Final Payment Certificate Design-Build Within 28 days of receiving the Final Statement Design-Build, or the resubmitted Final Statement (as the case may be), and the written undertaking from the Contractor in accordance with Sub-Clause 14.11 [Application for Final Payment Certificate Design-Build ], the Employer’s Representative shall issue to the Employer, with a copy to the Contractor, the Final Payment Certificate Design-Build stating: (a) the amount which is finally due for the Design-Build; and © FIDIC 2011
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(b) after giving credit to the Employer for all amounts previously paid by the Employer and all sums to which the Employer is entitled in respect of the Design-Build, the balance (if any) due from the Employer to the Contractor or from the Contractor to the Employer, as the case may be. Upon receipt of the Final Payment Certificate Design-Build, the Employer shall pay the Contractor the amount, if any, due in accordance with the provisions of SubClause 14.8 [Payment ]. When the Employer’s Representative receives an application from the Contractor which he can agree, together with the Contractor’s written undertaking referred to in SubClause 14.11 [Appli cati on for Final Payment Cert ificate Design-Build ¨], he must, with in 28 days prepare and submit to the Employer (with a copy to the Contractor) the Final Payment Certificate Design-Build showing the final amount to which the Contractor is due for the Design-Build. Under Sub-Clause 14.8 [Payment ] the Employer must pay the amount due within 56 days of receiving the Payment Certificate from the Employer’s Representative. If the Employer’s Representative has been unable to verify the Contractor’s application under Sub-Clause 14.11 [Application for Final Payment Certificate Design-Build ], he must issue an Interim Payment Certificate according to Sub-Clause 14.7, and the Employer must pay the amount certified within 56 days of the date on which the Employer’s Representative received the Contractor’s Statement. Note that this is a shorter time than is allowed if the Statement had been agreed and the amount to be paid was agreed as the Final Payment Certificate Design-Build (see Sub-Clause 14.8 [Payment ]). 14.13 Application for Final Payment Certificate Operation Service Within 56 days after receiving the Contract Completion Certificate, the Contractor shall submit to the Employer’s Representative one original and five copies of the Final Statement Operation Service with supporting documents showing: (a) the value of all work done in respect of the Operation Service including authorised expenditure from the Asset Replacement Fund; and (b) any further sums which the Contractor considers to be due to him under the Contract including any unused monies from the Maintenance Retention Fund. Together with the Final Statement Operation Service, the Contractor shall submit a written discharge according to the requirements of Sub-Clause 14.14 [Discharge]. At the end of the Operation Service Period, within 56 days after receiving the Contract Completion Certificate, the Contractor must submit his application for the Final Payment Certificate Operation Service to be issued. In this application he shall include all work done in connection with the Operation Service and any further sums to which he considers himself entitled in respect of the Operation Service. This application should not include or repeat matters relating to the Design-Build, as these have already been dealt with and finalised under Sub-Clauses 14.11 [ Application for Final Payment Certificate Design-Build ] and 14.12 [Issue of Final Payment Certificate Design-Build ]. With his application, the Contractor is required to submit a written discharge in accordance with Sub-Clause 14.14 [Discharge] which links the Final Statement Design-Build with the Final Statement Operation Service and confirms that these two statements together represent the total amount due to the Contractor is due to be paid under the Contract. 14.14 Discharge When submitting the Final Statement Operation Service, the Contrac tor shall submit a written discharge which confirms that the total of the Final Statement Operation Service, together with the Final Statem ent Design-Build submitted according to SubClause 14.11 [Application for Final Payment Certificate Design-Build ] represents full and final settlement of all monies due to the Contractor under or in connection with
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the Contract. This discharge may state that it becomes effective only after payment due under the Final Payment Certificate Operation Service has been made and the Performance Security referred to in Sub-Clause 4.2 [Performance Security ] has been returned to the Contractor. This discharge is similar in effect to the written undertaking provided by the Contractor with his application for the Final Certificate Design-Build made under Sub-Clause 14.11 [Application for Final Payment Certificate Design-Build ]. However, whereas the undertaking referred to the Design-Build, this discharge refers to the complete Contract. As this discharge is given with the Contractor’s application, there are two conditions included to ensure that the Employer fulfils his last principal obligations. The conditions to the discharge becoming effective are firstly that the Employer has paid the due amount according the Final Payment Certificate Operation Service, and the second is that he has returned the Performance Security to the Contractor as required under Sub-Clause 4.2 [Advance Payment ]. 14.15 Issue of Final Payment Certificate Operation Service Within 28 days of receiving the Final Statement Operation Service and the written discharge from the Contractor in accordance with Sub-Clause 14.13 [Application for Final Payment Certificate Operation Service] and Sub-Clause 14.14 [Discharge] respectively, the Employer’s Representative shall issue to the Employer, with a copy to the Contractor, the Final Payment Certificate Operation Service stating: (a) the amount which is finally due for the Operation Service; and (b) the amount which is finally due for the Contract; and (c) after giving credit to the Employer for all amounts previously paid by the Employer and all sums to which the Employer is entitled in respect of the Contract, the balance (if any) due from the Employer to the Contractor or from the Contractor to the Employer, as the case may be. If the Employer’s Representative disagrees with or cannot verify any part of the Final Statement Operation Service, the Employer’s Representative and the Contractor shall attempt to agree such matters, and the Employer’s Representative shall issue a Final Payment Certificate Operation Service for the agreed amount. If the Parties cannot agree on such matters, the Employer’s Representative shall issue a Final Payment Certificate Operation Service for the amount which he considers to be due to the Contractor. If the Contractor is dissatisfied with the amount certified, he may refer the matter to the DAB for a decision in accordance with Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision]. Upon receipt of the Final Payment Certificate Operation Service, the Employer shall pay the Contractor in accordance with the provisions of Sub-Clause 14.8 [Payment ]. The Final Payment Certificate gives a summary of all payments due to the Contractor for the performance of the Contract. If the Employer’s Representative has been unable to verify or agree any part of the Contractor’s application, the procedure is similar to that when the parties could not agree the amount due to the Contractor for the Final Certificate DesignBuild. However, rather than issue a further Interim Certificate, the Employer’s Representative is now required to issue a Final Certificate Operation Service for the amount he considers to be due to the Contractor, and the Employer is required to pay this amount in accordance with the provisions of Sub-Clause 14.8 [Payment ]. If the Contractor is not satisfied with the certified amount, he may, within 56 days (see Sub-Clause 14.16 [Cessation of Employer’s Liability ]) submit the matter to the DAB in accordance with the provisions of Clause 20 [Claims, Disputes and Arbitration], and ultimately the Employer will be required to pay the amount decided by the DAB. 14.16 Cessation of Employer’s Liability The Employer shall not be liable to the Contractor for any matter or thing under or in connection with the Contract or execution of the Works, except to the extent that © FIDIC 2011
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the Contractor shall have included an amount expressly for it in the Final Statement Design-Build or the Final Statement Operation Service. However, this Sub-Clause shall not limit the Employer’s liability under his indemnification obligations, or the Employer’s liability in any case of fraud, deliberate default or reckless misconduct by the Employer. Furthermore, if the Contractor has not submitted any matter to the Dispute Adjudication Board under Sub-Clause 20.6 [Obtaining Dispute Arbitration Board’s Decision] within 56 days of receiving notification from the Employer’s Representa tive of the amounts included for payment in either the Final Certificate Design-Build or the Final Certificate Operation Service, then he will be deemed to have acce pted the amounts so certified, and the Employer shall be deemed to have no further liability to the Contractor, subject only to that payment due under the Final Payment Certificate Operation Service has been made and that the Performance Security referred to in Sub-Clause 4.2 [Performance Security ] has been returned to the Contractor. This Sub-Clause limits the Employer’s liability to matters which the Contractor has raised in his Final Statements for either Design-Build or Operation Service. If they have not been mentioned, the Employer has no liability in that regard under the Contract (subject to the applicable Law ), and this ties in with the wording and intention of the undertaking provided by the Contractor under Sub-Clause 14.11 [Application for Final Payment Certificate DesignBuild ] and the discharge provided by him under Sub-Clause 14.13 [ Application for Final Payment Certificate Operation Service]. It also means that the Employer remains liable to honour any decision of the DAB regarding any matter which the Contractor submitted to the DAB in respect of matters in the Contractor’s Final St atements, which were not accepted by the Employer’s Representative and not included in the respective Final Payment Certificate. As mentioned in respect of the Contractor’s discharge, the liability of the Employer includes payment according to Sub-Clause 14.8 [Payment ], and return of the Performance Security under Sub-Clause 4.2. 14.17 Currencies of Payment The Contract Price shall be paid in the currency or currencies named in the Contract Data. Unless otherwise stated in the Particular Conditions, if more than one currency is so named, payments shall be made as follows: (a) if the Accepted Contract Amount was expressed in Local Currency only: (i) the proportions or amounts of the Local and Foreign Currencies, and the fixed rates of exchange to be used for calculating the payments, shall be as stated in the Contract Data, except as otherwise agreed by both Parties; (ii) payments and deductions under Sub-Clause 13.5 [Provisional Sums] and Sub-Clause 13.6 [Adjustments for Changes in Legislation] shall be made in the applicable currencies and proportions; and (iii) other payments and deductions under sub-paragraphs (a) to (d) of SubClause 14.3 [Application for Advance and Interim Payment Certificates] shall be made in the currencies and proportions specified in subparagraph (a)(i) above; (b) payment of the damages specified in the Contract Data shall be made in the currencies and proportions specified in the Contract Data; (c) other payments to the Employer by the Contractor shall be made in the currency in which the sum was expended by the Employer, or in such currency as may be agreed by both Parties; (d) if any amount payable by the Contractor to the Employer in a particular currency exceeds the sum payable by the Employer to the Contractor in that currency, the Employer may recover the balance of this amount from the sums otherwise payable to the Contractor in other currencies; and (e) if no rates of exchange are stated in the Contract Data, they shall be those prevailing on the Base Date and determined by the central bank of the Country.
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This Sub-Clause describes how payments are to be made in Local and Foreign Currencies for various amounts due to either Party. 14.18 Asset Replacement Fund The Asset Replacement Fund is to provide the necessary funding for the replacement of items of Plant identified in the Asset Replacement Schedule as required for the continued efficient operation of the Works for the duration of the Operation Service Period. In each application for an Interim Payment Certificate during the Operation Service Period made in accordance with Sub-Clause 14.3 [Application for Advance and Interim Payment Certificates], the Contractor shall be entitled to include any monies from the Asset Replacement Fund which, according to the Asset Replacement Schedule, have become due following the replacement of the scheduled items by the Contractor. Under no circumstances will the amount payable from the Asset Replacement Fund be increased from the amount due according to the Asset Replacement Schedule, irrespective of the value or amount of replacements which have been made. For any items which have not been replaced by the date or other operational milestone identified in the Asset Replacement Schedule, payment will not be released until such replacement has been effected. In the event that there is money remaining in the Asset Replacement Fund upon completion of the Contract due to planned replacements, which by mutual agreement of the Parties, are not required or used, such amount shall be shared equally between the Parties, and the Contractor shall be entitled to include his share of such amount in his Application for Final Payment Certificate Operation Service made in accordance with Sub-Clause 14.13 [ Application for Final Payment Certificate Operation Service]. The Asset Replacement Fund shall not cover the cost of: (a) routine maintenance items associated with the correction of defects; (b) replacement of Plant and Material which have a life expectancy of less than five years; (c) providing spares between scheduled dates for major plant replacement; or (d) the replacement of Plant and Materials which are not identified in the Asset Replacement Schedule. The cost of meeting the requirements of sub-paragraphs (a) to (d) above shall be borne by the Contractor and be deemed to be included in the Contract Price. The Contractor shall give Notice to the Employer’s Representative at least 28 days prior to his intention to replace any item of Plant identified in the Asset Replacement Schedule. The Employer shall authorise release of funds from the Asset Replacement Fund in accordance with the amounts certified by the Employer’s Representative in each applicable Interim Payment Certificate. Funds will only be disbursed from the Asset Replacement Fund to the values and in accordance with the time scales for replacement identified in the Asset Replacement Schedule. Where items of Plant require replacement at times earlier than the scheduled replacement times given in the Asset Replacement Schedule, the appropriate funds shall not be released until the scheduled replacement date has been reached. If the Contract Price is subject to adjustments for changes in cost according to SubClause 13.8 [Adjustments for Changes in Cost], the amounts due from the Asset Replacement Fund shall be adjusted on the same basis as other costs. In the event of a termination of the Contract under Clause 15 [Termination by Employer ], or Clause 16 [Suspension and Termination by Contractor ], any amount remaining in the Asset Replacement Fund, including any accrued interest, shall be deemed to be to the account of the Employer and shall not be disbursed to the Contractor. The Asset Replacement Fund is arrived at by pricing the Asset Replacement Schedule (SubClause 14.5 [Asset Replacement Schedule]). Both the Schedule and the Fund are prepared © FIDIC 2011
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by the Contractor when tendering, and the resulting Asset Replacement Fund is part of the Accepted Contract Amount (see Definition 1.1.1). Money from the Fund may only be used to replace the items in the Asset Replacement Schedule to which the amount refers. Money from the Fund cannot be used to replace items which are not identified in the Schedule, and it cannot be used for work covered by paragraphs (a) to (d) in the Sub-Clause. If it is necessary to replace items which are not identified in the Schedule, the Contractor must replace these at his own cost and all work covered by paragraphs (a) to (d) must also be done by the Contractor at his own cost (unless replacement became necessary due to an act or failure by the Employer or his personnel). Furthermore, the Contractor is required to give 28 days’ Notice to the Employer’s Representative before he intends to replace any item. Note that the Contractor is not required to obtain the Employer’s Representative’s approval or consent, but by receiving Notice, the Employer’s Representative is able to relate the actual replacement date to the planned replacement date given in the Schedule. Also, if the actual date of replacement notified by the Contractor is for any reason not suitable or convenient to the Employer, the Employer’s Representative can, by instruction, stop the Contractor making the replacement until a later date. Such an instruction should be discussed first with the Contractor to see if a delay is feasible or indeed wise, and the Employer will have to compensate the Contractor for his costs. When submitting an application for payment, the Contractor is entitled to include money from the Fund which has been properly used to replace items from the Schedule. However, the Contractor should not include money for replacing an item which has been replaced before the replacement date given in the Schedule. If he has had to replace an item before the Schedule date, he must wait until the Schedule date before including the payment in a payment application. In the event that a replacement is not deemed necessary on the Scheduled date, but will be made later, the Contractor must wait until the replacement has actually been made before including the due amount from the Fund in his payment application. If there is money left in the Fund at the end of the Contract, and the Parties mutually agree that the planned replacements are not required, then the money remaining in the Fund will be divided equally between the Parties. However, if the Contract is terminated, either by the Employer under Clause 15 [Termination by Employer ] or by the Contractor under Clause 16 [Termination by Contractor ], any money remaining in the Fund at the time of termination, even for termination by the Contractor for the Employer’s default, shall be to the account of the Employer, and the Contractor has no claim to any of it. This reflects the fact that the Fund is there to provide money to replace assets, and if the assets are not replaced due to an early termination of the Contract, the Contractor is not entitled to any payment for such items. Thus if termination falls under Sub-Clause 18.5 [Optional Termination, Payment and Release] or 18.6 [Release from Performance under the Law ], any remaining money in the Fund is also to the account of the Employer. 14.19 Maintenance Retention Fund During the Operation Service Period, a Maintenance Retention Fund shall be created by deducting five percent (5%) from the value of each interim payment, determined by the Employer’s Representative in accordance with Sub-Clause 14.7 [Issue of Advance and Interim Payment Certificates], due to the Contractor, commencing with the first payment following the issue of the Commissioning Certificate, and continuing until the last Interim Payment Certificate is issued or until the amount in the Maintenance Retention Fund has reached the value (if any) stated in the Contract Data, whichever is the earlier. If the Contractor so chooses, the Maintenance Retention Fund may be replaced by a Maintenance Retention Guarantee in a form and with an entity approved by the Employer. However, the value of the Guarantee shall not exceed the maximum amount of the Maintenance Retention Fund stated in the Contract Data. The Contractor shall ensure that the
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Maintenance Retention Guarantee remains valid and in force until the issue of the Contract Completion Certificate. If the maintenance required under the Contract has not been carried out, the Employer may, after giving due Notice to the C ontractor, carry out such maintenance himself and apply any amounts standing to the credit of the Maintenance Retention Fund in so doing. Where such amounts are insufficient to cover the Employer’s whole costs of carrying out the maintenance, the unrecovered costs shall be set off against any payment due to the Contractor under the Contract, or to the extent that no such payment is due, shall become a debt due by the Contractor to the Employer. Following the issue of the Contract Completion Certificate under Sub-Clause 8.6 [Contract Completion Certificate], all funds remaining in the Maintenance Retention Fund shall be included in the Final Payment Certificate Operation Service and paid to the Contractor with the final payment. In the handback requirements (Sub-Clause 8.7 [Handback Requirements]), the Employer will certainly require the facility to be in a well maintained condition when he takes over responsibility for operation of the facility at the end of the Contract Period. However, it is necessary that the facility is kept in a well- maintained condition throughout the Operation Service Period, and it is in the best interests of the Contractor to keep it so in order to optimise performance and minimise cost during this time. In the event that the Contractor fails to maintain the Works properly, this may become evident by a failure to reach performance outputs or it may come in the form of a report from the Auditing Body (Sub-Clause 10.3 [Independent Compliance Audit ]) or some other way. If this happens, the Contractor is responsible for dealing with the failure in the manner required to bring the operation and condition of the facility back to that required by the Contract. If the Contractor fails or is unable to do this, then the Employer will need to engage others do the necessary maintenance work, and then he can use the money from the Maintenance Retention Fund to pay for this. If the money from the Fund is insufficient, the Employer can recover the insufficiency from the Contractor as a debt and deduct it from other payments due to the Contractor in addition to other rights under the Contract in respect of the Contractor failing to fulfil his contractual obligations. If the Contractor prefers, he may replace the Maintenance Retention Fund by a Maintenance Retention Guarantee which must remain in force until the issue of the Contract Completion Certificate, and must be of an equivalent amount to the amount which would have accrued if the Fund had been established as described in the Sub-Clause.
Clause 15
Termination by Employer There are many provisions in the Contract where an obligation on one Party to act or perform, is directly followed by a remedy in the event that the Party fails to act or perform as required. This is to provide the Parties with a contractual solution to deal with common failures without the need to consult the applicable Law in order to resolve the problem. The answer is in the Contract. However, the Contract cannot address all possible failures or serious failures where the only solution is for the other Party to be able to terminate the Contract, and the provisions of Clause 15 deal with commonly arising failures by the Contractor which give the Employer the right to terminate the Contract. Clause 16 deals with commonly arising failures by the Employer and those for whom the Employer is responsible which give the Contractor the right to terminate the Contract. © FIDIC 2011
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15.1
Notice to Correct If the Contractor fails to carry out any obligation under the Contract, the Employer’s Representative shall by Notice require the Contractor to make good the failure and to remedy it within the time specified in the said Notice. This is simply a requirement for the Employer’s Representative to notify the Contractor through the Employer’s Representative by written Notice if the Contractor is failing to carry out any obligation under the Contract. The Notice must state the time which the Contractor has to remedy the failure. The receipt by the Contractor of a Notice under this Sub-Clause needs to be taken very seriously, as failure to rectify the failure can lead to termination by the Employer under Sub-Clause 15.2 [Termination for Contractor’s Default ].
15.2
Termination for Contractor’s Default The Employer shall be entitled to terminate the Contract if the Contractor: (a) fails to comply with Sub-Clause 4.2 [Performance Security ] or with a Notice under Sub-Clause 15.1 [Notice to Correct ], (b) abandons the Works or otherwise plainly demonstrates the intention not to continue performance of his obligations under the Contract, (c) without reasonable excuse fails: (i) to proceed with the Works in accordance with Sub-Clause 9.1 [Commencement of Design-Build ] or Sub-Clause 10.2 [Commencement of Operation Service]; or (ii) to comply with a Notice issued under Sub-Clause 7.5 [Rejection] or SubClause 7.6 [Remedial Work ], within 28 days after receiving it; (d) subcontracts the whole of the Works or assigns the Contract without the required agreement or subcontracts the Operation Service or any parts of the Works in breach of Sub-Clause 4.4 [Subcontractors]; (e) either gives Notice to the Employer under Sub-Clause 4.25 [Changes in the Contractor’s Financial Situation] from which the Employer reasonably concludes that the Contractor will be unable to complete or fulfil his obligations under the Contract or, if the Contractor fails to give such a Notice, but the Employer in any event reasonably concludes that the Contractor will be unable to complete or fulfil his obligations under the Contract due to the Contractor’s financial situation; (f) becomes bankrupt or insolvent, goes into liquidation, has a receiving or administration order made against him, compounds with his creditors, or carries on business under a receiver, trustee or manager for the benefit of his creditors, or if any act is done or event occurs which (under applicable Laws) has a similar effect to any of these acts or events; (g) gives or offers to give (directly or indirectly, either before or during the currency of the Contract) to any person any bribe, gift, gratuity, commission or other thing of value, as an inducement or reward: (i) for doing or forbearing to do any action in relation to the Contract; or (ii) for showing or forbearing to show favour or disfavour to any person in relation to the Contract; or if any of the Contractor’s Personnel, agents or Subcontractors gives or offers to give (directly or indirectly) to any person any such inducement or reward as is described in this sub-paragraph (g). However, lawful inducements and rewards to Contractor’s Personnel shall not give a right to termination; (h) fails to complete the Design-Build by the Cut-Off Date stated in the Contract Data or, if no such date is given, then a period of 182 days after the Time for Completion of Design-Build. In any of these events or circumstances, the Employer may, not less than 14 days after giving Notice to the Contractor, terminate the Contract and expel the Contractor from the Site unless the Contractor cures the event or circumstance within the said 14 days. However, in the case of sub-paragraph (f) or (g), the Employer may by Notice terminate the Contract immediately.
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The Employer’s election to terminate the Contract shall not prejudice any other rights of the Employer, under the Contract or otherwise. The Contractor shall then leave the Site and deliver any required Goods, all Contractor’s Documents, and other design documents made by or for him, to the Employer’s Representative. However, the Contractor shall use his best efforts to comply immediately with any reasonable instructions included in the Notice (i) for the assignment of any subcontract, and (ii) for the protection of life or property or for the safety of the Works. After termination, the Employer may complete the Works and/or arrange for any other entities to do so. The Employer and these entities may then use any Goods, Contractor’s Documents and other design documents made by or on behalf of the Contractor. The Employer shall then give Notice that the Contractor’s Equipment and Temporary Works will be released to the Contractor at or near the Site. The Contractor shall promptly arrange their removal, at the risk and cost of the Contractor. However, if by this time the Contractor has failed to make a payment due to the Employer, these items may be sold by the Employer in order to recover this payment. Any balance of the proceeds shall then be paid to the Contractor. Under Sub-Clause 15.2(a), a failure to comply with a Notice issued under Sub-Clause 15.1 [Notice to Correct ] is one of several reasons entitling the Employer to terminate the Contract, but it is not a pre-requisite that the Employer issues such a Notice before giving the required 14 days Notice to terminate the Contract for any of the other named failures and defaults. However the Employer must be very certain of his grounds for terminating the Contract as the consequences of wrongful termination can be very serious. Some of the listed grounds for termination are straight forward such as (d) subcontracting the whole of the Works without approval, or (h) failing to complete the Design-Build by the Cut-Off Date and the Employer can make his decision to terminate or not based on easily established events. However, other grounds call for a judgement by the Employer to establish whether the failure by the Contractor is sufficient to warrant termination of the Contract, for example under paragraph (b) or (c) or (e). In these cases the Employer must decide whether the apparent failure is due to reasonable circumstances, and whether in those circumstances the paragraph permits him to terminate. A prudent Employer should always seek legal advice before deciding to terminate the Contract as the consequences of a wrongful termination by the Employer can be very serious and very expensive. Note that termination is final and irrevocable: once the Contract has been terminated then, as a legal matter, it cannot ordinarily be un-terminated or reinstated. If the Employer intends to use this Sub-Clause to terminate the Contract, he must give the Contractor 14 days Notice. During this Notice period, the Contractor has a last chance to rectify the failure, and if he manages to do so, the Notice is deemed to have been withdrawn. If the Contractor fails to rectify the failure within the 14 days, the termination will become effective on the 14th day and the Contractor must leave the Site and hand over to the Employer all Goods, Contractor’s Documents etc to the Employer. Thereafter the Employer is free to complete the Works himself, or get someone else to do so. The only exceptions to the foregoing are covered in paragraphs (f) if the Contractor becomes bankrupt, or (g) if the Contractor has been offering bribes or other inducements. In these cases there is no 14 days Notice period. The Notice takes effect immediately. After termination, the Employer may either complete the Works himself, or he may engage a third party to do so complete the Works. In either event he is entitled to use the Contractor’s Documents and designs prepared by the Contractor, as well as any Goods which the Contractor may have brought to the Site. © FIDIC 2011
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15.3
Valuation at Date of Termination for Contractor’s Default As soon as practicable after a Notice of termination under Sub-Clause 15.2 [Termination for Contractor’s Default ] has taken effect, the Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine the value of the Works, Goods and Contractor’s Documents, and any other sums due to the Contractor for work executed in accordance with the Contract. Even in the event of termination, the Contractor is entitled to be paid for the work he did prior to the termination. In such a cas e, the Employer’s Representative is required to make a fair determination of the amount due to the Contractor in accordance with Sub-Clause 3.5 [Determinations]. This determination will also take account of any monies properly owing to the Employer. However, no Payment Certificate is issued at this stage since the Employer may be entitled to additional money from the Contractor in completing the Works. This valuation is purely a record of the amount due to the Contractor at the date of termination.
15.4
Payment after Termination for Contractor’s Default After a Notice of termination under Sub-Clause 15.2 [Termination for Contractor’s Default ] has taken effect, the Employer may: (a) proceed in accordance with Sub-Clause 20.2 [Employer’s Claims]; (b) withhold further payments to the Contractor until the costs of design, execution, completion and remedying of any defects, damages for delay in completion (if any), and all other costs incurred by the Employer, have been established; and/ or (c) recover from the Contractor any losses and damages incurred by the Employer and any extra costs of completing the Works, after allowing for any sum due to the Contractor under Sub-Clause 15.3 [Valuation at Date of Termination for Contractor’s Default ]. After recovering any such losses, damages and extra costs, the Employer shall pay any balance to the Contractor. Under this Sub-Clause the Employer is entitled to recover from the Contractor all costs, losses and damages incurred or suffered by the Employer as a result of the termination under Sub-Clause 15.2 [Termination for Contractor’s Default ]. Normally this amount will be deducted from the amount determined to be due to the Contrac tor in accordance with SubClause 15.3 [Valuation at Date of Termination for Contractor’s Default ], and the remaining amount will be certified in a Payment Certificate by the Employer’s Representative, and duly paid by the Employer. If the amount due to the Employer exceeds the amount determined to be due to the Contractor under Sub-Clause 15.3 [Valuation at Date of Termination for Contractor’s Default ], then the balance due to the Employer may be recovered by the Employer from the Contractor as a commercial debt.
15.5
Termination for Employer’s Convenience If at any time the Employer elects to terminate the Contract for reasons other than those specified in Sub-Clause 15.2 [Termination for Contractor’s Default ], and subject to the applicable Law of the Contract, he shall notify the Contractor in writing, with a copy to the Employer’s Representative. Such termination shall be deemed to be termination for the convenience of the Employer. Upon issuing a Notice to terminate under this Sub-Clause, the Employer shall immediately make arrangements to return the Performance Security to the Contractor, and the termination shall take effect 28 days after the date the Contractor receives the Notice, or 28 days after he receives the Performance Security, whichever is the later.
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Upon issuing the Notice, the Employer shall immediately cease to have any right of use of any of the Contractor’s Documents, and shall forthwith return all and any such Contractor’s Documents to the Contractor. The Employer shall not terminate the Contract under this Sub-Clause in order to execute or operate the Works (or any part thereof) himself, or arrange for the Works (or any part thereof) to be executed by another contractor. Termination by the Employer for reasons other than the Contractor’s default under SubClause 15.2 [Termination for Contractor’s Default ], is not encouraged, but it is permitted since it would be difficult to prevent an Employer taking such action if he felt so inclined. Such action could be for good reason (other than Contractor’s default) such as economic restrictions, or political decisions, or it may be for other reasons known only to the Employer. However, the Employer may not terminate for his convenience if the Law of the C ontract does not permit such termination. For example, in many jurisdictions, where the Operation stage of the Contract is considered to be akin to a ‘service contract’, neither party can terminate such a ‘service contract’ for their convenience. Consequently, in such circumstances, this Sub-Clause would not apply. Although the Contractor is compensated for such a termination (see Sub-Clause 15.6 [Valuation at Date of Termination for Employer’s Convenience]), the Employer is not permitted to terminate under this Sub-Clause in order to get someone else to complete the Works. 15.6
Valuation at Date of Termination for Employer’s Convenience As soon as practicable after a Notice of termination under Sub-Clause 15.5 [Termination for Employer’s Convenience] has taken effect, the Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine the value of the Works, Goods and Contractor’s Documents, and any other sums due to the Contractor for work executed in accordance with the Contract. After a Notice of termination, the Employer’s Representative needs to agree to determine the value of various items.
15.7
Payment after Termination for Employer’s Convenience After termination for the Employer’s convenience under Sub-Clause 15.5 [Termination for Employer’s Convenience], the Contractor shall proceed in ac cordance with SubClause 16.3 [Cessation of Work and Removal of Contractor’s Equipment] and shall be paid in accordance with Sub-Clause 16.4 [Payment on Termination]. Similar to the provisions of Sub-Clause 15.3 [Valuation at Date of Termination for Contractor’s Default ], the Employer’s Representative is required under Sub-Clause 15.6 [Valuation at Date of Termination for Employer’s Convenience] to fairly determine the amount due to the Contractor as soon as the Notice to terminate under Sub-Clause 15.5 [Termination for Employer’s Convenience] has been issued. This amount must be immediately certified in a Payment Certificate by the Employer’s Representative, and, according to Sub-Clause 15.7 [Payment after Termination for Employer’s Convenience], the Employer must pay in accordance with Sub-Clause 16.4 [Payment on Termination], which means he must return the Performance Security to the Contractor, pay the Contractor all his Costs in accordance with Sub-Clause 15.5 [Termination for Employer’s Convenience] and also pay the Contractor the amount of any loss of profit or other loss or damage sustained by the Contractor as a result of this termination.
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Clause 16 16.1
Termination by Contractor Contractor’s Entitlement to Suspend Work If the Employer’s Representative fails to certify in accordance with Sub-Clause 14.7 [Issue of Advance and Interim Payment Certificates], or the Employer fails to comply with Sub-Clause 2.4 [Employer’s Financial Arrangements] or Sub-Clause 14.8 [Payment ], the Contractor may, not less than 21 days after giving Notice to the Employer, suspend work (or reduce the rate of work) unless and until the Contractor has received the Interim Payment Certificate, reasonable evidence or payment, as the case may be and as described in the Notice. The Contractor’s action shall not prejudice his entitlements to financing charges under Sub-Clause 14.9 [Delayed Payment] and to termination under Sub-Clause 16.2 [Termination by Contractor ]. If the Contractor subsequently receives such Interim Payment Certificate, evidence or payment (as described in the relevant Sub-Clause and in the above Notice) before giving a Notice of termination, the Contractor shall resume normal working as soon as is reasonably practicable. If the Contractor suffers delay and/or incurs cost as a result of suspending work (or reducing the rate of work) in accordance with this Sub-Clause, the Contractor shall give Notice to the Employer’s Representative and shall be entitled, subject to SubClause 20.1 [Contractor’s Claims], to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 9.3 [Extension of Time for Completion of Design-Build ]; and (b) payment of any such Cost Plus Profit, which shall be included in the Contract Price. After receiving this Notice, the Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. This is the only provision in the Design-Build-Operate Contract which entitles the Contractor to suspend work. It applies in the case where either the Employer’s Representative fails to issue a Payment Certificate, as required by Sub-Clause 14.7 [Issue of Advance and Interim Payment Certificates], or the Employer fails to pay the due amount as required by Sub-Clause 14.8 [Payment ]. The Contractor may also invoke this Sub-Clause if the Employer fails to give reasonable evidence of his financial arrangements under SubClause 2.4 [Employer’s Financial Arrangements]. However, under the DBO contract this will normally only apply either a) if the Employer has ordered a Variation or some additional expenditure, or b) there has been a material adverse change in the Employer’s financial situation, and the Contractor wishes to verify that the funding that was deemed to be available is in fact still is available. The provisions in this Sub-Clause enable the Contractor to put pressure on the Employer to honour his various payment obligations without terminating the Contract or unlawfully refusing to work if he is not being paid. Action by the Contractor on account of a failure by the Employer or the Employer’s Representative as referred to in the Sub-Clause may, if the failure is not cured within a specified time, entitle the Contractor to terminate under Sub-Clause 16.2 [Termination by Contractor ]. If action is taken by the Contractor under this Sub-Clause, he will normally be entitled to an extension of time (the exception being if the suspension will not affect the Contractor’s ability to complete on time), and payment of Cost Plus Profit which he suffers as a result of the suspension. The amount of the time extension and the compensation must be claimed by the Contractor according to the procedures laid down in Sub-Clause 20.1 [ Contractor’s Claims], but the amounts due will be determined by the Employer’s Representative in accordance with Sub-Clause 3.5 [Determinations].
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16.2
Termination by Contractor The Contractor shall be entitled to terminate the Contract if: (a) the Contractor does not receive the reasonable evidence within 42 days after giving Notice under Sub-Clause 16.1 [Contractor’s Entitlement to Suspend Work ] in respect of a failure to comply with Sub-Clause 2.4 [Employer’s Financial Arrangements]; (b) the Employer’s Representative fails, within 56 days after receiving a Statement and supporting documents, to issue the relevant Payment Certificate; (c) the Contractor does not receive the amount due under an Interim Payment Certificate within 42 days after the expiry of the time stated in Sub-Clause 14.8 [Payment ] within which payment is to be made (except for deductions in accordance with Sub-Clause 20.2 [Employer’s Claims]); (d) the Employer substantially fails to perform his obligations under the Contract, (e) the Employer fails to comply with Sub-Clause 1.6 [Contract Agreement ] or SubClause 1.8 [Assignment ]; (f) a prolonged suspension affects the whole of the Works as described in SubClause 9.10 [Prolonged Suspension]; or (g) the Employer becomes bankrupt or insolvent, goes into liquidation, has a receiving or administration order made against him, compounds with his creditors, or carries on business under a receiver, trustee or manager for the benefit of his creditors, or if any act is done or event occurs which (under applicable Laws) has a similar effect to any of these acts or events. In any of these events or circumstances, the Contractor may, not less than 14 days after giving Notice to the Employer, terminate the Contract unless the Employer cures the event or circumstance within the said 14 days. However, in the case of subparagraph (f) or (g), the Contractor may by Notice terminate the Contract immediately. The Contractor’s election to terminate the Contract shall not prejudice any other rights of the Contractor, under the Contract or otherwise. Termination of the Contract by either Party is a very serious step, and the comments given under Sub-Clause 15.2 [Termination for Contractor’s Default ], in respect of the Employer’s right to terminate the Contract, apply equally well to this Sub-Clause. In this case, the Contractor must be very certain of his grounds for terminating the Contract as the consequences of wrongful termination can be very serious. Some of the listed grounds for termination are straightforward, but other grounds (e.g. paragraph (d)) call for a judgement by the Contractor to establish whether the failure by the Employer is sufficiently serious to warrant termination of the Contract. A prudent Contractor should always seek legal advice before deciding to terminate the Contract as the consequences of a wrongful termination can have important adverse consequences for the Contractor. Note that termination is final and irrevocable: once the Contract has been terminated then, as a legal matter, it cannot ordinarily be un-terminated or reinstated. Once the Notice has been given, the Employer has 14 days in which to correct the failure, and if he does so, the Notice will be deemed to have been withdrawn. If after the 14 days, the failure has not been corrected, the Contractor may proceed to terminate the Contract. Again, he can use his judgement as to whether termination is the best way to deal with the situation, but the decision is his. By Sub-Clause 1.2 [Interpretation], the word ‘may’ in this context means that the choice lies with the Contractor.
16.3
Cessation of Work and Removal of Contractor’s Equipment After a Notice of termination under Sub-Clause 16.2 [Termination by Contractor ] or Sub-Clause 18.5 [Optional Termination, Payment and Release] has taken effect, the © FIDIC 2011
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Contractor shall, unless the Employer cured the event or circumstance within the 14-days’ Notice period, promptly: (a) cease all further work, except for such work as may have been instructed by the Employer’s Representative for the protection of life or property or for the safety of the Works or protection of the environment. For all such instructed work, the Contractor shall be entitled to be paid Cost Plus Profit and shall be relieved of further liabilities under Sub-Clauses 4.8 [Safety Procedures] and 4.18 [Protection of the Environment ]; (b) hand over to the Employer the Contractor’s Documents, Plant, Materials and other work, for which the Contractor has received payment; and (c) remove all other Goods from the Site, except as necessary for safety, and leave the Site. After the 14 days’ Notice under Sub-Clause 16.2 [Termination by Contractor ] has passed, and the Contractor has decided to proceed with the termination, he is required to comply with all these requirements before leaving the Site. However, if compliance with any requirements, including any instructions issued by the Employer’s Representative, cause the Contractor to incur additional cost which he would not have otherwise incurred, he should be entitled to claim due compensation under paragraph (c) of Sub-Clause 16.4 [Payment on Termination]. 16.4
Payment on Termination After a Notice of termination under Sub-Clause 16.2 [Termination by Contractor ] has taken effect, the Employer shall promptly: (a) return the Performance Security to the Contractor; (b) pay the Contractor in accordance with Sub-Clause 18.6 [Optional Termination, Payment and Release]; and (c) pay to the Contractor the amount of any loss of profit or other loss or damage sustained by the Contractor as a result of this termination. After termination under this Clause 16 [Termination by Contractor ], the Contractor is entitled to have his Performance Security returned and to receive full payment for all work done, all the costs he has incurred as covered in Sub-Clause 18.5 [Optional Termination, Payment and Release], plus any loss of profit or other loss which he has incurred. However, according to the provisions of Sub-Clause 14.2 [Advance Payment ], if there is any portion of the advance payment which has not been repaid to the Employer at the time of the termination, this amount must be credited to the account of the Employer.
Clause 17
Risk Allocation The philosophy adopted by FIDIC in dealing with Risk (Clauses 17 [Risk Allocation] and 18 [Exceptional Risks]) and Insurance (Clause 19 [Insurance]) in the DBO document, has been radically up-dated as compared to the way in which these items were dealt with in the 1999 forms of contract. Firstly, the clauses have been re-structured in a more logical sequence matching the natural flow from risk allocation to responsibility to liability to insurance. Secondly, the risks carried by both the Employer and the Contractor have been identified and allocated. Thirdly, the different types of risks have been identified: Commercial Risks (see Definition 1.1.7), which result in financial loss and for which insurance is not generally available, and Risk of Damage (see Definition 1.1.67) which results in physical loss or damage.
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Finally, the terminology has been made more reader-friendly. Clause 17 [Risk Allocation] deals with the allocation of risk between the Parties and deals with Commercial Risks and Risks of Dama ge occurring during both the Design-Build Period and the Operation Service Period. Clause 18 [Exceptional Risks] deals with Exceptional Risks. Many will recognise these risks as the Force Majeure risks from the 1999 documents. However, with different jurisdictions having different understandings of the meaning of ‘force majeure’ and different legal provisions and rights in the event that such an event occurs, it was confusing to the users of the earlier FIDIC documents to know how to deal with such events, especially as FIDIC gave its own definition of Force Majeure (see Sub-Clause 19.1 of the 1999 documents). For this reason, the term ‘Force Majeure’ has been replaced by the term ‘Exceptional Eve nt’ (see Definition 1.1.37), and all the risks associated with Exceptional Events have been named Exceptional Risks and covered in Clause 18 [Exceptional Risks]. It is logical to cover all the risks first, and then to address the question of insurance, and Clause 19 [Insurance] deals with Insurance in a simple and understandable way, so it is very clear to the Contractor exactly what the requirements for insurance are during both the Design-Build Period and the Operation Service Period. The Clause highlights the different insurances which are required during the two stages of the project. 17.1
The Employer’s Risks during the Design-Build Period Subject to the provisions of Sub-Clause 17.8 [Limitation of Liability ], the risks allocated to the Employer and for which the Employer is liable during the DesignBuild Period are divided into: (a) The Employer’s Commercial Risks, which are: (i) the financial loss, delay or damage allocated to the Employer under the Contract or for which the Employer is liable by law, unless otherwise modified under the Contract; (ii) the right of the Employer to construct the Works or any part thereof on, over, under, in or through the Site; (iii) the use or occupation of the Site by the Works or any part thereof, or for the purpose of design, construction or completion of the Works other than the abusive or wrongful use by the Contractor; and (iv) the use or occupation by the Employer of any part of the Permanent Works, except as may be specified in the Contract; and (b) The Employer’s Risks of Damage, which are: (i) damage due to any interference, whether temporary or permanent, with any right of way, light, air, water or other easement (other than that resulting from the Contractor’s method of construction) which is the unavoidable result of the construction of the Works in accordance with the Contract; (ii) fault, error, defect or omission in any element of the design of the Works by the Employer or which may be contained in the Employer’s Requirements, other than design carried out by the Contractor pursuant to his obligations under the Contract; (iii) any operation of the forces of nature (other than those allocated to the Contractor in the Contract Data) against which an experienced contractor could not reasonably have been expected to have taken adequate preventative precautions; and (iv) the Exceptional Risks under Clause 18 [Exceptional Risks]. This Sub-Clause clearly identifies the risks which are carried by the Employer during the Design-Build Period, and these are divided into (a) the Employer’s Commercial Risks (see Definition 1.1.7) and (b) Risks of Damage (see Definition 1.1.67). The Risks of Damage © FIDIC 2011
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include the Exceptional Risks (see Clause 18 [Exceptional [Exceptional Risks]), Risks]), but if any of these risks occur, the liability of the Employer is limited according to the provisions of Sub-Clause 17.8 [Limitation of Liability ]. ]. Whilst the Exceptional Risks in certain rare cases do not result in physical loss or damage to the Works or other property belonging to either Party, it was decided to include this category of risks for the sake of simplicity, since the consequences on the Parties’ rights and obligations are the same as in the cas e of the other Employer’s Risks. Strictly speaking, a third category could have been created under this Sub-Clause 17.1 to cover “Employer’s Risks as set out under Clause 18 [Exceptional [Exceptional Risks]”, Risks]”, but this would have made matters more complicated due to the fact that most of these risks are insurable, requiring additional text in the Conditions. If an event or circumstance arises which does not fall under (a) or (b), then, according to the provisions of Sub-Clause 17.2 [The [The Contractor’s Risks during the Design-Build Period ], ], that risk is carried by the Contractor. 17.2 17. 2
The Cont Contrac ractor tor’s ’s Risks Risks duri during ng the the Desig Design-Bu n-Build ild Peri Period od Subject to the provisio Subject provisions ns of Sub-Clau Sub-Clause se 17.8 [Limitation [Limitation of Liability ], ], the risks allocated to the Contractor and for which the Contractor is liable during the DesignBuild Period are all the risks other than those listed under Sub-Clause 17.1 [The [The Employer’s Risks during the Design-Build Period ], ], including the care of both the Works and the Goods. Under this Sub-Clause the Contractor carries all risks (during the Design-Build Period) which are not listed in paragraphs (a) or (b) of Sub-Clause 17.1 [The [The Employer’s Risks during the Design-Build Period ], ], subject to the limitations of Sub-Clause 17.8 [Limitation [Limitation of Liability ]. ]. With this formulation, all risks are covered and allocated between the Employer and the Contractor, so whatever occurs, it is clear which Party is liable. In addition, this Sub-Clause makes it clear that it is the Contractor who is responsible and liable for the care of the Works and the Goods during the Design-Build Period (see SubClause 17.5 [Responsibility [Responsibility for Care of the Works]). Works]).
17.3 17. 3
The Empl Employe oyer’s r’s Risk Risks s during during the the Opera Operatio tion n Service Service Per Period iod Subject to the provisio Subject provisions ns of Sub-Clau Sub-Clause se 17.8 [Limitation [Limitation of Liability ], ], the risks allocated to the Employer and for which the Employer is liable during the Operation Service Period are divided into: (a) The Employ Employer’s er’s Commerc Commercial ial Risks, which are: (i) the financia financiall loss, delay or damage damage allocated allocated to to the Employ Employer er under under the Contract or for which the Employer is liable by law, unless otherwise modified under the Contract; (ii) the use or occupat occupation ion by the the Employer Employer of any part part of the the Permanent Permanent Works, Works, except as may be specified in the Contract; and (iii) the use or occupatio occupation n of the Site by by the Works or any any part thereof, thereof, or for the the purpose of operating and maintaining the Permanent Works; and (b) The Employe Employer’s r’s Risks Risks of of Damage, Damage, which which are: are: (i) damage due to any interf interference, erence, whethe whetherr temporary temporary or permanen permanent, t, with with any right of way, light, air, water or other easement (other than that resulting from the Contractor’s methods of operation and maintenance) which is the unavoidable result of operating and maintaining the Permanent Works in accordance with the Contract; (ii) fault, error, defect or omission omission in any element element of the design design of the Works Works by the Employer or which may be contained in the Employer’s Requirements,
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other than design carried out by the Contractor pursuant to his obligations under the Contract; (iii) any operation operation of the the forces of nature against against which which an experienced experienced contractor could not reasonably have been expected to have taken adequate preventative precautions; and (iv) the Exception Exceptional al Risks Risks under under Clause Clause 18 [Exceptional [Exceptional Risks]. Risks]. This Sub-Clause is similar to (but not identical with) the provisions of Sub-Clause 17.1 [The [The Employer’s Risks during the Design-Build Period ]. ]. However, if a risk arises which is not listed under paragraphs (a) or (b), it does not automatically mean that it is carried by the Contractor. The Contractor’s Risks during the Operation Service Period are to be found in Sub-Clause 17.4 [The [The Contractor’s Risks during the Operation Service Period ]. ]. If a risk arises and the Parties cannot agree where the risk lies, the matter will be decided by the Dispute Adjudication Board (DAB), and the risk will be carried or shared by the Party or Parties named by the DAB. 17.4 17. 4
The Cont Contrac ractor tor’s ’s Risks Risks duri during ng the Ope Operat ration ion Serv Service ice Peri Period od Subject to the provisio Subject provisions ns of Sub-Clau Sub-Clause se 17.8 [Limitation [Limitation of Liability ], ], the risks allocated to the Contractor and for which the Contractor is liable during the Operation Service Period are: (a) all risks resultin resulting g or arising arising from the design design (excludin (excluding g any design design allocated allocated to the Employer under Sub-Clauses 17.1(b)(ii) and 17.3(b)(ii)) or construction of the Works, or the Materials used therein, notwithstanding any testing carried out by or approved or witnessed by the Employer or the Employer’s Representative during the Design-Build Period; and (b) all risks resulting resulting or arising arising from from the operation operation and maintenanc maintenance e of the Permanent Permanent Works and the care of the Works excluding the Employer’s Risks listed under Sub-Clause 17.3 [The [The Employer’s Risks during the Operation Service Period ]. ]. Although the Commissioning Certificate has been issued and the Works have been approved by the Employer’s Representative, if a fault reveals itself during the Operation Service Period which is the result of a failure by the Contractor during the Design-Build Period, the Contractor is still liable for that risk. He is also liable for all risks associated with or arising from the operation of the facility. He will also be liable for any risk which the DAB decides is his liability.
17.5 17 .5
Respo Res ponsi nsibil bility ity fo forr Car Care e of th the e Work Works s Unless the Contract is terminated in accordance with these Conditions, the Contractor shall take full responsibility for the care of the Works and Goods from the Commencement Date until the Commissioning Certificate for the whole of the Works is issued pursuant to Sub-Clause 11.7 [Commissioning [Commissioning Certificate]. Certificate]. If the Contract is terminated in accordance with these Conditions, the Contractor shall cease to be responsible for the care of the Works from the date of expiry of the Notice of termination. The Contractor shall also be responsible for the care of the Permanent Works during during the Operation Service Period in accordance with the requirements of the Operating Licence pursuant to Sub-Clause 1.7 [Operating [Operating Licence]. Licence]. The Contractor shall also be responsible for the care of any part of the Permanent Works for which a Section Commissioning Certificate has been issued. The Contractor shall also take full responsibility for any outstanding work which he shall have undertaken to complete during the Operation Service Period until all such outstanding work is completed. The Contractor is fully responsible for the care of the Works Works during the Design-Build Period. He is also responsible for the care of the facility (or Permanent Works) to the extent required in the Operating Licence issued in accordance with Sub-Clause 1.7 [Operating [Operating Licence]. Licence]. © FIDIC 2011
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If the Employer requires the Contractor to be responsible for the care of any part of the facility or any aspect of the operation during the Operation Service Period, Period, this must be stated specifically and explained in detail as to the boundaries of the care required in the Operating Licence. If nothing is said, and nothing else agreed, then the Contractor’s responsibility for care of the Works will end with the issue of the Commissioning Certificate. 17.6 17. 6
Consequ Con sequenc ences es of of the the Empl Employe oyer’s r’s Risk Risks s of Dam Damage age Subject to the provisions of Sub-Clause 18.4 [Consequences [ Consequences of an Exceptional Event ], ], if any of the risks allocated as an Employer’s Risk under Sub-Clause 17.1 [The Employer’s Risks during the Design-Build Period ] and 17.3 [The [The Employer’s Risks during the Operation Service Period ] occurs and results in damage to the Works or other property or Goods or Contractor’s Documents, the Contractor shall promptly give Notice to the Employer’s Representative, and shall thereafter rectify such loss and/or damage to the extent required by instruction of the Employer’s Representative. Such instruction shall be deemed a Variation. In the event of the allocation of the risk not being governed by any other term of the Contract, and such risk occurs during the Design-Build Period and the Contractor is delayed and/or incurs cost from rectifying this damage, the Contractor shall give a further Notice to the Employer’s Representative and shall be entitled to: (a) an extensio extension n of time for for any such such delay, delay, if completion completion is or or will be delayed, delayed, under Sub-Clause 9.3 [Extension [Extension of Time for Completion of Design-Build ]; ]; and (b) paymen paymentt of Cost Plus Plus Profit, which which shall shall be included included in the Contract Contract Price. Price. If the event occurs during the Operation Service Period, sub-paragraph (b) of this Sub-Clause shall apply, but sub-paragraph (a) of this Sub-Clause shall not apply. The Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations Determinations]] to determine the amounts due. If an event occurs which has been designated an Employer’s Risk of Damage under SubClause 17.1 [The [The Employer’s Risks during the Design-Build Period ] or 17.3 [The [The Employer’s Risks during the Operation Service Period ], ], the Contractor is required to give a Notice to the Employer’s Representative, and the Employer’s Representative is required to act under Clause 13 [Variations [Variations and Adjustments]. Adjustments]. in order for the Contractor to rectify or make good the loss or damage. This instruction is considered to be a Variation, and the Contractor will be entitled to claim apply for both an extension of time and Cost Plus Profit in accordance with the provisions of Clause 13 [Variations [Variations and Adjustments]. Adjustments]. However, if the event occurs during the Operation Service Period, no extension of time will be given as the Operation Service Period cannot be extended.
17.7 17. 7
Consequ Con sequenc ences es of the the Contr Contract actor’ or’s s Risks Risks result resulting ing in in Damage Damage If any of the risks allocated as a Contractor’s risk under Sub-Clause 17.2 [The [The Contractor’s Risks during the Design-Build Period ] and 17.4 [The [The Contractor’s Risks during the Operation Service Period ] occurs and results in damage to the Works or other property or Goods, the Contractor shall promptly give Notice to the Employer’s Representative, and shall thereafter rectify such damage to the extent required by the Employer’s Representative. All such work of replacement, repair or rectification shall be carried out by the Contractor at his own cost. If an event causing loss or damage has been allocated as a Contractor’s Risk according to Sub-Clauses 17.2 [The [The Contractor’s Risks during the Design-Build Period ] or 17.4 [The [The Contractor’s Risks during the Operation Service Period ], ], then the Contractor is required to give Notice to the Employer’s Representative and the Employer’s Representa tive is required to inform the Contractor of the work he requires to be done to rectify the loss or damage, and the Contractor is required to do such work at his own cost.
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17.8
Limitation of Liability Neither Party shall be liable to the other Party for any loss of use of any Works, loss of profit, loss of contract or for any other indirect loss or damage which may be suffered by the other Party in connection with the Contract, other than under SubClause 10.6 [Delays and Interruptions during the Operation Service], Sub-Clause 16.4 [Payment on Termination], Sub-Clause 17.9 [Indemnities by the Contractor], Sub- Clause 17.10 [Indemnities by the Employer ] and Sub-Clause 17.12 [Risk of Infringement of Intellectual and Industrial Property Rights]. The total liability of the Contractor to the Employer, under or in connection with the Contract, shall not exceed the sum stated in the Contract Data or (if a sum is not so stated) the Accepted Contract Amount. This Sub-Clause shall not limit any liability in any case of fraud, deliberate default or reckless misconduct by the defaulting Party.
It is very difficult for a Contractor to assess his risk exposure if he carries unlimited financial liability for the consequences of certain events occurring. Moreover, the Employer might erroneously believe that he is covered for this unlimited risk exposure, whereas in fact he is not. This Sub-Clause recognizes that it is in neither Party’s, nor the project’s best interests if a Party is forced into bankruptcy or an unacceptable financial situation by carrying unlimited liability. For this reason, neither Party is liable to the other Party for costs which it might be difficult for him to know or establish in advance, such as loss of use, loss of contract and other indirect losses, except in connection with the identified Sub-Clauses. Furthermore, there is an overall financial limit in respect of the liability of the Contractor towards the Employer which is given in the Contract Data. However, when calculating the liabilities to be included in reaching this limit, t here are certain provisions which are excluded, so any damages arising under the named Sub-Clauses are unlimited. Also if a Party is guilty of fraud, deliberate default or recklessness, the limits do not apply, and the damages will be unlimited. 17.9
Indemnities by the Contractor The Contractor shall indemnify and hold harmless the Employer, the Employer’s Personnel, and their respective agents, against and from all claims, damages, losses and expenses (including legal fees and expenses) in respect of: (a) bodily injury, sickness, disease or death, of any person whatsoever arising out of or in the course of or by reason of the Contractor’s design, execution, completion or operation and maintenance of the Works, unless attributable to any negligence, wilful act or breach of the Contract by the Employer, the Employer’s Personnel, or any of their respective agents; and (b) damage to or loss of any property, real or personal (other than the Works), to the extent that such damage or loss; (i) arises out of or in the course of or by reason of the Contractor’s design, execution and completion or operation and maintenance of the Works, or (ii) is attributable to any negligence, wilful act or breach of the Contract by the Contractor, the Contractor’s Personnel, their respective agents, or anyone directly or indirectly employed by any of them. The Contractor shall also indemnify the Employer against all errors in the Contractor’s design of the Works and other professional services which result in the Works not being fit for purpose or result in any loss and/or damage for the Employer. Where a Party carries a risk, he is required to indemnify or protect the other Party in respect of any claims he may receive or damage or loss he may suffer as a result of such risk. Thus © FIDIC 2011
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if a Party who is not liable for a risk under the Contract, receives a claim from a third party or suffers loss or damage as a result of the risk eventuating, he is entitled to pass the claim over to the other Party (the Party carrying the risk) to settle with the third party or to claim any loss or damage from the other Party or Parties to the Contract. The Contractor is also required to indemnify the Employer against the consequences of any errors in the design or other professional services, which result in the Works not being fit for purpose (as required by Sub-Clause 4.1 [Contractor’s General Obligations]). The Contract does not state how long this indemnity shall last; this will usually be determined according to the Law governing the Contract. 17.10 Indemnities by the Employer The Employer shall indemnify and hold harmless the Contractor, the Contractor’s Personnel, and their respective agents, against and from all claims, damages, losses and expenses (including legal fees and expenses) in respect of: (a) bodily injury, sickness, disease or death, or loss of or damage to any property other than the Works, which is attributable to any negligence, wilful act or breach of the Contract by the Employer, the Employer’s Personnel, or any of their respective agents; and (b) the Employer’s Risks as set out in Sub-Clauses 17.1 [The Employer’s Risks during the Design-Build Period ] and 17.3 [The Employer’s Risks during the Operation Service Period ]. This Sub-Clause requires the Employer to indemnify the Contractor in respect of those risks which the Employer carries in the same way as the Contractor indemnifies the Employer under Sub-Clause 17.9 [Indemnities by the Contractor ]. 17.11 Shared Indemnities The Contractor’s liability to indemnify the Employer, as aforesaid, shall be reduced proportionately to the extent that the Employer’s Risks may have contributed to the said damage, loss or injury. Similarly, the Employer’s liability to indemnify the Contractor, as aforesaid, shall be reduced proportionately to the extent that the Contractor’s risks may have contributed to the said damage, loss or injury. Where an event occurs where the risks carried by both Parties have contributed to the loss or damage incurred, then the damages payable from one Party to the other (or vice versa) shall be reduced in proportion to the extent that the risk was shared. 17.12 Risk of Infringement of Intellectual and Industrial Property Rights In this Sub-Clause, “infringement” means an infringement (or alleged infringement) of any patent, registered design, copyright, trademark, trade name, trade secret or other intellectual or industrial property right relating to the Works; and “claim” means a claim (or proceedings pursuing a claim) alleging an infringement. Whenever a Party does not give Notice to the other Party of any claim within 28 days of receiving the claim, the first Party shall be deemed to have waived any right to indemnity under this Sub-Clause. The Employer shall indemnify and hold the Contractor harmless against and from any claim alleging an infringement which is or was: (a) an unavoidable result of the Contractor’s compliance with the Employer’s Requirements; or (b) a result of any Works being used by the Employer: (i) for a purpose other than that indicated by, or reasonably to be inferred from, the Contract; or (ii) in conjunction with any thing not supplied by the Contractor, unless such
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use was disclosed to the Contractor prior to the Base Date or is stated in the Contract. The Contractor shall indemnify and hold the Employer harmless against and from any other claim which arises out of or in relation to (i) the Contractor’s design, manufacture, construction or execution of the Works, (ii) the use of Contractor’s Equipment, or (iii) the proper use of the Works. If a Party is entitled to be indemnified under this Sub-Clause, the indemnifying Party may (at its cost) conduct negotiations for the settlement of the claim, and any litigation or arbitration which may arise from it. The other Party shall, at the request and cost of the indemnifying Party, assist in contesting the claim. This other Party (and its Personnel) shall not make any admission which might be prejudicial to the indemnifying Party, unless the indemnifying Party failed to take over the conduct of any negotiations, litigation or arbitration upon being requested to do so by the other Party. This Sub-Clause protects each Party against the consequences of infringement by the other Party of any patent or other intellectual or industrial property right. The Employer must indemnify the Contractor against any such claims which are the unavoidable result of the Contractor complying with the Employer’s Requirements or which arise due to the mis-use of the facility by the Employer, and the Contractor must indemnify the Employer against all such claims concerning the design or construction of the facility by the Contractor.
Clause 18 18.1
Exceptional Risks Exceptional Risks An exceptional risk is a risk arising from an Exceptional Event which includes, but is not limited to: (a) war, hostilities (whether war be declared or not), invasion, act of foreign enemies; (b) rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war, within the Country; (c) riot, commotion or disorder within the Country by persons other than the Contractor’s Personnel and other employees of the Contractor and Subcontractors; (d) strike or lockout not solely involving the Contractor’s Personnel and other employees of the Contractor and Subcontractors; (e) munitions of war, explosive materials, ionising radiation or contamination by radio-activity, within the Country, except as may be attributable to the Contractor’s use of such munitions, explosives, radiation or radio-activity; and (f) natural catastrophes such as earthquake, hurricane, typhoon or volcanic activity which are Unforeseeable or against which an experienced contractor could not reasonably have been expected to have taken adequate preventative precautions. An exceptional risk is the risk arising from an Exceptional Event, and all exceptional risks are carried by the Employer. Definition 1.1.37 gives the basis for determining whether or not an event can be considered as an Exceptional Event, and this Sub-Clause 18.1 give a number of examples of events which are considered as Exceptional Events. However, the list is not exclusive , and if the Contractor considers that an event has occurred which falls within with the definition given in 1.1.37, even if it is not specifically listed or named in this Sub-Clause 18.1, the Contractor may rightfully claim that the event gave rise to an exceptional risk under this Sub-Clause 18.1, and that as such, it is a risk carried by the Employer. The reasons that these exceptional risks are allocated to the Employer (see Sub-Clause 17.1 [The Employer’s Risks during the Design-Build Period ]) include the fact that he is © FIDIC 2011
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the initiator of the project and he is the ultimate user and beneficiary. As such, the risks start by being the Employer’s risks until they are shifted to the other Party or to insurers. Furthermore, it would be extremely difficult for the Contractor to price such a risk if he was required to carry it. Also the likelihood of such risks arising is small and it is better for the Employer to pay for such risks if and when they occur, rather than ask the Contractor to price for carrying the risk such that the Employer will pay for the risk (in the Contract Price), whether or not it actually occurs. 18.2
Notice of an Exceptional Event If a Party is or will be prevented from performing any of its obligations under the Contract due to an Exceptional Event, then it shall give Notice to the other Party of such event or circumstance and shall specify the obligations, the performance of which is or will be prevented. The Notice shall be given within 14 days after the Party became aware, or should have become aware, of the event or circumstance constituting an Exceptional Event. The Party shall, having given Notice, be excused performance of such obligations for so long as such Exceptional Event prevents it from performing them. Notwithstanding any other provision of this Clause, the obligations of either Party to make payments to the other Party under the Contract shall not be excused by an Exceptional Event. If either Party becomes aware of an Exceptional Event which will prevent him for performing his obligations, that Party must notify the other Party within 14 days of the circumstances arising, giving details of their effect on his ability to perform. Following this Notice, the affected Party is excused performance of such obligations. However, it is important that a Party does not attempt to claim relief from performance under this Sub-Clause 18.2 for events or circumstances which do not constitute an Exceptional Event. Should a Party be of the opinion that the other Party is attempting to mis-use this Sub-Clause 18.2 in this way, it should immediately seek legal advice on its rights to stop such mis-use.
18.3
Duty to Minimise Delay Each Party shall at all times use all reasonable endeavors to minimise any delay in the performance of the Contract as a result of an Exceptional Event. A Party shall give Notice to the other Party when it ceases to be affected by an Exceptional Event. Both Parties are required to use all reasonable efforts to minimize delay due to an Exceptional Event. In this context, ‘reasonable efforts’ means that a Party cannot be expected to take steps which will entail unreasonable expenditure in an effort to minimise delay. If the Employer requires the Contractor to take specific steps or action, such an instruction would be considered to be an instruction under another Sub-Clause, for example, an instruction to suspend work would be given under Sub-Clause 9.7 [Suspension of Work ] and an instruction to vary the Works would be given under Sub-Clause 13.1 [ Right to Vary ] and so on. In such a case it is to be expected that the Contractor would be entitled to claim the costs of complying with the instruction.
18.4
Consequences of an Exceptional Event If the Contractor is prevented from performing any of his obligations under the Contract due to an Exceptional Event of which Notice has been given under SubClause 18.2 [Notice of an Exceptional Event ] and suffers delay and/or incurs cost by reason of such Exceptional Event, the Contractor shall be entitled, subject to Sub-Clause 20.1 [Contractor’s Claims], to:
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(a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 9.3 [Extension of Time for Completion of Design-Build ]; and (b) if the event or circumstance is of the kind described in sub-paragraphs (a) to (e) of Sub-Clause 18.1 [Exceptional Risks] and, in the case of sub-paragraphs (b) to (e), occurs in the Country, payment of any such Cost. If the Exceptional Event occurs during the Operation Service Period, sub-paragraph (a) of this Sub-Clause 18.4 will not apply. After receiving this Notice, the Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. As mentioned, all exceptional risks are carried by the Employer, so if an Exceptional Event occurs, the Contractor is entitled to compensation and, if required, a time extension. Note that the Contractor must have ‘registered’ the event as an Exceptional Event according to Sub-Clause 18.2 [Notice of an Exceptional Event ] before he can claim, and if he plans to claim, he must follow the procedures given in Sub-Clause 20.1 [Contractor’s Claims]. The point is also made that if the Exceptional Event occurs during the Operation Service Period, no extension of time should be sought or awarded, as the Operation Service Period cannot be extended. 18.5
Optional Termination, Payment and Release If the execution of substantially all the Works in progress is prevented for a continuous period of 84 days by reason of an Exc eptional Event of which Notice has been given under Sub-Clause 18.2 [Notice of an Exceptional Event ], or for multiple periods which total more than 140 days due to the same notified Exceptional Event, then either Party may give to the other Party a Notice of termination of the Contract. In this event, the termination shall take effect 7 days after the N otice is given, and the Contractor shall proceed in accordance with Sub-Clause 16.3 [Cessation of Work and Removal of Contractor’s Equipment ]. Upon such termination, the Employer’s Representative shall determine the value of the work done and issue a payment certificate which shall include: (a) the amounts payable for any work carried out for which a price is stated in the Contract; (b) the Cost of Plant and Materials ordered for the Works which have been delivered to the Contractor, or of which the Contractor is liable to accept delivery. This Plant and Materials shall become the property of (and be at the risk of) the Employer when paid for by the Employer, and the Contractor shall place the same at the Employer’s disposal; (c) any other Cost or liability which in the circumstances was reasonably incurred by the Contractor in the expectation of completing the Works; (d) the Cost of removal of Temporary Works and Contractor’s Equipment from the Site and the return of these items to the Contractor’s works in his country (or to any other destination at no greater cost); and (e) the Cost of repatriation of the Contractor’s staff and labour employed wholly in connection with the Works at the date of termination. This Sub-Clause protects the Parties in the event that the effects of the Exceptional Event last for a continuous period of 84 days, or multiple periods totalling more than 140 days. In such a case, neither Party may wish to continue waiting for an unlimited time before being permitted to re-start work, and this Sub-Clause entitles either Party to give Notice of termination to the other Party once the time limits have been exceeded. Whichever Party decides to terminate under this Sub-Clause, the Contractor is entitled to be fairly paid for the work he has done and the other costs he has incurred as itemised in paragraphs (b) to (e), and the Employer’s Representative is required to prepare a Payment Certificate accordingly. © FIDIC 2011
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18.6
Release from Performance under the Law Notwithstanding any other provision of this Clause, if any event arises outside the control of the Parties (including, but not limited to, an Exceptional Event) which makes it impossible or unlawful for either or both Parties to fulfil its or their contractual obligations or which, under the law governing the Contract, entitles the Parties to be released from further performance of the Contract, then upon Notice by either Party to the other Party of such event: (a) the Parties shall be discharged from further performance, without prejudice to the rights of either Party in respect of any previous breach of the Contract; and (b) the sum payable by the Employer to the Contractor shall be the same as would have been payable under Sub-Clause 18.5 [Optional Termination, Payment and Release] if the Contract had been terminated under that Sub-Clause. Sometimes events occur which make it impossible or unlawful for a Party to continue, or events occur which, according to the Law governing the Contract, release the Parties from any further obligation to perform the Contract. If this happens, the Contract shall be deemed to have been terminated under Sub-Clause 18.5 [Optional Termination, Payment and Release], and the Contractor will be entitled to be paid accordingly.
Clause 19
Insurance The provisions in Clause 19 are based on all the required insurances being provided by the Contractor. If the Employer plans to provide any of these himself, naming the Contractor as joint insured, the responsibilities described will need amending, and an Employer contemplating such a change would be well advised to consult an insurance expert before introducing such changes to ensure that he and the Contractor are properly covered and protected for the full duration of the Contract. The requirement for the Contractor to take out insurance is an obligation, not an option – since it also provides for some of the indemnities which the Contractor is required to give the Employer. In each case the wording “the Contractor shall effect and maintain …..”, and ‘shall’ (see Sub-Clause 1.2 [Interpretation]) means he must take out the required insurances in accordance with the provisions of each Sub-Clause. Insurance protects the Party concerned (in this case, the Contractor) against the financial consequences of risks arising for which he is liable under the terms of the Contract. Such protection is necessary since the engineering and construction industry is recognised as one which carries high risks and the financial consequences can be substantial – sometimes far greater than a contractor could carry on his own. Note that both the terms of the policies and the insurers which the Contractor intends using must be approved by the Employer, not the Employer’s Representative. The reason for this is that in most of the policies the Employer is joint insured, so he is responsible for satisfying himself that he is properly covered by the policy. The second reason is that the Employer’s Representative, whether he is an employee of the Employer or a third party such as a firm of consulting engineers, is unlikely to have sufficient specialist knowledge to make such a judgement, and such a person would be unwise to take on such a responsibility. Note also that the required insurances are divided between those required during the Design-Build Period and those required during the Operation Service Period. This is due to the different nature of the design and construction risks arising during the Design-Build, and the operational risks arising during the Operation.
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19.1
General Requirements Without limiting his or the Employer’s obligations or responsibilities under the Contract, the Contractor shall effect and maintain all insurances for which he is responsible with insurers and in terms, both of which shall be s ubject to approval by the Employer, such approval shall not be unreasonably withheld or delayed. The insurances required to be provided herein are the minimum required by the Employer, and the Contractor may, at his own cost, add such other insurances that he may deem prudent. Whenever required by the Employer, the Contractor shall produce the insurance policies which he is required to effect under the Contract. As each premium is paid, the Contractor shall send a copy of each receipt of payment to the Employer. If the Contractor fails to effect a nd keep in force any of the insurances required under Sub-Clause 19.2 [I nsurances to be provided by the Contractor during the DesignBuild Period ], or fails to provide the policies or receipts as aforementioned, then, and in any such case, the Employer may effect and keep in force such insurances and pay any premium as may be necessary and recover the same from the Contractor from time to time by deducting the amount(s) so paid from any monies due to the Contractor or otherwise recover the same as a debt from the Contractor. If either the Contractor or the Employer fails to comply with the conditions attaching to the insurances effected pursuant to the Contract, the Party so failing to comply as aforesaid shall indemnify the other Party against all losses and claims arising from such failure. The Contractor shall also be responsible for the following: (a) notifying the insurers of any changes in the nature, extent or programme for the execution of the Works; (b) notifying the insurers of any changes in the nature, extent or programme for the provision of the Operation Service; and (c) the adequacy and validity of the insurances in accordance with the Contract at all times during the performance of the Contract. The permitted deductible limits allowed in any policy shall not exceed the amounts stated in the Contract Data. Where there is a shared liability the loss shall be borne by each Party in proportion to its liability under Clause 17 [Risk Allocation] or Clause 18 [Exceptional Risks], provided the non-recovery from insurers has not been caused by a breach of this Clause by the Contractor. In the event that non-recovery from insurers has been caused by such a breach of Contract by the Contractor, the Contractor shall bear the loss suffered.
As mentioned in the introduction to this Clause, it is the Contractor who is responsible for taking out the named insurances, and it is the Employer who should check and approve the identity of the insurers and the provisions of the policies. It is in neither Party’s interest for the Contractor to be uninsured or under-insured, and if the Contractor fails to take out or maintain the required insurances, the Employer may do so at the Contractor’s cost. The specified insurances are the minimum which the Contractor is required to provide. If he wishes to take out additional insurance he is free to do so at his own cost. A basic requirement of any insurance policy is that it is issued based on certain conditions and criteria, and it is important that both Parties follow those conditions to the letter. If they do not, for example, by failing to notify the insurers within a given time of certain events specified in the terms of the insurance cover, or failing to follow other specified procedures, the risk is that the insurers might not honour the consequent liability. Accordingly, each Party is required to indemnify the other Party against the consequences of such a failure. Furthermore, the Contractor must notify the insurers if any circumstances upon which the original insurance was based, change. This not only covers changes to the Works as such, © FIDIC 2011
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but also if the programme is extended, or if the policy requires particular notification to be issued, the insurers must be informed so that proper insurance cover is maintained for the complete Contract Period. 19.2
Insurances to be provided by the Contractor during the Design-Build Period The Contractor shall provide the following insurances during the Design-Build Period: (a) The Works The Contractor shall insure and keep insured in the joint names of the Contractor and the Employer from the Commencement Date until the date of issue of the Commissioning Certificate: (i) the Works, together with Materials and Plant for incorporation therein, for their full replacement value with deductible limits not exceeding those stated in the Contract Data. The insurance cover shall extend to include loss and damage of any part of the Works as a consequence of failure of elements defectively designed or constructed with defective material or workmanship; and (ii) an additional sum of fifteen percent (15%) of such replacement value (or such sum as may be specified in the Contract Data) to cover any additional costs incidental to the rectification of loss or damage, including professional fees and the cost of demolition and removal of debris. The insurance cover shall cover the Employer and the Contractor against all loss or damage from whatever cause arising until the Commissioning Certificate is issued. Thereafter, the insurance shall continue until the date of issue of the Final Payment Certificate Design Build in respect of any incomplete work for loss or damage arising from any cause occurring prior to the date of the Commissioning Certificate, and for any loss or damage occasioned by the Contractor in the course of any operation carried out by him for the purpose of complying with his obligations under Clause 12 [Defects]. The insurance cover provided by the Contractor for the Works may exclude any of the following: (1) the cost of making good any part of the Works which is defective (including defective material and workmanship) or otherwise does not comply with the Contract, provided that it does not exclude the cost of making good any loss or damage to any other part of the Works attributable to such defect or non-compliance. (2) indirect or consequential loss or damage including any reductions in the Contract Price for delay. (3) wear and tear, shortages and pilferages. (4) the Employer’s Risks set out in Sub-Clause 17.1 [Employer’s Risks during the Design-Build Period ] unless otherwise stated in the Contract Data regarding the risks in sub-paragraph (b)(iii) thereof. (5) the Exceptional Risks set out in Sub-Clause 18.1 [Exceptional Risks] unless, otherwise stated in the Contract Data regarding the risks in subparagraph (f) thereof. The first insurance to be provided by the Contractor during the Design-Build Period is insurance of the Works, including Materials and Plant. The insurance must be in place and valid from the Commencement Date and be in the joint names of the Contractor and the Employer, and it must remain in force until the date the Commissioning Certificate is issued. It must cover the full replacement cost of the damaged items and damage caused to any other items as a consequence, plus an amount set at 15% (unless otherwise stated) of the insured amount for incidental costs and professional fees. If there is any outst anding work or defects to be repaired after the issue of the Commissioning Certificate, the Works insurance shall also cover such activities. There are however, certain exc lusions for situations where the C ontractor is not required to obtain cover. These are listed in paragraphs (1) to (5). If the Contract requires the Contractor
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to cover any of these standard excluded items, details should be given in the Contract Data. Sometimes Employers may wish to the Contractor’s insurance to cover some of the Employer’s Risks or the Exceptional Risks. However, before asking the Contractor to insure against such risks, Employers should be aware that many of the risks are not readily insurable at commercially acceptable rates. (b) Contractor’s Equipment The Contractor shall insure in the joint names of the Employer and the Contractor the Contractor’s Equipment and other things brought onto Site by the Contractor to the extent specified in the Contract Data. The Contractor is required to insure his Contractor’s Equipment against loss and damage. Contractor’s Equipment, by definition (see 1.1.18), means all things brought onto the Site by the Contractor which he needs to execute the Works. Some items within the definition of Contractor’s Equipment, such as vehicles, may in any event be required to be insured by law, and it is the Contractor’s responsibility to see that such items are properly insured before being used. The amount of cover required is given in the Contract Data. Upon completion, these items are no longer required and will be removed by the Contractor from the Site. Furthermore, due to the fact that in insurance terminology the word “equipment” does not include items which can move under their own power, such items as cranes and bulldozers, etc. which are commonly found on construction sites, may need to be separately classified as “machinery” and identified and insured accordingly (even though Definition 1.1.18 for the Contractor’s Equipment mentions ‘machinery’). (c) Liability for breach of professional duty The Contractor shall insure the legal liability of the Contractor arising out of the negligent fault, defect, error or omission of the Contractor or any person for whom the Contractor is responsible in the carrying out their professional duties in an amount not less than that stated in the Contract Data. Such insurance shall contain an extension indemnifying the Contractor for his liability arising out of negligent fault, defect, error or omission in the carrying out his professional duties which result in the Works not being fit for the purpose specified in the Contract and resulting in any loss and/or damage to the Employer. The Contractor shall maintain this insurance for the period specified in the Contract Data. Since the Contractor is responsible for the design of the Works, he must also take out, or see that his designers take out, professional liability insurance in the amount stated in the Contract Data to cover him against defective design or other professional fault or error. Since normal professional liability insurance often only covers for ‘due care and diligence’, there is a requirement that the Contractor shall extend this cover such that the Contractor is covered in the event that an error or fault by the Contractor (or his designers) results in the Works not being fit for purpose as required by Sub-Clause 4.1 [ Contractor’s General Obligations]. Even if the Contractor does not or cannot provide this required extension, he is still liable in the event that elements of the design render the Works not fit for purpose, so failure to acquire this extension does not relieve the Contractor of his liability. (d) Injury to persons and damage to property The Contractor shall insure, in the joint names of the Contractor and the Employer, against liabilities for death or injury to any person, or loss of or damage to any property (other than the Works) arising out of the performance of the Contract and occurring before the issue of the Final Payment Certificate Design-Build, other than loss or damage caused by any event covered under Sub-Clause 17.1 [Employer’s Risks during the Design-Build Period ] or SubClause 18.1 [Exceptional Risks]. The insurance policy shall include a cross liability clause such that the insurance shall apply to the Contractor and the Employer as separate insureds. © FIDIC 2011
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Such insurance shall be effected before the Contractor begins any work on the Site and shall remain in force until the issue of the Final Payment Certificate Design-Build and shall be for not less than the amount specified in the Contract Data. This Sub-Clause requires the Contractor to insure against liability towards third parties. He is not required to take out such insurance in respect of risks for which the Employer is liable according to Sub-Clauses 17.1 [The Employer’s Risks during the Design-Build Period ] or 18.1 [Exceptional Risks]. The amount of cover is given in the Contract Data and it must be effected before the Contractor begins work on Site and remain in force until the issue of the Final Payment Certificate Design-Build. Although the Contractor is required to insure in the joint names of himself and the Employer, the insurance must include a cross liability clause so that the Contractor and the Employer are also covered as separate insureds. In addition, the insurance shall cover personnel and property of the Parties except where such personnel or property is covered by other sub-clauses. See Sub-Clause 19.2 (a) The Works, and (e) Injury to employees.
(e) Injury to employees The Contractor shall effect and maintain insurance against liability for claims, damages, losses and expenses (including legal fees and expenses) arising from injury, sickness, disease or death of any person employed by the Contractor or any other of the Contractor’s Personnel. The Employer and the Employer’s Representative shall also be indemnified under the policy of insurance, except that this insurance may exclude losses and claims to the extent that they arise from any act or neglect of the Employer or of the Employer’s Personnel. The insurance shall be maintained in full force and effect during the whole time that the Contractor’s Personnel are assisting in the execution of the Works. For any person employed by a Subcontractor, the insurance may be effected by the Subcontractor, but the Contractor shall be responsible for the Subcontractor’s compliance with this Sub-Clause. This insurance is in respect of injury or death to the Contractor’s own personnel and employees and is, in many countries, a legal requirement for works being executed in that country. The Sub-Clause sets out the requirements of the Contract, but if the requirements of the Law are more extensive or demanding, the Contractor must comply with such requirements, and unless such requirements have been introduced since the Base Date (see Definition 1.1.5), the Contractor will not be able to claim additional payment for any such insurances which he failed to include when pricing his tender. (f) Other insurances required by Law and by local practice Other insurances required by Law and by local practice (if any) shall be detailed in the Contract Data and the Contractor shall provide such other insurances in compliance with the details given, at his own cost. Similar to the comment made to paragraph (e) above, the Contractor must comply with the legal requirements in the relevant country, and the Contractor is responsible for doing so at his own cost. However, in this case, such requirements must be identified in the Contract Data since tenderers may not be familiar with the requirements of ‘local practice’. It is therefore important for the Employer to see that all such requirements are stated in the Contract Data. It should be noted that this requirement for the Employer to identify these ‘Other Insurances’, does not apply to paragraph (e) above. In that case the Contractor is responsible for ascertaining all the requirements regarding insurance of personnel, etc.
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19.3
Insurances to be provided by the Contractor during the Operation Service Period The Contractor shall provide the following insurances during the Operation Service Period: (a) Fire extended cover for the Works The Contractor shall provide, in the joint names of the Employer and the Contractor, fire extended cover insurance for the Works as specified in the Contract Data for the Operation Service Period. Notwithstanding any other provision in the Contract, the Operation Service shall not commence until the fire extended cover insurance is effected and the terms and details have been approved by the Employer. The terms of the policy shall be submitted to the Employer for his approval no later than 28 days before the date upon which the Commissioning Certificate is due to be issued, and shall come into force on the date stated in the Commissioning Certificate. Since the Works insurance provided under Sub-Clause 19.2(a) is only valid until the issue of the Commissioning Certificate, it is necessary to insure the facility against all risks of damage, fire and loss during the Operation Service Period. This is called Fire Extended Cover insurance and must be in place as a condition for the Operation Service to commence. Thus it must be in place when the Commissioning Certificate is issued (as this is the date of commencement of the Operation Service), and the Contract requires that the terms of the insurance shall have been submitted to the Employer for his approval 28 days before the Commissioning Certificate is due to be issued. It is the Employer’s responsibility to see that he approves the policy in good time (see Sub-Clause 1.3 [Notices and Other Communications]) so that the Contractor is not delayed in commencing the Operation Service or, if the policy needs correction before being approved, giving the Contractor sufficient time to make the necessary corrections. (b) Injury to any person and damage to property The Contractor shall ensure that an insurance as required under Sub-Clause 19.2 (d) [Injury to persons and damage to property ] be effected prior to the issue of the Commissioning Certificate and maintained until the issue of the Contract Completion Certificate. Such insurance shall be for an amount and in terms as specified in the Contract Data. (c) Injury to employees The Contractor shall ensure that an insurance as required under Sub-Clause 19.2(e) [Injury to employees] be effected prior to the issue of the Commissioning Certificate and maintained until the issue of the Contract Completion Certificate, or the last of his or any of his Subcontractors’ employees have left the Site, whichever is the later. (d) Other insurances required by Law and by local practice Other insurances required by Law and by local practice (if any) shall be detailed in the Contract Data and the Contractor shall provide such insurances in compliance with the details given, at his own cost (e) Other optional operational insurances Other optional insurances required (if any) shall be detailed in the Contract Data and the Contractor shall provide such other insurances in compliance with the details given, at his own cost. See the comments found under Sub-Clause 19.2 paragraphs (d), (e) and (f). Although these provisions appear to be similar to those found under Sub-Clause 19.2 [Insurances to be provided by the Contractor during the Design-Build Period ], the circumstances may differ due to the fact t hat personnel are facing operational risks rather than constructional risks. Also, the additional possible insurances required by Law or local practice will differ and relate to the requirements of an essentially service-type of contract. © FIDIC 2011
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Again, if there are additional operational insurances which the Employer requires the Contractor to take out, for example, in connection with existing plant or equipment near the facility or in respect of environmental issues or other particular issues relating to the operation of the facility, the Employer must make sure that such requirements are given in the Contract Data. Provided he does this, the Contractor is responsible for including such requirements in his prices. If such requirements are not given in the Contract Data, the Contractor would be entitled to extra reimbursement for providing them should they subsequently be required. Examples of insurance cover which might be required under paragraph (e) of this SubClause are: Machinery Breakdown; Loss of Profits; and Loss of Profits following Machinery Breakdown. In this connection, it would be advisable to engage a specialist advisor for the task of selecting the appropriate ‘Other Operational Insurances’ for the project.
Clause 20
Dispute Resolution Clause 20 contains all the provisions relating to the submission of claims by either the Contractor or the Employer, and their resolution by adjudication or arbitration in the event that the Parties cannot reach an amicable settlement. The Clause is essentially a procedural clause giving procedures and time limits to be observed if a Party wants to secure its right to claim. The events establishing the right of a Party to claim will have arisen under other clauses of the Contract. It is important to understand that there are many events and circumstances which will arise which give the Contractor the right to receive fair and proper compensation – events and circumstances which may have been unknown to the Contractor when tendering for the work and which, having arisen, may not be the responsibility or liability of the Contractor under the terms of the Contract. However, it is up to the Party making the claim to prove its case, and it is important to follow the procedures described. Some of the Sub-Clauses provide for possible relaxation of procedures and/or time limits if the DAB considers that the circumstances were such that the claiming Party was unable to reasonably comply with them. This provision recognises that both Parties should be fairly treated and not be unfairly barred from claiming if the circumstances warrant fair consideration and assessment. Claims from the two Parties are dealt with in two separate Sub-Clauses, since the circumstances giving rise to the claims will differ in cause and character. However, the provisions for resolution by adjudication or arbitration are common whichever Party is making the claim.
20.1
Contractor’s Claims If the Contractor considers himself to be entitled to any extension of the Time for Completion of Design-Build and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contrac t, he must comply with the following procedures: (a) Notices The Contractor shall give Notice to the Employer’s Representative, describing the event or circumstance giving rise to the claim as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance. The Notice shall state that it is given under this Sub-Clause. If the Contractor fails to give Notice of a claim within such period of 28 days, the Time for Completion of Design-Build shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged
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from all liability in connection with the claim. However, if the Contractor considers there are circumstances which justify the late submission, he may submit the details to the DAB for a ruling. If the DAB considers that, in all the circumstances, it is fair and reasonable that the late submission be accepted, the DAB shall have the authority to overrule the relevant 28-day limit and, if it so decides, it shall advise the Parties accordingly. If the Contractor has submitted his Notice of claim within the 28-day limit or the DAB has ruled that the late Notice was acceptable, then the Contractor shall proceed in accordance with the provisions of this Sub-Clause. The first step if the Contractor wishes to make a claim is to give written Notice to the Employer’s Representative of the relevant event or circumstances. This he must do ‘as soon as practicable’, but no later than 28 days after he became aware of the event or circumstance, or ‘when he should have become aware of the event or circumstance’. The extra wording is there is to prevent a contractor claiming that he was not aware of an event when everyone knows that he was or at least should have been. If he fails to give this Notice within the 28 days, he loses his right to claim. However, if he considers there were grounds to justify a late notification, he can apply to the DAB, and if the DAB also feel that the late submission of the Notice was justified, they can overrule the 28 day limit and allow the claim to go forward. (b) Contemporary records Following the giving of Notice, the Contractor shall keep such contemporary records as may be necessary to substantiate any claim. Contemporary records shall be kept on Site unless agreed otherwise with the Employer’s Representative. Without admitting the Employer’s liability, the Employer’s Representative may, after receiving any Notice under this Sub-Clause, monitor the record-keeping and/or instruct the Contractor to keep additional contemporary records. The Contractor shall permit the Employer’s Representative to inspect all these records, and shall (if instructed) submit copies to the Employer’s Representative. After giving the Notice, the Contractor must keep proper records. He must be able to substantiate his claim, not only the event or circumstance, but also the quantum, and the Employer’s Representative has the right to inspect these records. Very often, having been given Notice under paragraph (a), the Employer’s Representative will keep his own records of events so that he can check the application from the Contractor, but this will not relieve the Contractor of the requirement to keep his own records. One further important aspect of this paragraph is that the Employer’s Representative may require the Contractor to keep specific additional records or to ask the Contractor to compile the records in a specific manner to simplify subsequent checking and analysis. (c) Details and particulars Within 42 days after the Contractor became aware (or should have become aware) of the event or circumstance giving rise to the claim, or within such other period as may be allowed by the DAB under paragraph (a) above, or proposed by the Contractor and approved by the Employer’s Representative, the Contractor shall send to the Employer’s Representative a fully detailed claim which includes full supporting particulars of the contractual or other basis of the claim and of the extension of time and/or additional payment claimed. The Contractor shall also provide the Employer’s Representative with any additional particulars which the Employer’s Representative may reasonably require. If the Contractor fails to provide the contractual or other basis of the claim within the said 42 days or other time allowed or approved, the Notice given under paragraph (a) above shall be deemed to have lapsed and shall no longer be considered as a valid Notice. If the Contractor considers there are circumstances which justify a late submission, he may submit the details to the DAB for a ruling. If the DAB considers that, in all the circumstances, it is fair and reasonable that the late submission be accepted, the DAB shall have the © FIDIC 2011
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authority to overrule the given 42-day limit and, if it so decides, it shall advise the Parties accordingly. If the event or circumstance giving rise to the claim has a continuing effect: (i) the fully detailed claim shall be considered as interim; (ii) the Contractor shall send further interim claims at 28-day intervals, giving the accumulated delay and/or amount claimed, and such additional particulars as the Employer’s Representative may reasonably require; and (iii) the Contractor shall send a final claim within 28 days after the end of the effects resulting from the event or circumstance, or within such other period as may be proposed by the Contractor and approved by the Employer’s Representative. The Contractor has 42 days after becoming aware of the events giving rise to his claim to submit to the Employer’s Representative a fully detailed claim with all supporting particulars. This is 42 days after becoming aware of the event, so it could be only 14 days after giving Notice under paragraph (a). If the circumstances are such that the Parties agree that the time is insufficient for the Contractor to make the submission, they may agree to extend the time, but, if the Contractor fails to submit the details within the 42 days or the agreed time, then the Notice given under paragraph (a) shall be deemed to have lapsed, and the claim will not be accepted or considered. However, if there are circumstances which the Contractor considers would fairly entitle him to more time, he may in the first instance propose to the Employer’s Representative an extended period of time. If the Employer’s Representative does not approve such a proposal, the Contractor may make a submission to the DAB for a decision to overrule the 42-day limit. It is important to note that what is required to be submitted by the Contractor within the said 42 days is “a fully detailed claim which includes full supporting particulars of the contractual or other basis of the claim and of the extension of time and/or additional payment claimed.” This is a far-reaching requirement which in most cases requires the setting out of a thorough analysis of the rights and obligations of the Parties in connection with the claim being made. It is therefore not sufficient to simply make a brief reference to the Clause under which the claim is being made. If the event has an on-going effect, then the Contractor is required to send interim claims at 28 day intervals until the effect of the event is over, with a final claim “28 days after the end of the effects resulting from the event or circumstance…” summarising the total situation. The purpose of the interim claims is to enable the Contractor to be paid at monthly intervals rather than wait until the whole effect is known and summarised. (d) Employer’s Representative’s response Within 42 days after receiving a fully detailed claim or any further particulars requested by the Employer’s Representative, or within such other period as may be agreed by the Employer’s Representative and the Contractor, the Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine (i) the extension (if any) of the Time for Completion of DesignBuild (before or after its expiry) in accordance with Sub-Clause 9.3 [Extension of Time for Completion for Design-Build ], and/or (ii) the additional payment (if any) to which the Contractor is entitled under the Contract with detailed comments. He may also request any necessary additional particulars, but shall nevertheless give his response on the contractual or other aspects of the claim within the 42 days after receiving the fully detailed claim from the Contractor. If the Employer’s Representative does not respond in accordance with the foregoing procedures and timetable, either Party may consider that the claim has been rejected by the Employer’s Representative, and either Party may refer the matter to the DAB in accordance with Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision].
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Each Payment Certificate shall include such amounts for any claim as have been reasonably substantiated as due under the relevant provision of the Contract. Unless and until the particulars supplied are sufficient to substantiate the whole of the claim, the Contractor shall only be entitled to payment for such part of the claim as he has been able to substantiate. If either Party is dissatisfied with the determination of the Employer’s Representative, either Party may, within 28 days after receiving the determination, issue to the Employer’s Representative and the other Party, a Notice of dissatisfaction, and thereafter proceed in accordance with Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision]. If no Notice of dissatisfaction is issued by either Party within the said 28 days, the determination of the Engineer’s Representative shall be deemed to have been accepted by both Parties. The requirements of this Sub-Clause are in addition to those of any other SubClause which may apply to a claim. If the Contractor fails to comply with this or another Sub-Clause in relation to any claim, any extension of time and/or additional payment shall take account of the extent (if any) to which the failure has prevented or prejudiced proper investigation of the claim, unless the claim is excluded under the paragraph (a) of this Sub-Clause. This paragraph describes how the Employer’s Representative should respond after receiving a fully detailed (or interim in the case of an on-going effect) claim from the Contractor. It is important to note that the Employer’s Representative has firstly the duty to “give his response on the contractual or other aspects of the claim within the 42 days after receiving the fully detailed claim from the Contractor.” Secondly, he must, within 42 days “after receiving a fully detailed claim or any further particulars requested by the Employer’s Representative”, follow the procedures described in Sub-Clause 3.5 to either agree or determine the amount due or the time extension to be awarded. The fall-back provision if the Employer’s Representative fails to respond within the given time limit is that the claim shall be deemed to be rejected. Although it may seem harsh that a failure by the Employer’s Representative shall result in the deemed rejection of the claim, it is in fact opening the door for the Contractor to submit the matter directly to the DAB for a decision without having to continue waiting for the Employer’s Representative’s determination. The Employer’s Representative also has the right to ask the Contractor for ‘additional particulars’ if he needs further information to enable him to properly assess the claim. However, it is not intended that an Employer’s Representative should use this provision to unreasonably demand more and more information and so delay the procedure before giving his determination. By Sub-Clause 1.3 [Notices and Other Communications]: Notices and other communications (which includes determinations) shall not be unreasonably withheld or delayed. If the Contractor felt that the Employer’s Representative was not acting in a reasonable way, the door is open for him to submit the matter to the DAB for a decision. Finally, when the Employer’s Representative does give his determination, if either Party is dissatisfied, it has 28 days to advise the Employer’s Representative and the other Party that it is dissatisfied with the determination by means of a Notice of dissatisfaction. If no such Notice has been issued by either Party within 28 days of receiving the determination, it is deemed that both Parties have accepted the determination, thereby foreclosing either Party from referring the matter to the DAB at a later date. If a Notice of dissatisfaction is issued by either Party, then the provisions of Sub-Clauses 20.3 onwards will become applicable. 20.2
Employer’s Claims If the Employer considers himself to be entitled to any payment under any Clause of these Conditions or otherwise in connection with the Contract, the Employer or © FIDIC 2011
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the Employer’s Representative shall give Notice and particulars to the Contractor. The Notice shall be given as soon as practicable after the Employer becomes aware, or should have become aware, of the event or circumstances giving rise to the claim. The particulars shall specify the Clause or other basis of the claim, and shall include substantiation of the amount to which the Employer considers himself to be entitled in connection with the Contract. The Employer’s Representative shall then proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine the amount (if any) which the Employer is entitled to be paid by the Contractor. If either Party is dissatisfied with the determination of the Employer’s Representative, either Party may, within 28 days after receiving the determination, issue to the Employer’s Representative and the other Party, a Notice of dissatisfaction, and thereafter proceed in accordance with Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision]. If no Notice of dissatisfaction is issued by either Party within the said 28 days, the determination of the Engineer’s Representative shall be deemed to have been accepted by both Parties. The amount determined by the DAB may be included as a deduction in the Contract Price and Payment Certificates. The Employer shall only be entitled to set off against or make any deduction from an amount certified in a Payment Certificate, or to otherwise claim against the Contractor, in accordance with this Sub-Clause. If the Employer has any claim against the Co ntractor, he must follow the procedures given in this Sub-Clause. He cannot simply deduct the amount which he considers to be due to him from a Payment Certificate. It must first be certified by the Employer’s Representative who is required to make a determination in accordance with Sub-Clause 3.5 [Determinations]. The Sub-Clause does not contain the same disciplines as are found in Sub-Clause 20.1 [Contractor’s Claims], but the Employer is required to give the Contractor particulars of the claim and substantiation of the amount claimed. The matter will then be determined by the Employer’s Represent ative acting in accordance with Sub-Clause 3.5 [Determinations], and the procedures in the event of dissatisfaction by either Party are the same as described under Sub-Clause 20.1 [Contractor’s Claims]. Once the amount has been determined by the Employer’s Representative or the DAB, as the case may be, the amount may be recovered from the Contractor by making an appropriate deduction in the next Payment Certificate. Since the Employer must pay (“shall pay”, see Sub-Clause 14.8 [Payment ]) the amount certified in the Payment Certificate, he should not make any uncertified deduction to recover the amount to which he is entitled. However, if the Employer has any difficulty in recovering the amount due to him, he must proceed in accordance with Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision] to obtain a decision from the DAB. 20.3
Appointment of the Dispute Adjudication Board Disputes arising during the Design-Build Period shall be adjudicated by a DAB in accordance with Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision]. The Parties shall jointly appoint a DAB by the date stated in the Contract Data. The DAB shall comprise, as stated in the Contract Data, ei ther one or three suitably qualified persons (“the members”). If the number is not so stated and the Parties do not agree otherwise, the DAB shall comprise three persons. If the DAB is to comprise three persons, each Party shall nominate one member for the approval of the other Party. The Parties shall consult both these members and shall agree upon the third member, who shall be appointed to act as chairman. However, if a list of potential members is included in the Contract, the members shall be selected from those on the list, subject to their being able and willing to accept appointment to the DAB. The agreement between the Parties and either the sole member (“adjudicator”) or each of the three members shall incorporate by reference the General Conditions of
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Dispute Adjudication Agreement in these General Conditions, with such amendments as are agreed between them. The terms of the remuneration of either the sole member or each of the three members shall be mutually agreed upon by the Parties when agreeing the terms of appointment. Each Party shall be responsible for paying one-half of this remuneration. If at any time the Parties so agree, they may appoint a suitably qualified person or persons to replace any one or more members of the DAB. Unless the Parties agree otherwise, the appointment will come into effect if a member declines to act or is unable to act as a result of death, disability, resignation or termination of appointment. The replacement shall be appointed in the same manner as the replaced person was required to have been nominated or agreed upon, as described in this SubClause. However the appointment of any member may only be terminated by mutual agreement of both Parties, and not by the Employer or the Contractor acting alone. Unless otherwise agreed by both Parties, the appointment of the DAB (including each member) shall expire upon the issue of the Commissioning Certificate under Sub-Clause 9.12 [Completion of Design-Build ] or 28 days after the DAB has given its decision to a Dispute under Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision], whichever is the later. The DAB is considered to be a standing DAB acting during the Design-Build Period. Disputes arising during the Operation Service Period are covered in Sub-Clause 20.10 [Disputes Arising during the Operation Service Period ]. A standing DAB is chosen rather than an ad-hoc DAB in order to take advantage of the facility of avoidance of disputes as set out in Sub-Clause 20.5 [Avoidance of Disputes]. The DAB is appointed at the start of the Contract by the date stated in the Contract Data. The reason for providing this flexibility is to allow the Parties to set a time limit for appointing the DAB which is appropriate to the nature of the Works being performed. For example it may not be necessary for the DAB to be appointed prior to the commencement of work on Site, since it is unlikely for disputes to arise during the design stage whilst the Contractor is preparing his own design. However, this provision is not intended to be used to delay the proper and timely appointment of the DAB, and it is important to ensure that the date entered into the Contract Data is appropriate. It is recommended that the DAB shall comprise three persons, unless the Contract Data states otherwise (one person is the alternative). The fall-back provision is three persons, and a one-person DAB should only be used on lower value or less complex projects which cannot support a three-person DAB. The new role of the DAB in Sub-Clause 20.5 [Avoidance of Disputes] is now highlighted and fully incorporated (as compared with the 1999 documents). This provision also suggests that a three-person DAB will be more effective, not only in the resolving of disputes, but also in the prevention of disputes. Each Party proposes one member for approval by the other Party and the two members (and Parties) shall agree upon the third member who shall be chairman. Alternatively, if the Contract contains a list of potential members, the DAB shall be selected from these persons and duly appointed by the date stated in the Contract Data. If the Parties cannot agree upon the DAB, members shall be appointed by an independent appointing authority in accordance with the provisions of Sub-Clause 20.4 [Failure to Agree Dispute Adjudication Board ]. The general terms of agreement between the Parties and the DAB are appended to the General Conditions and may be amended if the Parties and the DAB member(s) so agree. Replacement of members may only be done with the agreement of both Parties. The procedural rules are also attached to the General Conditions, and these give the DAB wide powers as to how to conduct their business and decide upon disputes. © FIDIC 2011
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Unless otherwise agreed, and unless an on-going dispute is under consideration, the DAB shall expire upon the issue of the Commissioning Certificate. If there is an on-going dispute at that time, the DAB shall expire 28 days after giving its decision in respect of the dispute. This period allows either Party to give a Notice of dissatisfaction, which according to SubClause 20.6, must be delivered to the other Party and copied to the chairman of the DAB within 28 days of receiving the DAB’s decision. Selection of DAB Members When selecting persons to be DAB members, it is very important to select persons of experience and integrity who understand the need to act fairly and independently irrespective of which Party nominated them. If a Party is unsure of whom to nominate, or does not know a suitable person, FIDIC publishes a President’s List of Approved Dispute Adjudicators including the discipline in which the named persons are experienced. The persons on the List are experienced adjudicators and have been specially assessed and selected by FIDIC for inclusion on the List. Alternatively a Party can nominate persons known to it as experienced and competent adjudicators. However, the principal criterion is the ability to act impartially a nd fairly, and if a nominated person has any connection to or interest in either of the Parties, he must declare that interest at the time he is nominated. 20.4
Failure to Agree Dispute Adjudication Board If any of the following conditions apply, namely: (a) the Parties fail to agree upon the appointment of the sole member of the DAB by the date stated in the first paragraph of Sub-Clause 20.3 [Appointment of the Dispute Adjudication Board ]; (b) either Party fails to nominate a member (for approval by the other Party), or fails to approve a member nominated by the other Party, of a DAB of three persons by such date; (c) the Parties fail to agree upon the appointment of the third member (to act as chairman) of the DAB by such date, or (d) the Parties fail to agree upon the appointment of a replacement person within 42 days after the date on which the sole member or one of the three members declines to act or is unable to act as a result of death, disability, resignation or termination of appointment, then the appointing entity or official named in the Contract Data shall, upon the request of either or both of the Parties and after due consultation with both Parties, appoint this member of the DAB. This appointment shall be final and conclusive. Each Party shall be responsible for paying one-half of the remuneration of the appointing entity or official. There are various reasons why the Parties may not be able to agree on the appointment of a member or members to the DAB. First ly a Party may not be able to find a suitable person to nominate. Or a Party refuses to accept the person nominated by the other Party (either for good reason or for no good reason simply to delay or hinder the setting up of the DAB). Or a Party or a nominated member refuses to sign the Dispute Adjudication Agreement. Very often it is simply because the one Party is suspicious of the alleged independence of any person nominated by the other Party. In any such case and for whatever reason agreement cannot be reached, the first step is for either one or both Parties to request the appointing entity or person named in the Contract Data to make the appointment. If no person or entity is named, then the President of FIDIC (or a person nominated by him) will make the appointments, usually selecting a person from the President’s List of Approved Dispute Adjudicators. If the Employer wishes to name another appointing entity in the Contract Data, he must make sure that the named person or entity is in fact willing to act in that role if called upon to do so, and also that such person is able to make an independent and appropriate appointment.
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If all reasonable attempts have been made to set up the DAB without success, either Party may, by reference to Sub-Clause 20.11 [Expiry of Dispute Adjudication Board’s Appointment ], refer the matter directly to arbitration in accordance with the provisions of Sub-Clause 20.8. However it is likely that if a Party deliberately tries to mis-use the procedures for setting up a DAB in order to go directly to arbitration, the arbitration tribunal will refuse to consider the matter and instruct the Parties to proceed in accordance with the Contract to set up the DAB, and any party obstructing such a contractual requirement would probably suffer in any subsequent award. If there is a challenge to the continuing independence of a DAB member by either Party or by the other DAB members (in the case of a three-person DAB), then, according to Article 3 of the General Conditions of Dispute Adjudication Agreement, the matter shall in the first place be referred to the appointing entity named in the Contract. The appointing entity may either deal with the matter himself or refer the matter to an independent professional person or body to assess the challenge. If the challenge is upheld the member concerned shall be immediately removed from the DAB and a new member appointed. 20.5
Avoidance of Disputes If at any time the Parties so agree, they may jointly refer a matter to the DAB in writing with a request to provide assistance and/or informally discuss and attempt to resolve any disagreement that may have arisen between the Parties during the performance of the Contract. Such informal assistance may take place during any meeting, Site visit or otherwise. However, unless the Parties agree otherwise, both Parties must be present at such discussions. The Parties are not bound to act upon any advice given during such informal meetings, and the DAB shall not be bound in any future Dispute resolution process and decision by any views given during the informal assistance process, whether provided orally or in writing. If a Dispute of any kind whatsoever arises between the Parties, whether or not any informal discussions have been held under this Sub-Clause, either Party may refer the Dispute in writing to the DAB according to the provisions of Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision].
“Prevention is better than cure”, and the DAB is entrusted also with the role of providing informal assistance to the Parties at any time in an attempt to resolve any disagreement. However, the approach to the DAB in this connection must be made by both Parties, and the nature of the assistance is wide and flexible. The Parties can approach the DAB on any matter at any time, whether it is to ascertain the right to claim, to discuss a determination by the Employer’s Representative or to seek clarification regarding a DAB decision. Neither Party is bound to act on advice received in these informal discussions, nor is the DAB bound in any future dispute by any advice it may or may not have given, or by any views expressed. Notwithstanding any such informal discussions held with the DAB, either Party is entirely free to submit any matter, including technical issues, to the DAB for a formal decision at any time in accordance with the provisions of Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision]. 20.6
Obtaining Dispute Adjudication Board’s Decision If a Dispute (of any kind whatsoever) arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works during the Design-Build Period, including any Dispute as to any certificate, determination, inst ruction, opinion or valuation of the Employer’s Representative, either Party may, within 28 days of issuing a Notice of dissatisfaction under Sub-Clause 20.1(d) [Contractor’s Claims] or Sub-Clause 20.2 [Employer’s Claims], refer the Dispute in writing to the DAB for its decision, with copies to the other Party and the Employer’s Representative. Such reference shall state that it is given under this Sub-Clause. The other Party shall then have 21 days to send a response to the DAB with copies to the referring Party and © FIDIC 2011
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the Employer’s Representative. If the dissatisfied Party has not formally referred the matter to the DAB within the said 28-day period, the Notice of dissatisfaction shall be deemed to have lapsed and no longer be considered to be valid. For a DAB of three persons, the DAB shall be deemed to have received such submissions on the date when they are received by the chairman of the DAB. Both Parties shall promptly make available to the DAB all information, access to the Site, and appropriate facilities, as the DAB may require for the purposes of making a decision on such Dispute. The DAB shall not act as arbitrator(s). Within 84 days after receiving the other Party’s response or, if no such response is received, within 105 days after receiving the reference, or within such other period as may be proposed by the DAB and approved by both Parties, the DAB shall give its decision in writing to both Parties and the Employer’s Representative, which shall be reasoned and shall state that it is given under this Sub-Clause. The decision shall be binding on both Parties and the Employer’s Representative, who shall promptly comply with it notwithstanding that a Party gives a Notice of dissatisfaction with such decision as described below. Unless the Contract has already been abandoned, repudiated or terminated, the Contractor shall continue t o proceed with the Works in accordance with the Contract. If either Party is dissatisfied with the DAB’s decision, then either Party may, within 28 days after receiving the decision, give Notice to the other Party of its dissatisfaction. If the DAB fails to give its decision within the period prescribed in this Sub-Clause, then either Party may, within 28 days after this period has expired, give Notice to the other Party of its dissatisfaction. In either case, the dissatisfied Party shall send a copy of the Notice to the chairman of the DAB. In either event, this Notice of diss atisfaction shall state that it is given under this SubClause, and shall set out the matter in Dispute and the reason(s) for dissatisfaction. Except as stated in Sub-Clause 20.9 [Failure [Failure to Comply with Dispute Adjudication Board’s Decision], Decision], neither Party shall be entitled to commence arbitration of a Dispute unless a Notice of dissatisfaction with respect to that Dispute has been given in accordance with this Sub-Clause. If the decision of the DAB requires a payment by one Party to the other Party, the DAB may require the payee to provide an appropriate security in respect of such payment. If the DAB has given its decision as to a matter in Dispute to both Parties, and no Notice of dissatisfaction has been given by either Party within 28 days after it received the DAB’s decision, then the decision shall become final and binding upon both Parties. It is very important that all persons and Parties involved in a Dispute which is to be submitted to the DAB for a formal decision, follow the provisions and procedures contained in this Sub-Clause. Failure to do so, or missing a time limit, could jeopardise the outcome and affect the decision of the DAB. Secondly, it is very important that the Parties are in fact in dispute, and that is why the definition 1.1.31, clearly defines what constitutes a Dispute as opposed to a disagreement. The route to submitting a Dispute to the DAB is via Sub-Clauses 20.1 [Contractor’s [Contractor’s Claims] Claims] and 3.5 [Determinations [Determinations], ], if it is in respect of a Contractor’s claim, and Sub-Clauses 20.2 and 3.5 [Determinations [Determinations]] if it is in respect of an Employer’s claim. In either case, a Party must have given a Notice of dissatisfaction within 28 days of the determination being given by the Employer’s Representative. Furthermore, the route for submitting a Dispute in respect of a Variation to the DAB is through Sub-Clause 13.3 [Variation [Variation Procedure] Procedure] and 3.5 [Determinations]. Determinations]. The dissatisfied Party is required to t o formally refer the matter to the chairman of the DAB, with copies to the other Party and the Employer’s Representative. The other Party then has 21 days in which to prepare and submit its response with, if it so wishes, a counter-claim against the claimant. This is also sent to the c hairman of the DAB and copied to the referring Party and the Employer’s Representative.
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The DAB then has a fixed time in which to consider the submission and the response – 84 days after receiving the response, or if there is no response, 105 days from receiving the reference from the claimant. During this time, it is up to the DAB as to how they conduct their business and how they reach their decision. However, it is likely that each Party will w ill be asked to produce supporting evidence in respect of their submissions, and also be asked to attend Hearings and answer questions from the DAB. When the decision of the DAB is ready, it is given to both Parties and the Employer’s Representative in writing and the Parties have 28 days to decide whether they are prepared to accept the decision or whether they intend to take the matter further to attempt amicable settlement and arbitration. If they are dissatisfied with the DAB’s decision, they must issue a Notice of dissatisfaction within 28 days of receiving the decision, otherwise the decision will be final, and no submission to arbitration will be permitted. Whether or not a Party chooses to submit the matter to arbitration, the decision of the DAB is immediately binding on the Parties until such time as it may be changed by an agreement between the Parties or by arbitration, and each Party is required to give immediate effect to the DAB’s decision. This is whether or not they are satisfied with it, and whether or not they plan to submit the matter to amicable settlement and arbitration, and monies decided by the DAB must be certified and paid and time extensions must be granted. This requirement for immediate compliance is reflected in Sub-Clause 9.3 [Extension [Extension of Time for Completion of Design-Build ] regarding time extension, Sub-Clause 14.7 [Issue [Issue of Advance and Interim Payment Certificates] Certificates] regarding certification by the Employer’s Representative, and SubClause 14.8 [Payment [Payment ] in respect of payment by the Employer. 20.7 20 .7
Amic Am icab able le Set Settl tlem emen entt Where Notice of dissatisfaction has been given under Sub-Clause 20.6 [Obtaining [Obtaining Dispute Adjudication Board’s Decision], Decision], both Parties shall attempt to settle the Dispute amicably before the commencement of arbitration. However, unless both Parties agree otherwise, arbitration may be commenced on or after the twentyeighth day after the day on which Notice of dissatisfaction was given, even if no attempt at amicable settlement has been made. If a Notice of dissatisfaction has been issued and one of the Parties intends to go to arbitration, the Parties must first try to settle the matter to their mutual satisfaction and amicably. They do not have to follow the decision reached by the DAB: they can agree on any settlement they like provided it is not against public policy, and the Contract does not say how or in what form they should attempt to reach agreement. Unless the Parties agree otherwise, they have 28 days in which to reach a settlement. If they do not manage to reach agreement within the 28 days, the dissatisfied Party is free to refer the matter to arbitration in accordance with the provisions of Sub-Clause 20.9 [Failure [Failure to Comply with Dispute Adjudication Board’s Decision]. Decision].
20.8
Arbitration Unless settled amicably, and subject to Sub-Clause 20.9 [Failure [Failure to Comply with Dispute Adjudication Board’s Decision], Decision], any Dispute in respect of which the DAB’s decision (if any) has not become final and binding shall be finally settled by international arbitration. Unless otherwise agreed by both Parties: (a) the Dispute Dispute shall be finally finally settled under the the Rules Rules of Arbitration Arbitration of of the International Chamber of Commerce; (b) the Dispute Dispute shall be settled settled by three arbitrato arbitrators rs appointed appointed in accordance accordance with with these Rules; and (c) the arbitratio arbitration n shall be conducted conducted in in the language language for communica communications tions defined defined in Sub-Clause 1.4 [Law [Law and Language] Language] unless otherwise stated in the Contract Data. © FIDIC 2011
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The arbitrator(s) shall have full power to open up, review and revise any certificate, certificate , determination, instruction, opinion or valuation of the Employer’s Representative, and any decision of the DAB, relevant to the Dispute. Nothing shall disqualify the Employer’s Representative from being called as a witness and giving evidence before the arbitrator(s) on any matter whatsoever relevant to the Dispute. Neither Party shall be limited in the proceedings before the arbitrator(s) to the evidence or arguments previously put before the DAB to obtain its decision, or to the reasons for dissatisfaction given in its Notice of dissatisfaction. Any decision of the DAB shall be admissible in evidence in the arbitration. Arbitration Arbitra tion may be commenced prior to or after completio completion n of the Works. The obligations of the Parties, the Employer’s Representative and the DAB shall not be altered by reason of any arbitration being conducted during the progress of the Works. Provided that a Party has complied with the requirements of Sub-Clauses 20.6 [Obtaining [Obtaining Dispute Adjudication Board’s Decision] Decision] (and given a Notice of dissatisfaction within 28 days of receiving the decision from the DAB), and 20.7 Amicable [Amicable Settlement ] (and failed to reach any agreement with the other Party within the relevant period after issuing the Notice of dissatisfaction), that Party is free to proceed to international arbitration for a final resolution. FIDIC has chosen the International Chamber of Commerce (ICC) as the arbitral institution whose rules shall be used and followed during the arbitration, and the number of arbitrators shall be three. If the Employer wishes to use the rules of a different institution, there are many to choose from such as UNCITRAL, which is the United Nations Commission on International Trade Law, or other recognised international arbitral institutions such as the London Court of International Arbitration, or the Arbitration Institute of the Stockholm Chamber of Commerce, etc. However, the choice should be one which will guarantee independence and fairness. It is also important to choose a language for the arbitration which is fair to both Parties, and the Contract requires this to be the language for communications stated in the Contract Data (Sub-Clause 1.4 [Law [Law and Language]). Language]). It is permitted to name another language in the Contract Data (Sub-Clause 20.8 Arbitration]), [Arbitration]), but if this option is chosen, it is important that the selected language is one which can be understood by the parties involved in the arbitration. Although Although the arbitrators arbitrators will be following the ICC Rules, they are given wide authority under the Contract to open up, review and, if necessary, revise any certificate, determination, instruction, opinion or valuation of the Employer’s Representative, or any decision of the DAB. Furthermore the decision of the DAB may be used as evidence in the arbitration which makes it even more important that the decision of the DAB is well reasoned and well presented. Arbitration may be commenced during the progress of the Works or after its completion. However, if it is during the progress of the Works, the Parties must continue to perform the Works as per the Contract, notwithstanding the on-going arbitration. The award or awards of the arbitrators will be notified to the Parties in accordance with the procedures contained in the ICC Rules. If a Party fails to comply with an arbitral award, enforcement of the award internationally may be facilitated by the 1958 New York Convention for the Enforcement of Foreign Arbitral Awards especially if the place of arbitration was in a country which has ratified the Convention. However legal advice and assistance is available when considering enforcement of an arbitral award. 20.9 20. 9
Failure Fai lure to to Comply Comply with with Dispute Dispute Adjud Adjudica ication tion Boar Board’s d’s Decisi Decision on In the event that a Party fails to comply with any decision of the DAB, whether binding or final and binding, then the other Party may, without prejudice to any other rights it may have, refer the failure itself to arbitration under Sub-Clause 20.8
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[Arbitration] for summary or other expedited relief, as may be appropriate. SubClause 20.6 [Obtaining Dispute Adjudication Board’s Decision] and Sub-Clause 20.7 [Amicable Settlement ] shall not apply to this reference. If a decision of the DAB has become binding, i.e., immediately upon its issue, or final and binding after 28 days with no Notice of dissatisfaction being issued by either Party, and a Party has failed to comply with the decision, then the other Party can refer the failure to arbitration. In such a case there is no requirement to obtain a further decision from the DAB under Sub-Clause 20.6 or attempt to settle the matter amicably according to Sub-Clause 20.7 [Amicable Settlement].Unless the applicable Law provides otherwise, a Party cannot challenge a DAB decision after it has become final and binding as provided for in SubClause 20.6 [Obtaining Dispute Adjudication Board’s Decision]. 20.10 Disputes Arising during the Operation Service Period Disputes arising during the Operation Service Period which cannot be resolved between the Parties shall be settled by a one-person DAB (“Operation Service DAB”). Such person shall be jointly agreed and appointed by the Parties at the time of issue of the Commissioning Certificate. If the Parties cannot agree on the person who shall be the Operation Service DAB, then the person shall be appointed according to the provisions of Sub-Clause 20.4 [Failure to Agree Dispute Adjudication Board ]. Such person shall be appointed for a term of five years. At the end of each five-year period, a new Operation Service DAB shall be agreed and appointed. If both Parties and the previously appointed person agree, the same Operation Service DAB may be re-appointed for a second (or third or fourth, as the case may be) five-year term. The agreement between the Parties and the Operation Service DAB shall incorporate by reference the General Conditions of Dispute Adjudication Agreement contained in these General Conditions, with such amendments as are agreed between them. The terms of remuneration of the Operation Service DAB shall be mutually agreed upon by the Parties when agreeing the terms of appointment. Each Party shall be responsible for paying one-half of this remuneration. The procedure for obtaining a decision from the Operation Service DAB shall be in accordance with the provisions of Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision], and the DAB shall give its decision no later than 84 days after receiving the other Party’s response or, if no such response is received, within 105 days after receiving the reference and the supporting documentation from the Party referring the Dispute. The appointment of the Operation Service DAB shall expire five years after the date of its appointment unless such appointment is extended for a further five years as aforementioned. If either Party is dissatisfied with the decision of the Operation Service DAB, the provisions of Sub-Clauses 20.6 [Obtaining Dispute Adjudication Board’s Decision], 20.7 [Amicable Settlement], 20.8 [Arbitration] and 20.9 [Failure to Comply with Dispute Adjudication Board’s Decision] shall apply. According to Sub-Clause 20.3 [Appointment of the Dispute Adjudication Board ], the appointment of the DAB which has been in place during the Design-Build Period, expires upon the issue of the Commissioning Certificate unless there is an on-going Dispute under consideration by the DAB at the time. In order to deal with Disputes arising during the Operation Service Period it is necessary to appoint another Dispute Adjudication Board which is more experienced in the operation of a facility than with its design and construction. The Contract allows for this DAB to be a single-person DAB which is to be appointed at the time of issue of the Commissioning Certificate. This means that the person to be appointed has to be agreed in advance and the Parties should agree on the appointment in good time before the Commissioning Certificate is issued. © FIDIC 2011
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The Contract allows for the appointed person to serve for 5 years, but if the Parties and the appointed person agree, this can be extended for a further period. The role of the Operation Service DAB is similar to the role of the DAB acting during the Design-Build, and the provisions for obtaining its decision in any matter of Dispute during the Operation Service Period is similar to that described in the preceding sub-clauses of Clause 20 [Claims, Disputes and Arbitration]. 20.11 Expiry of Dispute Adjudication Board’s Appointment If a Dispute arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works and there is no DAB in place, whether by reason of the expiry of the DAB’s appointment or otherwise: (a) Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision] and SubClause 20.7 [Amicable Settlement ], or Sub-Clause 20.10 [Disputes Arising during the Operation Service Period ], as the case may be, shall not apply; and (b) the Dispute may be referred directly to arbitration under Sub-Clause 20.8 [Arbitration]. If a Dispute arises either during the Design-Build Period or during the Operation Service Period and there is no DAB in place, the Dispute may be referred directly to arbitration. However, this provision applies only if the appointment of t he DAB has expired or if the DAB is incapable of acting due to death or incapacity, etc. The provisions of this Sub-Clause should not be used to avoid the contractual requirement of appointing the DAB in accordance with Sub-Clause 20.3 [Appointment of the Dispute Adjudication Board ] or Sub-Clause 20.10 [Disputes Arising during the Operation Service Period ]. However, the use of the word “otherwise” in the Sub-Clause will probably enable the Dispute to be referred directly to arbitration if the appointment of the DAB is being blocked, as described in the commentary to Sub-Clause 20.4 [Failure to Agree Dispute Adjudication Board ] above.
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Particular Conditions Part A – Completing the Contract Data The Contract Data is essential information and data relating to the Project which must be provided in order to establish and record key facts upon which tenderers will prepare their tenders and which will be incorporated in the terms of the Contract between the Employer and the Contractor. It is normally the case that the requirements contained in the Contract Data are provided by the Employer, and the DBO document, as written, assumes that all items (except the address of the Contractor under Sub-Clause 1.3 [Notices and Other Communications]) will have been completed by the Employer before the tender documents are issued to tenderers. If the Employer requires tenderers to complete any of the Contract Data before submitting their tenders, this must be clearly stated in the tender invitation so that tenderers know exactly what they are required to complete and submit. Examples of data which Employers could ask tenderers to complete in Part A are: Sub-Clauses 1.1.78 and 9.2: Time for Completion of Design-Build It may be that the Employer cannot know o r judge this requirement which could depend on the tenderer’s chosen method of planning and working. It may also be an element of the competition according to which the award will be made. Sub-Clause 9.2 Similarly, the way in which tenderers plan to carry out the Works could affect the way the Works are to be divided into Sections. Sub-Clause 14.6 The Employer may wish tenderers to list the Plant and Materials for which they require payment under Sub-Clauses 14.6(b)(i) and 14.6(c)(i). If the tender document contains a list of potential DAB members, the Employer may require tenderers to select or delete names of persons they wish or do not wish to be Dispute Adjudication Board members. The Contract Data should not contain any punitive or inappropriate requirements, and the provisions should reflect the fair and balanced nature of the General Conditions as a whole. Both Parties should check that there are no items in the Contract Data which have not been completed or agreed upon prior to signing the Contract Agreement. If any data or information is missing, then either the fall-back provisions to be found in some of the Sub-Clauses will be deemed to apply, or the Contract will be incomplete with important information missing.
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Particular Conditions Part B – Preparing Special Provisions Where it is necessary or desirable to amend or add to the General Conditions, such amendment or addition must be provided in Part B of the Particular Conditions. The structure of the FIDIC contract documents does not allow for such amendments or additions to be made by changing the text of the General Conditions. This must remain unchanged so that readers and users of the document can easily identify where changes have been introduced. There are various reasons why it may be necessary to change or amend the General Conditions, and the following are some examples: (a) Where the wording in the General Conditions indicates that alternative wording may be included, for example in Sub-Clause 8.1 [Commencement Date] regarding the Commencement Date. (b) Where there is a requirement to change the basic provisions given in the General Conditions, for example, if the insurance provisions given in Clause 19 [Insurance] are to be changed. (c) If there are legal or other requirements affecting the performance of the Contract which are not reflected in the General Conditions. (d) If there features of the project which render the provisions of the General Conditions inappropriate or unacceptable. The DBO contract document contains some Guidance Notes and Examples of clauses and sub-clauses which commonly require amending. However, the examples given are not complete and the example text should be read very carefully to see whether or not it meets the needs of a particular contract. If and when new text is required in the Particular Conditions Part B, great care must be taken when drafting new text to ensure that it reflects the basic strategy and philosophy contained in the FIDIC General Conditions. It is strongly recommended that expert help is engaged when preparing the new text.
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Structure of the Dispute Adjudication Board
Disputes arising during the Contract are resolved in accordance with the procedures outlined in Clause 20 of the General Conditions of the DBO Contract. The Dispute Adjudication Board (DAB) to act during the Design-Build Period is appointed by joint agreement of the Parties by the date stated in the Contract Data. Unless the Parties agree otherwise, the DAB shall comprise three “suitably qualified persons”. The alternative is to have one person. However, unless the project is of an extremely simple and straightforward nature – which is unlikely in the case of a DBO project – it is likely that the perceived benefits in cost of having a one-person DAB will be greatly exceeded by the benefits of a three-person DAB. Not only will the broader experience of three persons be an advantage in covering the various disciplines which may need to be considered in a dispute situation, but also, quite simply, the decision of a three-person DAB will be a fairer and better reasoned decision which is less likely to give rise to dissatisfaction (i.e., a Notice of dissatisfaction) being issued by either Party. There will also be less risk of favouritism or bias. The Contract presupposes that the DAB will be appointed soon after the Contract comes into force, and that it will be a ‘standing’ DAB which remains in force until the issue of the Commissioning Certificate, or, if it is considering a dispute from either Party at that time, then 28 days after it has given its decision in respect of such dispute. This is to allow either Party, should it be dissatisfied with the decision, to submit a copy of the Notice of dissatisfaction to the chairman of the DAB as required under Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision]. The alternative to the ‘standing’ DAB is the ‘ad hoc’ DAB. This is not recommended for DBO projects. One of the functions of the DAB in the DBO Contract is, in accordance with SubClause 20.5 [Avoidance of Disputes], to take positive action if so required by the Parties to prevent a disagreement becoming a Dispute. This is a very important role for the DAB which requires that the DAB is familiar with the project and the events which may have contributed to the disagreement arising. Such familiarity is not possible with the ‘ad hoc’ DAB, and the Parties are strongly advised not to adopt this approach. Upon Commencement of the Operation Service Period, i.e., upon issue of the Commissioning Certificate and termination of the Design-Build DAB, the Parties are required to agree upon a one-person DAB to act during the Operation Service Period. This appointment shall be for a term of five years, and at the end of the five year period, either the Parties must agree upon a new person to act as DAB for the next five years, or, if the two Parties and the DAB member so agree, the DAB member can be re-appointed for a second (or third or fourth) term, as required. The procedure is clearly described in Sub-Clause 20.10 [Disputes Arising during the Operation Service Period ] of the General Conditions. The role of the DAB (Design-Build or Operation Service) in Dispute prevention is expanded in Sub-Clause 20.5 [Avoidance of Disputes]. This is the first time that this has been recognised within Clause 20 [Claims, Disputes and Arbitration], and even if DABs in the past have ac ted in some (often informal) way to promote ag reement and understanding between the Parties, the provisions of Sub-Clause 20.5 [Avoidance of Disputes] give some formality and order to the way the Parties shall act if they require assistance from the DAB to prevent potential Disputes from materialising. In particular it should be noted that the Parties can refer any matter to the DAB under this Sub-Clause ‘at any time’. This means at any time during the duration of the Contract and could be, for example; in connection with a Party’s understanding of its rights in a given situation; in connection © FIDIC 2011
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with a determination of the Employer’s Representative given under Sub-Clause 3.5 [Determinations]; an informal view as to whether an event was unforeseeable or not; or any other situation arising at any time to see whether or not such a situation warrants further action possibly leading to a formal submission to the DAB.
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Index of Clauses and Sub-Clauses
This index shows all the Clauses and Sub-Clauses referred to in the Guide in alphabetical order.
Access Route Adjustments for Changes in Legislation Adjustments for Changes in Technology Adjustments for Changes in Cost Advance Payment Advance Warning Amicable Settlement Application for Advance and Interim Payment Certificates Application for Final Payment Certificate Design-Build Application for Final Payment Certificate Operation Service Appointment of the Dispute Adjudication Board Arbitration As-Built Documents Asset Replacement Fund Asset Replacement Schedule Assignment Avoidance of Disputes Avoidance of Interference Care and Supply of Documents Cessation of Work and Removal of Contractor’s Equipment Cessation of Employer’s Liability Changes in the Contractor’s Financial Situation CLAIMS, DISPUTES AND ARBITRATION COMMENCEMENT DATE, COMPLETION AND PROGRAMME Commencement Date Commencement of Design-Build Commencement of Operation Service Commissioning Certificate Commissioning of Parts of the Works Completion of Design-Build Completion of Operation Service Completion of Outstanding Work and Remedying Defects Completion of the Works and Sections Compliance with Laws Confidential Details Consequences of the Contractor’s Risks resulting in Damage Consequences of the Employer’s Risks of Damage Consequences of an Exceptional Event Consequences of Suspension Contract Agreement Contract Completion Certificate CONTRACT PRICE AND PAYMENT Contract Price The CONTRACTOR, THE Contractor’s Claims Contractor’s Documents Contractor’s Entitlement to Suspend Work Contractor’s Equipment © FIDIC 2011
CLAUSE/Sub-Clause Page 4.15 101 13.6 87 13.7 88 13.8 88 14.2 90 8.4 59 20.7 137 14.3 91 14.11 98 14.13 100 20.3 132 20.8 137 5.5 50 14.18 103 14.5 93 1.8 22 20.5 135 4.14 40 1.9 16.3 14.16 4.25 20 8 8.1 9.1 10.2 11.7 11.6 9.12 10.8 12.1 11.5 1.14 1.13 17.7 17.6 18.4 9.8 1.6 8.6 14 14.1 4 20.1 5.2 16.1 4.17
22 111 101 45 128 58 58 62 68 77 77 67 73 80 76 23 24 116 116 120 65 21 60 89 89 31 128 47 110 41
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Contractor’s General Obligations Contractor’s Operations on Site Contractor’s Personnel Contractor’s Representative Contractor’s Risks during the Design-Build Period Contractor’s Risks during the Operation Service Period Contractor’s Superintendence Contractor’s Undertaking Contractor’s Use of Employer’s Documents Contractor to Search Co-operation Cost of Remedying Defects Currencies of Payment
4.1 4.23 6.9 4.3 17.2 17.4 6.8 5.3 1.12 12.6 4.6 12.2 14.17
DEFECTS Definitions Delays Caused by Authorities Delay Damages Delay Damages relating to Design-Build Delayed Payment Delayed Tests on Completion of Design-Build Delayed Tests Prior to Contract Completion Delays and Interruptions during the Operation Service Delegation by the Employer’s Representative Delivery of Raw Materials DESIGN DESIGN-BUILD Design Error Determinations Discharge Disorderly Conduct Disputes Arising during the Operation Service Period Duty to Minimise Delay
12 1.1 9.4 8.5 9.6 14.9 11.2 11.10 10.6 3.2 10.4 5 9 5.7 3.5 14.14 6.11 20.10 18.3
Electricity, Water and Gas EMPLOYER, THE Employer’s Claims Employer’s Financial Arrangements Employer’s Personnel EMPLOYER’S REPRESENTATIVE, THE Employer’s Equipment and Free-Issue Materials Employer’s Representative’s Duties and Authority Employer’s Risks during the Design-Build Period Employer’s Risks during the Operation Service Period Employer’s Use of Contractor’s Documents Engagement of Staff and Labour Errors in the Employer’s Requirements. EXCEPTIONAL RISKS Exceptional Risks Expiry of Dispute Adjudication Board’s Appointment Extension of Time for Completion of Design-Build
4.19 2 20.2 2.4 2.3 3 4.20 3.1 17.1 17.3 1.11 6.1 1.10 18 18.1 20.11 9.3
Facilities for Staff and Labour Failure to Agree Dispute Adjudication Board Failure to Complete Failure to Comply with Dispute Adjudication Board’s Decision Failure to Pass Tests on Completion of Design-Build Failure to Pass Tests Prior to Contract Completion
6.6 20.4 9.13 20.9 11.4 11.11
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Failure to Reach Production Outputs Failure to Remedy Defects Fossils Further Tests
10.7 12.3 4.24 12.4
GENERAL PROVISIONS General Design Obligations General Requirements (Operation Service) General Requirements (Insurance)
1 5.1 10.1 19.1
Handback Requirements Health and Safety Indemnities by the Contractor Indemnities by the Employer Independent Compliance Audit Inspection Instructions of the Employer’s Representative INSURANCE Insurances to be provided by the Contractor during the Design-Build Period Insurances to be provided by the Contractor during the Operation Service Period Interpretation Issue of Advance and Interim Payment Certificates Issue of Final Payment Certificate Design-Build Issue of Final Payment Certificate Operation Service
8.7 6.7 17.9 17.10 10.3 7.3 3.3 19 19.2 19.3 1.2 14.7 14.12 14.15
Joint Inspection Prior to Contract Completion Joint and Several Liability
11.8 1.15
Labour Laws Law and Language Limitation of Liability Maintenance Retention Fund Manner of Execution Materials, Free Issue
6.4 1.4 17.8 14.19 7.1 4.20
Nominated Subcontractors Notices and Other Communications Notice to Correct Notice of an Exceptional Event
4.5 1.3 15.1 18.2
Obtaining Dispute Adjudication Board’s Decision Operating Licence Operation and Maintenance Manuals OPERATION SERVICE Optional Termination, Payment and Release Ownership of Output and Revenue Ownership of Plant and Materials
20.6 1.7 5.6 10 18.5 10.9 7.7
Payment Payment Payment Payment Payment Payment Payment
14.8 13.4 9.9 14.6 14.10 15.4 15.7
in Applicable Currencies for Plant and Materials in Event of Suspension for Plant and Materials intended for the Works of Retention Money after Termination for Contractor’s Default after Termination for Employer’s Convenience
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Payment on Termination Performance Security Permits, Licences or Approvals Persons in the Service of Employer PLANT, MATERIAL AND WORKMANSHIP Priority of Documents Procedure for Tests Prior to Contract Completion Programme Progress Reports Prolonged Suspension Protection of the Environment Provisional Sums Quality Assurance
16.4 4.2 2.2 6.3 7 1.5 11.9 8.3 4.21 9.10 4.18 13.5 4.9
Rate of Progress Rates of Wages and Conditions of Employment Records of Contractor’s Personnel and Equipment Rejection Release from Performance under the Law Remedial Work Removal of Defective Work Replacement of the Employer’s Representative Responsibility for Care of the Works Resumption of Work Retesting of the Works Retesting Prior to Contract Completion Right of Access to the Site Rights of Way and Facilities Right to Vary RISK ALLOCATION Risk of Infringement of Intellectual and Industrial Property Rights Royalties
9.5 6.2 6.10 7.5 18.6 7.6 12.5 3.4 17.5 9.11 11.3 11.12 2.1 4.13 13.1 17
Safety Procedures Samples Schedule of Payments Security of the Site Setting Out Shared Indemnities Site Data STAFF AND LABOUR Subcontractors SUSPENSION AND TERMINATION BY CONTRACTOR Suspension of Work Sufficiency of the Accepted Contract Amount
4.8 7.2 14.4 4.22 4.7 17.11 4.10 6 4.4 16 9.7 4.11
Termination by Contractors Default TERMINATION BY EMPLOYER Termination for Employer’s Convenience TESTING Testing of the Works Training Transport of Goods Technical Standards and Regulations Testing Time for Completion
15.2 15 15.5 11 11.1 10.5 4.16 5.4 7.4 8.2
148
17.12 7.8
© FIDIC 2011
Time for Completion of Design-Build
9.2
Unforeseeable Physical Conditions Unfulfilled Obligations
4.12 8.8
Valuation at Date of Termination for Contractor’s Default Valuation at Date of Termination for Employer’s Convenience Value Engineering VARIATIONS AND ADJUSTMENTS Variation Procedure Working Hours
© FIDIC 2011
15.3 15.6 13.2 13 13.3 6.5
149
