FIDIC form

The FIDIC organisation, founded in 1913, is an international federation of associations of consulting engineers. The UK joined in 1949. The first edition of the Conditions of Contract (International) for Works of Civil Engineering Construction was published in August 1957. The early FIDIC contracts followed closely the fourth edition of the ICE Conditions of contract a form drawn up mainly for the domestic market in the UK.

The original FIDIC contract (or Red Book) was based on the detailed design being provided to the contractor by the employer or the employer's engineer. It was best suited for civil engineering and infrastructure projects such as roads, bridges, dams, tunnels and water and sewage facilities. It was not so well suited for contracts where major items of plant were manufactured away from site and this led to the first edition of the FIDIC Yellow Book in 1963 for mechanical and electrical works. The Yellow Book had an emphasis on testing and commissioning and so was more suitable for the manufacture and installation of plant.

The Red and Yellow Books (and the White Book (appointment of a consultant by either an employer or another consultant)) were revised throughout the 1990s.

In 1995, a further contract was published (known as the Orange Book). This was for use on projects procured on a design and build or turnkey basis, dispensing with the engineer entirely, and provided for an 'employer's representative', who, when determining value, costs or extensions of time, had to 'determine the matter fairly, reasonably and in accordance with the Contract' (© The International Federation of Consulting Engineers - FIDIC.) The Orange Book has effectively been replaced by the current Yellow and Silver Books, which provide contractor design and turnkey options respectively.

FIDIC have continued to publish new forms of contract and update existing forms since the 1990s – (see Current FIDIC forms for more details).

FIDIC is the market-leading contract for international construction projects, particularly for infrastructure and energy projects, and is recognised by developers and contractors worldwide.

In the international market bespoke contracts often follow the outline structure and principles of FIDIC and when negotiating amended FIDIC contracts and bespoke contracts, parties often refer to the FIDIC position, in recognition that FIDIC provides a well understood baseline position.

The conditions of contract for EPC/turnkey projects (the Silver Book) dominates the project finance market.  Where a project is financed on a limited recourse project finance basis (where money is lent against the asset to be built, with limited recourse against the owner or investor), lenders want to see the majority of risk passed to the EPC contractor and the contract provide for a fixed price with a fixed completion date – backed up by delay and performance liquidated damages. The Silver Book meets the criteria and is the preferred form of contract for many lenders, but this does not prevent it being heavily amended and negotiated on most projects.

FIDIC’s strengths are:

• its relative simplicity (although this has changed with the 2nd editions of the Red, Yellow and Silver Books, which are significantly more complicated than earlier editions);
• consistent structure across the suite of contracts;
• it is jurisdiction neutral (and so suitable for complex construction projects worldwide);
• it is reasonably balanced in the apportionment of risk between the employer and the contractor (although international contractor associations have expressed concern (in an open letter to FIDIC in January 2017) that this is no longer the case and there is a perception that the imbalance has increased with the 2nd editions of the Yellow, Red and Silver Books (although not as much as originally planned as a number of proposed changes in the consultation draft 2nd edition Yellow Book were, following feedback, not included in the final editions); and
• that the different FIDIC forms reflect the different types of contract structure in the international market, and so FIDIC provides an appropriate starting point for the majority of construction projects.

While there are many clauses and principles in the FIDIC suite of contracts that parties will argue over there are few, if any, major weaknesses with the FIDIC suite of contracts. As the particular conditions (other than in the Pink Book) provide a mechanism to amend the standard form general conditions, issues with particular clauses and concepts can be dealt with once negotiated and agreed between the parties (although given the more complicated drafting in the 2nd editions of the Red, Yellow and Silver Books it will more difficult to achieve with these forms). Possibly the only exception to this general statement is the White Book, which is rarely used and is widely acknowledged to be unsuitable by most employers as it does not provide a robust contract on which to engage consultants – something that FIDIC have sought to address in the 5th edition published in March 2017. Bespoke forms of consultant appointment (not based on the White Book) are most commonly seen in the market.

The FIDIC suite of contracts are suitable and widely used for all types of infrastructure projects, from transport (for example, building new roads, ports and airports) to energy and mining projects. The suitable FIDIC contract will depend on the procurement route and contract structure that is being used for a particular infrastructure project. No other contract form is used as widely on international projects. For infrastructure engineering contracts some employers (particularly state or quasi-state entities) will use the NEC form of contract, in particular due to its focus on project management and collaboration.  The NEC form is suitable for use on international projects, but it is not used as commonly as FIDIC as it moves away from the traditional construction contract structure which clearly apportions risks and responsibilities between the employer and contractor.  In addition, some lenders perceive that the NEC form does not provide the clear risk profile they require, meaning that it is rarely used on limited recourse projects.