WHY FIDIC IS INTERNATIONAL BEST PRACTISE

MOHAMAD SHUKOR BIN ZULKIFLI

(2010811788)

SUBMIT TO :PN ZAINAB BT MOHMED ZAINORDIN

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TABLE OF CONTENT

CHAPTER 1: INTRODUCTION OF FIDIC

1.0 Introduction….………………………………………………………………….3

1.1 What is FEDIC….……………….………………………………………….......3

1.2 Types of FIDIC and Its Used………….…………………………….................4

1.3 Advantages of International Standard Form of FIDIC……………………...8

CHAPTER 2 : COMPARISON BETWEEN FIDIC AND MALAYSIAN STANDARD FORM

2.0 Introduction of Malaysia Standard Form…………………………………….10

2.1 Provision for FIDIC Comparing to Malaysia Standard Form……………...10

CHAPTER 3 : CONCLUSION

3.0 Conclusion…………………………………………………………….……...…16

REFERENCES…………………………………………………………………..…..17

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CHAPTER 1

INTRODUCTION OF FIDIC

1.0 Introduction.

The purpose of standard form of contract is to define the contractual relationship between

the parties, setting out their responsibilities one to another and insofar as is practical allocating

the risks associated with the project between the parties. In the contract for international

engineering projects, the function of Conditions of Contract is of greatest importance providing

the rights, obligation and responsibility for the parties concerned in the Contract execution. The

provision of International form of Contract is created by the committees seek to represent a

variety of interest and represent a kind of compromise.

1.1 What is FIDIC

According to G.M Beresford (1999), FIDIC is the international federation of national

associations of independent consulting engineers. It founded in 1913 by the national

associations of three European countries, now with membership from over 60 countries. Most

of growth outside Europe has taken place since the Second World War, with developing

countries particularly being encouraged to join them to be apart in FIDIC membership. During

the past half century, the International Federation of Consulting Engineers (FIDIC) has devoted

itself to the compilation of management documents for all kinds of projects, among which the

FIDIC Conditions of Contract are of the highest influence and are the most popular application.

FIDIC now represents most of the private practice consulting engineers in the world and its

members comply with a code of ethics guiding their professional standards.

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FIDIC works to promote the common interests of consulting engineers through seminars,

conferences and regular discussions with the national associations and international financial

institutions (such as the World Bank) where the preparation of standard forms of contract and

other documents is a major activity.

1.2 Types of FIDIC and its used

a) The Red Book

The first edition of FIDIC Conditions of Contract for Works of Civil Engineering

Construction (use “Red Book” in the following) was compiled in 1957, and later its

second, third, and fourth edition were issued in 1963, 1977, and 1987 respectively. But

these editions were mostly compiled in the reference of the related documents of the

Institution of Civil Engineers (ICE).

The FIDIC and European International Contractors (EIC) entrusted the University of

Reading in 1966 to summarize the experience and to draw lessons from the application of

the former documents. With the investigation of the governments, employers, contractors

and consulting engineers all over the world about their application of the “Red Book”,

204 findings reports were returned. According to the findings, the FIDIC Contract

Committee organized a group of experts to compile the new Contract Condition models

to be applied in the 21stcentury.

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Red Book, The Construction Contract, more completely the Conditions of Contract for

Building and Engineering Works Designed by the Employer. Needs of modern multi-

discipline contracts recognised for first time. The Red Book is that it envisages two kinds

of Conditions of Contract:

The General Conditions, as printed in the book

Particular Conditions for the project in hand.

There is a valuable section of 20 pages of guidance on the preparation of Particular

Conditions and related matters. The guidance includes forms of bond and guarantee as

well as guidance on detailed terms and suggestions for clauses which might usefully be

amended for special purposes. Careful completion of Particular Conditions is probably as

important as adopting the General Conditions in the first place.

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The Red Book

b) The Yellow Book

The Yellow Book is for Plant and Design/Build Contract or the Conditions of Contract

for Plant and Design-Build for Electrical and Mechanical Plant, and for Building and

Engineering Works, Designed by the Contractor. It was needs of modern multi-discipline

contracts recognised. The Partial Employer design include in Employer’s Requirements.

It applies to the lump sum contract project where the Contractor takes participation in the

design work.

c) The Silver Book

The Silver Book is for EPC/Turnkey Contract or the Conditions of Contract for

EPC/Turnkey Contracts. EPC stands for Engineering, Procurement and Construction,

where the entire project is created by the Contractor as a turnkey project. It also applies to

the turnkey projects of infrastructures or large-scale factories, where the Contractor takes

on more work and risk while the Employer’s participation is small (private financing or

government financing), but it is strictly defined upon the investment and construction

period.

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The Yellow Book

d) The Green Book

The last in this group was the Short Form of Contract, often abbreviated to The Short

Form, essentially for minor works where the full detail of the major forms would be

inappropriate and the procedures clumsy or even unworkable in the time available. It

usually can be used in all kinds of small-scale projects.

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The Silver Book

The Silver Book

1.3 Advantages of International Standard Form of FIDIC

The FIDIC Conditions of Contract raised a higher requirement to the parties concerned in

the area of contract management. Altogether, these Contract Conditions can be applied to

nearly every kind of project, expect for that of managing contracting or simply consulting or

designing is needed. The advantages of the International form of FIDIC are:

a) High-quality Provisions and Logical Clause Sequencing

The New Red Book has 163 clauses, nearly 40% being freshly compiled. An additional

40% were modified and given supplements. Only 20% were kept intact. The old edition

adopted ICE’s disorderly style bit in the clause sequence, while in the new edition, the

related sub-clauses are put into one clause when possible, and convenient to the users.

b) Changes in the Preparing Style

General Conditions in the former edition were fairly concise of some recommendable

clauses were given Particular Conditions. While in the new edition, there is a way around

the regulations being that the General Conditions are relatively comprehensive and

detailed. An example would be advanced payment and adjustment formula. The new

edition writers believe that it is more convenient for the users to delete the clauses they

do not need than to write them in the “Particular Conditions” by themselves.

c) Concise Language

The language and sentence structures in the new edition are rather easy to understand,

and a great help to the people whose native language is not English.

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d) Wider Application

When these new Conditions of Contract were drafted, FIDIC tried its best so the

Conditions could be applied under not only the Customary Law (i.e. Anglo-American

Law System), but also Civil Law. To pursue this, the contract working group had an

attorney present to review the clauses, so that they could be applied under the two laws

noted above. The new edition also shows more flexibility and adaptability. For example,

in the old edition, the conditional performance guarantee was necessary, which the World

Bank had different opinions of. While in the new edition, the guarantee forms were set by

Particular Conditions which can be applied giving the employers better flexibility.

e) Unification of Terms and Clause

The new edition was drafted as the “New Red Book”, the “New Yellow Book” and the

“Silver Book” by a workgroup under the leadership of the FIDIC Contract Committee.

The contract form was not influenced by the former ICE framework, which was included

in all 20 clauses. So if the clauses content could be unified, it would be under the same

titles and expressions. In these three books, more than 80% of the content was consistent,

and 85% of the definitions and expressions were the same. It is of great help for the users

to understand them completely, saving study time.

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CHAPTER 2

COMPARISON BETWEEN FIDIC AND MALAYSIAN STANDARD FORM

2.0 Introduction of Malaysia Standard Form

Standard form can be defined as written agreement for contracting parties, client and also

the consultant. According to Robinson and Lavers (1988), standard form of construction contract

is required to perform as the evidence of legal relationship between parties. In Malaysia, there

are several types of Standard Form of Contract available to use in construction, such as PWD

203A, PAM, CIDB, IEM and etc. The PWD forms of contract are the standard forms of

contraction contract used by the Malaysian public sector. In fact, these have been in recent years

increasing usage of the PWD forms with amendments by the private sector as well, especially in

civil engineering construction. The PAM standard form of building contract was very widely

used in the private sector

In Malaysia, PAM forms, PWD 203A forms, etc. PAM has introduced as a new set of standard

form entitled PAM 2006 to replace the PAM 1998 to suit the current situation. It is the same with

the PWD 203A form where the PWD 203A (Rev. 10/83) has been replaced by the PWD 203A

(Rev. 2007). Both standard forms have its own provisions under contract.

2.1 Provision for FIDIC Comparing to Malaysia Standard Form.

The comparison will be made by focusing the international FIDIC form for “Red Book”

with the Malaysian Standard Form, which is PWD 203A and PAM. This comparison purpose

is to analyze why the FIDIC form is the best practice form for the international level trough

the clause in the standard form.

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a) Authority Instructor

In the FIDIC form, clause 3 mentions that, the engineer has the authority attributable

under the contract. When Engineer exercises specific authority then Employer is deemed

to have given Approval. This clause gives the right to the engineer in giving instruction

and makes the determination. The conditions provide that the Engineer shall proceed in

accordance with sub-clause 3.5 to agree or determine any matter:

“…the Engineer shall consult with each Party in an Endeavour to reach agreement. If

agreement is not achieved, the Engineer shall make a fair determination in accordance

with the Contract, taking due regard of all relevant circumstances”

It was different compared to the PWD 203 form, where the Superintendant Officer (S.O)

is the eligible person to give the instruction in this contract like mention in clause 5.

While, in the PAM 2006 form, an architect is the person that qualified to hold that

position like what mention in Architect Instructor (AI )in clause 2.

b) Delay/ Extension of time

Clause 8 deals with Commencement, Delay and Suspension. Sub-clause 8.3 sets out the

manner in which the Contractor should provide programmed showing how he proposes to

execute the works. For example the programmed must be supported by a report

describing the methods which the Contractor is to adopt. The extension of time

provisions is clear. By sub-clause 8.4:

“the Contractor shall be entitled ... to an extension of the Time for Completion if and

to the extent that completion ... is or will be delayed by any of the following causes”

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Figure: Procedures Extension of Time in FIDIC form

Sources: FIDIC Condition for Contract Construction 1999, Edition 4

The contractor shall be entitled subject to an extension of the time for Completion if and

to the extent that completion for the purposes is or will be delayed by a variation or other

substantial change in the quantity of an item of work included in the contract, a cause

delay giving an entitlement to extension of time under Sub-Clause of these Conditions

and exceptionally adverse climate conditions.

Any delay, impediment or prevention caused by or attribute to the Employer, the

Employer Personnel or the Employer other contractor. delay cause unforeseeable

shortage in the availability of personnel or Good caused by epidemic or governmental

action.

If the Contractor considers himself to be entitled to an extension of time for completion,

the contractor shall give notice to the engineer in accordance contractors claims. When

determining each extension of time the engineer shall review previous determining and

may increase, but shall not decrease, the total extension of time.

It Different with PWD 203(clause 43) with FIDIC form, where the PWD form need time

provisions preserve the contractor’s obligation to complete within a specified time and in

doing so the provisions preserve the employer’s right to liquidated damages, when by

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prevention, he has delayed the contractor and is responsible in part for late completion. It

is common to provide an express power for the EOT for completion and if an extension

has been granted it operates wholly or partially as a defence to a claim for liquidated

damages from the original completion date. If there is no express power to extend for a

delay which is not the fault of the employer, the contractor takes the risk of that delay and

will not avoid liquidated damages.

In PEM 2006 (clause23), If Contractor delayed in completion of work, the Contractor

should write noticed. To apply of EOT to the Architect and the causes shall related the

relevant event in within 28days from date of Architect Instruction at commencement

Relevant Event, if fails to submitted, the contractor shall be deemed not delay the

Completion of Works beyond Completion Date. Within 28 days should provide further

particulars in writing and then issue of Certificate of EOT before or after date of

completion

c) Payment

FIDIC form defined in the clause of payment (clause 14) how to handle the problem

when the Employer has the payment delayed. If the Contractor does not receive payment

(in accordance with the Interim Payment Certificate) within 56 days after submitting

monthly statement to the Engineer at the beginning of the month, the Contractor shall be

entitled to receive interest compounded monthly on the amount unpaid during the period

of delay. These financing changes shall be calculated at the annual rate of 3 percentage

points above the discount rate of central bank in the country of the currency of payment.

If the Contractor does not receive payment within 42 days after the expiry of the above

56 days, he shall be entitled to terminate the Contract.

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Figure: Procedures of Payment in FIDIC form

Sources: FIDIC Condition for Contract Construction 1999, Edition 4

FIDIC form also define that there is no power therefore for the engineer to negotiate an

acceleration agreement for the employer. It also requires the contractor to process in

accordance with programme, subject to his other obligation under the contract. This form

gives the engineer power to instruct the contractor to submit a revised programmed with

revised method to expedite progress and complete within the time for completion. the

power arises if the actual progress is too slow to complete within for completion, or if the

progress has fallen or will fall behind the programme.

There is one of the matters which entitle the contractor to an extension of time. The

contractor is required to adopt the revised methods which are stated to include increase in

the working hours and or increase in resources and or good. The revised method is at the

contractor’s cost and risk he is liable for employer’s additional costs insured in addition

to any delay damages.

In PAM 2006, the application and Issuance of Architect Certificate have some mention

about items in final accounts. Contractors submit payment application with complete

details and particulars. Then Quantity Surveyor considered the amount to be included. If

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failures submit payment application, the contractor waived his contractual. The Contactor

is unable to issue Interim Certificate.

For Public Work Department (PWD) the question which troubles a contractor most now

is the question of non-payment or delayed payment by the Employer. All the standard

forms discussed that if the Employer does no pay, the contractor is entitled to bring

the contract of his employment under contract to an end.

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CHAPTER 3

CONCLUSION

The new edition has many advanced ideas and regulations such as standardizing of the

Contract words and expressions, clearer and stricter claim procedure, and emphasis on the

protection of intellectual property rights The traditional project management mode, which is

universal in the world, has been applied in most of the engineering project management cases

in the world. We also can conclude the FIDIC form is much fairer and balanced to both parties

where risk is allocated to the party that is best able to bear and control that risk. Recompense

and time extension allowed when uncalculated hindrances occur. The engineer job is to

supervise and monitor the work in strict accordance to the satisfaction of the engineer with

formal Engineer’s Decision’. Engineer is no longer stated to be‘impartial’because he shall be

deemed to act for the Employe’, except when fair determinations are required.

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LIST OF REFERENCE

1. Malaysian standard forms of contract: -

i. PAM Form of Building Contract (1998 & 2006)

ii JKR/PWD Form of Contract (203A - Rev 10/83)

FIDIC (1999) Guide to the use of FIDIC Conditions of Contract for Civil Engineering

Construction Fourth Edition)

Lim Chong Fong. (2004). The Malaysian PWD Form of Construction Contract.

Thomson Asia Pte Ltd.

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