The FIDIC Form of Contract. The Fourth Edition of the Red Book. 2nd Edition. Nael G. Bunni

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1 The FIDIC Form of Contract The Fourth Edition of the Red Book 2nd Edition Nael G. Bunni BSc, MSc, PhD, CEng, FIEI, FICE, FIStruct, FCIArb, FInstD, MconsEI b Blackwell Science

2 Contents List of Figures List of Tables Préface to the Second Edition Préface to the First Edition Acknowledgements xvm xx xxi xxiv xxvi Parti Chapter 1 Chapter 2 Background and Concepts of the Red Book Background of the Red Book 1.1 The ACE Form 1.2 The First Edition of the Red Book 1.3 The Second and Third Editions of the Red Book 1.4 The Fourth Edition of the Red Book 1.5 The 1996 Supplément to the Red Book 1.6 Concepts of the Red Book The Red Book is Based on a Domestic Contract 2.1 Introduction 2.2 Diversity of légal Systems 2.3 The applicable law in international construction 2.4 The applicable law of the contract 2.5 Law governing procédure 2.6 Law governing enforcement of awards 2.7 Grouping of the contemporary légal Systems 2.8 The Romano-Germanic group Sources of law in the Romano-Germanic group Légal authoritative writing Areas of the law affecting construction in the Romano-Germanic group 2.9 The common law group Sources of law in the common law group Areas of the law affecting construction in the common law group

3 viii The FIDIC Form of Contract 2.10 The law in Islamic countries Sources of Islamic law 44 Chapter 3 Légal Concepts Based on the Common Law System The law applicable to the contract Conflict Some spécifie concepts under the common law Substantive law and procédural law Législation, common law and equity Tort Contract - gênerai principles Prerequisites of a contract Limitation periods Privity of contract Performance of a contract The contents of a contract Remédies for breach of contract Exclusion clauses The responsibility to complète 67 Chapter 4 Drafting Principles 69 Chapter 5 The Concept of a Trusted Independent Engineer Introduction FIDIC's Statutes and By-Laws and the independent engineer FIDIC's Code of Ethics FIDIC's Quality-Based Sélection, 'QBS' Other suppliers of Consulting services Services provided by the consulting engineer Counselling services Pre-investment studies Design, préparation of documents and supervision Specialised design and development services Project management Programme manager Independence 80 Chapter 6 A Traditional Re-measurement Contract Factors governing choice of contract The allocation of essential functions The allocation of the function relating to finance 84

4 Chapter 7 Chapter 8 Part II Chapter 9 Contents The allocation of the functions of design and construction The allocation of risk, quality control and the method of pricing and payment 6.3 Re-measurement contracts The Red Book is a re-measure contract Contracts with a bill of quantities Contracts with a schedule of rates 6.4 Cost-reimbursable contracts 6.5 Lump sum contracts The Supplément to the Fourth Edition of the Red Book, Section B Main Features of FIDIC's Form for Payment on a lump sum basis Sharing of Risks 7.1 Introduction 7.2 The définition of 'risk' 7.3 Measurement of risk 7.4 Risk management 7.5 Allocation of risks in the Red Book 7.6 Responsibility and liability 7.7 Indemnity and insurance The Concepts in Practice 8.1 The Red Book in use 8.2 Areas of conflict A relationship of trust The rôle of the engineer Avoidance of risk The design function Absence of a légal System Distrust of changes Légal questions 8.3 EIC/FIDIC survey of A brief summary of Part I The Fourth Edition: A Commentary The Revisions - Purposes and Conséquences 9.1 Introduction 9.2 Clause Définition of 'Engineer' under group (a) IX

5 77K FIDIC Form of Contract Définition of 'tests on completion' Définitions under group (e) Définitions under group (f) Définitions under group (g) Définition of 'approved' 9.3 Clause Requirement for consultation Responsibility for délégation Requirement for writing Express requirement for impartiality 9.4 Sub-clause Sub-clauses 6.1, 6.4 and Clause Clause Clause Sub-clause Clause Sub-clauses 14.1 and Clause Clause Clause Clause Clause Clause Clause Clause Clause Clauses 34 and Sub-clause Clause Clause Clause Sub-clause Clause Clause Clause Sub-clause Clauses 53 and Sub-clause Clause Sub-clauses 65.4 and Clause Clause

6 Part III Contents 9.37 Other changes made in the 1992 Reprint 9.38 Concluding remarks The Fourth Edition in Practice xi Chapter 10 Rôle of the Engineer Introduction The engineer as a designer The engineer as the employer's agent Authority and duties of the engineer The engineer's proactive duties and authority The engineer's reactive duties and authority The engineer's passive duties and authorities The engineer as a supervisor The engineer as certifier The engineer as adjudicator or quasi-arbitrator Concluding remarks 187 Chapter 11 Responsibility and Liability of the Engineer Introduction Responsibility of the engineer towards the employer Responsibility of the engineer towards the contractor In the common law countries In the Romano-Germanic System The responsibility of the engineer towards third parties (other than the contractor) The responsibility of the engineer towards society; employées; and the engineer himself 204 Chapter 12 The Employer's Obligations Introduction Identification of spécifie éléments of the project Appointaient of engineer Possession of site To provide instructions as and when they are required The employer is to refrain from taking any action which would impede or interfère with the progress of the works The employer is to supply materials and carry out works if thèse form part of the work as defined in the contract The employer is to nominate specialist sub-contractors and suppliers as and when they are required 215

7 xii The FIDIC Form of Contract 12.9 To permit the contractor to carry out the whole of the works To make payments and to make them on rime Additional obligations for the employer under the Fourth Edition of the Red Book 217 Chapter 13 The Contractor's Obligations Introduction The contractor's obligations during the tendering stage The contractor's obligations following the letter of acceptance and during the construction stage up to substantial completion Finalising documentation required prior to commencement of the works Construction and completion of the works with due diligence and within the time for completion Use of materials, plant and workmanship Provision of securities, indemnities and insurances Supply of information, notices or alerts Performance of certain administrative functions Contractor's obligations after substantial completion of the works 240 Chapter 14 Risks, Liabilities, Indemnities and Insurances Introduction The Red Book provisions relating to risk, responsibility, liability, indemnity and insurance Clause 20 of the Red Book - '20.1: care of the works'; '20.2: responsibility to rectify loss or damage'; '20.3: loss or damage due to employer's risks'; and '20.4: employer's risks' Sub-clause 20.1: care of the works Sub-clause 20.2: responsibility to rectify loss or damage; and sub-clause 20.3: loss or damage due to employer's risks Sub-clause 20.4: the employer's risks Clause 65 of the Red Book (sub-clauses 65.1 to 65.8) - spécial risks Clause 21 of the Red Book - insurance Importance of adequacy of cover Period of insurance and extent of cover 255

8 Contents Joint names Scope of insurance cover Provisions for payment in foreign currency Provision for déductibles Clause 22 of the Red Book - indemnity for damage to persons and property other than the works Clause 23 of the Red Book - third party insurance Clause 24 of the Red Book - injury to workmen and insurance Clause 25 of the Red Book - gênerai insurance requirements Part II of the Red Book - insurance arranged by the employer Définitions 267 Chapter 15 Performance and other Securities Introduction The spectrum of securities Types of securities Characteristics of performance bonds and guarantees Payment guarantees Performance bonds Demand guarantees The ICC Uniform Rules for Demand Guarantees Uniform Rules for Contract Bonds Insurance against unfair calling Performance securities under the Red Book Examples of securities provided Other securities associated with a construction contract Bid bonds or guarantees Advance payment guarantees Rétention money bonds Maintenance or defects liability bonds Company suretyship Concluding remarks 298 Chapter 16 daims and Counterclaims Définition and légal basis of daims and counterclaims A claim under the contract and based on its provisions Variations Measurement changes Adverse physical obstructions or conditions Employer's risks 319 xiii

9 xiv The FIDIC Form of Contract Compliance with statutes, régulations, price fluctuations, currency and other économie causes Defects and unfulfilled obligations Failure to commence, delays, suspension of work, release from performance, default and termination Other miscellaneous specified events Claim based on grounds of breach of contract Procédure for daims - clause Procédural steps Records The présentation of claims Quantum Headsof claim The global approach Concluding remarks 344 Chapter 17 Delay in Completion and Claims for Extension of Time Time is of fundamental importance Relevant clauses of the Red Book to an extension of time under clause Programming Claims for extension of both time and money Prolongation Disruption Liquidated damages Liquidated damages and penalties 360 Chapter 18 Certif icates and Payments Introduction Intérim payment certificates Taking-over certificate Defects liability certificate Final payment certificate The engineer is to certify a valuation at date of termination Common requirements Late certification 372 Chapter 19 Disputes Seulement by Arbitration Introduction and background Advantages of arbitration 375

10 Contents 19.3 What is arbitration? The arbitration agreement Sources of law in arbitration General The arbitration agreement as a source of law Practice and custom The arbitrator The arbitration agreement under clause 67 of the Red Book Procédure under clause The 1996 supplément to the Fourth Edition of the Red Book The new provision for Dispute Adjudication Board, its procédural rules and ternis of appointaient Composition and qualification Duties of the Board members and commencement of such duties Termination of the Board's duties Rémunération of the Board members Duties of the employer and the contractor towards the Board Procédure for dispute referral to the Board Conduct of hearings Authority of the Board Commentary The ICC Rules of Conciliation and Arbitration The ICC Rules The advantages of the ICC Rules Some constructive criticism Why does arbitration in construction disputes continue to lose favour? Concluding remarks 419 Chapter 20 Amicable Seulement Using Alternative Dispute Resolution Introduction Methods of dispute settlement Direct negotiation Negotiators When should negotiation be used and what are the steps? Médiation Conciliation What is conciliation? 428 xv

11 xvi The FIDIC Form of Contract Why conciliation? When should conciliation be used? Who should be a conciliator? Who should attend the conciliation? The conciliation process Mini-trial procédure Dispute review boards or experts, claims review boards and dispute adjudication boards or experts Adjudication Pre-arbitral référée procédure Concluding remarks 438 Part IV Other Documents Related To The Red Book 439 Chapter 21 FIDIC's Other Forms of Contract Introduction The Yellow Book, third édition Background Différences in the nature of civil engineering and E & M engineering projects Essential features of the Yellow Book The Orange Book, first édition Background Différences in the nature of the Red and Yellow Books on the one hand and the Orange Book on the other The conditions of subcontract for works of civil engineering construction Format Clause 1, définitions and interprétation Clause 4, 'main contract' Clauses 13 and 15, 'indemnities; insurances' Clause 16, 'payment' Clause 19, 'settlement of disputes' Other publications of FIDIC 463 Chapter 22 The World Bank and the FIDIC Form Introduction The World Bank Group The World Bank's SBDW: an overview SBDW: Part II - conditions of particular application Some significant mandatory provisions in Part II of SBDW 468

12 Contents Sub-clause 1.1 (a) (iv) Clause Sub-clause Sub-clause Sub-clause Clause Additional clauses The Dispute Review Board The wording of SBDW clause Notes attached to version 1 of clause The rules and procédure of the Dispute Review Board Composition and qualification Duties of the Board members and commencement of such duties Termination of the Board's duties Rémunération of the Board members Duties of the employer and the contractor towards the Board Procédure for dispute referral to the Board Conduct of hearings Authority of the Board The effect of the Board's recommendation Commentary 483 xvii Part V Comparison Between The Third And Fourth Editions Of Part I Of The Red Book 489 Chapter 23 A Précise Record of Altérations, Omissions and Additions 491 Références 571 Appendices A, B and C 595 Table of Cases 635 Table of Clauses 639 Index 643

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