FIDIC - Conditions of Contract for EPC-Turnkey 01/03/09 PM. ERRATA to the First Edition, The following significant. Conditions of Contract for EPC Turnkey Projects (First Edition, ) in PDF. Guide to the FIDIC EPC/Turnkey Contract ( Silver Book) 2nd Ed This note highlights the key issues and commonly amended provisions of FIDIC's Silver Book (). Free Practical Law trial. To access this resource, sign up.

Fidic Silver Book 1999

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FIDIC (Silver Book) - EPC Contract - - Download as PDF File .pdf) or read online. FIDIC Edisi Short Form of Contract (Green Book). Found in: Construction. This Practice Note looks at the FIDIC Conditions of Contract for EPC/Turnkey Projects (commonly known as the Silver Book). , the first edition of its standard form, “Conditions of EPC and Turnkey Huse J. A., in his article, "The use of the FIDIC Silver Book in the Context of a BOT .

Employers on such turnkey projects are willing to pay more - often considerably more - for their project if they can be more certain that the agreed final price will not be exceeded. Among such projects can be found many projects financed by private funds, where the lenders require greater certainty about a project's costs to the Employer than is allowed for under the allocation of risks provided for by FIDIC's traditional forms of contracts.

The Silver Book

Often the construction project the EPC - Engineer, Procure, Construct - Contract is only one part of a complicated commercial venture, and financial or other failure of this construction project will jeopardize the whole venture. For such projects it is necessary for the Contractor to assume responsibility for a wider range of risks than under the traditional Red and Yellow Books. To obtain increased certainty of the final price, the Contractor is often asked to cover such risks as the occurrence of poor or unexpected ground conditions, and that what is set out in the requirements prepared by the Employer actually will result in the desired objective.

If the Contractor is to carry such risks, the Employer obviously must give him the time and opportunity to obtain and consider all relevant information before the Contractor is asked to sign on a fixed contract price. The Employer must also realize that asking serious contractors to price such risks will increase the construction cost and result in some projects not being commercially viable.

Even under such contracts the Employer does carry certain risks such as the risks of war, terrorism and the like and the other risks of Force Majeure, and it is always possible, and sometimes advisable, for the Parties to discuss other risk sharing arrangements before entering into the Contract. In the case of BOT Build - Operate - Transfer projects, which are normally negotiated as a package, the allocation of risk provided for in the turnkey construction Contract negotiated initially between the Sponsors and the EPC Contractor may need to be adjusted in order to take into account the final allocation of all risks between the various contracts forming the BOT package.

Apart from the more recent and rapid development of privately financed projects demanding contract terms ensuring increased certainty of price and performance, it has long been apparent that many employers, particularly in the public sector, in a wide range of countries have demanded similar contract terms, at least for turnkey contracts.

This need of many employers has not gone unnoticed, and FIDIC has considered it better for all parties for this need to be openly recognised and regularised. By providing a standard FIDIC form for use in such contracts, the Employer's requirements for more risk to be taken by the Contractor are clearly stated.

Thus the Employer does not have to attempt to alter a standard form intended for another risk arrangement, and the Contractor is fully aware of the increased risks he must bear.

Clearly the Contractor will rightly increase his tender price to account for such extra risks. The Tenderer should then be permitted and required to verify all relevant information and data and make any necessary investigations. He shall also carry out any necessary design and detailing of the specific equipment and plant he is offering, allowing him to offer solutions best suited to his equipment and experience.

Therefore the tendering procedure has to permit discussions between the Tenderer and the Employer about technical matters and commercial conditions. All such matters, when agreed, shall then form part of the signed Contract.

Thereafter the Contractor should be given freedom to carry out the work in his chosen manner, provided the end result meets the performance criteria specified by the Employer. Consequently, the Employer should only exercise limited control over and should in general not interfere with the Contractor's work.

Clearly the Employer will wish to know and follow progress of the work and be assured that the time programme is being followed. A feature of this type of contract is that the Contractor has to prove the reliability and performance of his plant and equipment.

FIDIC recognizes that privately-financed projects are usually subject to more negotiation than publicly-financed ones and that therefore changes are likely to have to be made in any standard form of contract proposed for projects within a BOT or similar type venture.

Among other things, such form may need to be adapted to take account of the special, if not unique, characteristics of each project, as well as the requirements of lenders and others providing financing. Nevertheless, such changes do not do away with the need of having a standard form. FIDIC wishes to record its appreciation of the time and effort devoted by all the above.

FIDIC - Conditions of Contract for EPC-Turnkey Projects

The concept of liquidated damages, well known in common law jurisdictions, is currently either unknown or at least not used in civil law countries. In these countries penalty-clauses are common and valid as well. Insofar acceptance should not be confused with the type of acceptance that is required to form a binding contract.

This is a completely different issue.

The contract price becomes due on this event and the burden to prove defects shifts to the employer as does the risk of accidental loss. If the employer is entitled to a claim for the correction of a defect, he may, even after he has accepted the works, retain a reasonable amount of the contract price, namely: FIDIC forms are generally and worldwide recognised as a fair and balanced standard form for construction works.

The new Silver Book on the contrary is tailored to somehow different types of projects. Along with this tendency the need for private financing for these undertakings has increased. Likewise, there is a trend preferring direct — face to face contracting at an arms length between employers and contractors without of an engineer who is traditionally in charge of administrating and adjudicating the contract.

This kinds of projects typically involve private lenders whose interest not only focus on the financing of the project during the actual construction period, but also extent to some type of secured cash flow subsequent to the actual works going on.

They take into account that the construction contract usually forms just one part of a complex commercial venture, including other concession and financing agreements.

Consequently, lenders and concessionaires as well as the employer want contract terms that ensure an increased certainty that the agreed contract price will be paid and that time for completion will not be exceeded. Thus, the characteristics of such an agreement are that the contractor — without an engineer — assumes full responsibility for the design and construction of the facility, whereas the employer is not involved in the actual construction as far as possible, but receives the certainty of a fixed final price on a lump sum basis, although on a higher price level, and the certainty of a fixed completion date.

The FIDIC Silver Books and have adopted most of the wishes of employers and lenders for the above mentioned types of projects.

Most of the risks are borne by the contractor including for example but not limited to them the risks of unforeseen ground conditions and the responsibility in respect to design which is completely done by the contractor. German contractors and lawyers are not yet really familiar with this type of contract terms.

Besides, there is no express exemption from the contra proferentem rule in respect to standard terms of contract having been drafted by representative bodies or committees after lobbying efforts of one of the parties; as it is under English law see in so far Adriaanse, Construction Contract Law, In the long run even German contractors will have to accept that the Silver Book is highly transparent and that the application of the Silver Book is recommended only if the employer is willing to pay a higher price than for a contract based on the FIDIC Red Book.

The issues are how to ensure that employers will not misuse the Silver Book and to identify the risks which are inherent to this contract form and to be aware of the simple fact that to transfer a risk does not reduce it at all. Finally, the issue which party bears a risk is simply a matter of commercial negotiation.

This leads me to the conclusion that employers have to adjust their bidding procedures if they are willing to use the Silver Book. The Standard Bidding Documents for Works of the World Bank provide that the employer will award the contract to the bidder whose bid has been determined to be substantially responsive to the bidding documents and who has offered the lowest evaluated bid price.

This is not acceptable for contracts based on the Silver Book because price competition is not the appropriate approach for such contracts. Once the appropriate procurement method has been chosen it is up to the bidders to identify the contractual risks and to evaluate the apportionment of risks to be borne by the employer and the contractor.

There is no doubt that risks vary in construction contracts depending upon many factors that can effect the progress and the completion of the work, such as see Adriaanse, Construction Contract Law, Unforeseen events and circumstances weather, ground conditions, shortage of material, shortage of labour, accidents, during the construction period it turns out that particular innovative design is impossible to construct etc.

In so far it is evident that the Silver Book imposes most of the risks, especially in respect to price and time for completion on the contractor. A very important issue are the clauses regulating site data and unforeseeable circumstances.

Subclauses 4. The provisions in Silver Book and however go much further by stating that that the contractor is not only in charge of the interpretation but also of the verification of this data. Clause 5. The latter is not responsible for any error, inaccuracy or omission of any kind in his requirements as included in the contract, except for some specific data mentioned in this clause. The problem of a contractor at the time of submission of the tender might be to evaluate the likelihood of encountering such difficulties.

In addition to these regulations, Sub-Clause 4. If an unforeseeable event occurs the contractor shall be entitled to extension of time and extra payment of costs.

The corresponding provision in the Silver Book and does not protect bidders in a likewise manner. To the opposite the Silver Book makes very clear in sub-paragraph b that the Contractor accepts total responsibility for having foreseen all difficulties and costs and in sub-paragraph c that the contract price shall not be adjusted to take account of any of these unforeseeable events or circumstances.

On the other hand the burden of risk may vary according to the applicable law. Whereas for example in some jurisdictions the modification of the contract in the event of unforeseen circumstances has been established by law or case law other jurisdictions are particularly strict. In some countries e. In Germany according to Section BGB adaptation of the contract may be claimed if circumstances upon which a contract was based have materially changed after conclusion of the contract and if the parties would not have concluded the contract or would have done so upon different terms if they had foreseen that change, in so far as, having regard to all the circumstances of the specific case, in particular the contractual or statutory allocation of risk, it cannot reasonably be expected that a party should continue to be bound by the contract in its unaltered form.

The contractor who has realized that all these risks are imposed upon him must prepare his bid by evaluating especially the following risks:. Since the World Bank and some other multilateral development banks have published the so-called Red Book harmonised version, which has been made part of the SBDW of the Bank.

The World Banks has already changed the Red Book twice, first in march and second in may It becomes obvious that contract assessment is an important thing. It can avoid expensive lessons learnt and disputes.

Avoiding disputes is a value as such because handling disputes is expensive and takes a lot of time. It is beyond doubt that an effective risk management provides a greater understanding of the project objectives and the risks facing the achievement of those objectives.

It has adopted a faar more advanced and a far more sophisticated appaoch regarding claims and disputes.As with many large projects construction is only one part of a wider complicated commercial venture and financial or other failure of the construction project can put the whole venture at risk.

FIDIC (Silver Book) - EPC Contract - Original.pdf

The problem of a contractor at the time of submission of the tender might be to evaluate the likelihood of encountering such difficulties. Only within these statutory limits the parties of a construction contract are free to assume risks in standard business terms. If there is doubt, an unreasonable disadvantage is assumed if a standard contract term cannot be reconciled with essential basic principles of the statutory rule from which the contract term deviates.

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