International Construction Contracting: Use and Application of the FIDIC Form Contracts and Trends in International Construction Contracting

Transcription

1

2 WELCOME

3 International Construction Contracting: Use and Application of the FIDIC Form Contracts and Trends in International Construction Contracting Robert C. Epstein Co-Chair, Global Construction Law Practice Greenberg Traurig, LLP William J. Wray Shareholder Holley, Driggs, Walch, Fine, Wray, Puzey & Thompson Mike Carrato Vice President, Legal & Contract Management Alstom Transport Mike Kolloway Deputy General Counsel Parsons Corporation

4 Our Panelists Robert C. Epstein - Moderator Co-Chair, Global Construction Law Practice Greenberg Traurig, LLP William J. Wray Member Holley, Driggs, Walch, Fine, Wray, Puzey & Thompson Mike Carrato Vice President, Legal & Contract Management Alstom Transport Mike Kolloway Deputy General Counsel Parsons Corporation

5 Worldwide Construction $7.5 Trillion or 13% of Global Gross Domestic Product

6 Revenues of the World s Biggest Contractors from Projects Outside Their Home Countries Increased by $40 Billion in 2013 over 2012 Chinese Firms largest revenue share U.S. Firms third place Decreased by $22 Billion in 2014 over 2013 Chinese Firms largest revenue shares U.S. Firms second place

7 Risks on International Projects Political Risks War, civil war, terrorism, social unrest, especially in developing countries Expropriation Leadership changes Economic/Financial Risks Fluctuations in economic conditions in host country (inflation, fluctuating prices) Foreign exchange rates Material and labor supply shortages Repatriation of profits back to home country Multi-cultural environment Financing complexity International joint ventures

8 What is FIDIC? FIDIC is the International Federation of Consulting Engineers The acronym derives from its French name - Fédération Internationale des Ingénieurs-Conseils (FIDIC) Founded originally in 1913 by France, Belgium and Switzerland Aims to promote the interests of engineers, design professionals and construction industry professions Originally Europe based, but has grown into a leading global construction industry organization Now has 97 member countries around the world

9 FIDIC s Stated Objectives Be the recognized international authority on issues relating to consulting engineering best practice. Actively promote high standards of ethics and integrity among all stakeholders involved in the development of infrastructure worldwide. Maintain and enhance FIDIC s representation of the consulting engineering industry worldwide. Enhance the image of consulting engineering. Promote and assist the worldwide development of viable consulting engineering industries. Promote and enhance the leading position of FIDIC s Forms of Contract. Improve and develop FIDIC s training and publishing activities. To promote and encourage the development of Young Professionals in the Consulting Engineering Industry.

10 Pertinent FIDIC Publications International standard contracts forms for construction Related materials such as standard pre-qualification forms Business practice documents such as: Policy Statements Position Papers Guidelines Training Manuals and Training Resource Kits in the areas of: management systems (quality management, risk management, business integrity management, environment management, sustainability) business processes (consultant selection, quality based selection, tendering, procurement, insurance, liability, technology transfer, capacity building)

11 Copyrights FIDIC is the sole owner of all Copyrights pertaining to the FIDIC publications. FIDIC is protective of its Copyrights and requires license fees and/or subscription fees for use of its books, forms and other documents and publications (similar to AIA in the US).

12 Languages and Translations All FIDIC documents are published primarily in English. FIDIC sometimes translates its documents into other languages, but English remains the official language of reference in case of legal dispute. Other organizations sometimes translate and modify FIDIC documents to conform to particular needs. Some examples include: The Multilateral Development Banks ( MDB an organization of international banking institutions) developed a Harmonized Edition of the Construction Contract based on FIDIC s form that is used by MDB Banks, including the World Bank, for their projects. Some governmental Owners/Employers require that project contracts be in the official language of the applicable nation or locality. Notwithstanding, the English language version is considered by FIDIC as the official version AND the authentic original source text for the purposes of translation into other languages.

13 Unique Vocabulary FIDIC and international construction documents sometimes utilize unique or differing vocabulary. Some examples include: Employer: Synonymous with Owner Engineer: In FIDIC docs is generally analogous to Architect (or Architect of Record or AOR) in AIA and other typical US construction contracts. NOTE: In FIDIC contracts and other typical international construction contracts, the roles of all project engineering work, including architectural work, are generally contracted to a single engineering firm. Bespoke Contracts or Bespoke Terms: Contracts or contract terms which are specially or specifically drafted or prepared for a particular purpose. Non-standard or nonboilerplate contacts or terms are sometimes referred to as Bespoke contracts or terms. Re-measurement Contract: Analogous to Cost-Plus or Time & Materials (T&M) types of contracts are sometimes referred to as Re-measurement Contracts. Facilities: Equipment, items and facilities (other than the Project land) necessary to facilitate completion of the contemplated works.

14 FIDIC Construction Contract Forms Books The primary FIDIC Rainbow Suite of New Contracts was published in 1999, and comprises most of the typical FIDIC form contracts currently in use, including the following Books for the stated situations and circumstances: The Green Book: Conditions of Short Form of Contract The Red Book: Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer The Yellow Book: Conditions of Contract for Plant and Design-Build The Silver Book: Conditions of Contract for EPC Turnkey Projects

15 FIDIC Flowchart

16 Additional FIDIC Books The additional range of the FIDIC Rainbow of construction contracting Books includes: The Blue Book: Contract for Dredging and Reclamation Works The Pink Book: (or the MDB/FIDIC Contract): Modified FIDIC Contract incorporating special conditions terms for use where MDBs are providing financing The White Book: Client/Consultant Model Services Agreement The Gold Book: FIDIC Design, Build and Operate Projects

17 Project Engineer: Critical Role in FIDIC Contracts The standard FIDIC Books/forms typically provide that the Project Engineer (which includes the Architect s roles) oversees: project administration functions certain dispute resolution functions The FIDIC Books define the role of Project Engineer as agent of the Employer (Owner). The Project Engineer typically: issues instructions and notices monitors the works acts as certifier/commissioner of completed works

18 Project Engineer: Critical Role in FIDIC Contracts (cont.) The Engineer is often assigned initial adjudication and resolution authority concerning project disputes, AND is supposed to act impartially when the rights and obligations of the parties are affected. However, absence of bias is not in reality practical: Firstly, a FIDIC Project Engineer will primarily (as expected) protect its own interests; and Secondly, under FIDIC Contracts the Engineer is deemed to, and in practice typical does, act for and in the best interests of the Employer.

19 Role of the Contractor in FIDIC Book Contracts The Contractor's main obligation under any construction contract is the construction and completion of the works in accordance with the contract terms, conditions and specifications. Under the FIDIC Red and Yellow Books, the Contractor s obligations include: Fitness for purpose ensuring that the design will meet the employer's requirements Design responsibility (limited in the Red Book, more comprehensive in the Yellow Book) Carrying out the works in a proper and workmanlike manner with properly equipped Facilities and non-hazardous materials Providing the requisite Facilities (equipment, etc.) Responsibility for choosing the Facilities and means, materials and methods of completing the work

20 Other Typical Contractor Functions FIDIC Project Contractors are assigned other typical administrative and performance facilitating functions, including: Providing information needed for the execution and completion of the works The issuing of typical project and claims related notices, including notice of any events that impact costs or completion time NOTE: The Claims notice period in FIDIC Books is typically very short, e.g., not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance giving rise to a right to claim (FIDIC Red Book and Yellow Book, Clause 20.1).

21 The FIDIC Books Are Not Set in Stone As is typical with the use of boilerplate-based forms in the U.S., bespoke terms, conditions, variations and adjustments can be applied to the FIDIC Books contact forms. Such bespoke terms can be negotiated and included based upon a Project s and/or an Employer s specific needs and circumstances. Modifications typically arise, for example, by: Employer's instruction Employer's request for a proposal Contractor's value engineering proposal

22 Which FIDIC Contract is right for a specific Project? (Source:

23 Additional Review & Analysis: Use & Application of the Key FIDIC Contracting Books- The Red Book The Yellow Book The Silver Book

24 The Red Book: Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer This is the typical basic contract for construction between an Employer (Owner) and its prime contractor. In its standard form, The Red Book is a Re-measurement Contract (cost-plus or T&M contract), meaning that the Employer and the Contractor typically negotiate the rates for types or schedules of work and those rates will be applied to the quantity of that work that the contractor carries out.

25 The Red Book: Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer Under standard Red Book contracts, the Employer typically takes the risk that the quantity estimates are accurate, while the Contractor must ensure that its unit prices for the quantities are adequate. By bespoke terms and conditions the Red Book contract can be modified and adopted to a lump-sum type contract.

26 The Yellow Book: Conditions of Contract for Plant and Design-Build Intended for use where the works are designed by the Contractor. In its standard form, the Yellow Book is a lump sum contract, in which the Contractor promises to deliver the project for a set price. The Contractor takes the risk of quantities.

27 The Silver Book: Conditions of Contract for EPC Turnkey Projects EPC Contract Engineering Procurement and Construction Intended where Employer looks to the Contractor to take total responsibility for the design, procurement, construction and turnkey completion of the Project. Often used in large Infrastructure Projects (e.g., road, rail, bridge, airport, water/sewage plant, transmission line or power plant projects) or in international markets where the Employer, who provides or secures the project financing, wishes to implement the Project on a Fixed-Price Turnkey Basis.

28 The Silver Book: Conditions of Contract for EPC Turnkey Projects Almost universally used in developing world large Infrastructure Projects. Increasingly used in the U.S. in projects, particularly large infrastructure projects where specialized, experienced international contractors are called in.

29 The Silver Book: Employer Centric Benefits Turnkey and End Result Driven: The Employer gets a higher degree of certainty that the agreed contract price and time will not be exceeded, except for the risk of certain limited and usually unforeseen conditions. The Employer avoids involvement in the day-to-day progress of the construction work, providing simply for an end result that meets the Employer s specified performance criteria. The Employer typically and willingly pays more for the construction of a Project (than would be the case if other contract forms were used) in return for the Contractor bearing the extra risks associated with enhanced certainty of final price and time.

30 The Silver Book: Trend Toward EPC Turnkey Contracts in Large International Projects We live in an increasing, end result, turnkey, consumerdriven world where purchasers of a product or service just want it done and working right. Example 1: Consumer electronics products. Example 2: Current farm and irrigation equipment. Many project Owners (or Employers international construction nomenclature) in this new world are looking for this kind of simple, turnkey, just get it done and working right type of construction. And they are willing to pay more for it!

31 Q & A

32 Robert C. Epstein Phone: (973) William J. Wray Phone: (702) Mike Carrato Phone: (423) Mike Kolloway Phone: (312) THANK YOU

33