USING FIDIC CONTRACTS to MANAGE TIME and DESIGN RISKS on CONSTRUCTION PROJECTS i THAILAND in

Presented to PMI Bangkok Chapter by Tim Kelly b Ti K ll on 21 September 2011 S t b

Austthai Engineering Pty Ltd

Scope of this presentation 3 topics

increasing certainty with FIDIC contracts managing time risks in FIDIC contracts managing design risks in FIDIC contracts

Slide 1

Future infrastructure needs in SE Asia

The State of the World FIDIC Infrastructure Report 1 published in 2009 set out a number of key findings

three mega-trends dominate the world today they are globalization, information technology and urbanization increases in population continue to put more and more pressure on infrastructure an estimated USD 65B needs to be spent each year for next 5 years in East Asia and Pacific [6.2% of GDP] on electricity, roads, rail, water, sanitation and [6 2% electricity roads rail water telecommunications scale of required investment is vast, and the effects of GFC have made credit more diffic lt to obtain difficult in order to receive high quality bids reflecting the real price and technical requirements for most projects, it is essential to prepare accurate documents prior to starting the bidding process 2

Slide 2

Brief background to FIDIC contracts

FIDIC = Federation Internationale des Ingenieurs-Conseils or, in English, as the International Federation of Consulting Engineers founded in 1913 by three national European associations first Red Book was published in 1957 original Yellow Book was published in 1963 now used in more than 70 countries in 1999, several FIDIC contract forms were updated to address 3 issues

standardise terminology within all of the FIDIC contract gy books make the documents more user friendly, and clarify the role and independence of the Engineer

Slide 5

the Silver Book was first published in 1999

What do the FIDIC contract forms cover ?

The 20 common sections in all FIDIC contract forms are
1. 1 general provisions definitions law provisions, definitions, 2. employers (owners) responsibilities 3. 3 contract administration procedures 4. contractors general obligations 5. 5 design obligations and documents 6. staff and labour requirements 7. plant 7 plant, materials & workmanship 8. time, program, progress and delays 9. 9 completion tests 10. hand over requirements 11. 11 defects liability and costs 12. tests after completion 13. variations, 13 variations dayworks and changes in law 14. payments, certificates and contract sum 15. 15 termination by the owner / employer 16. termination by the contractor 17. risks, responsibilities, 17 risks responsibilities limits of liability 18. insurance requirements 19. 19 force majeure notices, consequences majeure, notices 20. claims, disputes, arbitration

Slide 6

Reasons for using FIDIC contracts

widely used in over 70 countries in many different legal jurisdictions there are different forms to suit various procurement strategies standard terminology and consistent approach provides an appropriate balance in sharing risks according to the contract form chosen provides flexibility where necessary e.g. methods of payment vary according to nature of the work and are consistent with regime selected for managing risks in i use for over 50 years with most recent updates reflecting lessons f ih d fl i l learned over many years through a wide range of project environments facing many different challenges and risks long history of successful deliveries in both civil law and common law jurisdictions can they be used within the Thai legal system ?

Slide 7

A brief history of the Thai legal system 5

prior to BE 2325 [1782], judges used the ancient laws of Ayutthaya and relied on personal notebooks and other records in making judgments in i BE 2325 [1782] Ki R [1782], King Rama I recognized the d fi i i in the use of personal i d h deficiencies i h f l records and other interpretations of the ancient laws, and a new substantive law Kotmai Trasamduang was promulgated in BE 2347 [1804] this legal system was then used for 103 years until English law was introduced into the kingdom after Prince Rajaburi [son of King Rama V] returned from studying in England from that time, English law was taught widely in the kingdom and almost all law textbooks were either based on English law or translated into English when Thailand began to experience jurisdiction problems as European countries began to expand their influence in the Asian region, it was decided to follow Japans lead in promulgating written legal codes this was a great change for Thailand because it had to change its legal philosophy the Thai legal system then changed into a code system similar to the civil law systems used in many European countries

Slide 8

Most common types of FIDIC contracts used in SE Asia

a traditional contract embodying the measurement and valuation payment mechanism 3 for works constructed by the Contractor but designed by others6

the Contractor undertakes a fitness for purpose obligation which extends to the design, as well as materials and workmanship in construction 3 where risks are shared between the Employer and the Contractor7

the Contractor takes total responsibility for the design and execution of the project with the involvement of the Employer where a higher degree of certainty of final price and time is required 3 for works where the Contractor takes all risks, including design changes8

Slide 10

TIME ISSUES

Slide 11

Time for Completion under FIDIC contracts clause 8

section 8 in all FIDIC contracts but requirements vary according to the type of FIDIC form used program required to minimise and manage changes in the scope4 clause 8.3 requires the Contractor to submit a program within the same defined period, and all require the Contractor to .. promptly give notice to th E l t the Employer of specific probable future events or circumstances f ifi b bl f t t i t which may adversely affect or delay the execution of the Works .. 6,7,8 clause 8.4 covers extensions of time, but varies significantly

Slide 12

Managing and reviewing detail designs for complex projects12 ..

system life cycle process refer Figure 2.2 page 20 basic design sequence refer Figure 5.8 page 106 design data review cycle refer Figure 5.6 page 111 sample design review checklist refer Figure 5.9 page 113 formal design reviews refer Figure 5.10 page 115 stages of system evaluation during the life cycle refer Figure 6.2 page 124 evaluating systems and implementing corrective actions refer Figure 6.7 page 138 i f i 6 managing and controlling design changes refer Figure 6.9 page 141

design evolves through a series of stages: conceptual design, preliminary system g ,p y y design, detail design and development .. 12

Slide 18

.. test planning should actually begin as part of the advance system planning during conceptual design .. 12

Design obligations in FIDIC contracts

clauses 4.1 and 5 in all FIDIC contract forms cover design, but the design obligations vary significantly between the Red, Yellow and Silver Books clause 4.1 requires the Contractor to design, execute and complete the works in accordance with Contract3 the Red Book is .. intended to be suitable for building and civil or other engineering works designed by the Employer or his representative ..2

the Yellow Book is .. intended for plant and for building and
engineering works designed by the Contractor where the Employer may have executed some design ..2

the Silver Book is intended for use where .. the Contractor takes
a higher degree of risk and therefore the construction time and cost are more certain ..2

Slide 19

Design obligations are limited in the Red Book

design of the works is provided by the Employer to the Contractor 2,3,4,6 however clause 4.1 allows for .. the possibility
that the Employer may wish the Contractor to design part of the Works ..3

clause 4.1 also requires the Contractor to .. design the Temporary Works .. 3 some design work is also usually required in preparing .. construction d i drawings f the purposes for h of implementing the Employers design .. 3

Slide 20

Design obligations in the Yellow Book

under clauses 4.1 and 5.1 .. the Contractor is

expressly required to carry out and be responsible for the design of the Works in accordance with the Contract .. 3,7

clause 5.1 requires the Contractors design to be prepared by .. engineers or other professionals
who comply with the criteria stated in the Employers Requirements .. 3,7

clause 5.1 also requires the Contractor to review the Employers Requirements and advise of any errors or defects in these requirements 3 clause 5.3 requires the Contractor to give an undertaking that the .. design will be in
accordance with the documents forming the Contract as altered or modified by Variations .. 3

Slide 21

Design obligations in the Silver Book

the design obligations under clauses 4.1, 5.1 and 5.3 are the same as the Yellow Book 3 Employer has no right to challenge use of designers3 the Contractor is reviewing Employer s requirements Employers and is responsible for errors in Employers documents except for a limited range of information and criteria 3

Slide 22

Bibliography
1.

State of the World FIDIC Infrastructure Report, International Federation of Consulting Engineers (FIDIC), London, 2009 Huse, Joseph A, Understanding and negotiating turnkey and EPC contracts, Sweet & Maxwell Ltd, London 2002 Baker, Ellis, Mellors, Ben, Chalmers, Scott, and Lavers, Anthony, FIDIC contracts: law and practice, Informa, London, 2009 Jaeger, Axel-Volkmar, and Hk, Gtz-Sebastian, FIDIC A guide for practitioners, Springer-Verlag, Berlin, 2010 Guerin, Naiyana, A comparison of contract formation in the Thai Civil and Commercial Code and the Convention on International Sale of Goods [CISG), 2006 Conditions of contract for construction, International Federation of Consulting Engineers (FIDIC), Geneva, 1999 Conditions of contract for Plant and Design - B ild I C di i f f Pl dD i Build, International Federation of Consulting Engineers (FIDIC), i lF d i fC li E i (FIDIC) Geneva, 1999 Conditions of contract for EPC / turnkey projects, International Federation of Consulting Engineers (FIDIC), Geneva, 1999 Samuel, Geoffrey, Contract Law: Cases and Materials, Sweet & Maxwell Ltd, London 2007 A guide to the project management body of knowledge (PMBOK guide), Project Management Institute, Pennsylvania, 2008 Lewis, James P., Project Planning, Scheduling & Control, Irwin Professional Publishing, Chicago, 1995 Blanchard, Benjamin S. & Fabrycky, and Walter J. Systems Engineering and Analysis, Prentice Hill International, NJ07458, 1998

2. 3.

4. 5.

6. 7.

8.

9. 10.

Slide 25

11. 12.

FIDIC books and important references

Slide 26

Other helpful references for managing time and design

Slide 27