Due to the economic globalization and international market development, the relations between different legal entities worldwide have increased significantly. This inevitably leads to a growing number of transactions, which, in turn, results in the necessity to create a uniform regulation in order to accelerate transaction completion process.
Professional lawyers from IQ Decision UK, who have been successfully practicing law in the EU countries for years, effectively use FIDIC forms of contracts in construction projects that involve large international companies and leading financial institutions. If you require professional European lawyers’ support in drafting a contract or formalizing a contractual relationship, lawyers from IQ Decision UK are always ready to help you.
One of the most authoritative organizations in the international investment and construction industry is The International Federation of Consulting Engineers (FIDIC). It gained its reputation thanks to the release of standard contract documentation. Overall, FIDIC has created more than fifteen widely-applied model contracts covering various aspects of investment and construction relations. FIDIC contracts have recently been in high demand and they continue gaining popularity. It includes about 100 national associations and societies all over the world, and the number of members is growing persistently.
In the context of globalization, ensuring the uniformity of contract terms is becoming increasingly important. The various standard forms or the so-called “template of the forms” are specifically designed and implemented to speed up the deal making process. As a rule, standard documents in international trade relations are understood as various standard forms of trade contracts, but standardization is not exclusively limited to them. The ability to standardize contracts is based on the presence of significant similarities in contracts of the same type.
FIDIC Standard contracts
FIDIC model contracts offer unified regulation of investment and construction relations throughout the world. FIDIC contracts are very flexible in terms of adapting them to a particular law or legal system.
By their legal nature, FIDIC standard contracts are sub-legal documents. Contracts are a regulator of a powerless nature and acquire their legal significance following the principle of freedom of contract and a corresponding agreement between the parties on the regulation of relations between them through the forms.
FIDIC model contracts are aimed at ensuring predictability in the regulation of relations between parties with different state affiliation, as well as at facilitating the process of concluding a contract. As contracts that contain all the necessary conditions for a successful transaction, FIDIC forms offer a comprehensive transaction management.
General characteristics of FIDIC standard contracts
FIDIC standard contracts are an effective tool for settling contractual relations in the construction industry. They also regulate relations in the fields of insurance, dispute resolution, supply of equipment and materials for construction and others.
The main focus of the state cooperation in the sphere of legal policy is the creation of uniform legal norms intended to regulate a certain sphere of public relations. FIDIC is doing its best to create the unified set of standard contracts.
Parties to FIDIC contract
The main FIDIC standard contracts include a similar pool of participants. So, the Orange Book of FIDIC (construction “on a turnkey basis”) names several participants:
- Customer representative (or Consulting engineer);
- Representative of the contractor;
- Dispute Resolution Board.
The Customer and the Contractor are parties to a contract agreement under which one party (the Contractor) undertakes to perform certain work on the instructions of the other (Customer) and hands over its result to the Customer, and the Customer agrees to accept the result and pay for it.
A customer representative is an exceptionally important person in FIDIC standard contracts. The authorities of the contractor representative and the consulting engineer are similar.
FIDIC contract pricing
The price of a construction contract may be formed in different ways: the contractor receives remuneration in proportion to the amount of work, establishment of the fixed price of the contract, a payment per unit of work, etc.
Standard FIDIC contracts contain a fundamentally different regulation. The Article 13 of the Orange Book of FIDIC states that payment for construction work is made by one-time lump-sum payment. At the same time, the contract price is not subject to adjustment depending on changes in the cost of labor, materials or other issues.
The issue of price invariance is one of the principal conditions for concluding a contract “on a turnkey basis”. The customer chooses exactly this type of contract in order to avoid the participation in construction as much as possible and to create conditions for the Contractor to resolve all issues independently.
FIDIC standard contracts as a degree of liability for the Contractor use the institute of liquidated damages. This institution is an alternative to the institution of penalties.
Liquidated losses are the Contractor’s liability for non-performance or improper performance of the obligation established by the contract. Payment of liquidated losses does not relieve the Contractor from the obligation to complete the work.
FIDIC standard contracts govern the risks and liability of the parties. The Contractor has to compensate damage and not hold the Customer, the customer’s representative, their contractors, representatives and employees responsible for any claims, damage, losses and costs associated with the construction of the facility, as well as the provision of professional services by the Contractor. The above obligations are limited to claims, damages, and costs associated with causing harm to life and health, causing damage to someone’s property, loss of the ability to use the property. At the same time, based on the wording used in the standard contract, responsibility is incurred only for the guilty actions, including violations of the duty to exercise caution at the facility entrusted to the Contractor.
The FIDIC standard contracts clauses also contain a condition for limiting the Contractor’s liability. Under no circumstances shall the contractor be liable for indirect or consequential loss or damage and for the loss of profits of the customer. The scope of responsibility of the Contractor may not exceed stipulated amount, or, if not established, the total price of the contract.
Risk of accidental loss or accidental damage to contract subject
FIDIC standard contracts allow changing the distribution of risks of accidental destruction or damage to a contract subject by agreement of the parties.