FIDIC Redbook Standard Forms of Contract overview - few comparison with PAM 2006

1. FIDIC FORMS OF
CONTRACT
HONG KAI YIN 0323361
LAU CHIN SHENG 0317899

2. WHAT IS FIDIC?
• French version of International Federation of Consulting
Engineers
• Founded in 1913
• Publishes international standard forms of contract that has long
been used in international construction projects.

3. HISTORY OF FIDIC STANDARD FORMS OF
CONTRACT
1987
• Conditions of Contract for Works of Civil Engineering
Construction (The Red Book)
• Conditions of Contract for Electrical and Mechanical Works (The
Yellow Book)
1995
• Conditions of Contract for Design-Build and Turnkey (The
Orange Book)

4. HISTORY OF FIDIC STANDARD FORMS OF
CONTRACT
1999
Publish new Standard Forms of Contract, which comprises:
1. The Construction Contract
2. The MDB Construction Contract
3. The Plant and Design-Build Contract
4. The EPC/Turnkey Contract
5. The Short Form
6. Dredgers Contract (based on the Short Form of Contract)

5. The Construction Contract
• Used in traditional project
• Almost all design handled by employer
• Engineer administered contract, monitor work and certify
payment
• Employer is entitled to make variations
• Pay according to BQ or lump sums for approved work done

6. MDB Construction Contract
• For bank financed project only
• In 2005, FIDIC licenced Multilateral Development Banks (MDB)
to use the MDB harmonised edition contract for projects funded
by bank.
• Incorporates Particular Conditions to the Red Book

7. The Plant and Design-Build Contract
• Used when the design is carried out by Contractor, according to
the Employer’s performance specification.
• Engineer administer contract, monitor work and certify
payment.
• Pay according to achieved milestones (stage payment)

8. EPC/Turnkey Contract
• EPC stands for Engineer, Procure, Construct
• Used in Build, Operate, Transfer (BOT) project
• High degree of certainty in terms of completion date and contract
sum
• Employer unlikely to involve in day-to-day progress of work
• Two party approach
• Employer willing to pay more
• Contractor bear extra risks

9. The Short Form
• Used when contract sum is small
• Projects are relatively small
• Construction period is short
• Example of projects: Drainage works

10. The Construction Contract

11. Clause 1 – General Provisions
• Shows the definition of words and expressions used in contract
• Priority of documents are listed
• Clause 1.9 states that if Works are likely to delay due to drawing
or instruction not issued, contractor shall give notice to
Engineer.

12. Clause 2 – The Employer
• Shows the role of Employer
• Employer shall submit evidence that financial arrangement has
been made so that Employer has the ability to pay Contractor,
upon request from Contractor.
• Clause 2.4 states that Employer shall give notice to Contractor
whenever Employer has made changes to his financial
arrangement.
• Contractor may suspend work if Employer fail to provide
evidence.

13. Clause 3 – The Engineer
• Clause 3.1 states the duty of engineer is to act for the employer
whenever carrying out duties or exercising authority.
• Clause 3.3 allows Engineer to issue instructions to Contractor
• Clause 3.5 states that Engineer shall consult each party to reach
an agreement. If agreement cannot be achieved, Engineer shall
make a fair determination.

14. Clause 4 – The Contractor
• Clause 4.1 states the Contractor’s duties, the works completed
shall fit the client’s requirement
• Clause 4.2 states Contractor shall provide Performance Security
and shall be in force until Performance Certificate
• Clause 4.10 states Employer shall provide all relevant data of
the site to the Contractor. Contractor shall then interpret all the
data received from Employer.
• If any unforeseen event occurs, Engineer shall review the event
and determine whether the event could reasonably been foreseen
(Clause 4.12)

15. Clause 5 – Nominated Subcontractors (NSC)
• Contractor may raise reasonable objection if they found out that
NSC do not have sufficient competence, resources or financial
strength. (Clause 5.2)
• Clause 5.4 states that Engineer may request evidence from
Contractor whether NSC has received payments from previous
payment certificate.
• If contractor fail to provide, Employer may pay directly to NSC
and charged back from Contractor (Clause 5.4)

16. Clause 6 – Staff and Labour
• Specify the requirement for personnel, working hours, health &
safety, facilities for staff & labour, etc.
• Clause 6.9 - Engineer may require the Contractor to remove any
person employed on the Site who
1. persist in any misconduct or lack of care;
2. carries out duties incompetently or negligently;
3. fails to conform with any provisions of the Contract;
4. Or persist in any conduct which is prejudicial to safety, health or the
protection of the environment.

17. Clause 7 – Plant, Material and
workmanship
• Address the requirements for plants, materials and
workmanship including submission of samples, testing,
inspection, rejection, etc.
• Provide for the identification of the date when each item of the
plant and materials becomes the property of the employer
(clause 7.7). Shall become the property of the employer at
whichever is earlier, free from lines and other encumbrance:
1. When it is delivered to the site;
2. When the contractor is entitled to payment.
(PAM Clause 14.2)

18. Clause 8 – Commencement, Delays and
Suspension
• Contains requirements that the provision of programmes to show how
the contractor propose to execute the works. This programme is
required to be supported by a report describing the methods which the
contractor is to adopt. (Clause 8.3)
• Clause 8.4 - Contractor shall be entitled to an extension of Time for
Completion if and to the extent that completion is or will be delayed by
any of the following causes:
1. a Variation or substantial change in the quantity of an item of works
included in the contract.
2. a cause of delay giving entitlement to extension of time under this contract.
3. Exceptionally adverse climatic conditions
4. Unforeseeable shortages in the availability of personnel or Goofs caused by
epidemic, Government actions;
5. Any delays, impediment or prevention caused by or attributable to the
Employer, the Employer’s Personnel, or Employer’s other contractors on site

19. Clause 9 – Test on Completion
• Contractor shall carry out the Test on Completion in accordance
with the conditions.
• If the Works or a section, fail to pass the Test on Completion
after retesting, the engineer shall be entitled to:
1. Order further repetition of Test on Completion;
2. Reject the Works or sections if the failure deprived the Employer of
substantially the whole benefits;
3. Issue a Taking-Over Certificate, if the employer so requests.

20. Clause 10 – Employer’s Taking Over
• When in the contractor’s opinion that the Works will be complete
and ready for taking over, he maybe apply for a Taking-over
Certificate Giving 14 days notice. Engineer shall then issue the
Taking-Over Certificate or reject the application, giving reasons
and specifying the works required to be done by the contractor to
enable the Taking-Over Certificate to be issued (Clause 10.1).
• Engineer may, at the sole discretion of the Employer, issue a
Taking-Over Certificate for any part of the Permanent Works
(Clause 10.2)

21. Clauses 11 – Defects Liability
• Clause 11.1 - During the Defects Notification Period, the
contractor shall:
1. Complete any works which is outstanding on a date stated in a Taking-
Over Certificate; and
2. Execute all work required to remedy defects or damage
• Only the Performance Certificate shall be deemed to constitute
acceptance of the Works, stating the date on which the
Contractor completed his obligation under the Contract. The
Engineer shall issue the Performance Certificate within 28 days
after the latest of the expiry dates of the Defects Notification
Periods or as soon thereafter as the contractor has supplied all
the Contractor’s Documents and completed and tested all the
Works, including remedying any defects (Clause 11.9)

22. Clause 12 – Measurement and
Evaluation
• Deals with measurement and evaluation. Method of measurement
shall be made of the net actual quantity of each item of the Permanent
Works and shall be in accordance with the Bill of Quantities or other
applicable Schedules (Clause 12.2)
• For the evaluation of each item of work, the appropriate rate of price
for the item shall be the rate or price specified for such item in the
Contract or, if there is no such item, specified for similar work.
• However, a new rate or price shall be appropriate for an item of work
if:
1. The measured quantity of the item is changed by more than 10% from the
quantity in the BQ;
2. The change in quantity multiplied by the rate exceeds 0.01% of the accepted
contract amount;

23. Clause 12 – Measurement and
Evaluation (con’t)
3. The change in quantity directly change the cost per unit quantity of the
item by more than 1%; and
4. This item is not specified as a “fixed rate item”
Or a new rate or price shall also be appropriate for item of work if:
1. The work is instructed as a variation under clause 13;
2. No rate or price is specified in the Contract
3. No specified rate or price is appropriate because the item of work is not of
similar character, or is not executed under similar conditions, as any item
in the Contract
(Clause 12.3)

24. Clause 13 – Variations and
Adjustments
• Address variations and incorporates adjustments for changes in
legislation and in cost. However, provided the contractor notifies an
inability to obtain the required goods, the engineer’s instruction is not
binding. Equally, it is not binding in the case of contractor’s design if
the proposed variation would have an adverse impact on safety,
suitability or the achievement of performance criteria as specified
(Clause 13.1)
• Contractor may submit Value Engineering proposal which, if adopted
1. Accelerate completion,
2. Reduce the cost to the Employer of executing, maintaining or operating the
works, or
3. Otherwise be of benefit to the Employer (Clause 13.2).
Any saving shall be shared between the Employer and contractor.

25. Clause 13 – Variations and
Adjustments (con’t)
• If contractor suffers delay or additional cost due to a change in
the Law of the Country made after the tender date, then the
contractor is entitled to claim for an extension of time and
additional cost (Clause 13.7)

26. Clause 14 – Contract Price and
Payment
• Clause 14.2 - Deals with the procedures for payment. The
Employer shall make an Advance Payment (as stated in the
Appendix) after the contractor has submitted the following:
1. Performance Security
2. Guarantee in the amounts equal to the advance payment

27. Clause 14. – Contract Price and
Payment
Contractor
submit
statement
of claim
(clause
14.3)
28 days 28 days
Engineer may accept the claim & issue Interim
payment certificate to employer within the 28
days after receiving contractor’s statement.
*A Payment Certificate shall not be deemed to
indicate the Engineer’s acceptance, approval,
consent or satisfaction (Clause 14.6)
Employer shall pay
the contractor the
amount certified in
each IPC within 56
days after the
Engineer receives the
statement and
supporting
documents
(Clause 14.7)
56 days

28. Clause 14. – Contract Price and
Payment
• Clause 14.7 – Employer shall pay the contractor:
1. The advance payment within 42 days after issuing the Letter of
acceptance or within 21 days after receiving the require document
(Performance Security and Guarantee for Advance Payment)
2. The amount certified in each interim payment certificate within 56 days
after the engineer receives the statement and supporting documents;
3. The amount certified in the Final Payment Certificate within 56 days
after the Employer receive this Payment Certificate

29. Clause 14. – Contract Price and
Payment
• Clause 14.8 – Contractor is entitled to financing charges
compounded monthly on the amount unpaid during the period of
payment delay by the Employer without formal notice or
certification and without prejudice to any other right or remedy.
• Clause 14.9 – When the Taking-Over Certificate has been issued,
the first half of the Retention Money should be certified for
payment to contractor. The outstanding balance of the Retention
Money shall be certified for payment after the latest of the
expiry dates of the defects Notification Periods.

30. Clause 14. – Contract Price and
Payment
Contractor
submit
statement
of claim
(clause
14.3)
28 days 28 days
Engineer may accept the claim & issue Interim
payment certificate to employer within the 28
days after receiving contractor’s statement.
*A Payment Certificate shall not be deemed to
indicate the Engineer’s acceptance, approval,
consent or satisfaction (Clause 14.6)
56 days
10 days
Actual date
Employer
made
payment
Clause 14.8 – Contractor shall be
entitled to receive financing charges
compounded monthly on the amount
unpaid during the period of payment
delay by the employer without
formal notice or certification and
without prejudice to any other right
or remedy.

31. Clause 14. – Contract Price and
Payment
• Within 84 days receiving the Taking-Over Certificate for the
Works, the Contractor shall submit to the Engineer a Statement
at Completion showing the value of all work done, any further
sum which the contractor considers to be due and an estimate of
any other amount which the contractor considers will become
due to him under the contract. (Clause 14.10). The engineer shall
then certify in accordance with sub-clause 14.6 as interim
payment certificate.

32. Clause 14. – Contract Price and
Payment
Expiry of
Defect
Notificatio
n Periods
28 days 28 days56 days 56 days
Clause 11.9 - Engineer
issue Performance
Certificate within 28
days after the latest
expiry dates of DNP
Within 56 days after receiving P.C, contractor shall submit to
the engineer a draft Final Statement with supporting
document showing in detail in a form approved by the
engineer, the value of all work done and any further sums
which the contractor considers to be due to him under the
contract. (Clause 14.11)
Within 28 days after receiving F.S,
the engineer shall issue the Final
Payment Certificate to the
employer which states the amount
which is finally due from the
Employer to contractor or vise
versa. (Clause 14.13)
The amount
certified in FPC
shall be made
within 56 days
after employer
receive this
Payment
Certificate
(Clause 14.7)

33. Clause 15 – Termination by Employer
• The employer is entitle to terminate the contract if the contractor
1. Fails to provide performance security or fail to comply with notice to correct
under sub-clause 15.1
2. Abandons the works or otherwise shows intention not to continue
performance of his obligations under the contract;
3. Without reasonable excuse fail to proceed with the work in accordance with
(Clause 8 – Commencement, Delay, and Suspension) or fail to comply with a
notice issued under sub-clause 7.5&7.6 within 28 days after receiving it;
4. Subcontract or assigns the contract without the required agreement;
5. Become bankrupt or insolvent;
6. Give or offers to give (directly or indirectly) to any person any bribes, gift,
gratuity, commission or action in relation to the contract or for showing or
forbearing to show favour or disfavor to any person in relation to the
contract
The employer may upon giving 14 days notice to the contractor, terminate the
contract and expel the contractor from the site.

34. Clause 16 – Suspension and
Termination by Contractor
• If the engineer fails to issue Interim Payment Certificate or the
employer fails to provide Financial Arrangement or payment, the
contractor may, after giving not less than 21 days notice to
employer, suspend work (or reduce rate of work) unless and until
the contractor has received the Payment Certificate, reasonable
evidence or payment (Clause 16.1). The contractor is entitled to
extension of time and cost as a result of suspending works.

35. Clause 16 – Suspension and
Termination by Contractor (con’t)
• Clause 16.2 - The contractor shall be entitled to terminate the contract
if:
1. Contractor does not receive the reasonable evidence within 42 days after
giving notice under sub-clause 16.1 in respect of employer’s failure to
provide financial arrangement;
2. The engineer fails to issue the relevant payment certificate within 56 dayts
of receiving the statement;
3. Contractor does not receive the amount due under the interim payment
certificate within 42 days after the expiry of the time stated;
4. The employer substantially fails to perform his obligations under the
contract;
5. The employer fails to comply with (sub-clause 1.6 contract arrangement) or
(sub-clause 1.7 Assignment)
6. A prolonged suspension affects the whole works as in sub-clause 8.11
7. The employer becomes bankrupt or insolvent.

36. Clause 17 – Risk and Responsibility
• The contractor shall indemnify and hold harmless the Employer
and its representatives against and from all claims, damages,
losses and expense in respect of bodily injury, sickness, disease
or death and damage to or loss of any property, real or personal
unless attributable to any negligence, wilful act or breach of the
contract by the Employer or its representatives (Clause 17.1)
• Clause 17.6 limits the liability by excluding the liability of both
the contractor and employer for loss of use of any works, loss of
profit, loss of any contract or for any indirect or consequential
loss or damage which may be suffered by the other party, in
connection with the contract.

37. Clause 18 - Insurance
• The insuring Party can either be the Employer or the Contractor.
The insuring Party shall insure the Works for not less than the
full reinstatement cost including the cost of demolition, removal
of debris and professional fees and profit (Clause 18.2)
• The insurance shall cover insurance against injury to the
persons and damage to property.

38. Clause 19 – Force Majeure
• Force Majeure is defined as an exceptional event or
circumstances:
1. Which is beyond a party’s control;
2. Which such party could not reasonably have provided against before
entering into the Contract;
3. Which, having arisen, such Party could not reasonably have avoided or
overcome, and
4. Which is not substantially attributable to the other Party.
• The event of Force Majeure must prevent a party from
performing any of its obligations, and as such is by definition not
as severe as an event that prevents the performance of all of
them. Notice is required following the event of Force Majeure as
it may give rise to an extension of time and additional cost.

39. Clause 19 – Force Majeure (con’t)
• Party can terminate the contract in the event that substantial
works in progress are being prevented for a continuous period or
multiple period.

40. Clause 20 – Claims, Disputes and
Arbitration
Delay
event
occur
Contractor must submit notice
to claim extension of time
within 28 days after the
contractor become aware of the
event.(Clause 20.1)
Within 42 days after contractor become aware
of the event giving rise to a claim, the
contractor shall send to the engineer a fully
detailed claim which includes full supporting
particulars of the basis of claim and EOT
Within 42 days after
receiving a claim or any
further particulars
supporting a previous
claim, the engineer shall
respond with approval or
disapproval and detailed
comments.
28 days 14 days
42 days
42 days

41. Clause 20 – Claims, Disputes and
Arbitration
• Disputes shall be adjudicated by the Dispute Adjudication Board
(DAB) as stated in the appendix. If either party is dissatisfied
with the DAB’s decision, then either party may, within 28 days
after receiving decision, give notice to the other party of its
dissatisfaction. Arbitration may be commenced on or after the
56th day after the day on which notice of dissatisfaction was
given (Clause 20.5)

42. Question Time

43. QUESTION 1
What are the first three contracts that had been published by
FIDIC?
Also, explain in which kind of project they are suitable to use.

44. ANSWER FOR Q1
a. The Red Book
Used in project where the design is provided by employer, the duty
of contractor is to build according to design provided.
b. The Yellow Book
Used in project which involves electrical and mechanical works,
the contractor comes out with majority of design to meet the
employer’s specification.
c. The Orange Book
Used in normal project where contractor provides the design
according to employer’s specification

45. QUESTION 2
The government wishes to construct a new highway to ease the
traffic in Kuala Lumpur. The government has passed this project
to a contractor to construct. The government requires the project
to have time and price certainty. The contractor is required to
build and operate on his own for 20 years. After 20 years, the
ownership of the highway shall then passed back to the
government.
Based on this scenario, which contract shall be used and why?

46. ANSWER FOR Q2
In this scenario, it is considered to be a BOT (Build, Operate,
Transfer) project.
The government (Employer) do not involve in day-to-day progress
of work.
The project is on a strictly two party approach (Government &
Contractor)
The facility is ready to operate once transferred back to
government.
Therefore, EPC/Turnkey contract is used for this project.

47. Q3. By comparing claim and payment duration from FIDICA(RED
book) contract and PAM(2006) contract, which of the contract is
more favourable to the Employer? discuss.
Contractor submit
statement of claim
(clause 14.3)
28 days 28 days
Engineer accept the claim & issue Interim
payment certificate to employer within the 28
days after receiving contractor’s statement.
(Clause 14.6)
Employer made the
payment
56 days
21 days Period of Honoring
Certificate
Contractor submit
application for payment
PAM Clause 30.1 – Architect issue
Interim Certificate to the
employer
Employer made the
payment
*If non stated is 21 days from the date of the
certificate

48. ANSWER FOR Q3
• In my opinion, PAM 2006 contract is more favourable to the employer.
This is because in FIDIC contract (Red book) clause 14.7 which stated
that “Employer shall pay the contractor the amount certified in each
interim payment certificate within 56 days after the engineer receives
the statement and supporting documents”; while PAM 2006 clause
30.1 stated that “Employer shall thereafter pay the amount certified to
the contractor within the Period of Honouring Certificates”
• The term “Period of Honouring Certificates” give employer himself the
power to decide when does him want to pay. Let said the period of
honouring certificates is 60 days in this case, once the contract is sign
with the contractor consent, hence, the contractor need to take
maximum 81 days to get the payment from the employer.

49. Q4. Fill in the Blank
FIDIC (RED BOOK) PAM 2006
Performance Certificate
Taking-Over Certificate
Defects Notifications Period
Statement at Completion
Final Statement
Final Payment Certificate

50. ANSWER FOR Q4
FIDIC (RED BOOK) PAM 2006
Performance Certificate Certificate of Making Good Defects
Taking-Over Certificate Certificate of Practical Completion
Defects Notifications Period Defects liability Period
Statement at Completion Final Claim
Final Statement Final Account
Final Payment Certificate Final certificate