01 - Introduction To FIDIC - Peter Boswell

Introduction to FIDIC Contracts Training Seminar on Management of Construction Claims
Jakarta, 25-26 July 2011
Management of
Construction Claims
under the FIDIC
Construction Contract MDB
Harmonised Edition
Fédération Internationale
des Ingénieurs-Conseils
Peter Boswell International Federation

Principal Consultant, FIDIC
Consulting Engineers
FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011
Introduction to FIDIC Training Seminar on Management of Construction Claims
Founded in 1913
Global voice Headquarters in Geneva
for the
consulting
engineering
industry
Promote
business
interests

Representing nearly 1 million staff in 87 countries

One Member Association per country
Introduction to FIDIC: Sectors Training Seminar on Management of Construction Claims
Services for a fee WTO GATT Agreements

Technology-based intellectual services OEDC Sectors
for the built & natural environment
Consulting Design On-Site Services Turnkey Development
Construction x x x x
Architecture x x x x
Management Consulting x
Facilties Management x
Information Technology x x x x
Inspection; Training x
Goods Production x x x x

Introduction to FIDIC: Industry Training Seminar on Management of Construction Claims
Consulting engineering $ 630 bio demand/y

Civil engineering, architecture
& engineering services: 80%
Industrial consultancy: 20%
Consulting engineering industry supplies 52%
Industry staff 3 mio
Firms 70,000
Construction Cost $ 4,300 bio

Introduction to FIDIC: Strategy Training Seminar on Management of Construction Claims
Observation: downward pressure on fees
- High infrastructure investment

4.1% above amount needed to maintain GDP
- Industry expecting low revenues
1.1% instead of 1.3%
i.e., a downward pressure on fees.
Industry needs strategies for improved business practice.

Introduction to FIDIC: Strategies Training Seminar on Management of Construction Claims
Industry Business Strategies

Need strategies for:
- Fees
- Adding value
- Capacity
- Risk
Action at five levels:
- Capacity: Development
National
- Procurement: Standard
Industry
- Sustainability: Guidelines Firm
- Selection: QBS Firm
- Contracts:
FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG Standard Project
– FIDIC@FIDIC.ORG – COPYRIGHT 2011
Standard Agreements
Standard agreements for professionals services

- Client - Consultant
- Joint Venture
- Sub-Consultant
- Representative
Standard Contracts
Standard contracts for civil

engineering & construction works
- Minor Works
- Construction
- Plant and Design-Build
- EPC/Turnkey
- Design-Build-Operate
Standardised Procurement
Project Procurement Guide 2011

Business Practice
Environmental Management
Project Sustainability Management
Risk Management
Quality Management
Integrity Management

Introduction to FIDIC: Capacity Development
Training Seminar on Management of Construction Claims
Capacity Development
Training Manuals
- Business Practice
- Procurement
- Contracts
International Training Programme
Accredited Trainer Development Programme
Accredited Training Suppliers
Accredited National Training Programmes

Introduction to FIDIC: Capacity Development
Training Seminar on Management of Construction Claims
International Training Programme

English, French, German, Spanish, Arabic
Courses Workshops Seminars
Business Practice x x x
Procurement x x
Contracts x x x

Standard Contracts

Contract Selection
An project owner or promoter (Employer) chooses a contract
based on:
1. Allocation of risks
2. Method and timing of Contractor’s payment
3. Allocation of management
4. Allocation of tasks, especially design
5. Allocation off budgets
6. Timing

1. Risk Allocation
For risks contemplated by the Contract:
- Allocate risks to a Party.
- Re-allocate risks determined by the applicable law from
one party to another Party.
- Spread risks to third parties.

Risk Allocation Principles

Balance
Managablity
- mainly insurable (‘unavoidable’) risks
- mainly uninsurable (‘avoidable managed’) risks

Risk Allocation Balance

Contractor takes all the risks associated with the business of
contracting.
Employer takes the risks of the unforeseen and unexpected,
i.e., items that are difficult or impossible to price accurately.
Employer only pays the extra costs incurred when an
unforeseeable event actually occurs .......
....... does not pay what the Contractor would have allowed for
in the price to cover the risk of the event taking place.

Mainly insurable (“unavoidable”) risks

Risks of loss, damage or injury occurring during the contract,
including:
- consequences of accidents due to defective design
- defective material and defective workmanship
- Acts of God
- fire
- failure to take adequate precautions

Mainly uninsurable (‘avoidable managed’) risks

Risks leading to financial and/or time loss:
- late possession of Site.
- delay in receipt of necessary information.
- changes in design.
- failures of temporary or permanent works during
construction defects in construction.
- loss or damage to plant or materials during transport.
- delay or disruption due to failure to provide drawings or
access to the site in time.
- changes to specifications or other variations.

2. Contractor’s Payment
Method of valuing the work done.
- Re-measurement (based on unit rates and prices)
Bills of Quantities or Schedule of Rates.
- Lump-sum
Fixed-price with no sharing of risks or limited sharing.
- Reimbursement
Actual costs as basis.
- Target price
Target price + shared proportion of the difference
between the target price and the final contract price.

3. Allocation of Management
Who does the day-to-day progress of the work?
e.g., negotiating amendments to the contract conditions;
instructing changes to, or be involved in, the design or
execution of the Works.
Who does the coordination between contracts of a contracts
package?
Employer wishes to control and monitor construction work to
ensure compatablity with installation of plant?

4. Allocation of Tasks
If a defect is so severe that it cannot be rectified and the
completed facility cannot fulfil its intended function, the cause
may be defective design.
..... one of the most important risk considerations is which Party
shall carry out and be responsible for the design.

5. Allocation of Budgets
Normal for the Employer to have budget allocations for:
- design
- tendering
- manufacturing, construction and installation
- operation/maintenance.
But unforeseen difficulties: price escalation, currency
fluctuations, bad weather, political decisions, changes in
legislation, force majeure.
.... what are the Employer’s financial resources?

6. Timing
If Contractor responsible for detailed design, he will not
commence work before contract award.
If Employer responsible for the detailed design, he will be able
to start before contract award.

FIDIC Rainbow contracts

Although the variety of contracting methods continues to grow,
project delivery has mostly fallen into one of three main types:
- design - bid - build
- design - build
- engineer, procure and construct (EPC) or turnkey.
Other forms of contracting are on the decline.
Same structure
3 of 20 clauses change
85% content the same
FIDIC Rainbow Contracts

Contractor’s risk Some Claims and Variations High
price
Employer’s risk More Claims and Variations Low price

possible
MDB Construction Contract

General: very close to the 1999 Edition:
e.g., layout, clauses, wording, standard forms.
Additional: sub-clauses generally found in Particular Conditions:
e.g., Contractor’s obligations for labour.
Bank-specific: sub-clauses added to meet some specific
requirements of MDBs:
e.g., right to audit Contractor’s accounts.
Improved wording - a few minor improvements:
e.g., Dispute Board provisions.
No Particular Conditions: 200 pages eliminated - corruption.

Construction Contract
Back-to-back with standard and MDB editions.
Paid when paid, not paid if paid.
Main Contractor to coordinate all Subcontractors’ work.
Subcontractor must submit a programme.
Three options for dispute resolution depending on complexity,
value and importance.

FIDIC Contacts Training Seminar on Management of Construction Claims
International Federation of Consulting Engineers

President Gregs Thomopulos, USA
Vice-President Geoff French, UK
Secretariat World Trade Center 2

Geneva Airport
Box 311
CH-1215 Geneva 15
Switzerland
Tel: +41 22 799 49 00
Fax: +41 22 799 49 01
fidic@fidic.org
www.fidic.org
Managing Director Enrico Vink THANK YOU

01 - Introduction To FIDIC - Peter Boswell

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01 - Introduction To FIDIC - Peter Boswell

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Introduction to FIDIC Contracts Training Seminar on Management of Construction Claims

Jakarta, 25-26 July 2011

Peter Boswell International Federation

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

Representing nearly 1 million staff in 87 countries

Services for a fee WTO GATT Agreements

Consulting Design On-Site Services Turnkey Development

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

Consulting engineering $ 630 bio demand/y

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

Observation: downward pressure on fees

- High infrastructure investment

Industry needs strategies for improved business practice.

Industry Business Strategies

Standard agreements for professionals services

Standard contracts for civil

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

International Training Programme

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

Risk Allocation Principles

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

Risk Allocation Balance

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

Mainly insurable (“unavoidable”) risks

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

Mainly uninsurable (‘avoidable managed’) risks

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

FIDIC Rainbow contracts

FIDIC Rainbow Contracts

Employer’s risk More Claims and Variations Low price

MDB Construction Contract

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – FIDIC@FIDIC.ORG – COPYRIGHT 2011

International Federation of Consulting Engineers

Secretariat World Trade Center 2

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