Use of FIDIC Red Book on

International Road Projects

Ellis Baker

Partner & Global Head, Construction & Engineering

29 Sept 2015

Email: ebaker@whitecase.com

Phone: +44 (0) 207 532 1601

Key features of the Red Book

Key features of the Red Book

Used for building or engineering works

designed by the Employer

– Employer, through the Engineer, is responsible

for design

Contractor is responsible for construction

– The works may include some elements of

Contractor-designed civil, mechanical, electrical

and/or construction works

Contract includes drawings, specifications,

bill of quantities

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Key features of the Red Book

4

Employer

Architect Engineer

Contractor

Construction Contract

(Red Book)

Sub-

Contractor Sub-

Contractor

Sub-

Contractor

Sub-Contracts

Consultancy

Agreements

Key features of the Red Book

Payment based on measurements:

– Bill of quantities, certification by the Engineer, and final re-

measurement

– If want fixed price contract can use alternate wording

– Changes it from a measurement contract to a lump sum contract

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Key features of the Red Book

‘Engineer’, typically a consulting engineer, is appointed

by the Employer to carry out the design (usually) and

supervise the construction of the project

– Engineer acts for the Employer

– Certifies payment

– Makes determinations (e.g. EOTs)

– Keeps Employer informed

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Key features of the Red Book

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Commonly used in conjunction

with:

– White Book (Client/Consultant Model

Services Agreement)

– Conditions of Subcontract for

Construction for Building and

Engineering Works

Usage of the Red Book

Usage of the Red Book

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Procurement model widely used around the world,

including CEE

Used on many road projects funded by international

development banks, most recently:

• Bulgaria – Multiple contracts as part of Plodiv Roads Rehab Project

(2016)

• Bosnia and Herzegovina – Multiple contracts as part of the Pan

European Corridor Motorway (Pocitelj to Zvironvici) (2015)

• Macedonia – Motorway between Kumanovo – Miladinovci (2015)

• Georgia – Georgia East West Highway (2015)

Usage of the Red Book

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Examples continued:

– Romania – Multiple

contracts as part of Galati

Urban Infrastructure Rehab

Project (2015)

– Sri Lanka – Extension of

Southern Expressway

(2014)

– Vietnam – Noi Bai–Lao Cai Expressway (8 sections,

5 contractors, >$1 billion)

Common Issues on Road Projects

Common Issues on Road Projects

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Design changes

– Under the Red Book, Employer provides the design

– Gives Employer control over the design

BUT

– Employer responsible for risk of any

errors

– Contractor entitled to Variation if any

design changes required

• E.g. due to changes in road alignment

Common Issues on Road Projects

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Geotechnical conditions

– Under the Red Book, Employer takes risk of “Unforeseen” physical

conditions

– High risk for road projects

• e.g. rock encountered (difficult

to excavate)

• e.g. Poor soil suitability

(additional piles required)

Common Issues on Road Projects

Site access

– Under the Red Book, Employer required to provide access to Site

– Contractor entitled to relief if Site access delayed

– On road projects, access often delayed due to:

• Delays in land acquisitions

• Requirement to phase access to keep the road operational during construction

• Disruptions caused by third parties (e.g. disgruntled landowners)

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Common Issues on Road Projects

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Social and environmental issues

– Red Book requires Contractor to take steps

to protect environment and limit nuisance to

people

– Is a particular risk for road projects

• High potential to damage environment

• Construction generates a lot of noise and dust

• Contracts often amended to include additional

environment and community engagement

requirements

Amendments to the Red Book

Amendments to the Red Book

In practice, the Red Book is frequently amended

– Countries often have standard form contracts based on an

amended version of the Red Book

– RSD is preparing draft contract for highway projects in the

Czech Republic

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RSD amendments to the Red Book

Contractor to provide a Warranty Bond

– Will be provided in lieu of (not in addition to) Retention Money

– Is a common amendment to the Red Book

– International contractors will be please to see this - improves

their cash flow

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RSD amendments to the Red Book

Employer may claim contractual penalties in parallel with

general damages

– Contractual penalties no longer Employer’s sole remedy for delay

(other than termination)

– Will be of concern to international contractors

• They will expect that if an amount is stipulated in the Contract – the Employer

cannot claim that amount AND general damages

• May cause them to qualify their tenders

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RSD amendments to the Red Book

Dispute resolution limited to Czech civil courts

– Common practice to adopt a tiered dispute resolution process

• E.g. some combination of amicable settlement/mediation/DAB/arbitration/court

– International contractors will prefer arbitration to Czech courts

– Many different arbitration options

• ICC Arbitration

• London Court International Arbitration

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Conclusions

Conclusions

Many good reasons for using the Red Book

– Balanced risk allocation – but still protects the Employer’s interests

– Well accepted – will be familiar to international contractors

– Well supported – is recommended/required by many development banks

– Is effective – clear and complete conditions; time limits; dispute resolution

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Conclusions

Particular Conditions allow flexibility to amend the Red Book

for specific projects

Used by RSD on draft contract for highways

– Some of RSD amendments are commonly made and will be familiar to

international contractors (e.g. warranty bond)

– Other RSD amendments may be resisted by international contractors

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