FIDIC summary

Payment.

The contract price, as defined in FIDIC, represents the value of the works and is subject to
adjustments. The clause outlines procedures for advance payments to the contractor, including
requirements for guarantees and certificates. Interim payments and schedules for payments are
also addressed. The document specifies the handling of plants and materials intended for the
works and details the issuance of Interim Payment Certificates (IPCs) by the Engineer, which
should be done within 28 days after receiving a statement and supporting documents.

In case the contractor does not receive payment according to Sub-Clause 14.7 [Payment], they
are entitled to receive financing charges compounded monthly on the amount unpaid during the
period of delay. The procedure for releasing retention money is described, with the first half to
be included in the statement after the issue of the Taking over Certificate and the second half
after the latest expiry date of the Defects Notification Periods. The contractor should submit a
statement at completion with supporting documents within 84 days after the work's completion,
and the Engineer should issue an IPC in accordance with Sub-Clause 14.6 [Issue of IPC].

The Final Statement should be submitted within 56 days after the issue of the Performance
Certificate, and the Engineer shall issue the Final Payment Certificate within 28 days after
receiving the Final Statement or the Partially Agreed Final Statement, provided the discharge
under Sub-Clause 14.12 [Discharge] has been submitted.

Variations

Variations in construction contracts are common and may result from site conditions, design
changes, or adjustments to the scope of work. FIDIC Contracts incorporate a 'Variation and
Adjustments' clause (Clause 13) to handle such changes. Variations, also known as change orders,
can involve additions, omissions, or alterations to the original scope of work.

The Engineer has the right to initiate variations before the Taking-Over Certificate is issued. The
Contractor is bound to execute the variations promptly, except under specific circumstances.
Value Engineering allows the Contractor to propose beneficial changes that the Engineer may
consent to, resulting in a variation.
The Variation Procedure (Sub-Clause 13.3) defines the process for instructing variations, either
through direct instruction (Sub-Clause 13.3.1) or by requesting a proposal from the Contractor
(Sub-Clause 13.3.2). Adjustments for changes in laws (Sub-Clause 13.6) and changes in cost (Sub-
Clause 13.7) are also addressed. The Contract Price can be adjusted based on changes in laws or
costs of labor and materials.

Defect liability period

The concept of defects liability periods and practical completion is beneficial for both the
principal and the contractor in construction projects. Practical completion allows the principal to
occupy and use the works while minor defects or incomplete items may still exist. On the other
hand, the contractor has the opportunity to rectify defects and complete unfinished work,
avoiding potential higher costs of engaging others for the same tasks. The defects liability period
typically lasts for 12 months in FIDIC building contracts, striking a balance between allowing time
for defect identification and addressing the principal's security concerns. Even after the defects
liability period, the contractor may still be liable for defects, as the period only represents the
minimum time for their exposure to such risks. A certificate of practical completion does not
mark the end of the contractor's defect obligations. The process for dealing with defects during
the defects liability period usually involves the superintendent identifying defects, directing the
contractor to rectify them, and potentially extending the period for further rectification. At the
end of the defects liability period, the contractor can make a final claim for outstanding payments
and request the return of its security. A final certificate is then issued by the superintendent,
specifying the final amount to be paid or returned. For defects not reasonably identifiable before
the end of the defects liability period, the final certificate is unlikely to affect the contractor's
obligations. However, for defects that should have been identified during the period, a principal
may find it challenging to bring a claim against the contractor after the issuance of the final
certificate.

Dispute resolution

The 2017 FIDIC Contracts brought notable changes to the dispute resolution mechanism in
comparison to the 1999 edition. They maintained a multi-tiered approach, promoting alternative
dispute resolution tools to resolve issues early on. The Engineer's role was expanded, providing a
42-day period for consultations and attempts to reach an agreement on claims. If no agreement is
reached, the Engineer makes a fair determination. The Engineer's determinations are binding
unless a Notice of Dissatisfaction is issued within 28 days. The second tier is the Dispute
Avoidance/Adjudication Board (DAAB), aiming to settle disputes before arbitration. The DAAB's
decision is binding but not final, and a Notice of Dissatisfaction can be issued. If a party fails to
comply with a DAAB decision, the dispute can be referred directly to arbitration. The third tier is
arbitration, conducted under the ICC Rules with one or three arbitrators. The revised FIDIC
Contracts also addressed ambiguities and expanded the mandatory procedural steps before
arbitration. However, issues regarding enforceability of DAAB decisions in different jurisdictions
remain a challenge for the efficiency of the dispute resolution process.

Liquidated damages

The contract contains three specific sub-clauses, Sub-Clause 2.5, Sub-Clause 3.5, and Sub-Clause
4.2, which outline different aspects of the payment and dispute resolution process. Sub-Clause
2.5 specifies that the Employer must provide notice and details to the Contractor if they believe
they are entitled to any payment under the contract, except for specific cases like payments
related to electricity, water, gas, or other services requested by the Contractor. The Engineer then
follows Sub-Clause 3.5 to consult with both parties and attempt to reach an agreement on the
matter. If an agreement cannot be reached, the Engineer will make a fair determination,
considering all relevant circumstances. Additionally, Sub-Clause 4.2 mandates the Contractor to
obtain an on-demand performance bond in a prescribed form.