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FIDIC Silver Book 2017: A Guide to EPC/Turnkey Contracts

June 28, 2024

Comprehensive visual guide to the FIDIC Silver Book 2017 EPC/Turnkey Contracts. Covers contract philosophy, risk allocation, key clauses (design responsibility, time, delays, payments, guarantees), dispute mechanisms, claims processes, negotiation hotspots, and project manager checklists.

FIDIC Silver Book 2017: A Guide to EPC/Turnkey Contracts EPC/Turnkey • Single-Point Responsibility • Risk Transfer • Fitness for Purpose Contractor's Single-Point Responsibility (Clause 4 & 5) Design & Engineering • Clause 5: Contractor fully responsible for design • Must design Works to meet Employer's Requirements including performance specifications • Professional indemnity insurance required • Design liability extends beyond completion Fitness for Purpose • Sub-Clause 4.1: Higher standard than "reasonable skill and care" • Completed Works must be suitable for intended purpose stated in Employer's Requirements • Absolute obligation regardless of design source Errors in Requirements • Sub-Clause 1.9: Procedure for identified errors • Contractor must notify Employer promptly • Employer may confirm, vary, or maintain the Requirements • Cost and time consequences depend on response The Employer & Employer's Representative (Clause 3) No "Engineer" • Unlike other FIDIC forms, no independent Engineer role • Employer (or their representative) acts for Employer's interests • No impartial administration or certification function Employer's Representative • Limited authority defined in Particular Conditions • Acts on behalf of Employer, not independently • Cannot perform traditional Engineer certification roles Time, Delays & Programme (Clause 8) Programme Requirements (Sub-Clause 8.3) • Critical path analysis showing longest path • Resource allocation and cash flow projections • Monthly progress reports with 'S' curves • Updates required showing actual vs planned • Float time belongs to the project, not parties Extension of Time (EOT) • Limited grounds: Employer causes, Variations, force majeure, and specified exceptional events • Strict notice requirements under Clause 20 • 28-day time bar as condition precedent • No relief for Contractor's design errors Advance Warning (Sub-Clause 8.4) • Mutual obligation for both Parties • Covers known or probable future events • Impact on cost, time, or performance • Facilitates proactive management • Separate from formal claim procedures Testing & Taking-Over (Clause 9 & 11) Tests on Completion (Sub-Clause 9.1) • Contractor's 21-day notice → Employer attendance • Conduct tests → Evaluate results • Tests demonstrate Works ready for intended use • Employer may attend or waive attendance • Failed tests require remedial work and retesting Taking-Over Certificate • Issued when Works pass Tests on Completion • Marks commencement of Defects Notification Period (DNP) - typically 12-24 months • Risk transfers to Employer (except defects) • Triggers release of remaining retention Tests after Completion • Prove performance guarantees of plant/facility • Conducted during initial operation period • Failure consequences: retesting, price reduction, or termination for repeated failures • Critical for performance guarantee validation Variations & Adjustments (Clause 13) Variation by Instruction • Only Employer can instruct Variations • Contractor must respond with detailed proposal • Proposal must include cost and time impacts Value Engineering • Sub-Clause 13.2: Contractor can propose beneficial changes • Employer evaluates proposals for acceptance • Potential for shared savings between parties Condition Precedent (Sub-Clause 20.2) • Strict 28-day time bar for Notice of Claim • Failure to comply results in loss of entitlement • Notice must identify event and basis of claim • Applies to both additional payment and EOT • No exceptions or relief from time bar Fully Detailed Claim • Required within 84 days of becoming aware of the event or circumstance. • Must include all supporting particulars and the contractual / legal basis for claim. • Contemporary records are essential. Employer's Claims • Employer subject to same Clause 20 procedures when seeking payment or EOT for DNP. • Does not apply to deductions for Delay Damages or other schedule-based payments. • Must comply with notice & substantiation. Dispute Avoidance & Adjudication (Clause 21) Dispute Avoidance/Adjudication Board (DAAB) • Standing board appointed at project start • Primary function: proactive dispute avoidance • Regular site visits and progress meetings • Can be sole member or three-member board • Costs shared equally between parties Referral and Decision • Dispute referral → DAAB site visit/hearing • DAAB decision within 84 days • Written reasoned decision required • Extension possible if parties agree • Detailed procedure in Annex - Procedural Rules Enforcing a Decision • DAAB decision immediately binding on both parties • Must comply regardless of dissatisfaction • Notice of Dissatisfaction within 28 days • Can proceed to arbitration after NOD • Interim compliance mandatory pending arbitration Payment Mechanisms (Clause 14) Lump Sum Principle • Contract Price is a fixed lump sum. • Not subject to re-measurement of quantities. • Price only changes via Variations or specific contractual adjustments. Payment Milestones • Interim payments are not based on monthly valuation of work done. • Based on achieving milestones defined in the Schedule of Payments (Contract Data). Advance & Final Payment • Advance Payment for mobilization is common, secured by a guarantee. • Final payment process is triggered after the Performance Certificate is issued. Guarantees, Security & Liability Performance Security (Sub-Clause 4.2) • Secures Contractor's performance obligations. • Typically an on-demand bond for 5-10% of the Accepted Contract Amount. • Must be in place before any payment is made. Liability Caps • Contractor's total liability is usually capped at the Accepted Contract Amount. • Specific sub-caps can apply (e.g., to Delay Damages). • Mutual exclusion of indirect/consequential loss. Key Insurances • Contractor's All Risks (CAR) policy for the Works. • Professional Indemnity (PI) Insurance is crucial to cover the "Fitness for Purpose" design risk. • Third-Party Liability insurance. Key Changes from the 1999 Edition Enhanced Contract Management • More prescriptive and detailed procedures. • Emphasis on Quality Management systems. • Robust programme requirements (Sub-Clause 8.3). • Strengthened Advance Warning (Sub-Clause 8.4). Symmetrical Claims Process • Clause 20 applies equally to both the Employer and the Contractor for all claims. • Strict time bars and procedures for both parties. • Replaces separate claim clauses from 1999 edition. Dispute Avoidance Focus • DAB is now a standing DAAB (Dispute Avoidance/Adjudication Board) from day one. • Proactive role: informal assistance, site visits. • Goal is to resolve issues before they become formal disputes. CONTRACTOR Project Manager's Final Checklist 1. Master the Employer's Requirements • These are the foundation of the entire contract. Ensure they are clear, comprehensive, and unambiguous. As the Contractor, any error you don't flag is your risk. 2. Price All Your Risks • The grounds for relief for unforeseen physical conditions are almost non-existent. Your lump sum price must include contingencies for everything you are deemed to have foreseen. 3. Enforce Notice Discipline Religiously • The 28-day time bar in Clause 20 is absolute. Missing it means losing your entitlement. Train your team on prompt, compliant notice procedures for claims and warnings. 4. Keep Impeccable Contemporary Records • In a dispute, records are your only weapon. Site diaries, photos, correspondence, and progress reports are essential to substantiate claims or defend against them. Negotiation Hotspots Key Clauses Often Amended • Sub‑Clause 1.1.14 (“Unforeseeable”) — definition widened by Contractors to gain relief rights. • Sub‑Clause 4.1 (Fitness for Purpose) — limits on absolute obligation frequently negotiated. • Clause 13 (Variations) — negotiating pricing method; clarify EOT trigger conditions. • Clause 20 — Contractors seek to soften 28‑day time bar. PM Tender/Negotiation Focus • Flag risk‑shifting amendments early. • Get legal input on clauses with knock‑on supplier implications. • Ensure suppliers back‑to‑back obligations match amended clauses. Project Manager Risk Traps • Assume no relief for inadequate site investigations — price and schedule for it. • Missing Advance Warning notices can destroy entitlement — train site teams. • Employer delays must be documented daily to preserve claims. • Supplier subcontracts must mirror Silver Book risk allocations to avoid exposure gaps. Claims Process Flow (Clause 20) Event Occurs 28-Day Notice of Claim (Loss of rights if missed) 84-Day Detailed Claim with all particulars Employer's Rep/Determination → Potential DAAB Referral Deadlines under Clause 20 are strict — train team to comply automatically. Core Philosophy & Application Contract Profile • EPC/Turnkey contract with single-point responsibility. • Employer issues fully defined Employer's Requirements. • Contractor delivers ready-to-use, fully operational facility. • Quality Management Plan required (Sub‑Clause 4.9). Key Objectives • Lump Sum Price + fixed Time for Completion. • Most design/construction risks transferred to Contractor. • Minimises Employer's day-to-day management role. • Limited relief: Exceptional Events (Clause 18). Suitability • Best where scope/performance fully defined. • Avoid if high unforeseeable site risk unless priced in. • Poor fit for projects with frequent Employer design change. • Scope freeze key to success. Risk Allocation Model Principle of Risk Transfer • Contractor expected to price foreseeable risks (Sub‑Clause 4.12). • Includes site conditions, climate, logistics. • Onerous allocation—Contractor bears most cost/time risk. Employer's Retained Risks • War/terrorism, nuclear events, change in law. • Employer-caused delay/interference. • Archaeology/environment—only if contractually allocated. Contractor's Due Diligence • Review all Site Data (Sub‑Clause 4.10). • Price deemed sufficient (Sub‑Clause 4.11) — include contingencies. • Carry out independent investigations pre‑bid. Delay Damages & Performance Damages (Sub‑Clauses 8.7 & 9.4) Delay Damages • Fixed daily rate for late completion. • Capped — often at percentage of Contract Price. • Deducted from payments — enforceable without proof of loss. Performance Damages • Payable if guaranteed performance shortfalls occur. • May be offset against final payments. • Usually in addition to delays if both apply. Exceptional Events (Clause 18) Definition • Beyond party’s control, unforeseeable, unavoidable. • Examples: natural disasters, war, govt actions. Relief • EOT and sometimes cost (if specific criteria met). • Must give notice within 14 days to preserve rights. Termination & Suspension (Clauses 15 & 16) By Employer • For Contractor default (serious delay, insolvency, etc.). • 14-day notice to remedy before termination. By Contractor • For Employer non-payment, prolonged suspension, etc. • Entitled to terminate and claim payment for work done. Artboard 3 © 2025 Protrain — Licensed under CC BY 4.0. Complied by Ashutosh Maurya.

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