Choosing the right form of contract is fundamental to the success of any project, particularly if the parties are contracting outside their own jurisdictions. The FIDIC forms were traditionally the contracts of choice for international projects. However, since the IChemE published its International Suite of Contracts almost two years ago, parties need to consider whether FIDIC or IChemE offers the most appropriate contract for their particular project.
We are often asked to advise on the key differences between FIDIC Silver Book (FIDIC) and the International IChemE Red Book (IChemE). The main differences centre on:
- Risk allocation.
- The testing regime.
The main differences are:
- Design. Under FIDIC, the contractor takes total responsibility for design. Under IChemE, the purchaser retains responsibility for the accuracy of the materials it provides.
- Fitness for purpose. Under FIDIC, the works must be fit for the purpose for which they are intended (as defined in the contract). IChemE imposes no express fitness for purpose obligation and whether any such obligation will be implied is dependant on the governing law of the contract.
- Delay. FIDIC allows a contractor wider grounds than IChemE for claiming an extension of time. Also, under FIDIC, the employer bears the cost of a force majeure event, whereas that cost is shared under IChemE. However, FIDIC (unlike IChemE) imposes an express time bar for claiming time or money, after which the contractor forfeits its entitlement to make a claim.
- Ground conditions. Under FIDIC, the contractor takes responsibility for all ground risk, whereas, under IChemE, the purchaser only bears the risk of ground conditions that are not reasonably foreseeable.
- Management. The employer’s representative under FIDIC acts solely in the interests of the employer. This contrasts with the project manager under IChemE, who is required to act impartially between the purchaser and contractor.
Still on the subject of risk, but possibly even more important when choosing between FIDIC and IChemE, is the testing regime offered by the two standard forms.
On its face, IChemE offers a more comprehensive testing regime than FIDIC. This is because FIDIC is designed to be used for any international project, whereas IChemE is drafted specifically with process plants in mind. Contracts for the design and construction of process plants tend to include extensive testing procedures (both pre and post completion) to ensure that the reliability of the plant is fully tested and the project delivers a fully functioning process facility.
IChemE offers a detailed testing regime with separate tests for completion of construction and takeover. In addition, IChemE has comprehensive provisions for testing after completion. In terms of its testing regime, FIDIC requires the project to pass various tests on completion, prior to take over. It also contains an option for tests after completion, which parties can expressly include in the contract. Therefore, where the parties choose FIDIC, they should give particular attention to the testing regime. Depending on the nature of the project in question, the testing regime may need to be amended to ensure that it provides sufficient testing at all stages (pre and post completion) of the works.
FIDIC v IChemE
Both contracts are intended for use on international projects, whether large or small. However, there are significant differences in key provisions. Which contract is the most appropriate will depend on the type of project, its particular circumstances, funding considerations and the specific needs of the parties (and their funders). The most informed choices will be made where parties understand the differences between the two contracts and the reasons for them.