The White Book Guide with other Notes on Documents for Consultancy Agreements
Second Edition 2001
FEDERATION INTERNATIONALE DES INGENIEURS-CONSEILS INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS INTERNATIONALE VEREINIGUNG BERATENDER INGENIEURE FEDERACION INTERNACIONAL DE INGENIEROS CONSULTORES
FIDIC is an international federation of national associations of consulting engineers. FIDIC was founded in 1913 by three national associations of consulting engineers within Europe. The objectives of forming the federation were to promote in common the professional interests of the member associations and to disseminate information of interest to members of its component national associations.
The White Book Guide
Today FIDIC membership numbers more than 60 countries from all parts of the globe and the federation represents most of the private practice consulting engineers in the world.
with other Notes on Documents for Consultancy Agreements
FIDIC arranges seminars, conferences and other events in the furtherance of its goals: maintenance of high ethical and professional standards; exchange of views and information; discussion of problems of mutual concern among member associations and representatives of the international financial institutions; and development of the engineering profession in developing countries.
Second Edition 2001
FIDIC publications include proceedings of various conferences and seminars, information for consulting engineers, project owners and international development agencies, standard pre-qualification forms, contract documents and client/consultant agreements. They are available from the secretariat in Switzerland.
© Copyright FIDIC 2001
All rights reserved No part of this publication may be reproduced or transmitted in any form or by any means without permission of the publisher.
Published by Fédération Internationale des Ingénieurs-Conseils (FIDIC) P.O. Box 86 CH-1000 Lausanne 12 Switzerland Phone +41 21 654 44 11 Fax +41 21 653 54 32 E-mail
[email protected] WWW http://www.fidic.org
FEDERATION INTERNATIONALE DES INGENIEURS-CONSEILS INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS INTERNATIONALE VEREINIGUNG BERATENDER INGENIEURE FEDERACION INTERNACIONAL DE INGENIEROS CONSULTORES
Acknowledgements FIDIC wishes to acknowledge the efforts of those who have contributed to the preparation of the succeeding editions of the White Book and the White Book Guide. The development of the White Book started in early 1986 when Povl Ahm of Ove Arup and Partners was the Chairman of FIDIC's Client/Consultant Relationships Committee, continued under the Chairmanship of Eigil Steen Pedersen of COWl, and completed and published in 1990 under the chairmanship of Mario Asin, Partner of Tippetts-Abbett-McCarthy-Stratton (TAMS). Godfrey L. Ackers, formerly a Consultant to Mott Mc Donald, Ltd. and formerly a Partner of Sir Murdoch MacDonald and Partners, was the principal drafter of the 1st Editions of the White Book and of the Guide. Godfrey Ackers' wife, Wendy, typed many early drafts of these documents. Mario Asin, assisted by Peter Batty, formerly TAMS, and now with Sheladia Associates, provided extensive reviews, comments and reediting of the White Book and of the First Edition of the Guide. Geoffrey Coates, formerly Chairman of Sir Alexander Gibb and Partners, Ltd., was FIDIC's Executive Committee Member in charge of overseeing the preparation of the 1st Editions of the White Book and of the Guide. Mark Griffiths of Griffiths and Armour and Paul Taylor of Berrymans Lace Mawer provided liability insurance and legal advice during preparation of the two documents, and of all subsequent amendments including this 2nd Edition of the Guide. Important comments on draft versions of the White Book were provided by the World Bank and the Asian Development Bank. In 1989, a particularly valuable and extremely thorough commentary on the semi-final draft was provided by a joint committee from the Arab Funds under the coordination of Ismael El-Zabri of the Arab Fund for Economic and Social Development.
The Checklists of services have drawn heavily on the Conditions of Engagement published by The Association of Consulting Engineers (United Kingdom), and on a checklist of environmental services prepared by Howard Schirmer in collaboration with FIDIC's former Environment Committee that was chaired by Iksan van der Putte of BKH Consulting. FIDIC is grateful for permission to make use of these documents.
Contents 1
The revision of the 1st Edition of the Guide to give this 2nd Edition was undertaken by the FIDIC Client/Consultants Relationship Committee under the chairmanship of Peter Batty. The Committee wishes to acknowledge important amendments from Mark Griffiths and Paul Taylor, and from Howard Schirmer of Transnational Associates.
2
Introduction
1
A B C D E
1 2 2 3 4
Background General Approach Application to Types of Assignment Documents to Complete the Agreement Format of this Guide
THE WHITE BOOK General and Particular Conditions
6
A
Definitions and Interpretations
7
Clauses 1 i, ii & iii Clauses 1 iv & v Clauses 1 viii & ix Clause 1 x Other Definitions Clause 2 iii
7 7 8 8 8 9
B
Skill, Care and Diligence As Administrator of Contracts Client’s Property
9 10 10 11
Foreign Currency Equipment and Facilities Client’s Personnel and Services of Others
Personnel Clause 13
a
9
Obligations of the Client Clause 9 v Clause 10 Clause 11 & 12
D
Document Precedence
Obligations of the Consultant Clause 5 i Clause 5 ii Clause 6
C
Projects, Works and Services Client and Consultant Day and Month Currencies of Payment
11 11 11
11 Supply of Personnel
12 © FIDIC 2001
Clause 14 Clause 15 E
Representatives Changes in Personnel
Liability and Insurance Clause Clause Clause Clause
16 17 18.1 18.2
Clause 18.3 Clause 19 Clause 20
13 14 Clause Clause Clause Clause
14 Liability between the Parties 15 Duration of Liability 15 Limit of Compensation 16 Indemnity 16 a) Third Party Claims b) Liability to Client’s Contractors Exceptions 17 Insurance for Liability and Indemnity 17 Insurance of Client’s Property 18
I
J
Commencement, Completion, Alteration and Termination 18 of the Agreement Clause 21 Clause 22
Clause 24 Clause 25
Clause 26 Clause 27.2 i Clause 28
H
General Provisions Clause 36 Clause 37
b
24 24
Definition and Interpretation
31
Clause 1 i, ii & iii Clause 1 v
31 31
B
25 25 © FIDIC 2001
Project, Works and Services The Consultant a) Project Management b) Secondment of a Project Manager c) Technical Assistance d) An Individual as the Consultant e) Consortia, Associates and Joint Ventures Agreed Compensation Other Definitions Document Precedence
Liability and Insurance
37 38 39 39
a) Liability for Breach of Contract and to the Public at Large b) International Funding Agency Requirements
25 Languages and Law Changes in Legislation
30
A
23 Time for Payment Currency of Payment
28 28
31
Clause 2 iii Clause 31 ii Clause 32
Amicable Dispute Resolution Arbitration
THE WHITE BOOK Additional Discussion
Agreement Effective 18 Commencement and Completion 19 a) Time for Commencement b) Time for Completion Further Proposals 20 Delays 20 a) Delay by Client b) Delay by the Consultant Changed Circumstances 21 Due Date for Payment 22 Exceptional Services 22
Payment
27
Possible Additional Subject Matter
Clause 1 ix G
26 27 27 27
Settlement of Disputes Clause 43 Clause 44
3 F
39 40 41 42
a) Protection Provided b) Relevant Legislation Copyright Conflict of Interest Notices Publication
c
© FIDIC 2001
Clause 16
Clause 18 Clause 19
c) Cost of Insurance for Breach of Professional Duty d) Limit of Liability for Breach of Professional Duty e) Third Party Liability Insurance f) Objectives of the White Book’s Liability and Insurance Provisions Liability between the Parties a) Division of Responsibilities between Consultants b) Consequential Damages Limit of Compensation and Indemnity Insurance for Liability and Indemnity a) Continuity of Insurance b) Project Insurance
Clause 48 Clause 49 Clause 50
4
45
D
General Provisions Clause 39
E.
Commencement & Completion a) Time for Commencement b) Time for Completion
55
1 2 3 4 5
55 55 55 55 56
47 6 48 7
8 9 10
49
50 Copyright
50
Possible Additional Subject Matter
51
Clause 45 Clause 46 Clause 47
51 51
Payments to Contractors, etc. Participation of IFA* Performance Guarantee and Payment Security
11 12
52 13 14 15
* Abbreviation: in this Guide, “IFA” means International Funding Agency (or Agencies).
d
© FIDIC 2001
e
53 53 53
Appendix A: Scope of Services
C Commencement, Completion, Alteration and Termination 49 of the Agreement Clause 22
Patents and Inventions Performance Evaluation Severability
General Terms of Reference (TOR) Classification of Requirements Phases Responsibilities a) Task and Advice b) Training Technology and Location a) Location b) Headquarters Back-up Administration a) Programme b) Reporting c) Powers Pre-Investment Studies Feasibility Studies Planning and Design Phases a) Planning b) Design c) Terminology d) Payment and Level of Design e) Development of Design Responsibilities f) Site Investigation Procurement Implementation a) General b) Duties in Respect of Contracts c) The Consultant as Contract Administrator Operation Sub-Consultants Project Cost Estimating
57
58
59 61 61
64 65
68 69 69 © FIDIC 2001
Annex 1 Services of the Consulting Engineer in Relation to Civil/Structural Engineering Projects A B
Typical Normal Services Typical Additional Services
Annex 2 Checklist/Menu of Environmental Services 1 2 3 4 5 6 5 7 8 9 11 11 12
5 6 7
70 75 75
Waste Management Facilities Landfill Services Landfill Engineering Pollution Remediation/Brownfields Redevelopment Environmental Services Fisheries Services Forensic Services Potable Water Wastewater Studies and Design Water Resources Study and Design Industrial Wastewater Construction Services for Environmental Works Operation and Maintenance for Environmental Works
5
Appendix B: Personnel, Equipment, Facilities & Services 83 of Others to be Provided by the Client
6
Appendix C: Remuneration and Payment
84
1 2
84 85
3 4
f
70
Introduction Terms of Payment a) Definitions b) General c) Options Advances and Stage Payments Methods of Payment a) Letter of Credit b) Direct Disbursement by IFA c) Other Systems d) Sub-Consultants e) Typical Clauses
90 90 91
Annex 1 Common Payment Terminology
97
1 2 3 4 5 6 7 8 9 10 11 12 13
g
93 94
95 96 96
Advance Advisory Services Budget Cost Ceiling Cost Contractor Cost Emoluments Expenses Multiplier Qualified Technical Staff Stage or Interim Payment Task Services Tender Dossiers
Annex 3 Lump Sum Fees
100
Annex 2 Staff - Time Based Fees
101
1 2 3 4 5 6 7
86
© FIDIC 2001
Technical Assistance Administration of Contracts Expenses a) In Foreign Currency b) In Local Currency 8 Currency 9 Price Variation a) Rates of Exchange b) Prices 10 Recovery of Import Duties 11 Taxation 12 Contingencies
Named Staff Unnamed Staff Substitutes for Named Staff Salary Reviews Discussion Time Typical Clauses © FIDIC 2001
7
Annex 4 Fees as a Percentage of Cost of Works
107
Terms of Reference and their Preparation
109
A B
108 109
1 Introduction A
8.
Terms of Reference General Principles for Preparing Proposals and Agreements
References
Background The White Book has been prepared in three stages. The objective of the first stage was to edit FIDIC's International General Rules of Agreement (IGRA) 1979 D&S document into simpler language and a more logical order, and to develop it into a format consistent with the FIDIC style traditionally adopted for its other standard forms of conditions of contract. See References (13) to (19) in Chapter VIII.
110
In the second stage, alterations were made in principle to take account of written comments received on IGRA 1979 D&S and to accord with current practice and the intent of drafts of sample documents for consulting services prepared by International Funding Agencies (IFA). The last, more difficult, stage was to refine the provisions for liability, insurance and indemnity. A draft version of the White Book was reviewed by the World Bank, the Asian Development Bank and a joint committee from the Arab Funds. Many comments resulting from these reviews were incorporated into the final document. The purpose of the White Book Guide is twofold, namely: -
to assist those who wish to draft Consultancy Agreements using the White Book as published or as the main reference; and
-
to provide some insights into the rationale for the White Book's provisions and the content of the Guide dealing with completing an Agreement based on the White Book
In 1998, the White Book was updated to the 3rd Edition and this Guide reflects the amendments made.
1
© FIDIC 2001
B
General Approach
Particular Conditions and the Appendices, including questions of the legal admissibility of all terms in local, applicable law and legal systems.
As far as practicable, the construction of the White Book took note of a number of underlying general precepts, namely that: D
Documents to Complete the Agreement
-
it should be even-handed between Client and Consultant;
-
it should be capable of wide application;
-
its language should be simple and therefore more reliably translatable;
-
it should promote cooperation and mutual trust and avoid promoting adversarial attitudes;
- Appendix A
it should recognize the realities of international commerce and take account of the circumstances and difficulties peculiar to consultancy assignments;
Scope of Services - including Checklists of both normal Consulting Engineering Services and specialist Environmental Services
- Appendix B
Personnel, Equipment, Facilities and Services of Others to be Provided by the Client
- Appendix C
Remuneration and Payment
Clause I (vii) of the White Book defines the documents forming the Consultancy Agreement namely: - General Conditions - Particular Conditions
-
C
-
legal jargon or other terms and expressions which are common only to particular geographic regions should be avoided; and
-
it should cause the parties to consider the risks and responsibilities each will assume rather than merely the technical content of the assignment.
It is recommended that Clients' initial invitations be analyzed under the above headings and that proposals be prepared to fit into this format because this will facilitate making agreed amendments without oversight arising from inconsistent treatment of the original.
Application to Types of Assignment The Particular Conditions of the White Book provide in Section A for entering particulars necessary to complete the General Conditions, and in Section B for entering additional clauses of a general and commercial nature appropriate to the particular assignment. This would cover such matters as joint ventures, powers of a manager in a management consultancy, liquidated damages, etc. Chapters II and III in this Guide deal with some of these matters, giving suggestions for wording some of the provisions.
As indicated in its foreword, the General Conditions of the White Book provide general rules common to most consultancy agreements. Therefore, it omits some of the detail included in the documents which it now supersedes, namely IGRA 1979 D&S, IGRA 1979 PI and IGRA 1980 PM. It is one of the objectives of these Notes to indicate what material may be needed to complete the commercial, nontechnical, part of an agreement for particular circumstances and types of assignment.
Although the recital in the Agreement Form refers to the Consultant's proposal having been accepted, it will be noted that the proposal is not included in the printed list of agreement documents. This is
It is recommended that legal counsel be taken at an early stage during preparation of an Agreement, on all terms but especially on the 2
© FIDIC 2001
3
© FIDIC 2001
because experience indicates that proposals are often amended to such a degree during subsequent negotiations that it is better to prepare the Agreement incorporating terms as finally agreed and following the prescribed format.
Chapter 7 contains a few general comments on Terms of Reference (TOR) and on their preparation. Chapter 8 lists the details of publications referred to in the other chapters of the Guide.
Clause 1 (vii) of the White Book, however, permits inclusion of the proposal by reference in the Particular Conditions. In such cases, if a formal agreement is also required, paragraph 2 of the Agreement Form should be extended to include it, e.g. “d) The Consultants proposal dated .…” The Agreement Form provides for a two-party agreement. If other parties are to be joined in the Agreement, the wording will need to be altered. Two circumstances, at least can give rise to this: a) When the Consultant is a Joint Venture; see Clause I (v) (e) in Chapter 3 of this Guide; b) When the Client is not the ultimate beneficiary, e.g. the Client is the "National Planning Commission" and the beneficiary is the "Roads and Bridges Public Corporation".
E
Format of this Guide Chapter 2 is devoted to the subject matter of the General Conditions of the White Book and to related matters for consideration in completing Section A and compiling Section B of the Particular Conditions. Chapter 3 includes additional discussion on a selected number of those White Book Clauses presented in Chapter 2. Chapters 4, 5 and 6 include comments relevant to compiling Appendices A (Scope of Services, including checklists of both normal and additional Consulting Engineering Services and of specialist Environmental Services), Appendix B (Personnel, Equipment, Facilities and Services of Others) and Appendix C (Remuneration and Payment) of the Agreement, respectively.
4
© FIDIC 2001
5
© FIDIC 2001
THE WHITE BOOK
A
Definitions and Interpretation
2 The General and Particular Conditions Clauses 1 The following are notes arising from aspects of the text of the White Book. Subtitles in this chapter closely conform with the relevant clause numbers in the General Conditions of the White Book. Readers may refer to the actual clauses of the White Book.
Separate definitions are required for Project and Works. The definition of Works is consistent with that of the "Permanent Works" in the Red Book, but not entirely with that of "Works" in the Yellow Book. See References (13) and (14) in Chapter 8. The definition has one application in the General Conditions, namely in Clause 42 with regard to publicity. It lends itself to defining the extent of Services for design and contract administration in Appendix A and for use in Appendix C if fees are to be related in some way to the construction cost of the Project.
The Particular Conditions of the White Book comprise: -
Section A where material necessary to complete the clauses of the General Conditions is to be inserted; and
-
Section B where additional clauses can be added if necessary.
i, ii & iii: Project, Work and Services
The definition of Services does not necessarily link them to the Works, which permits the application of the General Conditions to such aspects of Project requirements as investigation, training, or research not directly connected with the Works.
Accordingly, the completion of Section A is necessary to give effect to any Agreement incorporating the General Conditions. The comments below include reference to this where applicable.
For further details, please refer to Chapter 3 under the same heading.
In some cases texts are suggested and in others there are introductory discussions which may also have a bearing on the Appendices of the Consultancy Agreement. Additional discussion on a select number of White Book clauses is given in Chapter 3.
Clauses 1
iv & v: Client and Consultant
Note that neither the Client nor the Consultant is named in the General Conditions or Section A of the Particular Conditions. They are named in the Agreement Form, or in the absence of a formal Agreement can be named in Section B of the Particular Conditions as follows: “With reference to Clause I (iv) of the General Conditions the Client is …... of ..…”. “With reference to Clause I (v,) of the General Conditions the Consultant is .… of .…” The term "Consulting Engineer" previously used in the superseded IGRA documents, is now replaced by "Consultant". This accords 6
© FIDIC 2001
7
© FIDIC 2001
with the general practice of Clients and permits other professionals to use the document. This wider use should be encouraged, for example, when Consulting Engineers are contributing to proposals by firms of other disciplines.
Clause 2
If the order of precedence, or other rules for resolving conflicts between the provisions are not specified, then, in accordance with Clause 2 (iii), the Particular Conditions rule over the General Conditions, and the documents will govern in reverse chronological order.
Terms such as master and servant, principal and agent are avoided. "Independent professional firm" is the desired description of the Consultant's status for FIDIC members. A firm is expected; where the Consultant is a single person or a joint venture, additional and amending provisions are required in the Particular Conditions. For further details, please refer to Chapter 3 under the heading "The Consultant". Clauses 1
iii: Document Precedence
For further details, please refer to Chapter 3 under the same heading.
B
viii & ix: Day and Month
Obligations of the Consultant Clause 5
i: Skill, Care and Diligence
Although definitions are given for both "day" and "days" only are used in the General Conditions. It is recommended that this practice be followed wherever practicable. However, "month" is defined in anticipation of its use in Appendix C for fees based on staff time.
The Consultant's responsibility is to exercise reasonable skill, care and diligence. Many attempts have been made to clarify this, e.g, by reference to best professional practice, recognition by reputable representative international professional bodies, employment of appropriate advanced technology and sound practices, etc.
The definition of day specifies midnight to midnight to conform with most banking and insurance practice. Where some question arises on how to treat parts of a day, that is for Appendix C (or the Particular Conditions) to specify. The question usually arises in connection with payment terms and can be overcome by defining an hourly rate or by specifying that a part of a day shall be treated as a day.
These attempts all introduce further terms which are subject to further dispute, e.g., What is the best professional practice? What is an appropriate professional body, and what happens if two such disagree? Why should an advanced technology be appropriate (when a primitive one may be better), etc? It should be left to the courts or arbitration to decide according to the applicable law.
Clause 1
However, detailed attention is needed where the TOR include or imply a requirement that the Consultant has a higher duty of a different kind, e.g., what is sometimes called a guarantee of fitness for purpose or of product performance to a guaranteed duty. In this case, Section B of the Particular Conditions needs to include appropriate amendments to this Clause and to the Liability and Insurance Clauses; expert advice is recommended; these Notes do not give it.
x: Currencies of Payment
The definitions of local and foreign currencies are self-explanatory and provisions dealing with them are included under Clause 32 below. Other Definitions Please refer to the appropriate section in Chapter 3 under the same heading. 8
© FIDIC 2001
9
© FIDIC 2001
Clause 5
ii: As Administrator of Contracts
them and for recovering the cost against his fee or some arbitrary allowance. Supply by the Client on demand by the Consultant involving accountability by the Consultant should be avoided. One only has to think of fuel and its potential use and abuse to realize the strength of this recommendation.
This sub-clause provides for the situation where the Consultant is administrator of an implementation contract. The following two points are noted: a) The Consultant, in estimating the extent and cost of his Services, will have to assume what duties he will be expected to exercise and the effect of any restraints on him. Clearly much of the uncertainty can be removed by reference in the Agreement to the duties as expressed in the relevant FIDIC Conditions of Contract: see Chapter 4, Paragraph 12.
C
Clause 9
v: Foreign Currency
See Clause 32 below regarding currency problems.
b) Sub-Clause 5 (ii) (b) requires the Consultant to act fairly when administering implementation contracts - see Clause 3.5 of the Conditions of Contract for Construction, 1st Edition (1999), Reference (15) in Chapter 8.
Clause 10
Equipment and Facilities
This Guide does not attempt to examine in detail the possible scope of Appendix B to the White Book. Attention must be given to the problems of a division between responsibility for provision and accountability for cost. Moreover, provisions for backup options should be considered, especially where the matter is fundamental to satisfactory performance (e.g., accommodation and transport).
However, to harmonize with what is thought to be almost universal practice, there is a restraint in Sub-clause 5 (ii) (c) on the Consultant's power to order important changes without the Client's approval. This may be given more specific detail in Appendix A, and in any case the provisions should be repeated in the terms of any subsequent implementation contract; see Clause 3.1 in the of the Conditions of Contract for Construction, 1st Edition (1999), Reference (15) in Chapter 8.
Clauses 11 & 12
Client’s Personnel and Services of Others
These Clauses do not anticipate what the other services are, or what the personnel are supplied for. There are many categories, e.g. drivers, clerical staff, in-line staff who are neither experts nor counterparts, trainees, even Client departments or local firms.The General Conditions of the White Book cover none of these matters, except that seconded personnel take instructions in connection with the Services only from the Consultant, and that the Consultant shall cooperate with (which is not the same as coordinate) suppliers of other services.
The Red Book is still widely used (at the time of publication of this 2nd Edition). However, the Red Book and the Yellow Book have been replaced by the four FIDIC publications listed as References 15 - 18 in Chapter 8 of this Guide. In the case of Reference 15, which are the current Conditions of Contract most similar to the Red Book, the Consultant's duties requiring fair judgment are described in Clause 3. Clause 6
Obligations of the Client
Client’s Property
With regard to the Consultant's consumables, it is to be preferred that the Client be responsible for supplying and monitoring them. Otherwise, the Consultant should be responsible for obtaining 10
© FIDIC 2001
11
© FIDIC 2001
D
Personnel Clause 13
assessing payment for providing what the Client fails to supply; see also Clause 28 below. Attention may also have to be given to the requisite contingency budgets, because what the Client may have planned to fund in Local Currency may now require Foreign Currency. It is important that the matter be dealt with in writing so that the extent of agreement and disagreement, and of the related services, is clearly set out.
Supply of Personnel
Approval by Client The first paragraph of this Clause deals with personnel supplied by the Consultant, recognizing that inevitably in most cases the Client will wish to approve individuals, notwithstanding that it is the Consultant who is responsible for performing the task, except when he is seconding staff to the Client.
Clause 14
This clause refers to the individuals who are the points of contact for the parties under the Agreement.
It also recognizes the usual requirement for fitness to be certified, but uses the term "physically examined and found fit". If the Client wishes to see the certificate, the provision can be made in the Particular Conditions.
If it is a requirement of the Client that the Consultant should have a local representative with delegated authority to act on behalf of the Consultant in matters pertaining to the Agreement (as distinct from the Services), an appropriate clause must be completed in the Particular Conditions. Such a Clause should expressly allow the representative to refer a delegated duty back to the Consultant.
Finally, the first paragraph confines these requirements for approval and fitness to personnel visiting the country of the Project. These requirements should not be extended to other locations of the Consultant's staff, since compliance in the Consultant's home country would likely represent a breach of employment and/or anti-discriminatory laws.
The Consultant may, himself, think it desirable or necessary to have the facility to delegate, in which case a clause should be provided as follows.
Client Cannot Supply
“The Consultant may from time to time delegate any of the duties and authorities vested in the Consultant to personnel approved by the Client and he may at any time revoke such delegation. Any such delegation or revocation shall be in writing and shall not take effect until a copy of it has been delivered to the Client”.
The second paragraph is important, because it sets out what happens if the Client finds himself unable to supply, as promised, the personnel or services of others. The "services of others" refers back to Clause 12, not to Clause 9 - Assistance, or 10 Equipment and Facilities, instancing another occasion when consistency of phraseology is important. If they are, by agreement, still required, it is the obligation of the Consultant to provide them as an Additional Service, but, obviously, discussions between the Consultant and the Client would be expected to precede the Consultant's mobilization or procurement.
“The Consultant's delegate may at his discretion choose not to exercise any such delegation and can refer to the Consultant for any necessary action” Note that if the individual is delegated with administrative duties in a contract where the Consultant is named administrator (the Engineer in the Red Book), Reference (13) in Chapter 8, that contract will require the relevant delegations to be separately advised to the contractor.
It is, therefore, necessary that Appendix C contain provisions for 12
© FIDIC 2001
Representatives
13
© FIDIC 2001
Clause 15
Changes in Personnel
Clause 16
The cost of replacing personnel at one party's justifiable request is at the cost of the other party if the reason is misconduct or inability to perform. Both items are open to subjective interpretation. It has not been thought helpful to elaborate. If the parties have good relationships they will be able to agree; if they have bad relationships, further definition will not help.
The provisions are even-handed. The word "compensation" is used instead of the more usual string of legal terms, because it is financial compensation that is envisaged, and the conditions governing its assessment are defined in Clause16.3. Sub-clause 16.3 (iii) is intended to prevent a party bearing the whole liability if another or third party is partly responsible but unavailable (e.g., no longer trading).
The provisions of clauses, frequently seen, requiring observance of the law and respect for customs are unnecessary because no one is above the law and disrespect would constitute misconduct.
E
Division of Responsibilities between Consultants Apart from Clause 16.3 (iii) there are no express provisions to cover those circumstances when there may be divided responsibility between different Consultants engaged by the Client for different phases of the Project. It is important that at the time of entering the Agreement both parties address the question so that the Consultant knows what responsibilities he is undertaking and can price for them.
Liability and Insurance The White Book provides for reciprocal liability in contract for breach of contract duty [Clauses 16.1 & 2]. This liability is to be discharged by way of financial compensation for reasonably foreseeable loss or damage [Clause 16.3 (i)], limited in amount [Clause 18.1] and to the proportional responsibility in case of joint liability with others [Clause 16.3 (iii)].
Please refer to the appropriate section in Chapter 3 for further details.
Liability is limited in time [Clause 17]. The Consultant is indemnified by the Client against all claims out of time and which are not covered by insurance [Clause 18.2], but neither limit nor indemnity apply if the Consultant is wilfully or recklessly in default [Clause 18.3].
Clause 17
While there is, superficially, no difficulty in choosing a duration for liability, the applicable law may prescribe it with or without options or modify it for some or all risks. In the absence of a clear indication under the applicable law, it is suggested that 10 years is a figure both reasonable and likely to be accepted in a number of jurisdictions.The principal difficulty is how to put some finality on the risk by specifying when duration begins to elapse. One of the more certain entries could be:
A general discussion covering this topic is provided in the appropriate section of Chapter 3.
© FIDIC 2001
Duration of Liability
For a claim by one party against the other to be valid, formal notice must be given within the period stipulated in the Particular Conditions. The degree of formality is not specified in the White Book as it will depend on the applicable law. In some cases a Clause 41 notice may be sufficient; in others it may need to be given by a process of law.
The Consultant is expected to take out insurance cover, if available at reasonable commercial rates, for breach of contractual duty and breach of duty to the public at large (non-contractual and statutory duty) all as may be required by the Client. This will be at the Client's expense to the extent that it exceeds the normal cover (if any) carried by the Consultant [Clause 19].
14
Liability Between the Parties
15
© FIDIC 2001
“such date as is prescribed by the applicable law but not later than the completion or termination of the Services”.
b) Liability to Client's Contractors It would be as well, when approving the duties of the Engineer under a contract between the Client and a third party such as a construction contractor, to remove any questions of liability of the Consultant to the third party by inserting in the relevant documents a disclaimer to the following effect:
It is recommended that whenever possible a lawyer or broker, specializing in insurance under the applicable law, be consulted. Clause 18.1 Limit of Compensation The text allows for possible pre-agreed compensation over and above the limits set here; delayed payment Clause 31 (ii) provides an example. This aspect needs to be remembered when fixing others, e.g. for delayed performance.
“Neither the Engineer nor any of his staff nor the Engineer's representative nor any of his staff shall be liable in any way to the Contractor for their acts or omissions in the Performance of their duties under the Contract.”
The text allows for possible pre-agreed compensation over and above the limits set here; delayed payment Clause 31 (ii) provides an example. This aspect needs to be remembered when fixing others, e.g. for delayed performance.
Clause 18.3 Exceptions To comply with prevalent current practices, the limits of liability and indemnity do not apply if liability results from deliberate default or reckless misconduct. After considerable debate this phrase was chosen in substitution for such phrases as "gross negligence" or "willful misconduct", because gross negligence is believed to have a special meaning in some jurisdictions but is meaningless in others, and willful misconduct confuses deliberate default with recklessness.
"Agreed Compensation" is used where "liquidated damages" or "interest" would be more familiar expressions to some. This is to facilitate translation and to promote wider application. See, also Clause 25 below. Clause 18.2 Indemnity
The Yellow Book, Reference (14), combined both into "gross misconduct" defining it as "any act or omission in violation of the most elementary rules of diligence which a conscientious contractor in the same position and under the same circumstances would have followed". Whether this was helpful remains to be proved. The applicable law will ultimately decide whether a default is such as to negate the limits of liability and indemnity.
a) Third Party Claims The limit of the cover required to be insured and terms (e.g., in joint names) for third party liability should be set or agreed by the Client. However, the TOR may not state exactly what amount is required to be taken out by the Consultant, and, if urgency prevents inquiry, it would be prudent to name in the proposal the amount for which the Consultant is normally insured. No express Provision is made in Section A of the Particular Conditions.
The Consultant's liability is not limited under the White Book other than in connection with the performance of obligations under the Agreement.
Some IFA* take exception to the inclusion of a specific indemnification as stipulated in Clause 18.2
Clause 19
Clause 19 requires the Client to fund any increase in cover over that normally carried by the Consultant or for the cost of such cover if the Consultant is not already insured for the particular risk.
* In this Guide "IFA" means International Funding Agency (or Agencies)
16
Insurance for Liability and Indemnity
© FIDIC 2001
17
© FIDIC 2001
The Consultant is not entitled to separate or direct reimbursement for the cost of his insurances normally carried.
orders or by the law. In case of doubt, there are two solutions: - to obtain the Client's confirmation whether or not a formal agreement is required;
Generally, the Consultant must obey the applicable law, and unless otherwise specified it will be his duty to acquaint himself with, and comply with, any legal obligations to insure the personnel working under his direction, and vehicles and accommodation, etc. used by him and by those working under his direction.
- to obtain a written undertaking from the Client, before starting the Services, that the Client will perform his obligations, including those of payment pending execution of any formal agreement that may subsequently be required.
For the avoidance of doubt, the Consultant should disclose in his proposal or at the time of Agreement the amounts and renewal dates of his current insurances so that the Client can consider what extra may be required.
Clause 22
a) Time for Commencement
Further details on this topic are provided in the appropriate section of Chapter 3. Clause 20
There are many possible approaches to completing the entry required in the Particular Conditions of which the following are examples:
Insurances of Client’s Property “within "x" days after: - the date when the Agreement is effective”;
It is the purpose of Clause 20 to cover the circumstances when the facilities are provided by the Client for the Consultant's use but remain the Client's possessions.
F
Commencement and Completion
or - receipt by the Consultant of the first payment due under the Agreement”;
Commencement, Completion, Alteration and Termination of the Agreement
or Clause 21
Agreement Effective - confirmation by the Consultant's bankers that an irrevocable letter of credit has been established in accordance with the Agreement”.
It is not recommended that the effectiveness of the Agreement should be subject to approval of an IFA. The Consultant has no control over the pace of any Client/IFA negotiations and is at risk while this continues. It should be the duty of the Client to obtain any necessary third party approval to the draft Agreement before the parties sign.
“The Services will be deemed to have commenced on the date of arrival in (name of country) of the first member of the Consultant's staff which shall be on or before (specified date)”. b) Time for Completion
Clause 21 of the White Book does not cover the problems which may arise if the Consultant receives a letter of acceptance and an instruction to proceed, but is subsequently denied payment because a formal agreement has not been executed as required by standing 18
© FIDIC 2001
Completion will usually be expressed as within so many days after commencement, but it may be necessary to sub-divide the 19
© FIDIC 2001
Services for completion by stages, especially where administration of contracts is involved.
low by comparison with any likely loss or damage due to delayed performance, the Consultant himself should consider carefully whether or not an Agreed Compensation should be stipulated.
Care should be taken in the wording of this entry if there is no intention of making an Agreement where time is a fundamental condition ("of the essence"). The presence of an "Agreed Compensation" clause in Section B of the Particular Conditions for delayed performance will support such a condition, as might some performance or payment condition in Appendix A or C.
For example, if a high limit of compensation to the Client is prescribed under Clause 18.1 and the direct consequences of a delay might lead to claims on or by the Client for loss of valuable production, it might be sensible to limit the damage for delay to a reasonable amount by stipulating an Agreed Compensation and the fact that no other damages will be payable for delay. By the first paragraph of Clause 18.1 this would be an extension to the limit of liability under Clause 18.1. Such a provision could be included in Part II along the following lines:
For further details, please refer to Chapter 3 under the same heading. Clause 24
Further Proposals “Further to Clause 25 in the General Conditions, where in Appendix A the Services or any part of them are to be completed within a specified time, and they are not so completed for reasons which are solely the responsibility of the Consultant, the Client shall be entitled to agreed compensation at the following rates per day of delay in completion which is the responsibility of the Consultant, and no other damages or compensation will be payable for delay.
As projects progress, the Client's perceptions of his needs sometimes change, whether arising from the Consultant's findings, from policy, or from funding limitations. This Clause provides expressly for payment to the Consultant for what can often be substantial extra work involved in preparing proposals for the changed content of his Services. Clause 26 may also give some protection, since the requirement to prepare proposals would stem from a changed circumstance, but it was not designed for this type of circumstance, and it was thought best to have an express provision. Clause 25
Services ............. .............
Rate/Day .............. ..............
Delays
a) Delay by Client
The total of such agreed compensation shall not in any event exceed ....”
This Clause provides for delays which are the responsibility of the Client. If there are any, it provides that the Consultant has a duty to advise the Client. See, also, Clauses 13 and 23 above.
The rates per day should be capable of being supported by calculations made before the date of the Agreement, however imprecise the estimates have to be. Clause 26
Changed Circumstances
b) Delay by the Consultant The concept of Clause 26 comes from Paragraph 88 in the United Nations Guide for Drawing up International Contracts on Consulting Engineering, Publication No. ECE/TRADE/I 45. 1983; Reference (1) in Chapter 8.
Where time is a fundamental term of the Agreement, the Client may require a provision for compensation for delayed performance by the Consultant. Unless the limits of liability are 20
© FIDIC 2001
21
© FIDIC 2001
Both ECE/TRADE/145 and IFA sample forms provide elaborate and specific provisions for serving notices after the Force Majeure occurrence, in default of which the Consultant would be in breach and lose protection provided by the clauses. These are exactly the circumstances when it may be physically impossible to serve such notices. Clause 26 requires prompt "dispatch" of a notice only. Also, the Clause is not only applicable when a circumstance is not the responsibility of the Consultant and such as to prevent him performing his obligations, but also applies if continued performance, although possible for the time being, is irresponsible; for example, when the Consultant as an employer of his staff would be considered negligent in exposing them to possible danger, after his government has advised evacuation. In such circumstances the Consultant would then be liable for damages for staff subsequently injured or would be likely to breach the terms of an insurance policy.
while other expenses are recoverable net. This has two consequences on Appendix C: - if the Agreement is a lump sum Agreement, there should be a priced schedule for staff time; and - any provisions in Appendix C for a mark-up on the net cost of reimbursable expenses to cover administration and financing charges will not be applicable. It is considered that the above arrangements give some measure of fairness when misfortune strikes both parties. G
Payment It is important to distinguish the difference between: - terms of payment;
This Clause also provides the basis for the Consultant to suspend, and ultimately discontinue, his services if the Client declines to adapt measures reasonably considered to be essential to comply with environmental requirements.
- method of payment; and - liability for payment. At the same time it is necessary to consider security for payment.
Another aspect of the Clause is that, unlike many Force Majeure clauses, it recognizes the often available possibility of continuing performance for a part of, or all, the Services, albeit more slowly. as an alternative to suspension.
Terms and Method of Payment The terms and method of payment are a matter for Appendix C; see Clause 30 and Chapter 6.
Clause 27.2 i: Due Date for Payment Liability
The phrase "due date for payment" should be read in the context of Clause 31 (i) and (ii) and the period stated in Part II. Clause 28
If the inclusion of any provision, such as a possible IFA type clause (as shown under Clause 46 in Chapter 3), is likely to raise doubts about liability for payment, the following clause can be inserted in the Particular Conditions:
Exceptional Services
Exceptional Services, consequent on changed circumstances as defined by Clause 26, are recoverable so far as staff time is concerned at the commercial rates applicable to the Agreement,
22
© FIDIC 2001
“Notwithstanding any agreed method of payment the Client shall be, and shall remain, responsible for making payments to the 23
© FIDIC 2001
Consultant in accordance with his entitlement under the Agreement and shall be liable for any default in such payment. Such liability shall be in addition to any liability under Clause 16 (of the White Book).”
H
Clause 36
Languages and Law
The law to which the Agreement will be subject should be given full consideration. It will generally be the law of the country where the Project will be implemented, or the country of the Client.
Clause 31 ii: Time for Payment It is suggested that in most cases Local Currency payments should be made within 42 days, but Foreign Currency payments may need longer, say, 56 days, especially when the method of payment involves applications by the Client through another department of Government to an IFA.
This is important since the law will generally overrule any conflicting provisions of the Agreement. In particular, any substantive issues in dispute which, according to the Agreement are to be referred to arbitration, will be decided upon in conformity with the law to which the Agreement is subject
The percentage of Compensation for overdue payment can be entered as a numeral or by reference to some institutional published rate; the White Book provides that Compensation will be compounded monthly, unless express provision is made otherwise. Clause 32
General Provisions
In light of the above, it is essential that the Consultant should make himself aware of the relevant law. Time spent on this may be more important than the same amount of time devoted to fine tuning the Agreement itself. If the law of the country concerned is not clearly defined, consideration should be given to nominating the law of a third country.
Currency of Payment
It should be noted, however, that the arbitration proceedings themselves, in matters such as submission of evidence, rules of cross-examination, etc., are more likely to be governed by the law of the country in which the arbitration proceedings are conducted.
Clause 32 anticipates that all rates and sums of money will be first expressed in one currency, namely the currency of the Agreement, which will usually be that of the Client's country, but in certain circumstances may be that of the funding agency or of the Consultant's country. Provision is then made for insertion in Section A of the Particular Conditions of the rate(s) of exchange applicable to the amount(s) to be paid in other currencies. See discussion in Chapter 6, paragraphs 8 and 9.
Clause 37
Changes in Legislation
a) Protection Provided
The White Book provision stipulates that, unless otherwise stated, there should be no restraints on currency movements and requires that details of any such restraints be included in Appendix C.
This Clause provides for the impact (up and down) of changes in legislation outside the Consultant's own country; this protects local as well as foreign consultants when local consultants take the lead and import (i.e., subcontract) services which they themselves cannot supply.
Sub-clause 32 (ii) attempts to deal with currency problems which may arise, but for which Clause 37 is inapplicable when the applicable law fails to recognize them.
b) Relevant Legislation Clients should be encouraged to make prospective consultants 24
© FIDIC 2001
25
© FIDIC 2001
aware, at the invitation stage, of relevant legislation, particularly with regard to taxation, insurance, employment, exchange controls, imports and exports.
Clause 40
Conflict of Interest
Earlier version of the White Book included as Clause 40 a simple "Conflict of Interest" provision. In answer to calls to eliminate corrupt practices from the award and conduct of public works contracting, the 1998 version has a new Clause 40 therefore supports the imposition of sanctions in case the Consultant is found to have:
However, unless there is a warranty from the Client or indemnity such as a provision that Clause 37 applies to the information supplied by the Client, prospective consultants should perform whatever investigations they feel are necessary to satisfy themselves concerning relevant legislation.
- resorted to corrupt practice to secure its assignment, or Clause 39
Copyright - misrepresented facts.
In principle, FIDIC's position is that the Consultant should retain the power to re-use the expertise and non-confidential products of his Services for the benefit of economic pricing and application of skill to future users of his services. There may be occasion when the Client has a legitimate interest in retaining control of some special product, which would generally be of a unique nature, such as some artistic or architectural feature or treatment, where the emphasis will be more on denying the right to copy than on the right to re-use.
Clause 41
In the latter circumstances there should be little difficulty in modifying Clause 39 to cover some identifiable exclusion from the general provision.
Clause 42
An illustration of the illogicality of the position that copyright should belong to the Client is that strict application of such provisions would mean that a Consulting Engineer, having performed Services in one assignment financed by an IFA, would be unable in a subsequent assignment to use any of that library of type designs, standard design details and model specifications, which it had developed over years of practice and had used in the former assignment.
The new Clause 40, therefore supports the imposition of sanctions to prevent or discourage corruption.
The Consultant's records of delivery of notices and other material requiring the Client's attention should be systematically recorded, preferably after delivery by hand against the written receipt of the Client's authorized registry.
I
Settlement of Disputes Earlier versions of the White Book provided for any dispute between the Parties to be resolved, in the first place, by discussion between the Parties and, failing resolution, by binding arbitration. The 1998 version, Reference (23) in Chapter 8,provides for the intervention of a neutral mediator, if direct discussion between the Parties fails to resolve the dispute, before any matter is referred to
For further details see Chapter 3 of this Guide. © FIDIC 2001
Publication
Clause 42 requires an express condition in the Particular Conditions if their provisions need to be varied in respect of any particular matters arising from the performance of the Services.
The copyright provisions of Clause 39 may not always be acceptable to Client or IFA. Any amendment should go into the Particular Conditions.
26
Notices
27
© FIDIC 2001
arbitration. This reflects the general success achieved in curtailing the cost of dispute resolution when mediation is used. Clause 43
“the Rules of Arbitration of the International Chamber of Commerce", Reference (2) in Chapter 8.”
Amicable Dispute Resolution
It is possible to qualify this matter further, e.g., by stipulating the number of arbitrators, or to substitute some other administration. E.g., the London Court of International Arbitration, Reference (3) in Chapter 8.
This Clause specifies the requirement for the Parties to make a good faith attempt to resolve any disputes between themselves. It further stipulates that, failing direct resolution, the dispute will be referred to a neutral mediator.
For ad hoc arbitrations:
The Clause further specifies a time schedule for mediation to avoid excessive delay resulting from the requirement for mediation, but allows that the schedule may be modified if both parties agree.
- “the UNCITRAL Arbitration Rules", Reference (4) in Chapter 8.
Sub-Clauses 43.6 and 43.8 provide for the situation where mediation fails to resolve the dispute, while Sub-Clause 43.7 stipulates that the Parties will each bear their own costs involved in mediation, unless the mediator finds that one Party has initiated the mediation frivolously or vexatiously, when that Party will be assessed the costs by the mediator.
- The appointing authority shall be ....”
It may be advisable to stipulate in the Particular Conditions who will pay the mediator.
- The number of arbitrators shall be ....”
In this case it is desirable to complete four other requirements, namely:
This can be the International Chamber of Commerce, Reference (5) in Chapter 8, or the Chief Justice of the Client's country., or the President of some professional institution (including FIDIC), etc.
Normally one or three. Clause 44
Arbitration - The place of arbitration shall be ....”
a) Waiver of Appeal at Law Care is needed in choosing this to ensure enforceability of the award. Regard should be given to whether the countries of the parties are signatories to any of the bilateral or multilateral conventions on enforcement of arbitral awards.
Note that whatever system and rules are adopted the parties intend the arbitration to result in finality without recourse to law so far as the applicable law permits. This accords with the practice of the International Chamber of Commerce's Rules of Arbitration [Reference (2) in Chapter 8].
- The language to be use in the arbitral proceedings shall be ....” This can cause difficulties depending on the likely nature of oral and written evidence, but normally the ruling language of the Agreement is the first choice.
b) Selection of Rules for Arbitration Two options are given below: For administered arbitrations: 28
Doubtless there are other positions. © FIDIC 2001
29
© FIDIC 2001
J
Possible Additional Subject Matter
THE WHITE BOOK
3 Additional Discussion Section E of Chapter 3 provides a discussion of the additional contractual clauses that may need to be incorporated in an Agreement for Professional Services.
A
Definitions and Interpretation Clause 1
i, ii & iii: Project, Works and Services
Special provisions will be required in the Particular Conditions or (i) & (iii) Appendix A of the White Book if any of the Services in respect of the Works are: - limited to a part only of the Works; - to include design responsibility for temporary works. Note that "comprise" and "include" have different meanings, although draftsmen often use the former when the latter is more appropriate. Under a lump sum agreement, however, it would be wise to use " comprise", thus carefully defining the limits for application of the Services; "include" on the other hand is an adequate abbreviation for the phrase "include but are not limited to" “The Works as described in Section A of the Particular Conditions comprise/include the following: ....” Clause 1
v: The Consultant
It is important to distinguish clearly between what the Consultant is, i.e. between what constitutes him and what he is to do. - He may be an individual, a firm (partnership or company), a consortium or joint venture. - He may have to study, design, administer contracts, manage, or operate, even perhaps arrange finance Each of the latter performance requirements is matter for the Scope of Services and, generally, does not warrant changes in the 30
© FIDIC 2001
31
© FIDIC 2001
General Conditions or additions in the Particular Conditions unless those Services extend beyond the advisory function to the function of incurring liability for final cost or duration of the Works themselves, for example: to the direct employment of labour or contractors or the direct purchase of materials etc. or to having discretion for the placing of orders and executing of contracts as agent of the Client.
but it is not necessary. In any event, it would seem good practice not to use the term "Project Manager" for the head of the Consultants' team. A better title would be "Services Manager" or "Services Director".
b) Secondment of a Project Manager a) Project Management If the Consultant is to supply an individual to act under the Client's direction and overall management as Project Manager, the terms of that secondment will need to be defined; in particular it will be necessary to specify the relationship between the Consultant and the Project Manager concerning supply, servicing, supervision and replacement, and also concerning supplying technical advice and Services.
The title Project Manager encompasses a wide range of applications. At one extreme he (whether an organization or an individual) is completely responsible for delivering a constructed project in response to the Client's wishes. At the other extreme he merely acts as a conventional consultant advising the Client and performing administrative duties. In the latter case, no changes or additions are required in the White Book. It is beyond the scope of these Notes to consider the former case, but it is not on the face of it difficult to specify terms covering any well defined departures, e.g., for making a site investigation or for the purchase of required materials or equipment, other than by procuring contractors for the Client, while still retaining liability only for skill, care and diligence in the performance of his Services. This is the touchstone.
It may be desirable to include in Appendix A or in Section B of the Particular Conditions certain general provisions governing the Project Manager, and suggestions for this are given below: “The Project Manager seconded by the Consultant to the Client as part of the Services shall take instructions concerning the Project only from the Client.” “The Project Manager shall for the purposes of the Project:
If liability is to extend beyond this, e.g. to liability for fitness, performance, cost or timely delivery of a product (the Works), then that is a different matter altogether for which the White Book and other common forms of Consultancy Agreements are not suitable.
1. arrange for the provision of expert and professional services as may be required but in so far as such services are part of the Services in the Agreement shall obtain them from the Consultant;
Thus, whether the Consultant is called the Project Manager, or whether one of his Services is to supply an individual to be called the Project Manager, perhaps heading the Client's in-house team, nothing further needs to be said in the Particular Conditions about the Consultant, provided that the Consultant's responsibility remains that of exercising skill, care and diligence. One could, perhaps, say:
2. have authority to enter into contracts on behalf of the Client but only after having the Client's written approval for each such contract; 3. be subject to the provisions of the following clauses in respect of his services as if he were the Consultant in respect of them: (e.g., White Book Clauses
“In the General Conditions delete the word "Consultant" wherever it appears and substitute the words "Project Manager"” 32
© FIDIC 2001
33
© FIDIC 2001
- 5.
Duty of Care and Exercise of Authority
- supply of personnel to assist the Client in the preparation or administration of a Project in an advisory capacity; and
- 40. Conflict of Interest - supply of personnel to assist the Client in training. - 42. Publication); For further comment see Paragraphs 52 to 55 in the United Nations Guide, Reference (1) in Chapter 8.
4. not be required to make payments on behalf of the Client to contractors; 5. be indemnified by the Client against all claims against him for loss or damage arising from a breach of his duty in the performance of his services and from any instruction error or omission by the Client, or employees or contractors of the Client.”
d) An Individual as the Consultant The important point here is to ensure that the Agreement is what is sometimes known as a "personal" contract, that is to say one for personal services where only the person concerned is intended to perform them.
See Footnote 1. The White Book is not drawn up with this in view. However, IGRA (D&S) 1979 included certain relevant provisions which, in an edited form, are partly given below for inclusion in the Particular Conditions. Other provisions, notably relating to insurance and indemnity, may need to be altered.
c) Technical Assistance Technical assistance should be distinguished from: - seconding personnel for executive duties, e.g., as Project Manager; and
“With reference to Clause 1 (v) in the General Conditions, the Consultant is not a firm but an individual, and with reference to Clause 26 in the General Conditions, if his own circumstances are altered such that he himself is disabled from performing the Services, the Agreement shall terminate without prejudice to the accrued rights of either party against the other. In that case the Client shall pay the Consulting Engineer or his successors and assigns, upon surrender of any available documents necessary for the continuation of the Services, such outstanding remuneration as corresponds to the state of the Services at disablement.”
- the supply of Services to the Client as an independent task. Where the Project is itself a training project, and the Consultant's task is to train, the Services may or may not include technical assistance. It is recommended that Technical Assistance be used in two senses:
The wording suggested above does not expressly provide for the reimbursement of direct costs from contracts already entered into in respect of the Agreement. If the White Book is used, it is necessary to set out in Appendix C the terms of reimbursement for such contracting, if any, in the event that they become accrued rights in this context.
1 In as much as he takes directions only from the Client there is little need to specify his services (as opposed to those of the Consultant) unless the Consultant's remuneration for them is not on a time charge basis. However, a description of them is desirable so that the Consultant can appoint a suitably qualified person where not already named in the Agreement. Such a description should go in Appendix A. See also paragraph 12 in Chapter 4.
34
© FIDIC 2001
35
© FIDIC 2001
e) Consortia, Associates and Joint Ventures
as the lead firm, to act on their behalf in all matters in connection with or arising out of the Agreement."”
There is some variety in the use of these words. It is suggested that, at least for the purposes of the Particular Conditions, they should be distinguished as follows:
In this case all Members must sign the Agreement.
- An association or consortium is an ad hoc arrangement between two parties (an association) or more (a consortium), each to contribute his part to the Services and to be liable to the Client only for his part. The association or consortium would have some agreement on the definition of their several activities and administrative arrangements for their coordination.
The Client will usually want an express undertaking for joint and several liability and, especially at the proposal or prequalification stage, may wish to see a power of attorney and the joint venture agreement. Many Consultants are of the opinion that the nontechnical arrangements between the Members should be confidential but that the Client has a justifiable interest in how the Services will be allocated. The allocation can best be set out in Appendix A, subject to a proviso that:
- A joint venture is a formal arrangement between two or more parties, jointly at risk, to provide the Services, not always expressly formed for a particular Project.
“reallocation is at the discretion of the joint venture should it prove necessary for the performance of the Services in accordance with the Agreement.”
The former class is unlikely to be acceptable in most projects of the sort for which the White Book is primarily designed. Joint Ventures, however, are increasingly common, and clauses would then be required in the Particular Conditions.
The joint and several liability is most convincingly expressed by a term in the Particular Conditions (Joint Venture agreements between Members can be changed by agreement!)
The following text may assist:
“The Members of the joint venture undertake together and individually (jointly and severally) the obligations of the joint venture under the Agreement”,
“With reference to Clause I (v) of the General Conditions the Consultant is not a firm but a joint venture of the following Member firms:
again with all Members signing the Agreement".
A an independent firm of Consulting Engineers B (etc., as appropriate) C (etc., as appropriate) “
One word of caution: Clients sometimes require that all payments to the joint venture are made through the lead firm (for subsequent distribution in accordance with the joint venture agreement). This can cause dire problems if the lead firm is a firm in a country with restraints on holding and exporting foreign exchange; see also paragraph 4 (d) in Chapter 6 and FIDIC's Guide to the Joint Venture and Sub-Consultancy Agreements, Reference (22) in Chapter 8.
Some administrative arrangements ought to be covered. These will depend partly on whether the joint venture is itself a registered legal entity or whether it is merely the sum of its parts. In the former case nothing else needs to be done to the White Book. In the latter case the Client will require some line of management to be set up in the Agreement. This might take the form:
Clause 1
It will be noted that there is no definition of cost or expense in the General Conditions.
“The Members authorize (name of one Member Firm), to be known 36
© FIDIC 2001
ix: Agreed Compensation
37
© FIDIC 2001
"Cost" is used in the White Book:
Particular Conditions can define sub-consultant, and Appendix A should list those sub-consultants who are approved when making the Agreement and the Services to be performed by them.
a) in Clauses 7, 10, 11 and 12 in the context of free of cost to the Consultant, where definition is unimportant;
Clause 2 b) in Clauses 15, 18 (1), 19 and 20 in a sense where reimbursement by one party to another may be involved.
It is important to avoid the likelihood of conflict which arises when the TOR issued by the Client are incorporated in the Agreement as well as the agreed Scope of Services, generally an expansion of the TOR. The whole should be rewritten as one mutually consistent document (Appendix A).
"Expense" is used in Clauses 19, 20, 28 and 35. See Annex I to this Guide for possible definitions. Other Definitions
Even if a prescribed order of precedence of documents is included in the Particular Conditions, one difficulty which remains is that the last amendment to one of the documents may well be in conflict with an item in the same document. Similarly, a late amendment to one document, which will be the intent of the parties, may well be in conflict with a specified precedent document.
Definitions of other terms abound in documents and sample documents prepared by others, e.g., a) "The Bank", naming some funding agency. This is not necessary as, unless they are the Client, they are not a party to, or administrator of, the Consultancy Agreement. However, if the Client is under some restraint from an "IFA" in the execution of his obligations under the Agreement, that restraint should be noted in the Particular Conditions, and provisions as necessary made in Appendix C for any financial effect, e.g. of delayed approvals, or suspension of payments; see Paragraph 4 in Chapter 6.
If no order of precedence is given and the documents are to govern by reverse chronological order, it may be difficult to establish their chronological order unless the method of drawing up the final agreement is to date each amendment, modification or clarification made a part of the Agreement.
B b) Effective Date and Starting Date. The General Conditions defines these in Clause 21 and, by reference to the Particular Conditions, in Clause 22, respectively; see Clauses 21 and 22 in Chapter 2.
- Faulty studies and designs detected prior to implementation, which require re-performance of the Consultant's services. - Faulty designs only detected during implementation leading to delays and additional costs including those of possible dismantling and reconstruction of parts of the Works.
d) Sub-contractor in the sense of a sub-consultant can cause confusion. The General Conditions avoids the term "subcontractor": see Clause 38 in Chapter 2. If appropriate, the © FIDIC 2001
Liability and Insurance The most important risks involved in project development can be summarized as follows:
c) Personnel, Special Definitions of Personnel (e.g., by categories for payment or for training) should be kept to the appropriate Appendix. The General Conditions, Clauses 13 to 15, cover the general requirements.
38
iii: Document Precedence
- Faulty designs only detected after implementation which result in uneconomic or unserviceable projects, or in potential or 39
© FIDIC 2001
actual major failures affecting the integrity of the Works and the lives and property of third parties.
- Clients may require a range of additional covers including advance profit covers, see Insurance of Large Civil Engineering Projects, Reference (11) in Chapter 8.
- Careless actions of the Consultant's or contractor's employees, which result in injury, death or property damage to the employees of the Client, the Consultant or the contractor, or to third parties.
The White Book respects the position that Clients are entitled to protect themselves against the aforementioned project risks to the extent possible, but also realizes that there are practical limitations imposed by law and the insurance market, which must be accepted.
- Careless construction operations or the actions of third parties causing damage to the Works during construction.
Accordingly, the White Book's provisions regarding responsibility, liability and insurance are as follows:
- Improper construction resulting in potential or actual premature failure of part or all of the Works.
- The Consultant should be fully responsible for performing its work with due skill, care and diligence, and Clauses 3, 4, and 5 of the White Book reflect this requirement.
Clients, knowledgeable of the aforementioned project risks, will normally try to protect themselves to the extent possible, typically as follows: - Clients will require Consultants to specifically guarantee to reperform any services necessary due to faulty performance at no additional cost.
- The liability of the Consultant in case of failure to discharge its responsibilities has to be defined in terms of duration and amount of compensation and this is reflected in Clauses 16.1, 16.3, 17 and 18.1.
- Clients will require Consultants to carry Professional Liability Insurance to protect against delays to and defects in the Works or damage or injury to third parties caused by failure of the Works due to Consultants' negligence.
- Since the Consultant's liabilities are to be stated in the Agreement, the Client, in law, will effectively indemnify the Consultant against claims in excess of the stated liability amounts as reflected in Clause 18.2.
- Clients will require Consultants and contractors to carry third party, workers compensation, automobile, etc., insurance to guard against damages resulting from the actions of Consultants' or contractors' employees.
- Because most independent Consultants have small realizable assets, when compared with the order of loss or damage which can arise from failure to exercise due skill, care and diligence or from the actions of its employees, the Client's interests can only be satisfactorily secured by appropriate insurance. Clause 19 of the White Book dealing with Third Party and Professional Liability Insurance reflects this situation.
- Clients will require contractors to provide insurance of the Works or builders risk insurance to protect against damage to the Works during construction. - Clients will require contractors to provide, if obtain-able, performance bonds to guarantee the proper completion of the Works and to provide some protection against premature failures due to improper construction. 40
© FIDIC 2001
a) Liability for Breach of Contract and to the Public at Large The provisions of Clauses 16 to 19 in the General Conditions distinguish liability from breach of contractual duty between the 41
© FIDIC 2001
parties from liability for breach of non-contractual duty (i.e. to the public at large which in some jurisdictions can also include the parties).
c) Cost of Insurance for Breach of Professional Duty The cost of insurance for breach of professional duty, howsoever defined, is no longer just another item in a firm's overheads. It is an increasingly large and significant proportion such that competitive edge can easily be lost by taking greater cover than competitors, which may not be in the best interests of Clients.
In each case, liability for breach of the duty by the Consultant is a matter to be covered by insurance, but the clauses do not expressly refer to what is commonly known as professional indemnity insurance.
However, because many firms have global insurance, (i.e., insurance which is carried as a matter of course and is part of the Consultant's overhead), and because each assignment involves different risks the White Book does not provide for a fixed insurance cover to be provided; rather, it compromises by permitting the Client at his cost to require the global cover to be increased, if possible, to that required by him.
This, according to choice and the insurance market, can cover professional duty both to Client and third party, leaving third party liability insurance to cover the gaps, or it can give a narrower professional cover, with a possible need for a correspondingly greater cover in the third party or public liability insurance. The contractual duty of the Consultant is the classical one, discussed in Chapter 2, Clause 5, of reasonable skill, care and diligence. The other duty, at large, will be governed by the applicable law.
When selection is by way of price competition it may be important for the cost of increased cover to be included in the price comparison. In these circumstances competing Consultants should encourage the Client to name in the TOR the minimum insurance cover required.
b) International Funding Agency Requirements
42
Some IFA favour unlimited liability backed up by insurance, but stipulate that if the Consultant's liability to the Client is to be limited then the Client's liability should be similarly limited. This even-handedness is reflected in the White Book, which also recognizes that unlimited uninsured liability of the Consultant is of little value to the Client. Moreover, it can mislead Clients into thinking that the Consultant will "pick up the whole tab" for a catastrophe, while really allowing them only the doubtful satisfaction of being able to ruin the only other party with an incentive to mitigate the damage.
d) Limit of Liability for Breach of Professional Duty
Another requirement of some IFA may be that the Consultant's own assets must be at risk. FIDIC thinks that they are sufficiently at risk by the "excess" (deductibles) which Consultants must bear under most insurance policies currently available together with the direct costs which would inevitably arise either in re-performing or otherwise.
On the other hand, having regard to the equal limitation of the Clients' liability, it would be a mistake to think that under the terms of the White Book a Consultant should keep the limit as low as possible. There are many occasions when the Client's duty, if wrongly performed, could involve serious consequences for the Consultant. Examples would include the supply of information on
© FIDIC 2001
It is recommended that the limit for breach of duty to the Client should not be restricted to re-performing satisfactorily the Services negligently performed. This is unlikely to be acceptable in internationally aided work. The minimum limit likely to be acceptable is the remuneration for the whole of the Services, including fees and expenses. It should, clearly, not be more than the professional indemnity insurance cover available on the market.
43
© FIDIC 2001
which the Consultant is expected to rely, such as out-of-date aerial photographs, erroneous hydrometric data, or the findings of the soils laboratory specified by the Client.
joint names of the Consultant and the Client (especially where, as owner/ occupier of the site of the Project, the Client may be strictly liable to third parties, whether or not the Consultant could be sued directly by the third parties); and
e) Third Party Liability Insurance
- if the Project and the Services are so hazardous as to be uninsurable, it is totally unreasonable for the Consultant to bear the risk. If the Consultant is uninsurable, he obviously cannot be relied on to bear the risk, and the Client should not employ him.
While the Consultant's liability to the Client is limited in contract to breach of duty of skill, care and diligence, and is covered by professional indemnity insurance, that similar duty in law to the public at large (which may include the Client) can be covered by the same policy. However, it may in some cases be more economical or appropriate to include this duty of professional care to third parties in the third party or public liability insurance, which may also include strict liability, e.g. for personal injury or breach of patent, whether or not there was a breach of the duty of professional care.
f) Objectives of the White Book's Liability and Insurance Provisions One objective of the document is met, namely to prompt the parties to decide consciously, at the time of making the Agreement, what risks there are and how to cover them. This is surely preferable to waiting on the event and then finding that some standard prescription is inappropriate.
The White Book provides for this possibility by limiting liability to the Client to breach of professional duty and providing for other liability to be limited to the insured amount, the limit and terms being set by the Client and insured to the extent available on the market. This is reasonable; it is the Client's Project, and he is likely to be more familiar with the risks which ought to be considered in the light of local statutory and civil requirements.
For example, one only has to consider the difference in risks (and cost of insurance cover) between a pre-feasibility study for the siting of a rural water treatment plant and the design of a large chemical process plant with toxic by products in a metropolitan area. One other important objective is to provide some certainty so that underwriters can know for insurance purposes when their risk ends so that the cost of premiums included in the price or payable by the Client can be controlled. See Clause 17 in Chapter 2.
It is thus open to the Consultant in consultation with the Client to include for breach of duty of professional care to third parties in the professional indemnity insurance or in the public liability insurance: see Clause 19 below and in Chapter 2.
Clause 16 No express statement is made in the White Book as to liabilities other than in contract, since this is a matter for the applicable law. However, subject to the applicable law, the White Book does limit liabilities to third parties by way of an indemnity for claims made out of time or outside the insurance cover arranged at the request of the Client, because:
a) Division of Responsibilities between Consultants Clarity is needed in the Scope of Services as to where responsibility starts and ends, when, in the implementation phase, either the Consultant's design work is inherited by another Consultant or he inherits another's designs. In the absence of appropriate provisions, e.g., either a continuing design duty or a duty to cheek or adopt designs as the case may be, a clause is
- after the Project is completed, the Client could be unprotected unless there was adequate insurance cover, preferably in the 44
© FIDIC 2001
Liability Between the Parties
45
© FIDIC 2001
needed to avoid the problems of divided responsibility.
Implementing Consultant inherits designs:
FIDIC's policy is that the same Consultant should be engaged for both the design and the implementation phases, and this accords with the Guidelines: Selection and Employment of Consultants by World Bank Borrowers (1997), Reference (12) in Chapter 8.
“Where the Services do not include the preparation of the designs delivered into the control of the Consultant for the implementation of the Works or part of the Works the Consultant shall only be liable under Clause 16.1 (of the White Book) for those designs if the Services expressly require him to accept that liability.”
There will be assignments where a complete design is required in the certain knowledge that another party will administer its implementation. However, it is often impractical to prepare, or uneconomic to require, complete designs at the pre-contract stage. In such circumstances the following draft clauses are offered for consideration:
or as the case may require: “Where the Consultant has not prepared the designs for the Works or part of the Works he shall only be liable for a breach of his duly under Clause 5 (i) (of the White Book) if the Services expressly require him to accept responsibility for them.”
Designer does not control implementation Clearly, in the situation where the designer will not control implementation it is important to specify in the Agreement the purpose of the designs, and the extent to which they will be prepared. See paragraph 10 (d) in Chapter 4.
“When the Services do not include the control of the designs for the implementation of the Works throughout the implementation period, the Consultant shall only be liable under Clause 16.1 (of the White Book) in respect of his designs of the relevant Works if they do not satisfy the purpose for which they are to be prepared and are not completed as may be reasonably practicable for that purpose.”
b) Consequential Damages Liability between the parties, Clause 16.3 (iii) of the White Book, extends to consequential damages, as required by some sample bid documents, but is limited both by reasonable foreseeability and by time.
or as the case may require: “Where the Consultant has prepared the designs for the Works or a part of the Works he shall only be liable for breach of his duty under Clause 5 (i) (of the White Book) if he has a duty under the Agreement or another agreement with the Client to examine and make recommendations in respect of
In some jurisdictions, consequential damages, sometimes referred to as indirect damages, are not recoverable at law, and insertion of a correction in Section B of the Particular Conditions should be considered in such cases.
- the designs Clause 18
Limit of Compensation and Indemnity
- all amendments and additions to them Clause 18.2 of the White Book - all changes in their purpose - recognizes that in some jurisdictions the Consultant may not legally be indemnified against claims arising in connection with its services;
throughout the period which results in the completion of the relevant Works.” 46
© FIDIC 2001
47
© FIDIC 2001
- requires the Client, where such indemnification is legal, to indemnify the Consultant against the effect of claims by the Client or third parties which are not covered by insurance and which are not made within a specified period; and
terms of the required insurances. If the insurance to be continued after completion of the Services involves a policy or an increase in cover for which the Client pays under Clause 19, it would be desirable to ensure that the Client pays the premium in advance, so that if payment is not forthcoming, the relevant insurance lapses and the Consultant's liability in respect of the cover concerned ceases in accordance with Clause 18.2 (i).
- states that the indemnification is not valid in case of claims arising from deliberate default or reckless misconduct. Clause 18.2 has been developed after much drafting, comments, consideration and redrafting to reflect exactly what, in practice, is the current situation in the insurance market and thus to enable Clients to protect themselves by understanding and managing their risks realistically. Clause 19
b) Project Insurance If the Client takes out "whole Project insurance" himself, because the insurer could make a subrogated claim for reimbursement, it will be necessary to reconsider White Book Clauses 16 to 19, but the Consultant may still need to insure to the extent that the whole Project insurance does not indemnify him. FIDIC has a number of publications on liability and insurance, but in particular see 2nd Edition of Insurance of Large Civil Engineering Projects, Reference (11) in Chapter 8.
Insurance for Liability and Indemnity
a) Continuity of Insurance One point of difficulty is how to satisfy the Client that the insurances will remain in force until the time limit for liability, and it is a difficulty common to all policies which are not "paid up", as is frequently the case.
C
It remains to be seen whether the insurance market will move in the direction of issuing "paid up" policies or whether whole Project insurance by the Client/promoter will become more popular. For the moment there does not seem much that can be done. A clause expressing intention may be included in the Particular Conditions on the lines:
Clause 22
Delays in adjudication and award, over which the Consultant has little or no control, often result in risk of missing the planned "window" in annual cycles (finance, seasonal rains, crop calendar, etc.) for an optimum start, with the Consultant under pressure to begin work before formalities are concluded. It is not the province of this Guide to comment on the risks involved.
but the first sentence presupposes an otherwise allowable cessation of the requirement to insure (which is not the case in the White Book), and is probably not helpful, except as a reminder that the White Book provisions do not of themselves expressly cover the point. This needs to be considered when sorting out the © FIDIC 2001
Commencement and Completion
a) Time for Commencement
“The Consultant shall make all reasonable endeavors to maintain in force the insurances required under the Agreement throughout his period of liability. Whenever requested by the Client, the Consultant shall submit evidence of the relevant insurance.”
48
Commencement, Completion, Alteration and Termination of the Agreement
b) Time for Completion There are, of course, difficulties in fixing a time for completion of the Services when they include administering implementation contracts. If fixed time limits have to be stated for the implementation phase, 49
© FIDIC 2001
c) The Client indemnifies and shall be deemed to indemnify the Consultant against all claims for loss or damage arising out of the use of such documents for any purpose other than that intended by the Consultant.”
Clause 25 provides for delay. It is important to remember that Services in the implementation phase often continue until after both agreement of the final account and decisions on disputed matters. In doing so they can continue beyond the time limit for disbursement from the relevant loan or credit account.
The corollary to this is that each document should clearly specify on its face the purpose for which it is intended, e.g., for illustrations, for obtaining tenders only, for construction of the (specified) Works only, for cost estimates only. Such specification is advisable anyhow in this increasingly litigious climate.
While the Client is still liable, he may be unable to pay. The application of Clauses 27 (2) and 32 (ii) can prevent damage going too far, especially if there is an advance payment equivalent to two or three months estimated costs.
One possibility is to include an item in Appendix C stating the charge for transfer of copyright. This could be considerable for a design suitable for repetitive use.
When fixing times for completion it is important to stipulate when time starts to run. E D
Clause 39
Following are suggested clauses which may be useful to include in Section B of the Particular Conditions of the Consultancy Agreement.
Copyright
Clause 39 refers only to copyright, not to ownership. Unless otherwise specified, ownership is to be determined by the terms on which documents pass, e.g., on loan or as a term of the Agreement specified in Appendix A.
Clause 45
The Consultant shall not be required, on behalf of the Client:
“Clause 39 in the General Conditions (of the White Book) is deleted. The Client shall have the copyright in all documents prepared by the Consultant in performing the Services provided that:
- to accept any tender in respect of the Works; and - to make any payment to any Contractor or employee of the client.
a) The Consultant can retain copies of all such documents.
Clause 46
b) The Consultant can use the contents of all such documents for his professional purposes. © FIDIC 2001
Payments to Contractors, etc.
If the Agreement does not expressly require the Consultant to make payments on behalf of the Client to his contractors or employees it should expressly forbid it either, in terms similar to those given above under Clause 1 (v), paragraph (b) 4 of this Chapter, or possibly expanded as follows:
Against the run of traditional custom and law for intellectual property, it is becoming increasingly common for Clients and their IFA advisers to require that copyright in the products of the Services passes to the Client. In this case, a clause on the following lines can be considered:
50
Possible Additional Subject Matter
General Provisions
Participation of IFA
In contracts and agreements which are to be financed by an IFA, it is often a requirement that a clause be included to that effect. Its 51
© FIDIC 2001
wording should be prefaced by "The Client warrants that ..." because the Consultant at the proposal/agreement stage is not always in a position to know, and does not wish to prejudice his right to payment, if, for example, the IFA suspends the Loan or Credit Agreement.
guarantee. In this connection, the United Nations Guide, Reference (1) in Chapter VIII, at Paragraph 108 indicates that agreements may "exceptionally provide that the consultant be required to execute a performance bond", while Paragraph 113 provides that the parties may agree that the Client should provide a bank guarantee. It is suggested that this is not an unreasonable quid pro quo.
The full clause could read as follows:
For guarantees and bonds see the ICC publication 325, Reference (7) in Chapter 8. References to guarantees for advance payments should be in Appendix C.
“The Client warrants that ... (name of Borrower, which may not be the same as the Client) ... has received a loan from (name of IFA) in various currencies equivalent to ( ) towards the cost of the Project, and intends to apply a proportion of the proceeds of this loan to eligible payments under the Agreement. Payments by the .... (name of IFA) .... will be made only at the request of .... (name of Borrower)... and upon approval by .... (name of IFA) .... and will be subject in all respects to the terms and conditions of the Loan Agreement. No party other than .... (name of Borrower) .... shall derive any rights from the Loan Agreement or have any claim to loan proceeds".
Clause 48
The White Book makes no specific mention of either patents or inventions as they are seldom applicable to consultancy agreements. The remedy for breach of patent by the Consultant under the White Book is in Clauses 16, 17 and 18 for want of reasonable skill, care and diligence. Benefits from patents by way of royalties, etc, may not be available to the Consultant by Clause 40. If in the course of the Project it is expected that the Consultant will devise patentable inventions, which he will wish to exploit in future Work, a clause must be inserted in the Particular Conditions:
If the Client's management of the Agreement is restricted by agreements with third parties (e.g. IFA) or rules of a superior department of government, the restraints should be detailed in the Particular Conditions. Clause 47
Performance Guarantee and Payment Security “The Consultant can patent any inventions made by him in the performance of the Services and sell or keep or derive benefit from it. and the Client shall have no rights in it”
The Consultant may be required to provide, or consider it appropriate to offer, a consideration in ex change for guaranteed payment; see paragraph 4 (a) in Chapter VI. This may involve reimbursing the Client for the cost of the guarantee.
or otherwise as the case may be.
See Footnote 2.
Clause 49
Alternatively (or additionally), it may involve a performance bond or
the extra costs of an unqualified commitment procedure, which are usually of the order of 1/2 % of the amount which was committed and which is still outstanding at that time. © FIDIC 2001
Performance Evaluation
Particularly where costs of the Services are met from an IFA loan, there may be instituted some form of detailed evaluation of the Consultant's performance. Consultants would normally wish to be party to such evaluation, and a clause may well be considered necessary to enable the Consultant to rebut or act on criticisms. Such a clause might possibly be of the following form:
2 e. g., the Client's costs in establishing a confirmed Letter of Credit or, in case of IFA loans,
52
Patents and Inventions
53
© FIDIC 2001
“If the Client undertakes alone or in consultation with .... (name of IFA) .... any evaluation of the Consultant's performance the Consultant shall be informed of each such evaluation and be permitted to comment on it before it is finalized. Such evaluation shall be confidential to the Client and (name of IFA).”
APPENDIX A
4 Scope of Services Presented below are some general points which may be useful in completing Appendix A, but they are not intended to be comprehensive or exhaustive.
The last words in parenthesis cannot have contractual effect on the IFA, but there is no harm in putting them there. A further sentence might be added to the Clause: 1
“Such evaluation shall be in accordance with the provisions of "Guidelines for the Evaluation of Consultants' Performance" as published by FIDIC”:
Having regard to Clause 4 in Part I, it is essential that Appendix A expressly describes Normal Services, and very desirable that the more common and any foreseeable Additional Services are separately described.
see Reference (10) in Chapter 8. Clause 50
General
Severability
It is important to bear in mind that Appendix A embodies the Scope of Services to be performed. It provides an opportunity to limit or define that scope when circumstances make it desirable, e.g. when performance is heavily dependent on a fixed timetable for availability of key staff, or when, for one reason or another, the Consultant is prepared to take on an assignment at less than his usual rates.
It may be considered desirable to add a Clause on the following lines: “If any part of any provision in the Agreement is found by a competent authority to be void or unenforceable, such part shall be deemed to be deleted from the Agreement and the remainder of such provision and the remaining provisions of the Agreement shall continue in full force.”
2
Terms of Reference (TOR) A useful paper is that given by Michael Lewis on "Preparing the Consultant's Terms of Reference" to the FIDIC Nairobi Conference and ADB Seminar in April 1985, Reference (8) in Chapter 8. The TOR, so far as they relate to technical services and associated administrative procedures (approvals, powers, programme, reporting etc.), will form the basis of Appendix A. They will need to be analyzed carefully and classified according to the nature of the expense of time and money which will be incurred so that in Appendix C the cost of every activity will be provided for either expressly or inclusively.
3
Classification of Requirements The classification of the Services will normally fall into a pattern
54
© FIDIC 2001
55
© FIDIC 2001
dictated by phase of the Project, responsibility, technology, location and administration.
b) Training Training may be considered either as a separate class of responsibility or as a sub-division of one of the above two classes according to circumstances. Unless the Project is itself a training project, it is perhaps best to consider it as a separate class of responsibility. This is because the importance of the function tends to be hidden in generalities without a clear recognition of the adverse effects it can have if it is not dealt with separately but is incorporated with other task responsibilities. See Annex C in the paper "Training in Consultancy Contracts" by G.L.E. Spier, Reference (9) in Chapter 8.
Annexes 1 and 2 comprise checklists or schedules of the services that might be provided for typical development projects and environmental projects, respectively. 4
Phases Phases are conventionally divided into: pre-investment, detailed planning, design, procurement, implementation, and operation, to which may be added funding at one or other stage. Although this is a natural classification by chronological function, it also happens that the pricing risks in each class can be different leading to separate consideration of the terms of payment.
6
Technology and Location a) Location
It should be noted that many projects proceed to implementation and operation without following all the above noted phases, and often several phases are combined under a single contract, such as design, procurement, implementation and operation. The White Book is intended to be applicable to Consultancy Assignments regardless of how a Project is planned to be phased 5
Location is often an issue, particularly when the work may be done more efficiently in the Consultant's headquarters but the Client is expecting his staff or local firms to benefit from a transfer of technology. This bears on Paragraph 5 (b) above. In this case the objective may be better met sometimes by sending Client's nominees to the Consultant's headquarters. When it would be cheaper to do the work at headquarters, the additional arrangements for, and cost of, working overseas if requested should be clearly identified.
Responsibility a) Task and advice The two conventional classes of responsibility are task and advisory. The difference is that:
b) Headquarter's Back-up - In a task responsibility, the Consultant is responsible for managing the performance of the Services necessary for completing the pre-set task.
The members of a team of personnel assigned in the field are unlikely to be so fully competent in all aspects of a project that their performance cannot be improved by back-up from the Consultant's headquarters; see paragraph 5 in Chapter 6. Since there is sometimes resistance to paying direct compensation for headquarters back-up staff, the Appendices should clearly specify what headquarters staff will be involved and how their cost will be compensated.
- In an advisory responsibility, the Consultant or his staff take instructions from the Client in connection with some task which he has set himself. Whether or not he takes any resulting advice is the Client's prerogative and responsibility.
56
© FIDIC 2001
57
© FIDIC 2001
7
Administration
c) Powers
a) Programme
There are two principal areas where these need attention in Appendix A:
While Part I at Clause 25 provides for delays which are the Client's responsibilities it is much better to avoid recourse to it as far as possible by making appropriate and realistic provisions in the programme, such as:
- project management: See Clause 1 (v) in Chapters 2 and 3 for secondment of a person to be Project Manager as distinct from the Consultant's Services Manager,
- identifying the points where the Client has the right to intervention;
- administration of contracts for works and supplies.
- allowing sufficient time for that intervention, which may involve consultation with an IFA; and
In both cases it is important to specify the nature of the interface between the Services of that part of his organization which is engaged on Project Management or contract administration and the Consultant's remaining Services. Transferring duties between one or other, as exigencies (or financial advantage) of the circumstances suggest, can lead to considerable irritation and loss of goodwill.
- providing for inception reports, criteria, proposals etc., so that, when they are approved, the Consultant can proceed with confidence to the next planned point for Client intervention. Apart from the obvious advantages in working relationships, this process helps to identify where liability lies for any changes which may subsequently be requested or found necessary.
The scope of services of the Project Manager can, of course, cover any or all of the Services connected with one or more, but usually all the phases referred to in Clause 1 (v) in Chapters 2 and 3.
- Where a programme is likely to be seriously affected by some seasonal event, e.g. rains, religious holiday, parliamentary session, there is much to be gained by stipulating the consequences of any delays.
Where the Consultant is Project Manager, a similar approach to that given in model clause provisions presented under Clause 1 (v) in Chapter 3 can go a fair way to avoiding problems.
- See also Clause 22 in Chapter 2. 8
58
Pre-Investment Studies
b) Reporting
This phase will include:
It is often overlooked how important it is to specify, and make adequate provisions for, reports other than the task reports, e.g., routine progress reports, financial monitoring and budget forecasts etc., so that any additional reports required become Additional Services. These can require an effort disproportionate to the objective of the Services, sometimes taking so much time to prepare that their usefulness when published is overtaken by events.
- identification of resources and the potential use of them;
© FIDIC 2001
- the technical and economic feasibility of the potential development - the sizing and ranking of sub-projects; - the identification of resource shortages and how they may, in general, best be overcome; 59
© FIDIC 2001
- an appreciation of the impact of the project on the local and sustainable global ecologies; and
9
Feasibility Studies This phase is generally required, and carried to a level necessary to attract approval in principle, for the implementation of the Project, to settle provisional budgets and to provide the basis for appraisal by interested IFA.
- the impact of the local environment on the needs of the project for its sustainable welfare. This phase will also identify further work needed for refinement of the first sub-project and any technical matter needing further research and development. It will probably establish baseline data for future monitoring.
Technical and economic feasibility will be quantitatively established and a provisional financial plan prepared. Previous work will be refined, with further investigations as may be necessary, to a level where costs can be estimated with the required degree of accuracy. Unique computer programming, physical and analogue models will be among the several features separately identified for costing and to determine whether they should be done in-house, by sub-consultants or by contract with the Client.
The phase may be sub-divided into reconnaissance and feasibility studies, the reconnaissance study being only or mainly qualitative and resulting in recommendations for further studies or draft terms of reference for a feasibility study within set physical boundaries.
Any options in the selection, size or location of the Project left from the pre-investment phase will be examined and presented so that according to financial cost the Client can decide which to promote. According to the complexity of the Project and the quality of the pre-investment work, the terms of payment could be for a lump sum or on time based charges, or involve a mixture of both.
It would normally be inappropriate for this to be on a lump sum basis. The whole success of subsequent phases depends on the quality of experience and insight of the selected investigators who will need to be allowed considerable latitude for optimum advantage to be obtained from their employment. It is difficult to provide many specific guidelines for the Agreement in respect of this phase, but perhaps the following is worth noting:
10 Planning and Design Phases
Depending on the complexities of the Project, this phase may be subdivided into sequential or parallel components of planning and design. The latter component may overlap with the procurement phase depending on whether funding is certain and whether both activities are in the Scope of Services of the Consultant. Procurement is covered in 3.11 below.
- Many independent parties may be contributing from Government Ministries to independent experts. The Agreement (Appendix A and B as appropriate) will need to identify them, who is to coordinate their activities, the Consultant's position in the scheme and the liaison routes he should follow.
a) Planning - The Consultant should be careful to separate those investigation, research or development activities, being part of his Services, which are to be done in-house (including subletting), which are to be contracted for the Client to pay for, and those which are to be supplied by the Client on demand, or under the supervision or responsibility of the Consultant, e.g., government or departmental soils testing laboratory. 60
© FIDIC 2001
The planning component will be chiefly concerned with organization, programming, adjusting feasibility proposals for contract packaging to suit the financing plan and eligibility requirements of IFA, arranging budget allocations for third parties to perform covenants and statutory duties, arranging any necessary legislation and satisfying statutory planning and similar 61
© FIDIC 2001
requirements. Services cannot sensibly be charged on any other than a time basis.
dossiers is likely to suffer if tender invitation or contract award is delayed or cancelled!
b) Design
d) Payment and Level of Design
The design component is self-explanatory but some general points are worth considering special provisions for:
Unless the work is of an unusual nature there is much to be said for the design phase being paid for on a lump sum basis with stage payments where the stages can be identified. In this case it is doubly important to specify the level to which designs will be taken. For instance:
- the preparation of a note on design criteria before detailed design commences, identifying any options with different levels of risk, for approval of the Client (and through him the IFA); and a careful description.
either
- of the level to which designs will be taken, which is important not only for conduct of the Agreement and control of liability but also for parity of tendering because practices differ from country to country and by type of work.
“The designs prepared for the invitations to tender will not be complete for production purposes, but will be sufficient only to produce estimates of the quantities of work sufficient for tenderers to price and for the comparison of tenders.”
It will generally terminate with the submission of specifications, drawings, technical schedules and Bills of Quantities for incorporation in tender dossiers.
or
c) Terminology
or
It is suggested that the following terminology should be widely adopted:
“Dimensioned general arrangement drawings will be prepared for all the major components of the Works .... (e.g., as identified in Section B of the Particular Conditions at Clause 1 (b) of the White Book).”
- tender dossiers
“Type designs will be prepared for repeated components in the Works but these will not be related to any specific location.”
documents to be issued to prospec tive tenderers
- tender documents
documents to be returned by tenderers
- contract documents
those making the contract, e.g., as defined in Clause 1.1 (b) (i) in the Red Book, Reference (13) in Chapter 8.
The Scope of Services during the implementation phase (and design liability) should be established if there is any chance that someone other than the Consultant is to be in charge of administration of contracts; see Clause 16 in Chapter 2 and Paragraph 12 below.
e) Development of Design Responsibility
The Consultant, whose Agreement stipulates a payment stage at the completion of contract documents when he meant tender 62
© FIDIC 2001
Whatever the level of design or method of payment, the Agreement is the place to stipulate where design responsibility will 63
© FIDIC 2001
devolve on a future contractor, e.g., for proprietary machinery or processes, either as turnkey contracts or as turnkey components of mainly pre-designed contracts. In this case it is also important to specify the extent of the Consultant's duty for devolved designs and subsequent liability, if any, in the event that they prove unsatisfactory.
- the authority of the Consultant in dealing with tenderers' queries and clarifications of tenders received; and - the requirement to follow any special procedures, e.g., and IFA's guidelines for procurement. As a point of policy, Consultants will no doubt propose the most beneficial systems of procurement for the Project's circumstances and only adopt procedural options (e.g., pre-qualification) if there is a positive argument for them. The automatic application of procedures designed or recommended by IFA to cover all circumstances will not necessarily produce the best response, timely awards and economy of administrative costs.
f) Site Investigation Site investigations, especially sub-soil, necessary to establish technical feasibility or design criteria are not always sufficient for those tendering for construction. The Agreement should establish the extent of such investigations in the design phase, perhaps by reference to whether or not the tender dossiers will call for further investigation to reduce the Employer's risk of having a contractor encounter unforeseen conditions during construction
This phase will often be suitable for lump sum payment(s) provided that provision is made for Additional Services after the first report on tenders received at the first tender call for each procurement.
11 Procurement 12 Implementation
In this paragraph procurement is taken to mean the process of inviting tenders, including the establishment of eligibility by pre or post-qualification as the case may be, for works, supply and installation of plant, and supply of goods (materials and equipment). It includes the preparation or completion of tender dossiers, the conduct of proceedings during the period allowed for tendering, the comparison of tenders received, and submission of reports on comparison of tenders with recommendations for clarification, negotiation or award.
a) General Issues to be clarified apart from staffing include the following: - the relationship between the Consultant as Client's adviser and the Consultant with administrative, testing and inspection duties prescribed in procurement contracts; - design responsibility (see Clause 16 in Chapter 2 and Paragraph 10 (d) above);
Points which may need addressing in the Scope of Services include:
64
- the preparation of a note on procurement procedure with all points of principle covered so that after its approval the preparation of documents, advertisements, procedures etc., can be put in hand with confidence;
- division of duties for inspection and testing, especially of plant and goods before shipments, between the Consultant and some (specified) independent inspection service(s) and how the several costs are to be met. Budgets and financing plans sometimes neglect what can be a significant cost;
- the timing and method of provision of estimates of tender prices;
- procedures and authorities with regard to variations or extra works;
© FIDIC 2001
65
© FIDIC 2001
- treatment of duties at the closing stages (see Clause 22 in Chapter 3) when the main administrative offices are disbanded and relevant staff demobilized;
There are two sources of difficulty (at least) in the relationship between Client, Consultant/Engineer, and site staff , which can be largely overcome in Appendix A.
- the preparation of records, as-constructed drawings, operation instructions and the disposal of contractual correspondence, etc.;
- Where under the implementation contract the Engineer has a duty (e.g., to provide further drawings), the Consultant will have to assume such duty under the Consultancy Agreement. The implementation contract will often permit, as in FIDIC, the Engineer to delegate duties to staff, and it is frequently more efficient to do so. For example, the Engineer will delegate to the Resident Engineer the duty of issuing further drawings.
- reporting procedures (frequency and content), and whether progress monitoring is to cover only physical progress and contract financial progress or also to include monitoring Project finances and Loan draw-down. Note that some reporting requirements are excessive, and when they are not made known until after the Project is under way tend to be underestimated by Client and Consultant when negotiating the Agreement (see paragraph 7 above); and
- However, if there are time charge rates for the site staff providing services during construction and a lump sum fee for the Consultant's design work, the Client can feel cheated if he sees site staff doing detailed designs, which he thought was covered by the lump sum fee.
- duties etc. in connection with work done by Client's own organizations ("force account" or "direct labour").
- The corollary is to make further points in Appendix A, perhaps on the following lines, as may be appropriate, in addition to those suggested in Paragraph 10 (d) above:
b) Duties in Respect of Contracts
Either
Serious misunderstanding can arise from the use of the word "supervision" in connection with the Consultant's duties in the administration of contracts, and, therefore, such usage should be avoided. It is notable that, both the Red and Yellow Books, References (13) and (14), as well as the current Construction Contract and Orange Books, References (17) and (19) avoid the use of "watch over and supervise the Works", to be seen in earlier editions, and refer to the "duties specified (or assigned to him) in the Contract". If one needs to describe such duties in a short form, one might use "administer the Contract and inspect the Works".
“Supplementary designs necessary for implemen-tation will be prepared as and when necessary by the Consultant or at his discretion by staff on contract duties”, and/or “The Consultant shall perform the duties of the Engineer specified in the respective contracts. Unless otherwise agreed these shall be the duties of the Engineer as set out in the 1st Editions of the Conditions of Contract for Construction/Plant and Design-Build or in the 4th/3rd Editions of the Conditions of Contract for Works of Civil Engineering Construction/Electrical and Mechanical Works* published by the Fédération Internationale des Ingenieurs-Conseils (FIDIC).”
c) The Consultant as Contract Administrator It is necessary to distinguish clearly between the Consultant as adviser to the Client and the Consultant as the appointed administrator, sometimes known as "the Engineer" (FIDIC), the "supervisor" (EU), etc., of contracts. In this Guide the title "Engineer" is used. 66
© FIDIC 2001
* delete as appropriate 67
© FIDIC 2001
and/or
14 Sub-Consultants
“The Consultant, in performing his duties as Engineer, can at his discretion delegate duties to his representative(s) under the contract(s) where such delegation is permitted by the contract(s).”
Appendix A should specify clearly what Services are to be performed by sub-consultants as sub-contractors of the Consultant, naming the firms or individuals concerned where possible.
If the Client intends to restrain the powers of the Engineer beyond the restrictions stated in the Construction and Plant and Design-Build contracts, such restrictions must be stated in the Particular Conditions of the construction contract. The Consultant will then automatically be so restricted in accordance with Clause 5 (ii) (a) of the White Book, but it would still be a good idea to specify such restraints in either the Particular Conditions or Appendix A of the Consultancy Agreement.
It might be as well to consider including a proviso to the effect that: “If a sub-consultant's services are withdrawn by the subconsultant or terminated by the Consultant it shall be the responsibility of the Consultant to engage a replacement or otherwise arrange for the performance of the Services affected, to the satisfaction of the Client.” 15 Project Cost Estimating
- The second source of difficulty is where the Consultant, acting as Engineer in the administration of contracts, finds himself in the position of having to do or not to do something which he thinks is not in the best interest of the Project or Client. This is a matter for internal discipline and clarity. While the Engineer is governed by the Contract, there is nothing to prevent him as Consultant advising the Client to consider another course of action and negotiating it, or authorizing the Consultant to negotiate it, with the contractor. No provision in Appendix A or the Particular Conditions is needed for this.
There are several methods of cost estimating and of setting criteria for physical and price contingencies. They range from use of global historical experience, through partial design of the significant elements with appropriate contingencies, to complete design and detailed costing. Each of these involves a considerable difference in effort and time, and the Agreement should identify the method to be adopted. It is important not only for the Agreement itself but for parity of tenders at the proposal stage for the TOR to address this element in some depth, distinguishing the different methods to be adopted at each phase.
13 Operation
Agreement provisions for the Consultant as operator will be governed by factors similar to those applying to the Consultant as Project Manager. Points additional to those mentioned under Clause 1 (v) in Chapter 3 may involve employment and dismissal of labour, purchase of and accounting for consumables, meeting production targets, and any related bonus and penalty, adjustments for shortfall in raw materials and fluctuations in demand, etc.; see, for example, the FIDIC paper on the Role of Consultants in Operation, Maintenance and Training, Reference (21) in Chapter 8. 68
© FIDIC 2001
69
© FIDIC 2001
ANNEX 1
A
Services of the Consulting Engineer in Relation to a Civil/Structural Engineering Project
4 Feasibility Analysis a Conduct surveys and investigations as required for the subsequent Group 4 tasks b Develop the chosen alternatives in accordance with the stated standards and criteria to prove technical feasibility and permit costing to the required level of accuracy c Conduct environmental impact analyses d Perform financial analysis of the project's expected costs and revenues e Perform economic analysis of its project's expected costs and benefits f Recommend a single alternative.
Typical Normal Services
1 Inception Stage of Project a Review existing data and determine its adequacy and appropriateness b Hold discussions with Client and obtain consensus on course to be taken c Define the work to be done/data required to be collected to progress the work. d Submit Inception Report e Obtain approval of client f If necessary, and if allowed by agreement, prepare documentation for adjustment of budget for services for Client's Agreement.
5 Detailed Engineering Design a Conduct further surveys and investigations as necessary b Develop design of the selected alternative in accordance with the stated standards and criteria to the required level of detail and according to the agreed implementation approach and packaging (i.e., the designs may be developed to the level required for construction to proceed, or be developed for tendering on the assumption that further drawings will be issued during construction; also, it may be decided to proceed on a design-build basis or the works may split into packages for "fast-track" implementation or for other purposes) c Perform price analysis/cost estimates as construction proceeds. d Perform constructibility review e Perform value engineering review f Prepare Comprehensive Mitigation Plan according to EIA results. g Obtain approval of Client.
2 Project Definition Stage a Define, the expected functions of the project (i.e., pertinance spec, required output, etc.) b Establish the standards and criteria to be used to fulfill required functions. c Define the approach to implementation of the project (i.e., the project delivery system) d Obtain approval of Client. 3 Alternative Proposals
6 Tender Documentation
a Devise alternative solutions that can technically meet the required functions b Develop alternatives to a level that will permit preliminary global costing of each estimate. c Obtain consensus of the Client on the alternatives to be examined in more detail. 70
© FIDIC 2001
a Consult with Client concerning Conditions of Contract and issues such as whether the Works will be let on a lump sum or unit price basis b Finalize tender documentation c Prepare detailed cost estimate d Obtain Client Approval. 71
© FIDIC 2001
7 Tendering and Award
10 Defects Liability Period
a b c d
Advertise and issue tender documents Conduct site visit and pre-bid conference Issue addenda and clarifications Perform analysis of proposals/bids received and make recommendations for award e Assist client in negotiations with selected contractor(s) f Prepare contract documentation.
a b c d e f
Provide periodic or continuous inspection services Arrange for remedial work as required Prepare all necessary close-out documentation Assist with negotiations to settle final account Perform defects inspection and punch-lists Prepare defects free certificate.
8 Construction Supervision a b c d e f g h i j k l m n
Perform additional designs Review additional designs (including shop drawings) Design control On-going constructibility review On-going value engineering review Document Control Schedule Control Cost Control Contract Administration Verify compliance with bond insurance requirements Quality control record Measurement and certifications Assistance to Client concerning Variations and Claims Reporting.
9 Take-Over and Commissioning a Carry out inspections/preparing punch lists and certification on completion of the works b Supervising commissioning and carrying out testing during commissioning c Monitoring contractor's work during commissioning period d Verifying that Client staff are appropriately trained and receive specified certificates during the training period e Prepare certification of handing-over.
72
© FIDIC 2001
73
© FIDIC 2001
74
B
Typical Additional Services
ANNEX 2
1
Cork consequent upon a decision by the Client to seek statutory powers.
1
2
Advise the Client following the taking of any step in or towards the resolution of any dispute or difference or towards any adjudication, arbitration or litigation in connection wit the Project or the Works.
3
Contamination investigations on site.
4
Work in considering alternative designs for the Works submitted by Contractors.
5
Prepare drawings for shop fabrication of structural steelwork, ductwork or metal, timber or plastics frameworks or other specialist supplied components.
6
Prepare detailed drawings and bar bending schedules for reinforced concrete work.
7
Check and/or advise upon any part of the Works not designed by the Consulting Engineer.
8
Negotiate any contract or sub-contract selected other than by competitive tendering.
9
Which services are normal and which are additional will vary from project to project and should defined in the Client's Terms of Reference, or, if not, in the Consultant's proposal and/or eventually in Appendix A of the Agreement.
© FIDIC 2001
Checklist/Menu of Environmental Services
Waste Management Facilities Planning and Analysis Environmental management system design and training Waste stream composition/characterization Collection system evaluations Service rate and market evaluations Waste management planning Waste management alternative evaluations Technology assessments Integrated system planning Waste reduction Recycling Facility siting evaluations is election Facility capital and operating cost estimates Transportation master plans Public/private participation evaluations Public involvement Project feasibility studies Permitting and regulatory compliance assistance Facility Engineering Design plans and specifications Material recovery facilities Transfer stations Incinerators Waste-to-energy facilities Compost facilities Existing facility retrofits/rehabilitation Wastewater treatment Process instrumentation and control systems Equipment procurement Site development and ancillary facilities Project Implementation Full service procurement Request For Proposals (RFP) development Vendor liaison Bidding assistance
75
© FIDIC 2001
Submittal reviews Construction administration and monitoring Performance testing and evaluations Operations monitoring and efficiency evaluations Competitiveness/tipping fee analysis 2
Due diligence Site Investigations Closure/Post-closure Risk Assessments Hydrogeologic studies Corrective Measures Design/Corrective Action Site planning & design Spill Prevention & containment engineering Groundwater & surface water treatment engineering Underground storage tank (UST) management Site redevelopment engineering Site Planning/Economic Sustainability Coastal zone management Site assessment Market analysis Master planning Infrastructure/Redevelopment Site utility design Site facilities design Landscape design Financial consulting ownership transfer assistance Regulatory negotiations Public participation assistance
Landfill Services Planning and Analysis Service rate and market evaluations Landfill planning Alternative evaluations Technology assessments Integrated system planning Optimization of landfill space Landfill siting evaluations/selection Landfill capital and operating cost estimates Public/private participation evaluations Project financing evaluations Public involvement Project feasibility studies Permitting and regulatory compliance Operations assessment and efficiency evaluations 5
3
Mapping Sciences Services Geographic positioning system data acquisition Geospatial database management Multidimensional visualization Raster to vector data conversion Image processing Land type classification Environmental Planning Environmental impact statements Environmental assessments Endangered species Air quality analysis Noise analysis Natural resource impacts Socio-economic issues Cultural resource evaluation Ecosystem plans and management
Design plans and specifications Cell development and master plan Liners and covers Landfill gas collection and energy generation systems Leachgate and storm water management systems Site development and ancillary facilities Closure and post closure plans 4
Pollution Remediation/Brownfields Redevelopment Environmental and Site Audits Toxicity evaluations Resource damage assessment Order of magnitude cost estimation
76
Environmental Sciences
Landfill Engineering
© FIDIC 2001
77
© FIDIC 2001
Habitat Evaluation Procedure (HEP) studies Habitat mapping
Interpretive planning Mitigation plans Environmental Compliance Regulatory review National local law compliance studies Air/noise water quality analysis Compliance schedules Inspections Audits Permitting/Licensing Air emission Air quality modelling Hydropower Special use Discharge Natural Environmental Services Aesethic resource inventories Visual impact analysis View shed analysis Biological assessments Vegetation mapping Wetland delineation and resource evaluation Wetland mitigation Wetland restoration and monitoring Wetlands creation and design Wetlands banking Jurisdictional delineations Protected and endangered species inventories Habitat evaluation Cultural resources assessment Resource agency consultation Interpretive planning Botanical Surveys and Vegetation Mapping Services Natural area surveys Habitat evaluation Wetland delineations and evaluations Endangered species surveys Vegetation mapping Riparian community investigations Wildlife Services Wildlife ecology research Species inventories and surveys Impact assessment Monitoring plans 78
6
Fisheries Services Fish population surveys Entrainment and impingement monitoring Population modelling In stream flow incremental methodology (IFIM) Spawning/Emergence studies Reservoir/Lake habitat mapping Surveys and habitat conservation planning Radio-tagging and mark recapture studies Impact Assessment and mitigation planning Agency consultation Fluvial Geomorphology and Sediment Transport Fluvial geomorphology field investigations Hydrologic investigations Sediment loading and transport evaluations Channel typing and sensitivity ratings Predictive modelling of sediment grain size Bank stability assessments Floodplain/flood control investigations Hydrologic and hydraulic numerical modelling Watershed Management Cumulative watershed effects analyses Ecological unit inventories Impact assessments Environmental monitoring Habitat conservation planning Inventories and surveys Hydrologic analysis
7 Forensic Services Expert Witness Testimony 8
Potable Water Water Distribution Studies and Design Distribution system analysis
© FIDIC 2001
79
© FIDIC 2001
Distribution system System rehabilitation Master planning computer modelling Telemetry systems/SCADA Water storage Pumping stations Transmission mains Geographic Information System (GIS) interface Water Treatment Studies and Design Source protection Pilot testing Capacity evaluation Corrosion control Residuals management Regulatory compliance Water quality analysis Operations and maintenance Wells 9
Operations and maintenance services Odour control Facility optimisation Contract operation Laboratory design Administration/operation/maintenance buildings Telemetry systems/SCADA Leachate treatment 10 Water Resources Studies and Design
Surface Water supply Flood Control studies Dams Water quality evaluation/mode ling Raw water intakes and pumping Feasibility studies Hydrologic and hydraulic studies/modeling Water rights and permits Operational analysis and optimisation Storm water management Hydropower Comprehensive basin planning Groundwater Three-dimensional modelling Well field research, analysis and development Monitoring and management systems Contamination investigation and remedial programs
Wastewater Studies and Design Collection System Pumping stations Sewer systems evaluations Sewer systems rehabilitation Sewer interceptors and sewer mains Lift stations Combined sewer overflow Geographic Information System (GIS) interface Treatment Works Physical chemical treatment Biological treatment Reclamation and reuse Nutrient removal Effluent filtration and disinfection Land disposal Biosolids management Facilities planning Energy use evaluations Outfalls Value engineering Permits Receiving water quality evaluations
80
11 Industrial Wastewater
Plant Studies and Design Pilot plant studies Economic analyses Wastewater pre-treatment Waste treatment Process systems Livestock waste handling and treatment Water reduction Waste minimization Water reconditions for non-potable reuse Management Services Evaluation reports © FIDIC 2001
81
© FIDIC 2001
APPENDIX B
Engineering evaluation Facilities planning Energy conservation and management Value engineering Water quality analysis Financial evaluation and rate analysis Operation and maintenance assessments Regulatory compliance
5 Personnel, Equipment, Facilities and Services of Others to be provided by the Client To complete Appendix B it will be necessary to list the counterpart and other personnel, equipment, facilities and services which the Consultant is counting on the Client to provide.
12 Construction Services for Environmental Works
There is not much which can be given by way of Guide to completing Appendix B, except to note that thoroughness, clarity and completeness will help to prevent problems during the course of the Consultant's work.
Construction management Bidding assistance Construction period inspection Engineer of record services
While it is not too difficult for a Consultant to specify fairly precisely the facilities, vehicles, etc. that he requires, it is obviously more difficult to provide a standard to ensure that the personnel provided by the Client will be capable of carrying out their required assignments.
13 Operations and Maintenance for Environmental Works
Planning Procurement Refurbishment and upgrades installation Financial accounting Billing Equipment maintenance Monitoring Laboratory services Training Quality control User interface
82
© FIDIC 2001
83
© FIDIC 2001
APPENDIX C
2. Terms of Payment
6 Remuneration and Payment 1
a) Definitions Annex 1 to this Chapter includes suggested definitions of some of the terms used in this Chapter and the other annexes to it.
Introduction This Chapter does not give guidelines on how to estimate or what to estimate for. It attempts to address the main elements needed for a complete presentation. Sample texts of possible clauses are not intended to be comprehensive in any way.
b) General In accepting that price is, with increasing frequency, an important consideration in the selection process, it is important for an equitable competition that:
For convenience, that part of the Agreement devoted to payment terms and methods is referred to below as Appendix C, in conformity with the White Book Clause 1 (vii).
- the TOR are precise in describing the scope of the services and the responsibilities and obligations to be undertaken by the Consultant; and
The chief areas for attention are:
- the invitation explains the evaluation that will be performed and the weighting that will be assigned to merit versus cost.
- terms of payment, the basic system or systems; - methods of payment; - price changes;
c) Options
- currency; - taxation, where the General Conditions Clause 33 (ii) is applicable; and
It is normal practice to divide the remuneration for the Services into fees and expenses, although sometimes the fees are often inclusive of some expenses at least. In this practice, the first clause of general application in Appendix C will be:
- contingencies.
“The remuneration for the Services comprises fees and expenses.”
Where practical, suggestions are made on the wording of relevant provisions.
The following systems are those most generally considered, and any one agreement may incorporate one or more of them appropriate to the several types of phases of Services to be supplied:
It is, however, important to distinguish clearly the difference between terms of payment, for which the Client is liable, and method of payment, which is an administrative convenience, but which may nevertheless have contractual effects.
- Lump sum (see Annex 2), inclusive, or plus certain expenses. - Time based charges (see Annex 3), inclusive, or plus certain expenses
84
© FIDIC 2001
85
© FIDIC 2001
- Net cost of the Services plus a fee, the fee being either:
providing for payment for Work done since the last stage payment in the event of termination before the next; for example:
- a fixed sum; “Further to (Clause 29 of the White Book) in the event of termination or suspension or abandonment of the Agreement the Consultant shall be entitled to payment for Services performed in respect of which payment would otherwise have been due at a later time. Unless otherwise agreed such payment shall be assessed as if the Services Performed were Additional Services.”
- a fixed percentage of the net cost of the Services; or - a scale percentage of the net cost, or related to some tar get cost, of the Services. - A percentage of the cost of the Works or of some estimate of it from time to time, either all inclusive, or plus certain expenses (see Annex 4).
3
4
Whichever system is adopted, it is essential to include provisions for time based charges for use when Additional or Exceptional Services are subsequently performed.
The method of payment and the security for payment are inter-related.
Advances and Stage Payments
The confirmed letter of credit is the most secure method of payment, where the scope for insecurity (apart from failure of the Consultant's bank) is in the terms for release of payments from it. These terms (Appendix C) might require a percentage, say 90%, payable on submission of a commercial invoice with appropriate specified back-up (e.g., time sheets, expense vouchers, etc.) and 10% balances at specified stages with the written authority of the Client).
a) Letter of Credit
Care should be taken to distinguish between advances, which are repayable, and stage payments, which go towards the total remuneration for the Services. - The first payment can be stipulated to be an advance payment, in which case it should not be included as a stage payment but should be separately identified as an advance with conditions for repayment, e.g. by deduction from the stage payments. Again, a repayment guarantee will usually be required.
In projects supported by an IFA where the Client's foreign exchange credit is such that the Consultant's bank is not prepared to confirm a letter of credit without a third party guarantee, which may be by an IFA, the method of payment clause must require one e.g., by way of one of the relevant IFA commitment procedures.
- One system of advances applicable when fees are based on staff time charge rates is to be paid an advance equivalent to, say, three months fee for each individual in post, repayable when his tour of service is interrupted or ended. It has the advantages of providing simplicity (unless individuals move frequently) and of providing protection to the Consultant of approximately the level of expense which might be incurred under Changed Circumstances (Clause 26) or on suspension or termination of the Services.
IFA loan agreements can be suspended or canceled by the IFA under certain conditions which may have nothing to do with the Project and over which the Consultant has no control. The procedures for withdrawal of proceeds from the loans often include commitment to reimburse disbursements from a letter of credit. This commitment can be qualified or unqualified. The unqualified commitment means that reimbursement is guaranteed even if the loan agreement is suspended, but it
- In the case of stage payments it is important to include a clause 86
Methods of Payment
© FIDIC 2001
87
© FIDIC 2001
usually means an extra charge on the Borrower. It is up to the Consultant to consider whether the additional security gained is worth an offer of some consideration in exchange; see Clause 47 in Chapter 2. For further information see the International Chamber of Commerce, Paris, Brochure No. 400, Reference (6) in Chapter 8.
disbursements other than to the Consultant. A joint venture rather than a sub-consultancy can overcome this difficulty at the risk of undertaking liability for default by others.
When an assignment is likely to last much longer than a year, a single letter of credit for the full cost of the assignment is likely to become expensive. In these circumstances a revolving letter of credit is a useful compromise; such instrument becomes enhanced annually after budget approval by the Client. For administrative convenience the single letter of credit, especially, should include a contingent sum and a system for giving the bank authority to disburse from it without having to go through the time consuming and accident prone procedures of amending the letter of credit.
According to circumstances, the Particular Conditions or Appendix C may incorporate one or more of the following provisions:
e) Typical Clauses
either “The method of payment of Foreign Currency by the Client to the Consultant shall be by way of an irrevocable letter of credit confirmed by the Consultant's bank incorporating terms as specified in Appendix C.” and, possibly, “Reimbursement to the Consultant's bank for disbursement from the letter of credit shall be subject to an unqualified guarantee from .... (name of IFA) .... or other guarantor acceptable to the Consultant's bank.”
b) Direct Disbursement by the IFA This is the next most secure method. Insecurity lies in two areas. Firstly, as mentioned above in the ability of the IFA to suspend or cancel the loan agreement and, secondly, in the reliability of the Client's staff to process applications to the IFA for direct disbursements to the Consultant. Also, some IFA do not favour permitting disbursements for advance payments.
or “The method of payment of Foreign Currency by the Client to the Consultant shall, without prejudice to (reference to Clause suggested in paragraph (ii) of the "General" discussion on Payment in Chapter II), be by way of direct disbursement to the Consultant's bank from the ….. (name of IFA) ..... in accordance with its procedures for withdrawal of proceeds of the loan by the Borrower …. provided that failure by the .... (name of IFA) .... to disburse against applications properly made by the Client and Borrower shall be and be deemed to be circumstances within the provisions of White Book Clause 26 in the General Conditions).”
c) Other Systems The security of any other system of payment depends on the credit worthiness of the Client and, in the case of a subconsultant, of the Consultant employing him.
d) Sub-consultants In this connection, prospective sub-consultants should be aware that IFA may not be able to make direct, nor guarantee, 88
© FIDIC 2001
Similar provisions can be made in respect of local currency methods of payment. 89
© FIDIC 2001
5
Technical Assistance
- Services during the period after termination or abandonment of a construction contract or after the substantial completion or end of defects liability period, if any, up to settlement of the Contractor's final account bar any claims referred under any disputes procedure and resolution clause or to litigation or arbitration; and
Whereas technical assistance teams are almost always charged on a time basis, it is often the case that the time rate is required to cover any technical back-up required. Such conditions can be counterproductive when the nature and extent of such back-up cannot be accurately estimated before the event so that the markup on the team member's rate is a guess either putting the Consultant out of competition or, if successful, restraining his willingness to give back-up necessary for a better performance.
- preparation of "as-constructed" drawings, manuals etc., (the required detail and content of which varies widely from Client to Client and project to project).
Faced with such a situation, the Consultant might with advantage present an alternative proposal with lower site rates together with a budget sum and a schedule of headquarter's rates for technical back-up. 6
7
The definitions of items of expenses which are to be recoverable under the Agreement can cause as much argument as almost any other aspect of a consultancy assignment (do travel costs include travel insurance?) Refinement of definitions carries with it the risk of excluding certain costs by specific omissions. In other words, a detailed listing of costs eligible for reimbursement must be exhaustive.
Administration of Contracts When the terms of payment for these duties are not wholly time based but include some fixed fee component (whether lump sum or percentage of cost of Works), there are at least five elements of the related Services which should be considered for payment on a time basis or definition as Additional Services, namely:
Each firm will have developed its preferred system for use when a system is not imposed on it, and it is beyond the scope of this Guide to suggest detail for conformity, even if that were desirable.
- monitoring imports of contractor's equipment, spare parts, and other consumable stores for enforcement of construction contract provisions relating to import duties and re-export;
Clients are naturally concerned to know with precision what they will be expected to pay for, and equally naturally the Consultant will need to know what he will be paid for. The clause suggested near the start of paragraph 2 (c) above means that if payment is not recoverable under an expense category it is deemed to be included in the fee.
- Services in respect of procurement between the first report on tenders received from the first call for tenders for any one construction contract and the award of the contract;
Administratively, the most convenient way is to adopt wherever possible a quoted sum or per diem charge for each event. It is a system which is prone to least trouble except when there are wide fluctuations in prices or exchange rates. The former can be covered by a price variation clause, preferably index related; see paragraph 8 below for comment on exchange rate.
- Services in respect of inspection and testing prior to export of goods from the country of manufacture; - Services in respect of tests on completion of the Works; - Services in respect of any claim by either party after it is referred to litigation, arbitration or conciliation or to the operation of any dispute procedure and resolution clause in the construction contract; 90
© FIDIC 2001
Expenses
Reimbursement of expenses net, plus some quoted percentage 91
© FIDIC 2001
for administrative and financing costs, invites massive paperwork, delays in billing, audits and disputes on eligibility. It also requires a special clause to provide for the fixing of the exchange rate relative to the time of the transaction and/or the time of reimbursement; see paragraph 8.
b) In Local currency - per diem allowances for staff in Client's country, visiting, residing, and on field trips; - cost of necessary items and services procured locally; and
One IFA has suggested the following categories: - cost of local personnel. a) In foreign currency Where applicable, the IFA require that each category is supported by a detailed Schedule, and eligibility criteria, e.g. length of stay, age of dependent, etc.
- per diem allowance for staff away from home office but not in Client's country; - transportation costs of persons (with definition of entitlements of staff members and dependents);
8
Currency If payment is to be made partly or wholly other than in a freely convertible currency, it will be necessary to stipulate how the proportions are to be calculated.
- baggage and excess baggage costs; - miscellaneous travel expenses at a unit price per round trip;
a) For charges quoted in the Agreement, the necessary provisions must be made for rates of exchange from the currency of the Agreement to the currency of payment (e.g., in White Book Section A of the Particular Conditions). In common with construction contracts, this allows the Consultant to balance his fees in currencies to meet expenditures in them.
- cost of communications; - cost of printing, reproducing and shipping documents etc.; - cost of acquisition, delivery etc. of required goods; - special computing costs;
Therefore, unless the proportioning is speculative, the Consultant avoids the risk to himself of fluctuating exchange rates but bears the risk of economic problems in his own country. If the local currency component is index related, the Client bears the risk of economic problems in his country and an equitable distribution of risk is achieved
- costs of training Client's personnel outside Client's country (including make-up of living allowance, etc.), - costs of approved technical services not covered by Consultant's fees; and
b) Where payment is by way of reimbursement, a common provision for the exchange rate is:
- cost of approved facilities in Client's country not provided by Client.
“the official rate applicable to the time, place and currency of the original disbursement”.
It is necessary to check that the items above are not wrapped up in the fee or other charges without identifying them as appropriate for separate reimbursement in connection with Additional Services. 92
© FIDIC 2001
This can cause financial embarrassment if there is a dual rate 93
© FIDIC 2001
Consultant has funded initial expenditure in one currency by importing another before earnings in the country of import are sufficient to cover the investment. Clauses 32 (ii) and 37 of the General Conditions can help in some circumstances, but not usually without a great deal of effort.
system in operation (whether officially or unofficially). It is hoped that Clause 32 (ii) in the General Conditions will go some way toward meeting this difficulty. In any event, with reference to the General Conditions, Clause 31 (ii), the amount and currency of payment of Compensation for delayed payment should be specified, e.g.:
When payment cannot be made wholly in a freely convertible hard currency, the answer is to ensure that as far as possible expenditures in soft currency are just balanced by earnings in that currency and that any initial investments are covered by first stage payments, advances or commercial loans rather than transfer.
“the percentage specified in Section A of the Particular Conditions applied to and in the currency of the amount of the principal sum.” Where there is room for doubt or ambiguity, the currencies and proportions payable in the several currencies should be specified, e.g., proceeds of guarantee, insurance policies and the like. 9
b) Prices In respect of stage payments of fees, quoted time charge rates and quoted prices, it is important to have a price fluctuation provision to avoid difficulties when the Services are delayed, or Additional Services etc. cause a time over-run.
Price Variation For long term assignments and as a precaution in short term assignments it is generally desirable to make provision for fluctuations in prices and possibly also for rates of exchange.
This is important for a number of reasons:
The provision which seems to cause least difficulty is one which is index based. Different indices may be required for different parts of the Services. It does not avoid all problems, particularly those relating to charges based on staff emoluments when staff are changed and their salaries are not grade structured.
- When the rate of exchange is fixed by reference to the date of original disbursement, delayed payment can affect budget balances.
The example given in Annex 2 for lump sum fees allows no price variation for the fee for Normal Services but does allow it for Additional and Exceptional Services. A typical clause might be:
- More importantly, if the original proportioning between currencies is not proportional to expenditure or is changed as a result of Additional or Exceptional Services, there can be significant losses (or gains) in real terms.
"Unit prices for both fees and expenses shall be subject to revision annually on 1st.January in accordance with the .... (name and date of reference index or details of formula as the case may be .... bearing in mind that a different index or formula may be appropriate for each proportion to be paid in a different currency);
a) Rates of Exchange
- One particular problem is when advances are taken in one currency and have to be repaid later partly or wholly by transfer from another currency.
10 Recovery of Import Duties
A general point to be remembered, but difficult to provide for in the Agreement, is that the recoverability of import duty on re-export is
- Another problem is when the exchange rate devalues after the 94
© FIDIC 2001
95
© FIDIC 2001
generally dependent on special paperwork at the time of the import. When the Client clears customs on behalf of the Consultant or reimburses him, and expects reimbursement on reexport, it is especially important that the Consultant satisfies himself that the necessary formalities are observed.
ANNEX 1
Common Payment Terminology
Some or all of the following definitions may be usefully included, amended as the case may require. 1
Advance
11 Taxation
A payment which is due for repayment. (Generally by way of deduction from stage or interim payments according to some specified formula).
When the funds to be used to pay for the Services are from an IFA, the Loan Agreement often stipulates that proceeds of the Loan must not be used to finance taxes. This does NOT mean that the Consultant's revenue is exempt from tax, although in some cases this can be so.
2
Advisory Services Those Services which the Consultant provides by way of advice and assistance at the direction of the Client for accomplishing services undertaken by the Client.
It is sometimes acceptable to provide that the Client pays certain taxes and show it separately as an estimated sum in addition to the base sum. However, this device may result in having to pay tax on tax.
3
12 Contingencies
Budget Cost The amount provided in the Agreement as an estimated cost to be borne by the Client for completion of the Normal Services (or specified part of them) or as a contingency for Additional Services such that it may not be exceeded without written agreement of the Client prior to any excess being incurred.
Both parties should be aware of the need to make budgetary provisions for expenditures above the pricing of Normal Services. To achieve this, contingent sums, preferably separate sums for different classes of contingencies (e.g., price variation/inflation, possible Additional Services and unforeseeable Additional or Exceptional Services) can be inserted in the Appendix.
4
Ceiling Cost The cost to the Client within which the Consultant shall complete the Normal Services (or specified part of them).
However, it is important to clarify that such sums are not to be regarded as limiting values.
5
Contractor A contractor, other than the Consultant, under contract to the Client for the supply of goods, equipment or services or for the construction of works, in respect of which the Services impose duties on the Consultant.
6
Cost Expenditure properly incurred, or to be incurred, by a party for the
96
© FIDIC 2001
97
© FIDIC 2001
purpose of the Services including overhead and other charges properly allocated to it but excluding profit. 7
11 Stage or Interim Payment
A payment which goes toward the final cost to the Client of the Services.
Emoluments Whichever maybe applicable:
12 Task Services
- The amount stipulated in the Agreement for the named member of staff.
Those Services, other than Advisory Services, which the Consultant is responsible for providing.
- The amount stipulated in the Agreement for the post named in the Agreement.
13 Tender Dossiers
Documents prepared for the purpose of obtaining tenders. - The amount stipulated in the Agreement for the grade named in the Agreement applicable to the member of staff. - The salary payable to the member of staff before any deductions for tax or statutory payments or voluntary payments to insurance or pension schemes. 8
Expenses Net direct disbursement by the Consultant to the other party or to third parties for the purpose of the Services, but excluding emoluments paid to his staff or any expenses which are deemed covered by the multiplier factor applied to the emoluments.
9
Multiplier The factor which, when applied to the emoluments as defined of approved qualified technical staff or of other staff or of staff positions named in the Agreement, gives a fee rate payable under the Agreement.
10 Qualified Technical Staff
Having a degree or diploma from an approved university or an approved professional qualification relevant to the Services to be performed. 98
© FIDIC 2001
99
© FIDIC 2001
ANNEX 2
Lump Sum Fees
ANNEX 3
The following terms could form the basis of a lump sum agreement or of a lump sum component of the Services:
Staff - Time Based Fees
The provisions need to address the following points:
“The fee to be paid to the Consultant for Normal Services is a fixed price fee of'. . . (figures) ... (words)... The fixed fee is made up of quantities and unit prices given in Schedule 'Y' attached, which prices shall be used for the evaluation of Additional and Exceptional Services. The quantities shall not be subject to remeasurement for Normal Services.” See paragraph A3.5 of Annex 3 for discussion when the rate is defined on a "multiplier" basis.
a)
Named staff
b)
Unnamed staff
c)
How time is measured
d)
Work centre, place of residence and absences from each for purpose of the Services
e)
How the charge is proportioned according to currency of payment.
- In respect of Additional or Exceptional Services: 1
i) unit prices shall be subject to revision annually on 1 January in accordance with the .. (name and date of reference index or details of formula as the case may be .... bearing in mind that a different index or formula may be appropriate for each proportion to be paid in a different currency);
In the absence of prescriptions on method and detail of presentation, there is no difficulty in providing rates for staff named in the Appendix, separately for the various classes of duty, e.g., at the Consultant's home office, on short tours and on long tours. given appropriate definitions.
ii) payment shall not be limited to expenditure in respect of the items listed in Schedule " X ',
2
iii) payment for items not covered in Schedule 'Y' shall be at actual cost plus, in the case of Additional Services only, "y " percent."
The most recognized system is to relate the charge to a multiplier of some function, the elements of which are either arbitrarily fixed in the Agreement, e.g., fixed rate or percentage, or are capable of audit, e.g., the basic salary of the individual; see Clause 35 of the General Conditions.
(.... then list a schedule of stage payments, preferably tied to specific events identified in Appendix A). Such payments except the last are instalments and the Consultant shall remain a debtor in respect of them until final settlement.” © FIDIC 2001
Unnamed Staff The chief difficulties arise when unnamed staff have to be provided for. Depending on the staff structure this can be approached by reference to grade, salary, post or qualification.
- “The fixed fee for Normal Services shall be payable as follows:
100
Named Staff
Salary based charges nevertheless create difficulties because different firms and practices in different countries vary in their wage 101
© FIDIC 2001
structures from an all in wage to a basic wage with sundry allowances and perquisites. One result is that for the same charge rate the multiplier can vary widely, from which some adjudicators can infer that the higher multipliers indicate firms making excessive profits from underpaid and inferior staff. This in turn can lead to excessively involved wage structures devised to give a good impression in proposals by lowering the multiplier rather than for the efficient management and motivation of staff. The higher multipliers can also lead to tough negotiation, when selection is not on a price competition.
-
the increase is seen to be greater than their own changes or than changes in some generally recognized price index.
The position is doubly complicated when part of the staff emoluments is in local currency and part in foreign, with differential rates of inflation and possibly different pay incentives necessary. It would seem sensible, where practicable, to relate the foreign and local component to the individual's salary at the time of the proposal, or when taken into employment, and inflate it according to the relevant price index.
It is beyond the scope of these Notes to recommend a solution. 5 3
Discussion
Substitutes for Named Staff The following items are often required to be provided: This is a particular aspect of unnamed staff. When, having selected a Consultant on the basis of staff named in a proposal submitted three months or more earlier, the fact that named staff are no longer available causes considerable ill-feeling, not only with Clients, but also with the unsuccessful tenderers more of whose named staff may still be, or have again become, available.
1 2 3 4 5 6 7 8 9
If Clients and their IFA advisers continue to mark proposals heavily on the basis of named staff and consider that this is the right policy they should consider offering to pay retainers for any period of adjudication beyond some reasonable duration, say three weeks, during which most Consultants would be prepared to keep named staff in reserve. 4
It is not difficult to see how the numbers can be manipulated, especially by large firms with a fairly reliable overseas work-load.
Salary Reviews For example, suppose Firm 1 has a "conventional" system, and Firm 2 splits its staff into home and overseas employments, the latter getting a basic salary 46.67% higher than that of the former, while the former gets a 50% overseas allowance probably in local currency. For equivalent staff overseas the net social and overhead costs will be the same.
Where remuneration is on the basis of staff emoluments, Clients naturally become wary if:
102
Name of staff, position in firm and appointment in Project Basic salary per unit of chargeable time . . . . . . . . . . . . . . B Social charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %B Overheads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %B Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %T Overseas allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . %B Charge rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R Multiplier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R/B
-
they find the charges suddenly increased, especially if there is an interim salary review as well as the more usual annual one;
-
there is an apparent discrepancy in the increases for staff currently employed for the Services; or © FIDIC 2001
103
© FIDIC 2001
Firm 1 Basic salary Social Costs Overheads
B1 20% B1 100% B1
Sub-total Profit Overseas allowance
Charge Multiplier
TI 10% TI 50% BI
3000 600 3000
6600 660 1500
8760 2.92
B2 13.6% B2 68% B2
T2 8.25% B2 2.25% T2
4400 6000 3000
6
104
Over-time and working hours; and
-
Field trips away from base.
Typical Clauses Proceeding from the base that remuneration comprises fees and expenses, see paragraph 2 (c) in Chapter 6, it is suggested that a logical progression could be as follows:
8600 660 100
“The fees for the Services shall be a product of chargeable time and the charge rate for approved qualified technical staff and other staff or staff positions named in the Agreement.”
8760 1.99
“The expenses shall, for Normal and Additional Services, be those disbursed or incurred under the following named items and in accordance with the relevant Schedules: ….. “ “The expenses for Exceptional Services shall be all those arising out of or in connection with the Exceptional Services other than for the employment of staff for whom charge rates are applicable under the Agreement.”
Which firm presents the better image? Firm 2 with a lower multiplier and lower percentage overheads and profits, of course.
6
Firm2
A further distorting influence can be that of the respective tax liabilities of personnel for different types and locations of emoluments received, where employers will seek to arrange their wage structures to minimize employee's tax liabilities.
“*Where not stated in the Agreement or otherwise agreed, the fee rate for chargeable staff shall be calculated by applying to (definition of relevant emoluments) the following multipliers:
All that really is required to give confidence to a Client is a multiplier and a basic figure which can, by audit, be seen to be consistent with the Consultant's overall wage structure.
( ............ ) ( ............ ) ( ............ )
Time
The proportion payable in foreign currency shall be:
Factors to be covered should include:
( ............ ) ( ............ ) (100%)
-
Travel time;
-
Absences on holiday, and public holidays;
-
Absences for illness;
For long tours For visits For work in the Consultant’s home office
For long tour For visits For work in the Consultant’s home office.”
Note that the definition of emoluments can be referred to those of the individual concerned or where a recognizable structure exists, for example, either: © FIDIC 2001
105
© FIDIC 2001
a)
to a grade payment table given in the Appendix;
b)
to the actual average/upper quartile value for the grade of the individual at the time of employment for the Services.
ANNEX 4
Fees as a Percentage of Cost of Works
The simplest approach usually proves the most workable.
The following could, amongst many variants, form the basis of "percentage fees" terms for the Services or for a component of them.
Price variation provisions, etc., may be needed as in other systems.
The remuneration of the Consultant for the Services comprises fees and expenses. The fees for the provision of Normal Services in respect of (e.g., design, preparation of tender dossiers, administration of contracts between the Client and contractor) shall be calculated by applying the percentages specified in the table below to the cost of the Works or part thereof as the case may be. In the case of designs and preparation of tender dossiers the relevant percentages shall be applied to the estimated cost last approved before inviting tenders, and in the case of administration of contracts to the final cost.
Category/Description of Works or Part of Works
Fee Percentage Design and Tender Dossiers
Administration of Contracts
Interim payment shall be made of fees in each category 1. For design and tender dossier
106
© FIDIC 2001
107
%
a)
on signature of Agreement
(e.g., 15)
b)
monthly in "x" monthly instalments
(e.g., 75)
c)
on completion of design and approval of tender dossier.
(e.g., 5) © FIDIC 2001
2. For administration of contracts
%
a)
on making a contract by Client and contractor
(e.g., 5)
b)
on amount certified for interim payment or paid to contractor from time to time
(e.g., 85)
c)
7 Terms of Reference & their Preparation A
Clients should carefully prepare the Terms of Reference (TOR) in their invitation. This is especially important when competition is on a financial basis or against a ceiling budget.
on final payment to contractor, balance making up 100% of the fee due on each contract.
Consultants faced with incomplete or imprecise TOR should make a point of seeking clarifications as soon as possible and before being at a negotiating disadvantage after their proposal has been submitted. See "Preparing the Consultant's Terms of Reference", Reference (8) in Chapter 8.
Final payment shall be made of the balance of the fees due 1. For design and tender dossiers: on completion of design for and approval of all tender dossiers for Works specified in the Agreement;
B
2. For administration of contracts:
General Principles for Preparing Proposals & Agreements
or
It may be useful to suggest some general rules to be followed in preparing proposals and agreements, the objective being to avoid disputes and, possibly, litigation. The atmosphere of goodwill prevailing between Client and Consultant at award will last longer if the Agreement is well drafted.
at the end of the defects liability period.
To this end, but not in any special order of importance:
on substantial completion
108
Terms of Reference
© FIDIC 2001
109
1
Words with initial capital letters should be used only in the sense as defined (e.g., in the White Book), and when that sense is intended only those words should be used.
2
Consistently using the same word or phrase wherever a particular meaning is to be conveyed may be useful.
3
It is often better to specifically identify secondary objectives, responsibilities or obligations as such, rather than to overemphasize the importance of the primary ones.
4
When an obligation (duty, responsibility) is stated, it will be helpful to state precisely where the liability (risk, expense) for performance lies. © FIDIC 2001
8 References 1
2
3
4
5
6
7
8
9
10
110
11
Insurance of Large Civil Engineering Projects - an update, FIDIC http://www.fidic.org/consultants/
1997
12
Guidelines: Selection and Employment of Consultants by World Bank Borrowers, Washington DC http://www.worldbank.org/html/opr/consult/contents.html
1997
13
Conditions of Contract for Works of Civil Engineering Construction, 4th Edition, FIDIC
1987
14
Conditions of Contract for Electrical and Mechanical Works including Erection on Site, 3rd Edition, FIDIC
1987
1985
15
Conditions of Contract for Construction, for Building and Engineering Works Designed by the Employer, 1st Edition, FIDIC
1999
1976
16
Conditions of Contract for EPC/Turnkey Projects, FIDIC
1999
17
Conditions of Contract for Plant and Design-Build, for Electrical and Mechanical Plant, and for Building and Engineering Works, designed by the Contractor, 1st Edition, FIDIC
1999
18
The Short Form of Contract, 1st Edition, FIDIC
1999
19
Conditions of Contract for Design-Build and Turnkey, 1st Edition, FIDIC
1997
20
Guidelines for ad hoc Collaboration Agreements between Consulting Firms, FIDIC; http://www.fidic.org/consultants/
1995
21
The Role of Consultants in Operation, Maintenance and Training, FIDIC; http://www.fidic.org/consultants/
1995
22
Guide to the Use of FIDIC's Sub-Consultancy and Joint Venture Agreements, FIDIC
1994
23
FIDIC Client/Consultant Model Services Agreement, 3rd Edition
1998
United Nations Guide for Drawing up International Contracts on Consulting Engineering, including related aspects of technical assistance: Publication ECE/TRADE/145, United Nations, New York; http://www.jurisint.org/pub/02/en/doc/66.htm
1983
ICC Rules of Arbitration, International Chamber of Commerce, Paris; http://www.iccwbo.org/court/english/arbitration/rules.asp
1997
LCIA Rules, London Court of International Arbitration http://www.lcia arbitration.com/lcia/rulecost/english.htm UNCITRAL Arbitration Rules, United Nations Commission on International Trade Law, Vienna http://www.uncitral.org/english/texts/arbconc/arbitrul.html ICC as appointing authority under the UNCITRAL Rules, International Chamber of Commerce, Paris http://www.iccwbo.org/court/english/ appointing_authority/all_topics.asp
1984
Uniform Customs and Practices for Documentary Credits, International, Chamber of Commerce, Paris, Revision; No. 400; http://www.iccbooks.com/ Uniform Rules for Contract Guarantees, International Chamber of Commerce, Paris; No. 325; http://www.iccbooks.com/ Preparing the Consultant's Terms of Reference: Michael Lewis, Nairobi 1985, FIDIC; http://www.fidic.org/consultants/ The Engineer as a Local Resource and World Bank Action to Develop and Utilize the Resource, G.L.E. Spier, Nairobi 1985, FIDIC; http://www.fidic.org/consultants/
1993
1997
1985
1985
Guidelines for the Evaluation of Consultants' Performance, FIDIC; http://www.fidic.org/consultants/
1988
© FIDIC 2001
FIDIC Guides and Conditions of Contract can be obtained from: FIDIC Bookshop, International Federation of Consulting Engineers
111
© FIDIC 2001
