1 HOW RISK MAY BE ALLOCATED THE STANDARD FORM CONTRACTS COMMON IN IN...

The standard form contracts common in international projects contain

detailed terms allocating risk. The FIDIC forms provide instructive examples

of this. In what follows we shall try to bring out how differently risk might be

allocated in different types of project by comparing and contrasting the Red

and Yellow FIDIC Books with the Silver Book. This comparison is helped by

the fact that, as noted above, the Books largely cover the same topics under the

same clauses or sub-clauses.

¹

The Red and Yellow Books are recommended where there is a basically

conventional project structure of employer, contractor and engineer; the

differences between the two Books arise mainly from the fact that, with the

Yellow Book, the contractor undertakes most of the design. In such an

arrangement, risk is allocated to strike a balance between employer and

contractor, taking into account the extent to which each is responsible for

design and other activities, and also each party ’ s ability to control or prevent

particular risks.

The FIDIC Silver Book, on the other hand, is recommended for projects of

a very different type from the conventional. These are ‘turnkey’ projects in

which there is no engineer; where the contractor undertakes substantially all

the design, procurement and construction; and where the overriding need is

to ensure completion on time and to budget.

²

The traditional balanced

approach to risk does not sit well with such projects, where the contractor is

1

The FIDIC contracts all contain 20 clauses whose sub-clauses often deal with the same

topics, so that it is relatively easy to compare (and contrast) how the different Books deal

with the same topic.

2

Here, the contractor provides a complete package, so that the employer or project promoter

has a structure ‘at the turn of a key’. Such projects are often privately financed, although

governments or government agencies also undertake projects on this basis.

International Construction Contracts: A Handbook, First Edition. William Godwin.

© William Godwin 2013. Published 2013 by John Wiley & Sons, Ltd.

expected to (and prices for) undertaking a much wider range of risks. With

turnkey structures increasingly the norm for major projects internationally, it

is particularly important to understand how the construction contract at the

heart of such projects typically reallocates risk to the parties.

Let us begin, then, by looking more closely at the ‘traditional’ approach to

risk allocation.