5 THE FIDIC SILVER BOOK ALTHOUGH WE HAVE MENTIONED IT MAINLY IN CONN...

Although we have mentioned it mainly in connection with BOT-type projects,

the FIDIC Silver Book is a free-standing EPC/tumkey contract which can be

used in other situations as well. In whatever type of project it is used, however,

its terms will need to be adjusted to take into account the terms of the other

contracts involved in the project; just as we saw how the EPC contract in a

BOT project had to be made back-to-back with the project company ’ s obliga-

tions to the government agency under the offtake agreement.

The following are important features of the Silver Book:

●

As with other EPC contracts, there is no engineer in the Silver Book,

although the employer can (and often does) appoint a representative in

order to facilitate communications with the contractor. All claims, whether

contractor ’ s or employer ’ s claims, are submitted to the employer, not to the

engineer, for agreement or determination in accordance with the terms of

the contract. If the contractor is dissatisfied with the employer ’ s decision

he can challenge it by referring it to the Dispute Adjudication Board

constituted under the contract.

⁶

In practice, the employer will appoint an

engineer to consider any claims and advise the employer, although he is

answerable to the employer only.

●

The contractor has full responsibility for all features of the work. The

employer will state its requirements for the completed project in terms

of  expected performance and prepare a document (the ‘Employer

’

s

Requirements’) against which the contractor will tender.

⁷

Although the

Employer ’ s Requirements may contain detailed technical information and

data, these will (with certain very limited exceptions

⁸

) be a matter for the

contractor to verify as part of its design responsibilities. In a BOT project, the

Employer ’ s Requirements will usually include any technical requirements

contained in the contract between the employer and the government agency.

●

The FIDIC guidance advises that the Silver Book should not be used where

there is insufficient time or insufficient information for the contractor to

examine thoroughly the Employer ’ s Requirements or for it to carry out its

design, risk assessment studies and estimating. Further, if the project will

involve substantial underground works or works where the contractor is

unable to inspect or assess the ground conditions then the risks of encoun-

tering unforeseen conditions (borne by the contractor) might be so great

that the contractor should consider using another form of contract.

However, in a BOT project the issue may at least to some extent be resolved

by ensuring that there are suitable back-to-back arrangements with the

6

See further pp. 87–90 below.

7

In the Yellow Book, also a design-build contract, the employer sets out its requirements

including performance in Employer ’ s Requirements.

8

See pp. 24–26 below.

government agency. The agency may be willing to negotiate some relief in

certain cases if to do so seems necessary in order to ensure that the best

qualified contractor is engaged on the project.

●

As with the Red and Yellow Books, the contractor ’ s risks under the Silver

Book are limited in that the contractor will not be liable to compensate the

employer for any loss of use resulting from a defect in the works, even if

that defect arises during the defects liability period under the contract;

moreover, the defects liability period may not be extended for more than

two years. The contractor ’ s liability is also limited to 100% of the contract

price, subject to certain exceptions (see clause 17.6).

●

In the Silver Book, the employer is required to make decisions or determi-

nations on various matters if they cannot be agreed with the contractor. If

the contractor is dissatisfied with any such decision or determination then

he can give a notice to the employer stating his dissatisfaction within 14

days of receiving it. If he does so, the contractor need not comply with the

determination, but either party can then refer their dispute about it to the

Dispute Adjudication Board under clause 20.4 of the contract conditions.

⁹

●

The Silver Book, as with the other FIDIC Books, goes some way to mitigating

the financial risks of the project by requiring the contractor to provide a per-

formance security

¹⁰

and the employer an indemnity in respect of any claim

under the performance security which the employer was not entitled to make.

There are detailed provisions relating to the provision of such security. All the

FIDIC Books provide drafts of a range of securities. For his part, the employer

under all the FIDIC forms is required to provide, on request, evidence to the

contractor that he has in place appropriate financial arrangements to enable

him to discharge his payment obligations under the contract (clause 2.4).

●

The FIDIC Books all provide for a regime of testing at key stages of the works

and for a more general right (clause 7) to inspect and test as the works pro-

ceed. The principal provision in the Red, Yellow and Silver Books is clause 9,

which sets out a scheme of testing on substantial completion of the works

and prior to the employer taking over; the contract will normally contain

more detailed and specific test requirements in the particular conditions.

●

Payment of the contractor under the Silver Book is based upon the

submission by the contractor of a monthly or other periodic statement,

with supporting documents, including a progress report as required under

9

See clause 3.5. This differs from the position under the Red and Yellow Books, where the

contractor and employer are obliged to comply with the determination of the engineer

unless and until it is revised under clause 20 of the contract conditions.

10

In outline, a performance security is an undertaking by a bank or insurance company to

the employer at the request of the contractor to pay the employer up to a certain amount in

respect of breaches of the contractor ’ s obligations under the contract. Normally, the bank or

insurance company must pay up to the specified amount on the employer ’ s written demand,

within the period of validity of the security without proof of the breach or loss suffered.

Each performance security should, however, be examined for its own particular terms, and

suitable legal advice obtained concerning such securities.

clause 4.21. Payments are normally made according to a schedule of

payments based on certain milestones being achieved.

●

Other clauses of the contract cover termination by employer or contractor

(clauses 15 and 16); specific risks and responsibilities, in particular obliga-

tions to indemnify one party by the other in respect of claims for personal

injury or damage to property and in relation to care of the works (clause