Actual issues of FIDIC contracts

With scientific, technological progress and globalization in the world, “cross-border relations” gained wider scope and continue to grow. Cross-border relations involve both large transnational and small /medium-sized enterprises around the world. Private individuals, citizens of different states are also being involved.

As you know, throughout the development of Mankind, people, ideas, things competed with each other, and the best of them (or rather more viable and practical) were selected and continued on, while the rest unable to withstand the competition, remained in history.

The same can be said about contract law. Contract law developed along with trade, the provision of services and works (the last two were widely developed in the 19th century within the borders of their states and with the beginning of the 20th century commenced the expansion outside their borders).

As before, nowadays companies are choosing a more reliable way to regulate their transactions, and today the most reliable, profitable and fair choice for this is the Common Law of England and Wales, and one of the fairest courts are considered to be International Arbitration (in particular, London Court of International Arbitration) which apply among others Common Law for resolution legal disputes. However, if we allocate work and services into a separate type of special contracts, the best of them at the moment are separate model contracts created by professionals in their field, who, taking into account the development of this area, from time to time modify their contracts for greater benefit to customers and suppliers.

The phrase “contract law” may indicate that there is a single model of contract law applicable to all types of contracts. Awareness of the fact that there exists a single model of contract law underlies the “classical model” of contract law of the 19th century. To better understand the contract law, it is preferable to consider it as the law of contracts, rather than the law of contract, despite the existence of a generalized system of rules that govern most contracts.

One of these model agreements (contracts) are EPC / EPCM contracts. And the organization under whose auspices these Contracts were developed is FIDIC (from the French Fédération Internationale Des Ingénieurs-Conseils, English - International Federation of Consulting Engineers) - the international federation of consulting engineers. FIDIC was founded in 1913 by France, Belgium and Switzerland. The United Kingdom joined later in 1949. The first edition of the terms of the contract (international) for civil works was published in August 1957 and was prepared on behalf of the International Federation of Judicial Proceedings (FIDIC) and the International Federation of Civil Engineering, Public organizations (FIBTP).

FIDIC contracts executed in Kazakhstan do not disclose terminology, often in the contract there are many general obligations that do not disclose the responsibility of the parties, which in turn leads to misunderstanding between the parties and to disputes. Such disputes slow down the implementation of the project and even may bring to the failure of meeting the deadlines and extending it for months, and even years, in case of litigation.

Such problems acure when the parties or the party of the contract sign a standard contract without making any changes and additions which in turn contradicts the statements and comments of FIDIC. Having developed various standard contracts,  despite all the globalization and unification processes associated with such globalization, FIDIC understands that the legal systems of each country are different. There are two main legal systems in the world: the Anglo-Saxon and Romano-German, though even the laws of countries within the same legal system differ from each other. Despite the apparent external similarities, there are differences, for example, in the laws of England and the USA, France and Kazakhstan.

Of course, there are exceptions to these rules, for example, the so-called “Pink Book” (Pink Book). The Pink Book is for projects funded by international banks, such as the World Bank or the European Bank for Reconstruction and Development. When it is used, certain provisions cannot be changed. In other cases, changes and additions are welcomed by FIDIC, we can even say that FIDIC insist on this. Because such contracts are concluded at the junction of several legal systems and are cross-border relations. The one cannot choose only one legal system for such contracts and be calm. It is necessary to take into account both local legislation and the legislation of the foreign state of the contractor, the legal system that the parties have chosen as the applicable law to resolve disputes, as well as one of the FIDIC contracts that is most suitable for the project. Such "pitfalls" in the legislation cannot be circumvented without knowing the laws of the counterparties' countries, the prevailing practice in a particular transaction, knowledge of certain terms (their meaning and application in each particular case), and experience. Only qualified lawyers can foresee all the risks and all the “inputs and outputs” of the legal systems governing a particular contract.

If you have any questions related to contracts on design and construction, please let us know. We would be pleased to provide our advises and recommendations. info@keremetlaw.com