Some studies comparing EPC contract according to the regulations of FIDIC and those of vietnamese law

2.2.1 Contract as a State's management tool fo r construction 2.2.1.1 Requirements for subjects of construction contract 11 2.2.1.2 Requirements for content and form of construction cont

HANOI LAW UNIVERSITY LUND UNIVERSITY

FACULTY OF LAW

SOME STUDIES COMPARỈNG EPC CONTRACT ACCORDING TO THE REGULATIONS OF FIDIC

AND THOSE OF VIETNAMESE LAW

SPECIALITY: INTERNATIONAL AND COMPARATIVE LAW

CODE: 60 38 60

T H Ữ V I Ề N

TRirÒNGUAiHOCLỤÂT HÀ NÔI PHONG GV

MASTER OF LAW THESIS

STUDENT: DANG HOANG MAI

SUPERVISORS:

HA NO I - 2004

2.2.1 Contract as a State's management tool fo r construction

2.2.1.1 Requirements for subjects of construction contract 11 2.2.1.2 Requirements for content and form of construction contract 14 2.2.1.3 Requirements for bases and procedures to sign and implement

2.2.2 Contract as a legal form to establish economic relationships in

2.3.1.2 It enables users to control costs and work progress and helps to

2.3.1.3 The implementing speed is faster and the efficiency is higher 23

2.3.2.1 The Employer's role of controlling activities of the project no

2.3.2.2 The costs spent on project under EPC contract is often higher

than that of project implemented in traditional construction

3 EPC CONTRACT UNDER THE FIDIC CONDITIONS OF

CONTRACT FOR EPC/TURNKEY PROJECTS AND

3.2.1 Application scope and requirement for contract signature

procedure o f The FIDIC Conditions o f Contract for EPC/Turnkey

3.2.2 Key obligations o f the Employer and the Contractor according

to the FIDIC Conditions o f Contract for EPC/Turnkey Projects 31

3.2.2.1 Key obligations of the Employer according to the FIDIC Conditions

3.2.2.2 Keỵ obligations of the Contractor according to the FIDIC

Conditions of Contract for EPC/Turnkey Projects 34

3.3.1 Deíinition and the application scope of EPC Contract according

3.3.2 Content o f EPC Contract according to Vietnamese Legal

3.3.2.1 Design document for assignment of bid in EPC Contract 41 3.3.2.2 Contract price, contract price adjustment and contract payment 42 3.3.2.3 Taking- over and handing-over the completed construction works 44 3.3.2.4 Responsibilities of the employer and contractor for the

3.3.2.5 Selection of contractor and re-assignment of bid to the

3.3.3 Some regulations on selecting EPC Contractor 46

3.3.3.1 The forms of selecting EPC Contractor 46

3.3.3.3 Criteria to appraise and rank EPC Contractor 47

l SUGGESTIONS TO ENHANCE THE POSSIBILITY OF

APPLYING EPC CONTRACT IN CONSTRUCTION

4.3.1 It needs to form Standard sample contracts for construction

4.3.2 Suggestions involving in EPC Contraci regulations 57

4.3.3 Suggestions related to regulations on bidding to select EPC

Appendix No 2: Extensions of the time for completion under the FIDIC

Appendix No 3: Potential price increases underthe FIDIC Silver Book

Appendix No 5: Comparison some Clauses of EPC Contract under the FIDIC Conditions of Contract for EPC/Turnkey Projects and those of

I would like to express my heartfelt gratitude to SIDA Prọịect, Lund University and Ha Noi Law University for affording and organizing The Swedish/Vietnamese Master Programme in International and Comparative Law

I would like to register my special immeasurable thanks and appreciation to

my supervisors Professor Lars Gorton o f Lund ưniversity and Proíessor Le Hong Hanh o f The Hanoi Law University, who at every step encouraged me and guided me with valuable instructions and research tips

My thanks are due to all Professors o f the prọịect who helped and gave me invaluable knowledge I would like to extend my words o f appreciation to Librarians o f Lund University and Ha Noi Law University for their cooperation

And lastly, to my family and friends whose love and comíòrt encouraged

me to complete this thesis

Dang Hoang Mai

Ha Noi, November 2004

Abbreviations

1 Introduction

1.1 The necessity of the study

In the market economy, economic relations in general and construction assigning and undertaking relations in particular betvveen subjects are all established and performed on the basis of the contract

Construction contract is one of the specialized and rather complicated kinds o f contract The reason for this is that both technical element and liabilities o f the participants are included in this contract

In recently years, there has been a new kind of conừact in construction investment activities in Vietnam, Engineering- Procurement- Construction Contract (abbreviated in English as EPC Contract) According to the current most widely accepted deíinition, EPC Conừact 'í the one in which a Contractor, considered as the General Contractor, bears all responsibilities for engũieering, materials and equipment supply and construction in a consortium

of Contractors.1 This is an advanced, advantageous and extensively applied in the world In Viet Nam, EPC Contract has been put into eíĩect in the field of investment and construction but only in low volume and mainly applied to the projects with Capital sources from íoreign dừect investment (FDI) or oíĩĩcial development assistance of intemational govemments and organizations What matters is most EPC Contractors in those projects are íòreign Contractors or a Consortium o f Contractors However, some powerful General Construction Corporations of Vietnam have recently won several tender packages in intemational biddings, including the ones implemented in EPC Contract form

in Viet Nain At the same time, the Prime Minister has also decided to make a few mạịor General Construction Corporations like the Song Da General Construction Corporation and LELAMA Contractors to conduct some big construction investment prọịects specialized in electricity, petrol in EPC Contract form This really paves the way for enterprises of Vietnam to get used

to the EPC Contract and improve theữ comprehensive capacity and step by step meet the demands of socio-economic development strategy in the period of 2001-2010 with regard to the construction industry proposed by the Ninứi National Party Congress What this strategy wants to do is “ to develop the construction industry so that it can attain the advanced level in the region and satisíy the demands for construction of the whole countrỵ as well as to have suíĩìcient capacity to bid for foreign construction projects”

Nevertheless, because EPC Conừact is a new one in the construction activities in Vietnam, the process of putting it into practice now has to deal with

some problems that need solving by not only the legislation but also ứie policies.

In addition, our process of integrating tìie economy into the regional and global economy is posing urgent requirements for the approach to the mtemational norms and practice in investment and constructìon in general and the regulations on construction contracts, mcluđing the ones on EPC Conừact in particular

1 ICCA S to c k h o l m Arbitration C ongress, W o rk in g Group II, ( 1 9 9 0 ) , p 3 7 0

2 Ninth P a rty C o n g r e s s ’s D ocu m en ts, (N ational Politics Publishin g H ou se, Ha Noi 2 0 0 1 )

FIDIC - is the most prestigious organization in the world for drawing and

developing Standard íòrms o f contract used in intemational construction

activities In construction activities in Vietnam, conditions of specimen contract published by FIDIC have also been used for reference by the participants when negotiating the contract Yet, the FIDIC’s íòrms of conừact are dravvn just to apply to the intemational construction activities so each country has to take some changes so as to fit its speciĩic conditions when putting it into practice.For the time being, the FIDIC’s Conditions of Conừact for EPC/Tumkey Prọịects, published in 1999, are also being brought into effect in prcỹects implemented in EPC Contract form in Vietnam In fact, however, there have been a lot of diữềrent regulations betvveen the EPC Conừact of FIDIC and that

of Vietnamese law which must be investigated and assessed to offer suggestions to help sữengthen the capacity of applying EPC Contract to the construction activities in Vietnam in accordance with the current conditions of

Vietnam and gradually integrate with intemational practice.

For all reasons above, I venture to select the subject entitled “ Some

studies com paring EPC contract according to the regulatious o f riD IC and those o f V ictnam ese Iaw” for my master thesis.

1.2 The object and purpose of the study

The object o f the study is some contents of The FIDIC Conditions of Contract for EPC/Tumkey Projects and regulations of Vietnamese law on EPC Contract as well as the current application reality in Vietnam

This theme is made with ứie intention of pointing out the differences and similarities between regulations on EPC Contract of FIDIC and those of Vietnamese law ITienceíòrth, the author nuts forward some suggestions aimed at enhancing the possibility of bringing EPC Contract into the íìeld of construction

investment in Vietnam in such a way that dance the same tune with the ciHTent

conditions of Vietnam and little by little integrate into intemational practice

1.3 The studying scope of the thesis

The studying scope of this thesis is some regulations on EPC Contract according to The FIDIC Conditions o f Contract for EPC/Tumkey Projects published in the year 1999 and Vietnamese law which are related to the application scope, requirements on EPC Contract signing procedures, several main responsibilities of the Employer and Contractor and the bidding to select EPC Contractor The application practice is limited to only

a few construction prọịects implemented in EPC Contract form with Capital

sources from the State budget in Vietnam

1.4 The studying methods

In order to perform the task of this study, the author has used concrete scientiíic studying methods, such as comparing, analyzing and synthesizing

In each matter and each speciíìc studying content, the theme may use certain method separately or put the methods together to clariíy studying results as well as the author’s scientiíic viewpoints of the mentioned matters

Construction is a technical - economic activity which plays a vital role

in the economy It helps to create the face o f the nation’s economy and simultaneously set up the initial basis o f material and technology for the development o f other production industries

Construction works is a special product o f construction activities It is the íruit of many specialized and qualifíed people and has various uses, including having iníluence on the environment and cxpressing people’s sentiments, desires as well as aesthetics Moreover, it is a long-lasting product which may exist through centuries Being aware o f these roles and signiíicance, every legal system pays special attention to the adjustment in construction activities

In the past few years, in Vietnam, construction activities have greatly contributed to the implementation o f industrialization and modemization of country Many ílelds o f construction, including work construction convey, designing and operation, have becn satisíying the construction demand of the country

In order to create favorable conditions for management of investment and bidding in construction activities, the Government and Ministries issued legal documents to regulate these fields to encourage the economic sectors investing in production and eữĩciently using the investment Capital which are managed by State; to ensure work construction in compliance with the planning and designs; to select the Contractors who fully meet the conditions on appropriate capability for construction operation efficiently and economically; to create the climate for fair competition as well as satisíy the requirements on stable development, artistic appearance o f works and the protection of environment

On November 26, 2003, the 4th Session o f the IX National Assembly has passed the Construction Law to create clearly legal basis for combating wastefulness, unreasonable loss in construction activities and ensuring work quality This Law prescribes construction activities; and rights and obligations of organizations and individuals that invest in the construction

of works and conduct construction activities

Article 3 - Law of Construction issued on July, l st, 2004 defines construction activities as follows: construction activities consist o f setting

up construction scheme, íòrmulating investment and construction project, carrying out surveys of construction, designing, executing construction project, supervising the implementation of the construction works, managing investment, construction projects, selecting Contractors in

construction activities and other activities related to the construction of projects.

The concept o f construction activities is also clearly defmed in the Article 12 o f Construction Standards o f Vietnam as every technical activity related to the construction and installation of construction works in twố main stages: making construction plan (including the elaboration ofconstruction plans and construction management under the plans) and carrying out the construction project (including formulating investment project, carrying out surveys, designing, executing, and maintaining construction works)

From these regulations, we can come to a general concept of construction activities as follows: Construction activities are the collection

of all technical and economic activities including the elaboration ofconstruction plans, íbrmulation o f projects on investment in work construction, construction surveys, construction work designing, execution

of work construction, supervision o f work construction, management of work construction investment projects, selection of Contractors inconstruction activities and other activities related to work construction invested directly by organizations or individuals in a certain period o f time

and their results are construction Products and completed construction

works

From this concept, we can see that construction activity has the following íeatures:

Firstly, the subjects o f the construction activity are businesses,

individuals who have sufficient conditions, capability to take part in construction activities under the law.

Secondly, in terms o f economic form, construction a c t iv it y is a kind of

direct investment caưied out by construction subjects with their Capital

equipments, lahorers in order ío increase the value o f their assets to support their plans o f developing production and business Thus, construction investment is different from other types o f portíòlio investment, especially fmancial investment

completed construction works For each speciíĩc construction activity, thc

result will be different construction Products or completed construction

works, for example construction-planning schemes are Products o f the construction planning designing activities; investment projects (with the forms o f investment reports, pre-feasibility study reports, feasibility study reports) are products o f consultancy activities on compiling construction and

investment prọịects; construction data are Products o f surveying activities;

construction designs (including basic design, technical design, construction drawing design) are Products of construction designing activities; completed construction works (a house, a factory, a road or a bridge, etc) are Products

of the execution of work construction activities, etc However, if considered

in more details, completed construction works is the synthetic result of all construction activities Construction-planning schemes, work construction investment projects, surveyed data, construction work designing dravvings all aim at preparing for the execution o f the construction work and are the bases and conditions to create a completed construction works As explained

in Article 3 o f Vietnamese Law on Construction: “ Construction works

means Products created by human labor and with building materials and

equipment installed there in, affíxed to land, which may include underground and ground components, undenvater and on-water-surface components and are constructed according to designs”

In comparison with other production activities in the economy, construction activities have their own features Therefore, there should be appropriate regulations on construction activities so as to meet the demands for construction development and enhance their important position in the economy

The frist, products o f construction acíivities are single com pleted construcíion works o f high economic value.

It can be seen that in the field o f construction, there are few mass products for sales except for some available construction works such as living quarters for sale or rent Even in the construction following a sample design such as residential accommodation, health care center, schools, etc, each construction works needs to be changed or modiíicd to suit the geographical and climatic conditions o f the work site So, construction production activities cannot produce massively like other industries but produce under the orders As a result, construction works cannot be available at the time o f signing contract This characteristic requires the law

to regulate necessary technical standards and rules which are bases for both parties to determine the objects of the conừact when entering the conữact

At the same time, it is important for the law to stipulate íòrms and measures

in order to support investors to select the best performer Hence, regulations

on bidding and selecting contractors in construction activities are o f great importance

On the other hand, construction Products, from small-scale works such

as a house to large-scale works such as inírasiructure, industrial works are all the results o f large amount o f materials, laborers, machines and equipments Thereíbre, the economic value of a completed construction works is much higher than other usual industrial Products Moreover, the product o f construction activities has a great impact on the economy as well

as p eop le‘s life and the Service life o f construction works is usually rather

long It is the economic value and special signiílcance of construction works that put forward strict requirements on the quality of construction Products

To that end, law should set up specific regulations on construction standards, rules and economic-technical sanctions compulsorily applied in construction as well as the rights and responsibilities of subjects taking part

in construction activities for ensuring the quality of construction works This feature also has effect on such terms in construction contract as the objects

of contract, request for the quality o f the construction works, maintenance, insurance, solution to construction works incidents and the handing-over construction works In addition, because of the important part o f the construction works and their long-term impacts on people‘s life and surrounding environment, the matters related to architecture, aesthetics and environmental protection also need to be taken into consideration in legal regulations on construction

The second, the com plex process o f construction activities requires the participation o f m any subịects.

It is clear that to get the íinished products (the completed construction works), construction process has to experience many stages from íbrmulation o f projects on investment in work construction, construction surveys, designing to procurement o f material and equipments, execution of work construction, etc Each stage also has a lot of particular tasks In order

to conduct such a large and complicated amount o f work, the construction process not only requires the participation and coordination o f many subjects, but also needs the management and supervision o f State agencies, íĩnance, credits and insurance organizations during the implementation of the projects The result o f construction activities depends very much on the capability of participants as well as the coordination among them and related parties in the construction process

Therefore, in order to organize and direct activities effectively, the State needs to establish a comprehensive managing mechanism for construction activities on the basis of clear allocation and division of functions, rights and responsibilities for management among managing authorities as well as their coordination

At the same time, the law needs to adjust the issue o f granting work permits, ranking enterprises in the íòrms of managing the implementation of the projects, ensuring their capability in construction activities so as to maintain the order and stability of construction and investment environment and keep enhancing the ability of management and capability o f enterprises

The third, consírucìton activities are usually taken p la ce in com paratively long p erio d o f time an d are remarkably itựluenced by the climate.

Construction Products are completed construction works which can be considered as fixed assets, so they often cost a lot o f time 10 produce This is due to strict requirements o f regulations on the order, procedure and stages

in the construction process On the other hand, construction activities are usually carried out outdoors in long periods, thus, they are greatly impacted

by the climate These impacts include interrupting construction process which makes the completion of works longer and the costs higher; making production ability o f enterprises underutilized during ứie year, causing difficulties in carrying out plans for production and business, mobilization and storage o f material and job stabilization for employees; and even damaging the implementing works

This feature leads to the control o f regulations on Capital management and method o f payment during the construction process For example, how

to manage Capital when payments are divided into many tim es equivalent to

the work progress; or if there is no suitable method o f payment, enterprises will have in s u f f íc ie n t Capital s o u r c e s to o p e r a te and e a s ily h a v e to run

unexpected risks o f weather, interest, inílation, rate, etc In addition, there are regulations on duties of buying insurance for works, machines, equipments, labourers and third parties dealing with damages caused by storms, thunderbolt, Tsunami, etc; and stipulations on the subjects’ responsibilities for the progress of implementation in order to shorten the

time o f execution and put the vvorks into operation sooner.

On the other hand, because construction activities often take much time and go hand in hand with a lot o f complicated relationships, there are many possibilities o f conílicts between the Employer and the Contractor A dispute arising in the construction process may ruin reputation and interest

o f related parties Eventhough a contract that is careíully drafted with clear division o f risks among parties and reasonable prices will reduce the possibility o f disputes, the opposite interests can still lead to disagreements Thereíbre, regulations on mechanism and procedures to settle disputes among parties play a very important role in construction activities

In conclusion, speciíic characteristics o f construction activities mentioned above have great impacts on legal adjustment in such complicated and important activities Hence, it is necessary for the law to have appropriate adịustments to the íeatures of construction activities to increase the efficiency o f these adjustments as well as to meet the demand for development o f construction activities in particular and the economy in general

2.2 Roles of contract in construction activities

In the market economy, every economic relation in general and construction assigning and undertaking relation in particular between subjects are all established and períbrmed on the basis of contract In the past few years, together with the economic development, the amount invested in basic construction in our country has rapidly been increased The State alone spends more than 30 % of its budget expcnditures on the íield of investment and construction every year.3 Along with the increased investment in basic construction, more and more contracts have been signed with larger and more sophisticated amount o f work and a wider variety of subjects as well executing methods It can be said that construction contracts have been actively bringing its roles into full play to construction activities

in Vietnam for the time being

2.2.1 Contract as a State's management tool for construction activities

Although contract is a voluntary agreement among parties, in order to make the contract work as a legal tool to carry out investment construction activities, the State needs to have necessary regulations so as to ensure social beneíits as well as the rights o f subjects participating in construction activities Through contracts, State can perform its management over construction activities by regulating conditions of the subjects, contents and forms of contract, bases and procedures to enter contract, mechanism to carry out and settlement o f violation and disputes of contracts

3 Thai B a Can, P in ance M an agem ent in C on stru ction Field, (F inance P ulishin g H o u s e, Ha

N o i , 2 0 0 3 ) , p 5.

2.2.1.1 Requirements for subjects of construction contract

Under the current regulations, subjects o f construction contracts include: Employer, Professional Project Management Board (assignment of bid party), Investment and Construction Consultancy Organization, Work Construction Contractor and Supplied Contractor (acceptance of bid party)

Besides, in construction contract relationship, there exists the participation

o f the third party consisting of one or more agencies or organizations vvhose power and responsibilities are directly involved in the construction contract relationship For instance, Designing Consultancy Organization performs the task of supervising designer while the State agencies períbrm the management of technology, environment and prevention of fire and explosion

Subjects engaged in construction contract must have capability of construction operation and economic competence in construction activities

as regulated by law

At the moment, in addition to the detailed regulations on establishing enterprises and business registration, the State also regulates conditions on capability for construction operation o f enterprises These conditions can be divided into two categories: conditions on capability o f work construction consultancy operation and conditions on capability o f execution and construction equivalent to two subject groups in construction activities The íĩrst group consists o f Employer (Investor), Prọịect Management Board and Professj -nai Proịect Management Board belonging to the Employer, Investment and Construction Consultancy Organization The second group includes Work Construction Contractor and General Contractor In each group, the law regulates both minimum conditions on capability applied to all subjects o f the samc group and particular conditions on capability

applicd to each subject.4

Regarding to the economic competence o f enterprises, the current law

o f construction investment stipulates that: enterprises are entitled to actively

conduct all the tasks o f three stages like preparing investment, carrying out

investment, completing construction and putting prọịects into practice and taking responsibilities for the results Among the rights given to enterprises

by the State, the three most important ones are: formulating investment projects, making decision on investment and organizing to manage execution of project.5

each form o f enterprises, the Employer is clearly defmed as “Capital owner,

Capital borrower or the person who is assigned to directly m anage and use

appropriate proíessional capability and experts managing the implementation o f the project The Employer may use his current system

4 S ee D e c i s i o n N o 1 9 / 2 0 0 3 / Q D - B X D dated July 3 rd, 2 0 0 3 o f t h e M in ister o f Construction pro m ulgating the R egula tions on C onditions on Capability for Construction Operation.

5 S e e D e c r e e N o 5 2 / 1 9 9 9 / N D - C P ; D e c r e e N o 1 2 / 2 0 0 0 / N D - C P and D e c r e e N o

0 7 / 2 0 0 3 / N D - C P o f the G o v e r n m e n t

6 V ie tn a m e s e Constru ction Law, Art 3 (21).

and appoint masters or establish the Project Management Board to manage the project implementation.

Pro/essional Prọịect Management Board: Professional Project

Management Boards are íòunded by authorized State agencies and assigned responsibility for managing the projects with State budget, especially ODA

Capital source.7

Investmení and Construction Consultancy Organization: Investment

and Construction Consultancy Organizations are professional organizations

of various economic sectors having legal entities and business registration

of their investment and construction consultancy according to the provisions

of law.8

Under the current regulations, investment and construction consultancy includes: íòrmulation o f construction investment projects, management o f projects, construction surveys, work construction designs, supervision o f work construction, veriíication of the construction quality and other consultancies

In the system o f economic organizations operating in construction field, Investment and Construction Consultancy Organizations or Consultant Engineers play an important role as a “bridge” between the Employers and the Contractors In developed countries, Employers or clients of Consultancy Organizations understand that “transferring technology is an

important sub-product o f employing Consulting engineers” because

members of the customers’staff who are usually assigned to work with

Consulting organizations may be trained and gain experience from these organizations At the same time by employing engineers and “putting the burden on their shoulder”, clients can reduce some work for their technical and managing staff Thereíòre, the cost of production, operation and maintenance will be minimized.9

In fact, a great deal o f work related to investment preparation and implementalion such as planning projects, canying out investment, managing the project performance used to be conducted inefficiently by the Employer due to the lack o f professionally technical managers However,

for the time being, aữer being transferred to professional Consulting

organizations, the effíciency has been much improved, which helps the Employer to take closer control over the project and helps construction

enterprises quickly solve the arising problems and hasten the work progress.

Contractors' Contractors are organizations and individuals that are

fully capable o f conducting construction activities or practicing construction when participating in contractual relations in construction activities.10

signing contracts with the Employer to undertake a job or all the jobs of a construction investment project General Contractor takes the following principal íorms: Engineering General Contractor; Construction General

7 Ministry o f Pla nning and Inves tment released that there are about 3 0 0 P ro fess io n a l Project

M an agem en t Boards all over the country now

Contractor, Engineering and Construction General Contractor; Engineering, Procurement and Construction General Contractor (EPC General Contractor); General Contractor íòrmulating construction investment prcỹects of engineering, procurement and construction (Tumkey General Contractor).11

Principal Contractor: Principal Contractor is the Contractor directly

signing a contract with the Employer to perform the main work of the project.12

Sub-contractor: Sub-contractor is the Contractor signing contract with

the Principal Contractor or General Contractor to períòrm a part o f the work

o f the Principal Contractor or General Contractor.13

Organizations and individuals engaged in construction activities must have construction practicing capability and construction operation capability Speciíically, construction practicing capability is prescribed for individuals and construction operation capability is prescribed for organizations engaged in construction activities.14

Construction practicing capability o f individuals is determined in grades based on their professional qualifications certiíied by a lawful specialized training organization, experience and professional ethics Individuals engaged in construction engineering and planning, construction survey, work designing and/or supervision o f work construction, when independently conducting such activities, must have appropriate practice certiíĩcaíes and bear personal responsibilities for their work

Construction operation capability of organizations is determined in grades based on construction practicing capability o f individuals in such organizations, experience in construction activities, íinancial stalus, equipment and managerial capacity of such organizations

Construction enterprises are enterprises o f all economic sectors, which are established according to regulations o f law and have construction business registration In order to improve the management o f business and construction activities in accordance with the Law of enterprises, the State has regulated on conditions and capability o f Work Construction Contractors instead of granting work permits as previously defmed in the Decision No 500/BXD-CSXD dated on 18 September 1996 o f Ministry of Construction Accordingly, Contractors when carrying out the work construction, must meet the following conditions: having registered the work construction operation; having full capability for work construction operation corresponding to work types or grades; having construction-site commanders with appropriate capability for practicing the work construction proíession; having construction equipment up to the work safety and quality requirements.15

It is necessary for Foreign Contractors, including Construction Consulting Contractors (including consultancy on management of construction project, survey, designs, examination of designs, inspection,

11 V ie tn a m e se Con stru ction Law , Art 3 (2 3).

12 V ietn a m ese Construction Law, Art 3 ( 2 4 )

13 V ie tn a m e se Construction Lavv, Art 3 (2 5).

14 V ie tn a m e s e Construction Lavv, Art 7 (1).

15 V ie tn a m e s e Construction Lavv, Art 73.

management o f construction quality and other construction Consulting jobs)

and the Work Construction Contractors to have contracting permits suitable

to each contract when signing contract to implement construction projects in Vietnam Foreign Contractors must also have the contracts on joint ventures with Vietnamese Contractors or written commitment to use Vietnamese sub- contractors as provided in the Regulation on Bidding o f Vietnam, except for the cases agreed by the Prime Minister or appropriate with the provisions of Vietnamese law.16

construction contract

is a set of terms, including both general conditions and speciíic ones that two parties o f assignment and acceptance of bid commit with each other, fully showing the rights and obligations o f each party

According to the regulation in Article 108 - Law on Construction, a construction contract includes the following main contents: the tasks to be performed; quality and technical requirements o f the job; timing and work progress; conditions for taking over and handing over; price and method of payment; period of waưanty; liability for contract breaches and other agreeraents in coníòrmity with each type of contract; and the language used

in the contract

Apart from the main terms deíined in the contract, specific and general conditions of each contract according to the guidance o f the International Federation Consulting Engineers (FIDIC) are also used for reference so as to make preparation and sign the construction contract

General conditions of a contract are the collection o f detailed guidance terms on the rights and obligations o f participants in the construction contract relationshịp which help the preparation o f signing contract be convenient and accurate

Particular conditions o f a contract are the collection o f terms that apply general conditions to special cases taking context and place of construction into account Particular conditions help the process of preparation to be in line with each contract

In the past, under the Regulation o f economic contract in the fíeld of basic construction (issued together with the Decision No 29/QD/LB dated

on 1 June 1992 o f Ministry o f Construction - State Economic Arbitration), all the terms o f contract or content o f agreement among subjects o f contract were fully indicated right in the contract Such way of íbrming contract often makes the content of contract too long or too simple and fails to cover all rights and obligations of the subjects It also easily gives rise to disputes which have negative impact on the períòmiance o f the contract

Under regulations of the cuưent law, a complete construction contract

includes: contract paper (shovving all agreements o f parties on the jobs to be

períbrmed, rights and obligations o f each party and sanctions to períbrm those agreements); documents enclosed with contract (such as bidding

16 S e e D e c is i o n N o 8 7 / 2 0 0 4 / Q D - T T G dated 19 M ay 2 0 0 4 o f the Prime Minister pro m ulgating the R egula ti ons on m a n a g em en t o f íòreign contractors undertaking the construction or con su ltan cy on construction proje cts in V ie t N am

winning notice or bidding appointment paper, General Conditions, Particular Conditions, proposals in writing of Contractors, drawings,

amendments and supplements in \vriting, guarantee paper, Insurance paper,

etc) With these regulations, the contents of a construction contract have considerably been vvidened They not only have an overall view of things but also speciíically define the rights and obligations o f each party taking part in the contract relationship in order to make a perfect whole which tightly tie liabilities o f the parties together

Form o f construction contract: Construction contract is set up in

writing indicating the agreement between related parties according to the procedures regulated by ]aw

2.2.1.3 Requirements for bases and procedures to sign and implement construction contract

Legal documents on construction contract have deílned clearly that beíòre performing assignment of bid or after winning bidding, assignment

o f bid party and acceptance of bid party havc to sign economic contract in writing Thus in every case Employers must establish construction contracts

in the way o f directly signing with Contractors Construction contract is legal basis to establish relation of assignment and acceptance o f bid between Employers and Contractors

With the role in macro-management of the economy, the State

regulate bases to sign contract in order to adjust and guide enterprises to

períòrm signing the construcTion contract well The bases o f signing

construction contract are legal íòundations for signing and are measurement

o f the Contractor‘s done work At the same time, according to those legal bases, parties can solve arising troubles and disputes (if any)

The bases to sign the contract include regulations on civil contract, economic contract, construction investment law, and other relevant regulations such as construction rules, construction standards, works quality management, construction cost management, insurance, results o f bidding (if any) These bases are chieíly orientation for subjects o f the construction coniract in order to ensure the result o f contract implementation suitably with enterprise’s requirements as well as meet the demands o f the economy and social beneíits

Among the above legal bases, the bidding results have a signiíicant

m eaning to m anage investm ent Capital All work construction investm ent

projects with State budget must hold bid to choose Contractors implementing projects

Together with the regulations on bases of signing the construction contract, the State also manage the implementation o f construction contracts through regulations on key matters such as mechanism, methods of implementing construction contract in order to guide enterprises to use contract tool effectively in the construction activities, at the same time protect the legal rights o f enterprises, society and economy‘s benefits

Compared with usual civil and economic contracts, mechanism to

implement obligations according to contract in construction contract

relations has some remarkable points arising from the features of

construction contract Firstỉy, mechanism to implement the obligations of

parties in construction contract belongs to third party (consultancy organizations which manage and supervise implementing contracts) If in the usual economic or civil contracts, there are only the subjects o f contract períòrming their obligations actively according to the signed contract Unlike this, in the construction contract relation, there is a third party playing the role of consultancy and supervision implementing contract of parties According to the provisions o f law, designing consultancy units have to perform author’s supervision regarding to the execution of Contractors Therefore, some jobs such as taking-over completed items, handing-over the works, payment and settlement in construction activities are not only implemented by Employers and Contractors but also depending

on ideas o f designing consultancy units Besides, due to the sophistication of construction activities, in order to implement a construction contract effectively, parties are required to have enough conditions of capability and qua]ification according to the provisions o f law The Law on Construction Investment regulates that in case o f lacking capability, Employers have to employ consultancy organizations in order to supervise, manage the implementation o f contract

the construction contract is that the law allows Contractors to transíer a part

of work to sub-contractors Re-assignment of bid arising from the feature of construction activities is that subjects o f these activities often take over a large amount o f work but it can be divided into many items to implement Besides, construction activities are implemented on the large work-site Therefore at the speciữc work-site, many units can implement many different items at the same time to shorten the time o f implementing The re- assignment o f bid doesn’t depend on Employers; sub-contractors are only responsible to the Principal Contractors or General Contractors

Methods to conducting contract' According to the provisions o f law,

there are four methods o f contract implementation as fo llo w s: 17

- The lump-sum contract: is a contract with lum p-sum price, applicable to biddịng packages which are clearly determmed in terms o f the quantity, quality requirements and duration In case of extra-contractual happenings not caused by the Contractors they shall be considered and decided by the competent persons or the competent levels;

- The turnkey contract: is a contract that covers the w h o le process from designing, equipment supply to construction and installation of a bidding package which are períòrmed through a Contractor The Investor shall have to participate in supervising the process o f implementation, pre- acceptance test and examination as well as acceptance and hand-over upon the completion of the entire project by the Contractor under the signed contract

- The contract with price adịustment: is a contract applicable to bidding packages which, by the time o f signing the contract, lack conditions for the determination of their quantity and volume or the prices greatly íluctuate due to changes in the State’s policies and the contract períbrmance

17 See D ec r e e N o 8 8 / 1 9 9 9 / N D - C P dated 19 Septe m ber 1999 o f the G overnm ent Prom ulgating the Reguia tion on B id ding, Art 6; Circular N o 0 8 / 2 0 0 3 / T T - B X D dated 9 July 2 0 0 3 o f Ministry o f Construction.

duration is over 12 months During negotiation and reaching contract,

parties have to regulate price changeable, partial work or items being able to

adjust price with adjustment limitation and íòrmula

Contractor or a Consortium o f Contractors (collectively called EPC

Contractor) to conduct all the work o f a project or a tender package on

engineering, procuring equipment, teclmical Service, installation,

construction, synchronous operation and put it into practice

2.2.1.4 Mechanism dispute settlement

The State regulates mechanism to settle violations and disputes arising

in construction contracts This mechanism is regulated on the principles of

settling contract disputes in general and in accordance with special features

of construction investment contract Arising disputes will fírst be solved by

negotiation and conciliation If these take no effect, disputes may be refeưed

directly to court or arbitration Solving construction contract violations is

based on legal regulations and agreement betvveen parties in the conừact

Besides the mechanism to settle violations and disputes of

construction contracts according to the civil and commercial procedures

mentioned above, individuals having responsibilities related to violations

made on contract obligations such as on the quality management and work

safety that cause serious break-downs will be punished according to the

provisions o f criminal law

In general, the regulations on construction contract have met the basic

requirements o f State management for establishing necessary legal

conditions in order to guarantee enterprises to períorm well their economic

self-control in construction investment activities and simultaneously protect

interests of society as well as legal rights o f enterprises Besides

compulsory regulations on conditions o f subjects of the contract and the

principles and bases to stgn contract, most other regulations on methods of

contract implementat’jn , content o f contract terms, general and specific

conditions are not only aimed at guiding enterprises to use contract to the

best effect but also establishing economic relationships n construction and

protect legal rights for enterprises Thereby, contract has really become an

essential tool for the State to manage present construction activities

From the angle o f enterprises operating in the construction field,

contract is a tool for them to carry out construction investment plans and

establish relations o f assignment and acceptance of bid in order to achieve

their goals as well as to make anticipated proíits

It can be said that contract is the most important and basic means to

períbrm self-control right of enterprises in business activities in general and

construction investment ones in particular Under regulations o f law,

enterprises conduct íhis right in consírucíion activities through negotiating,

signing and implementing the contract on assignment and acceptance o f bid

At the same time, enterprises must obey signed contracts strictly In the transition o f economic management mechanism in our country, Law on Construction Investment more and more widens economic competence of enterprises, thereby, continually enhancing legal position o f subjects participating in construction activities

Contract as a legal form to establish economic relations in construction investment field is expressed on the following aspects:

Firstly, through signing the construction contracts, parties can choose partners in accordance with their requirements

Secondly, under the contracts parties can agree with each other on their rights and obligations speciíically whilst the law only regulates on principle matters

Thirdly, construction contract is also a very important legal basis to protect rights and benefits o f subjects o f the contract, especially in business environment having a lot o f risks as construction activities

To sum up, construction contract is both the result o f the previous preparation and negotiation and compulsoiy basis to establish the relationship between assignment and acceptance o f bid in construction Correspondingly, there is a need for the Employer and Contractor to compile a perfect contract in terms o f both content and form Actually, construction contract is not only an effective management tool o f the Staie but also an important legal basis for enterprises operating in the construction field Therefore, complete regulations on contract will pave the way for better management o f the State over construction activities and enable enterprises to perform their self-control rights more effectively in construction activities

2.3 EPC Contract - A new approach of construction contracting method

“EPC” is an abbreviated terms in English for Engineering- Procurement- Construction which takes root írom construction contracts of buildings or industrial complexes in the oil and gas industry in the United States At present, this term is used all over the world According to the most widely accepted defmition, “EPC Contract” is the contract where the General Contractor is responsible for Engineering, Procurement and Construction o f a consortium o f contractors.18

Under EPC Contract, a Contractor is responsible for completing the project and the Employer just needs to “get the key” to start operating the project Hence, EPC Contracts are sometimes called Tumkey construction contracts In addition to delivering a complete facility, the Contractor must deliver that facility for a guaranteed price by a guaranteed date and it must perform to the specified level

As engineering and construction work moves into the 90s, there has been a great increase in engineer, procure, construct (EPC) contracting

18 Supra N l , p 3 7 0

approach.19 In recent years, the application o f EPC Contracts to construction projects, especially to infrastructure projects, has become familiar to the Employers and íìnancial institutions The use o f EPC contract as a project delivery method has increased signiíicantly, for example, in America, the use o f EPC/Tumkey contract for construction projects has increased írom

18 billion USD (in the mid-1980s) to 69 billion USD (in the mid-1990s) industry and now takes up for roughly 25 percent o f the construction industry.20

Under a traditional contract form, the Employer signs the contract with Proíessionals (Engineer, Architect) to prepare design and tender documents, supervise the work as well as with Supplier to procure materials and equipment and with Contractor to execute construction work (Diagram

Diagram 1.1 Traditỉonal Construction Contract Form

Under an EPC contract form, the Employer signs the contract with EPC Contractor to prepare design, procure materials and equipment, execute construction work and supervise work (Diagram 1.2)

Diagram 1.2 EPC Contract Form

It is clear that one o f the causes leading to changes in the trend of applying EPC contract instead o f traditional construction contract is the advantages of implementing projects in EPC contract form

19 IEEE, P an el D isc u ssio n C on stru ction C o n tra c t Trends f o r The 90s, p 2 1 9

J< Joseph A H uce, U n derstarìdin g a n d N e g o tia tin g Turnkey an d E P C C on tracts, (Svveet &

Maxvvéll, L odon, 2 0 0 2 ) , p 5.

2.3.1 The advantages of EPC Contract

2.3.1.1 Single source responsibility

The íirst advantage that makes EPC contract outweigh traditional construction one is that one party - the EPC Contractor - must be responsible to the employer for implementing the project

In traditional design-bid-build projects, responsibility for design and construction is often spread a number o f parties Design and construction tasks are often períormed by separate entities of pursuant to separate contracts Generally, in these projects, the Employers take the responsibility for co-ordinating various project elements and their respective interíacing Each Contractor or participant will only have liability for the discrete prọịect package for which he is responsible This may lead to a number of problems Contractors may make claims as a result o f poor co-ordination between packages One Contractor may delay the work o f others Furthermore, it may be very difficult to allocate responsibility for defects between a designer and a contractor.21

By contrast, the EPC contract makes the Contractor entirely responsible for both the design and construction o f the works The Employer receives a completed project in accordance with his períòrmance specifications When he looks for accountability as to the períòrmance and quality of the works, he needs look no íurther than the Contractor This means that the Employer does not need to worry about co-ordinating contractors effectively (and avoids claims resulting frora lack o f interíace defínition) If he wishes to make a claim conceming a defect he can look to the Contractor vvithout the need to address whether it is a design or workmanship problem.22

Furthermore, thc Contractor is allocateđ design, co-ordination and construction responsibilities for the whole of the work, ứie Employer need not provides the same level of technical expertise required under the traditional contract, e.g he need not provide detailed design preparation capabilities In summary, the Contractor must deliver works that are fully operational to the speciíications o f the Employer; any defect o f fault is necessarily his responsibilũy except where the contract provides otherwise Everything relating to the works can, thus, be concentrated in a single source responsibility - the Contractor

The use of EPC Contract results in a considerable reduction of intervention by the Employer in the design and construction process, as compared with traditional construction contract The role o f Employer will consist primarily of contract administration So it is vitally important that great care is taken in selecting the Contractor has suffícient knowledge and expertise to execute the works Given the significant monetary value o f EPC Contracts, and the potential adverse consequences if problems occur during construction, the lowest price should not be the only factor used when selecting Contractor

21 Supra N 20, p 17.

22 Supra N 2 0, p 18.

The responsibility o f the EPC Contractor for the whole designing,

procuring and executing work construction makes the Standard o f

períormance be given for the EPC Contractor different ữom contractor in the traditional construction contract The EPC Contractor must design and build the works in a manner such that the períòrmance o f the fínished works satisfies the criteria set out in the contract (othenvise known as períòrmance criteria) The Employer will deííne these performance criteria in such a way

as to ensure that the works provide at least the level o f performance required for profít-able production The períbrmance criteria may speciíy output, input, and any other períòrmances the Employer may desire For example,

in the construction o f a coal-fired power plant the Employer will want to ensure that the plant produces suffĩcient power to satisíỷ his commercial needs, in particular where he has entered separately into an agreenient for a third party to purchase a certain amount of the electricity produced Thus, these criteria set out levels o f performance the Employer expects; it is then the responsibility of the EPC Contractor to produce works that are in coníbrmity wilh thom

Under a traditional design-bid-build contract the Construction Contractor and the Designer are held to different standards o f performance for the completion o f the works Designers in many jurisdictions traditionally have nol been required to guarantee result, but rather method They are held to have a superior base of knowledge, suffícient in competency and ability to complete the design with a reasonable degree of technical skill For example, courts in the United States have held that the designer, in the preparation o f design and drawings, must exercise his skill and ability, judgment and taste reasonably and without neglect.23 This

Standard represents a professional duty o f care The Contractor, on the other

hand, often may be required to construct the works with due care and diligcnce The standards are often deíĩned by the relevant legal system and

in accordance with industry practice The Standard o f performance can vary

from contract to contract, and construction Contractors are required to complete the works in accordance with the contract Thereiòre, the Contractor will not generally be held responsible for design defíciencies.Under a Tumkey or EPC contract both the Designer and Contractor responsibilities are placed on the EPC Contractor along with a stricter

Standard o f períbrm ance The Standard of períòrm ance applied w ill be

provided by contract, or in the absence of a specifíc provision, by the applicable law Under The FIDIC Conditions of Contract for EPC/Tumkey Prọịects the Standard is “fìtness fo r purpose” According to English case

law, a Turnkey/EPC Contractor is under strict liability to deliver a structure

“fít for the puipose” for which it was made.24

The Lífìtness fo r purposè''' Standard goes beyond a “professional duty

o f care”, placing on the EPC Contractor liability íbr any íailure of the

design to perform to the standards required This provides the Employer with works constructed and operational in accordance with the intended purpose or use of the works as provide in the contract For example, in the construction of a thermal power plant the Employer can set out in the

23 S u p r a N 2 0 , p 18.

24 ld., p 20.

Employer’s Requirements the size and nature of the plant desired, as well as its operational output and the consumption necessary to reacb such output Therefore, if the Employer original conception o f the works lacked some element necessary for it to be fít for the purpose intended, the Conừactor would be responsible for ensuring that the íinished works contained the missing element.

So unlike a traditional construction contract, an EPC Contract usually

contains a per/ormance specification The períòrmance specification details

the períòrmance criteria that the Contractor must meet However it does not dictate how they must be met This is left to the Contractor determine

EPC Contracts also contain performance guarantees backed by

liquidated períbrmance damages payable by the Contractor if it fails to meet the períòrmance guarantees

2.3.1.2 It enables users to control costs and work progress and helps to make íinancial support easier

The lump-sum pricing melhod is often used for Tumkey and HPC Contracts and enables the use of fíxed payments by stages o f completion The lump-sum pricing and íĩxed instalment payments provide the Employer with greater certainty in overall cost as well as in the timing of payments.Risk of cost overruns and the beneíĩt of any cost savings are to the Contractor’s account The Contractor usually has a limited ability to claim additional money that is lin ited to circumstances where the Employer has delayed the Contractor or has ordered variations to the works

EPC Contracts also provide a íĩxed completion date EPC Contracts include a guaranteed completion date that is cither a íĩxed date or a íỉxed period after the commencement o f the EPC Contract If this date is not met the Contractor is liable for liquidated delay damages In addition, the EPC Contract must provide for the Contractor to be granted an extension o f time when it is delayed by the acts or omissions of the Employer

And the lump-sum pricing method also facilitates íinancing, as lenders will have greater certainty o f financial exposure and the timing o f drawn- downs Many banks and other íĩnancing institutions preíer or require increased certainty as to the íĩnal price for a project, such as the European Bank for Reconstruction and Development, often insist on Lump-sum Turkey Contracts for construction projects whioh they íĩnance Project lenders believe that lump-sum pricing and single source responsibility reduce the completion risk to prọịect lenders and provide greater certainty of overall íinancial exposure This method of contracting is becoming increasingly prevalent for intemational inírastructure projects This is particularly true in BOT and similar prọịects, where limited recourse íinancing makes lenders wary of taking ílirther risks when it comes to the pricing of the construction project.25

25 S u p r a N 20, p 19-20.

2.3.1.3 The implementing speed is faster and the efficiency is higher

The third strong point of projects conducted in EPC contract form is that the implementing speed is faster and the effíciency is higher The traditional design-bid-build method o f contracting contemplates separate and distinct design and construction phases Moreover, the total project schedule is longer because o f multiple bidding phases The EPC method of contracting combines these two phases and allows construction to proceed along a “fast-track”; in certain cases the Contractor can even commence construction prior to the completion o f the design phase.26 Consequenlly the combination o f the design and construction responsibilities under EPC Contracts may result in earlier project completion

Moreover, the control given to the Contractor should facilitate implementation o f new and better approaches to design, developed through his experience and expertise The Contractor will have an incentive to implement such timesaving changes under the EPC (Tumkey) structure, which may not be true under more traditional contracting methods

Besides, since the Designer and the Constructor work as a team, they are more likely to identiíy critical flaws in the design at an earlier stagẽ ensuring avoidance o f mitigation o f the flaw when such action is more effective This team approach will help avoid many design and construction risks which a separate Designer and Constructor would not be able to identif> 7 The joining o f the design and construction task by one Contractor may also reduce the number of disputes that arise between the Contractor and Employer

In addition to the advantages mentioned above, EPC contract does have some unavoidable disadvantages which parties need to think twice before making choice

2.3.2 The disadvantages of EPC Contract

2.3.2.1 The Employer’s role of controlling activities of the project no longer exists

The engineer’s responsibilities for designing and supervising the implementation o f the contract are absent from the EPC/Tumkey Contract

As regulation on the Silver Book, the engineer’s supervisory role has been replaced, but in part only, by that o f the Employer’s representative This new role is relatively ílexible, allowing input in and control o f the design and construction o f the works However, the EPC (Tumkey) model generally contemplates less day-to-day intervention than is present under a traditional design-bid-build contract Under the EPC (Tumkey) Contract it may be difficult for the Employer to exercise his variation power properly

He may be distanced from design, reducing his understanding o f the processes used and his ability to veriíy the need for a variation proposed vvill affect the performance of the íinished works Where the engineer

26 Id„ p 2 0

27 B row n, " O pportu n iíies a n d Risks o f D e sig n -B u iỉd P r o je c ts ’\ T h e C onstruction Super-

c o n fe r e n c e , San F ra n cisco , u.s, ( 1 9 9 5 ) p 5.

d c s ig n an d co-ordinâtcs thc c o n s t r u c t io n , thc Employcr knows ât G3c h St3g c

how the works may need to be altered In the absence o f the engmeêr the Employer’s under standing o f the process o f the design and constructiỏn o f the works may be diminished

Moreover, the Contractor will want to execute the works within the parameters o f the Employer’s Requirements for the least cost possible The

Contractor in ã lU m k c y or EPC contract may bc tcmptcd to undcr-design thc project in ordcr to cut his costs and save on tim c.^ Thcrcíorc undcr thc Tumkey o f EPC modcl thc Ernploycr will still necd to providc supcrvision

o f the construction, to ensure that the Contractor’s períormance satisíles the contract requirements

2.3.2.2 The costs spent on project under EPC contract

is ọften higher than that of project implemented in traditional construction contract

When tendẹring for an EPC (Tumkey) Contract, the Contractor often must have a design in the advanced stages o f completion, having made sufficient tests and studies to know the cost and the level o f risk involved in the prọịect Under such circumstances, the cost o f tendering an EPC (Tumkey) Contract can be quite high Furthermore, under the Tumkey or EPC contract the Employer beneíits from an increased amount o f the risk o f the project being placed on the Contractor However, the Ẽmployer miìst also realize that asking responsible Contractor to price such risks W1Ỉ1

increase the construction cost

Whether the advantages o f the tumkey contracting method will outweigh the disadvantages will depend primarily on the nature o f the project in question and the identity o f the parties involved However with the fact that there ha;; been an increase in scale o f many prọịects and construction organizations as well as in the complexity in technology of these recently”29, EPC Contract will be applied more popular

On the whole, the above analyses have clearly shown the specifíc characteristics o f construction activities that other production activities in thẹ society don’t have Thercfore, there have been some differences in adịustment in law for those activities in which construction activity adjustment through contract is One o f the important adjustment methods in the market mechanism Compared with a traditional construction contract, EPC Contract has some differcnces, especially the rights and obligations o f parties As a result, legal regulations on this kind o f contract are required to readjust so as to put EPC contract into practice to its best advantages In addition, because this is a new kind o f contract in construction activities in Vietnam, it is very necessary to cany out research and studies so as to understand more about conditions for EPC contract according to the specimen o f intemational professional organizations which have good reputation in the íield o f construction as well as to approach to EPC contract

in accordance with intemational custom

28 Supra, N 2 0 , p 2 1

" D onald s B arrie and B o y d c P a u lso n j R , C on stru ction M an agem en t, ( T e c h n iq u e and

S c ie n c e Pu b lish in g H o u s e , Ha N o i , 1 9 9 6 ) p 5.

3 EPC Contract under the FIDIC

Vietnamese legal regulations

3.1 FIDIC and The FỈDIC Conditions of Contract for EPC/Turnkey Projects

I he intem ational market for Standard construction contracts is

dominated by a small group of intemational organizations.30 The main players are the International Federation of Consulting Engineers (FIDIC),

the International European Construction Federation (FIEC) the British Institụtiọn o f c ivil Engineers (ICE), the Engineering Advancement

Association of Japan (ENNA), the American Institute of Architects (AIA)

and the International Bank for Reconstruction and Development (the World

Bank) Other key contributors are UNCITRAL and UNIDROIT through

their more general work on universal contract models UNCITRAL was

involved also in specifíc work on the construction market International

legal íìrms are another important player Among them FIDIC is the most

commonly used fomi o f contract for intemational civil engineering works

The Central role o f FIDIC in the construction market is expressed that “in

recent years construction disputes have representeđ some 21 per cent of

cases submitted annually to ICC arbitration A signiíicant portion o f these

construction cases is govemed by the FIDIC Contract (International) for

Works of Civil Engineering Construction or on conđitions modeled on the

FIDIC Conditions”.31

FIDIC was íbunded in Belgium in 1913 The original íòunding

countries were France, Belgium and Switzerland At present membership is

drawn from 68 countries.32

FIDIC has dominated the market for intemational construction

documents since 1960s, with Ìts Standard forms of contract for enginsering

construction and for the provision of mechanical and electrical plant The

íìrst form, Conditions of Contract for Works of Civil Engincering

Construction”, which came to be known as the “Red Book” was used

mainly for large projects, such as inírastructure and hydropovver The

second form, “Conditions of Contract for Electrical and Mechanical Works

including Erection 011 Sile” (also called the “Yellow Book”) - was mainly

íor the construction of ìndustnal sites Both íomis have heen in widcsprcod

:i' F o r a r eccnt s u r v e y o f tliesc or g; ini zati ons, s e e B.J Ti c d e r , "T he G lobaliL a/ion a j

C o n s lr u ơ io n - E v o ỉv in g Slcm dards o f C onstructìon Law " 11998) 1 5 Int ernat i onal

use for several decades.33 FIDIC’s Red Book was particularly dominant in the world market.34 The prominent status of the Red Book wás affirmed by lhe World Bank, which has incorporated it into its Standard bidding documents for procurement of works Other private associations, such as the British Institution of Civil Engineers and ENAA of Japan, have also

p ro d u c e d im p o rta n t Standard do cu m en ts; h o w ev er, none o f these d o c u m e n ts has received the same kind of international stature that was achieved by FIDIC documents, in particular by the Red Book.35

During the last 10 ycars there has been considerable development in the construction industry and FIDIC íĩnds it necessary for their rules for procurement and execution of intemational construction projects to reílect the positive aspects of this development, to keep to date with the lessons learned during the last decade, and to set the standards for good engineering practice in the industry.36

In this respect, a “complication” has been added by the publication, in

1995, of FIDIC’s form for Conditions of Contract for Design-Build and Tumkey, the Orange Book And in September 1999, FIDIC published a suite o f four new Standard Forms of Contract with are suitable for the great majority of construction and plant installation projects around the world This new suite comprises: Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (The Construction Contract); Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant and for Building and Engineering Works Designed by the Contractor (The Plant and Design/Build Contract); Conditions o f Contract for EPC/Tumkey Projects (The EPC/Turnkey Contract); Short Form o f Contract (The Shoil Form).37,

According to the FIDIC, there are several reasons, or perhaps, trends that have developed strongly in recent years, which brings to the necessity

o f the completely new Standard Form of Contract - The EPC/Turnkeý Contract One trend is certainly the rapid sophistication and improved education and experience in many of the developing countries, together with the tendency for larger, more complex projects at much higher cost Besides, the traditional role which the trusted engineer held under many infrastructure projects in the third world, e.g road and water supply

33 T h e Red B o o k w as íìrst published in 19 57 and its íburth (and last) edition w a s publish ed

in 1987 T he Y e ! l o w B o o k ’s third edition w as publish ed in 1987.

34 F o r a com p r e h e n s iv e com m enta ry 011 the Red B o o k , see E.c Corbett FID IC 4 lh - A

P ra c tic a l L egal G ìiide: A C om m entary on íhe In ternational C on síru ction Contrcict (] 9 9 1 )

and N G Bunni, The F ID IC Fonn o f Contrcict: The Fourth E dition o f the R ed D ook (1 9 9 1 )

” O r e n Pc r ez, “U sing P riv a te-P u b lic L inkages to R eg u la te E n viro n m e n la l C onỊlicls: The

C ase o f In ternational C onstruciion C ontracts", Journal o f Lavv and Society, V o lu m e 29

Cỉ lie N c w YcIIonv B ook); T he EPC/Turnkcy Conlracl (T he Silvcr B o o k ) and The Short

r o i ni ( T h e Cìreen B o o k ) are co mp l o t c l y nevv r: I O I C S t a n d a r d F o r m s o f Co n t r a c i

Se e A p p c n d i x No ] aboLil Ihc KiDIC” s S u m d a r d r:o r m s o f C o n t n i c t tliat a i e mcnt i oncí l

in lliis llicsis.

prọịects, may still apply in some areas, but in many parts of the world, e.g the Far East, and of course in most civil law countries, the practice has long been for direct two-party contracts where the engineer plays a less prominent role in the administration of the contract The “Engineer” concept has also often been ridiculed by lawyers and others who cannot understand hovv someone paid by one party can be fair to the other party, and the fact is that for many projects nowadays the person delegated to be “the Engineer” has no chance of actually carrying out his duties impartially.39,40

The sophistication and experience of the employers and the large construction costs have also led to more importance being given to the responsibility borne by each of the parties, and the consequent greater involvement of lawyers and litigation

Another m ost important factor is certainly the developm ent towards privately íìnanced projects The shortage of or the uiTvvillingness by govemments to use public funding, together with the belief that the construction and operation of facilities will be more efficiently managed by

a private profít-driven entity, has led to the widespread development of privately ĩinanced project models, of public/private finance, e.g the Build- Operate-Transfer (BOT) model The prerequisites for obtaining private finance for a project are vastly different from those of obtaining government

or other public money Private íinancing requires that the prọịect is independently viable in íinancial terms, and that there vvill be, so far as possible, an assured return 0X1 the íinance provided The lenders on a BOT

or similar project will do their calculations showing the outlay over the construction period and the income over the succeeding operation period For the return to be reasonably assured, the bases for their calculations will have to be as firm as possible If the construction work costs more than reckoned (inclusive of any contingency allowance), then the calculations will not ho)d If the construction time is longer than planned, then the income will not begin to come in on time, and the calculations will not hold Thereíòre, such lenders have to ensure that the risks of cost and time overruns of the construction contract are limited as far as humanly possible Such lenders are aware that contractors will have to charge a premium for carrying the additional risks necessarv to provide the required greater security of construction cost and time The premium in certain cases may reasonably be large However, they would rather accept such premium and include it in their calculations before embarking on the project, than discover later on that the project is no longer viable and that they are incurring an overall loss.41

Thus during recent years it has been noticed that much of the conslruction market rcquires a fonn of contract where certainty of ílnal pricc, and oftcn of compleíion daíe, are of extreme importance.42 And the ÌID IC ’ s traditional policy of balanced risk sharing and the tradilional

' Chnslopl iLT W a d c , “FIDIC ’ ’ s S ta n d a rd F o n n s o f C antract - P rin cip lcs ciiìi/ S c o p c ()f llìc

Engineer’ s role under the traditional Red and Yellovv Books would no longer fít in this scenario FIDIC’ s traditional balanced risk - sharing has meant that the Contractor has taken the construction and other risks which

he can reasonably estimate, while the Employer has taken the risks of the uníòreseen and other circumstances which cannot reasonably be reckoned in advance These risks - sharing principles have been beneficial for both parties, the Employer signing a contract at a lower price and only having further costs when particular unusual risks actually eventuate, and the Contractor avoiding pricing such risks which are hard to evaluate However,

if the Employer demand a “íĩxed, lump-sum contract price” without increase when unexpected circumstances arise, he will have to pay more, he have to pay the premiums the contractor have added for the contractor to take these extra risks

The Conditions of Contract for EPC/Tumkey Prọịects (Silver Book) were established to meet these market demands This is a completely new FIDIC Standard Form of Contract where the possibilities o f extra payment and extra time would be limited to a greater degree than the traditional Red and Yellow Books and the term “engineer” is not mentioned

3.2 Some main content in The FIDIC Conditions of Contract for EPC/Turnkey Projects

3.2.1 Application scope and requirement for contract signature procedure of The FIDIC

Projects

The Conditions of Contract for EPC/Tumkey Projects (Silver Book) are prepared by FIDIC and recommended to use in cases that one contractor bears all the responsibilities for the implementation of a project It is important to consider the application scope o f the FDIC’s contract conditions for EPC/Turnkey Projects because there is hardly any specimen form o f contract suitable for all construction projects

According to FIDIC, the scope of application of Silver Book is restricted as follows:

First of all, if the price for the contract is relatively small, say under USD 500.000, or the consưuction time is short, say less than six months, 01' the work involved is relatively simple or repetitive - dredging work mi”ht

be a good example - it will be not suitable to use this Book In such case, FIDIC’s newly published specimen shorl form of contract should be used

\vilhout paying any attention to whether the design is provided hy ihe

E m ployer or the Contractor as well as which kind that prọịect belongs lo 43 The application scopc o f Silver Book is also mentioned by PIDIC in

t h c i n l r o d u c t i o n t o t h e í ì rs t p u b l i s h i n g o f S i l v c r B o o k 44 A c c o r d i n g l y , t h e

1 ’ S u p r a N 30, p 19.

' 1 S u p r a N 42, p 4 8 6

Conditions o f Contract for EPC/Turakey Projects are not suitable for use in the following circumstances:

First, if there is insufficient time or iníbrmation for tenderers to scrutinize and check the Employer’s Requirements or for them to carry out their designs, risk assessment studies and estimating This circumstance is not suitable for using Silver Book because with Silver Book, the Employer on]y prepares the Employer’s Requirements that describe the principle and basic design o f the plant on a functional basis Then the Contractor is required to carry out any necessary design and detailing of the specifíc equipment and plant he is offering, allowing him to offer solutions best suited to his equipment and experience The Contractor must also take responsibility for defects or eưors in the design (including checking parts of the Employer’s Requirements) Thereíbre the Employer makes available all relevant data prior to the “Base Date”45 and “the Contractor shall be responsible for veriíying and interpreting all such data” Also, except for certain signiíicant stipulated portions of the Employer’s Requirements, “the Employer shall have no responsibility for the accuracy, suffíciency or completeness o f such data”.46 Consequently, the Contractor must be in the position to guarantee íitness for purpose, which means he must have found out all necessary information and data, and have fully scrutinized and understood the Employer’s Requirements, before the contract is signed.47Second, if construction will involve substantial work underground or work in other areas which tenderers cannot inspect This circumstance is also not suitable to use Silver Book To obtain increased certainty of the fínal price, the Contractor is often asked to cover such risks as the occurrence o f poor or unexpected ground conditions Except as otherwise stated in the contract, the Contractor shall be deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may iníluence or affect the works; by signing the contract, the Contractor accepts total responsibility for having foreseen all difíìculties and costs of successfully completing the works; and the contract price shall not be adjusted to take account of any unforeseen difficulties or costs.48 If a project using the Silver Book may have uníòreseen ground conditions, it will be suitable to replace Clause 4.12 of the Silver Book with Clause 4.12 from the New Yellow Book (Conditions of Contract for Plant and Deskm- Build)

Third, if the Employer intends to supervise closely or control the Contractors work, or to revievv most of the construction drawings, it vvill not suitable to use the Silver Book As mentioned above, the Contractor signed EPC contract vvith the Employer that guarantees the works shall be

15 "Bữne D a ic " m e a n s t hc d at e 28 days p r i or to the latest dat e for s u b m i s s i o n o f t he T e n d c r

- C l a u s c ! ] 3.1 S i l v c r B o o k T h e Ba s c D a t c a l l ow s t he C o n t r a c t o r to uti lize for prĩcĩnc, and p r o g r a m m i n g p u r p o s e s , tlie l aws a n d cer t ai n c i r c u ms t a n c c s that ex i s t e d al the

a p p r o p r ĩ a t c ti nie \ vhcn h c f i na l i z e d his tender T h u s he vvill noi b c a r thc ri sk o f a c h a n g c in I;ivv or c i r c m n s t a n c c s o c c u r r i n g aí t c r the í b n n u l a t i o n o f the t e nđe i \ T h e B a s e D a t c c o u l d bc

fit for the purpose for which the works are intended as deíìned in the contract So the Contractor should be given íreedom to carry out the vvork in his chosen manner, provided the end result meets the performance criteria specified by the Employer Consequently, the Employer should only exercise limited control over and should in general not interfere with the Contractor’s work “It is well known and understood by FIDIC that unnecessary and uníair interference by the Employer in any tumkey project can have serious íĩnancial, time and other consequences on the Contractor”.50

However, the opposite situation is equally undesirable, vvhere the Employer has no control at all over his Contractor, or how that Contractor behaves or misbehaves while carrying out the work Clearly the Employer will wish to know and follow progress o f the work and be assured that the time programme is being followed He will also wish to know that the work quality is as speciíied, that third parties are not being disturbed, that períòrmance tests are met, and otherwise that the “Employer’s Requirements” are being complied vvith So it is reasonable that Employer may have on occasion to give instructions to the Contractor necessary for him to perform his obligations, and thereíbre it is necessary that thís be provided for in the contract conditions But the Clauses have been draíted to exclude as far as possible non-contractual or interference-type instructions

“If any Contractor suspects that an Employer is intending to be over- ambitious in his supervision o f the contractor’s work or otherwise likely to interfere unnecessarily, then that Contractor would be wise to take suitable precautionary action before signing the contract”.51

Last but not least, if the amount o f each interim payment is to be determined by an offícial or other intermediary Because o f interim payments, in respect o f the !ump-sum contract price, will be made as work proceeds, and will typically be based on instalments speciíĩed in a schedule

50 the engineer will certiíy payments to the Contractor like FIDIC traditional Books to be not suitable in this Silver Book

The scope o f application o f Silver Book is very important to both parties - the Employer and the Contractor They must consider it carefully

in order to avoid unnecessary arguments and guarantee the success of project

Besides, when using The FIDIC Conditions o f Contract for EPC/Turnkey Projects, requirement o f the procedure of contract signature has changes in comparison with the FIDIC traditional Books For the traditional Books, the traditional tendering procedures apply, with minimal (if any) ncgotiations before contract signature For example: for the New Yellovv Book, tenderers study all relevant data provided by the Employcr and obtain “all necessary iníormation as to risks, contingencies and othcr circumstanccs which may inílience or affect the Tender or Works” ”to thc exlcnl \vhich \vas practicablc (taking account of cost and time)”, beíore submiíling the-ir tendcrs The contract is then awarded, usually on the basis

of tlie lcnvest exaìuated lender Aíter conlract sianature, the Contraclor is then allowéd a period - stipulated in the Appcndix to Tender - whcrcin hc

M ld p 8.

51 kl p 8.

“shall scrutinize the Employer’s Requirements (including design criteria and calculation, if any) ” He shall then, within this period, “give notice of any error, fault or other defect found in the Emp]oyer’s Requirements If such error etc is found, which should not have been discovered beíbre tender submittal, then a variation will be awarded.

For the Silver Book, on the other hand, the intention is that all matters

w hich could cause a change in price shall be settled before contract signature The traditional tendering procedure does not apply Instead the

p ro c e d u re is th at th e “p ro p o sa ls ” from th e v ario u s p re se le c te d c o m p a n ie s are

exam ined - the most attractive proposal and hence “preferred bidder” is determ ined - fínal technical and com m ercial conditions are discussed and agreed - the contract is awarded, i.e signed by both parties The tendering procedure has to permit some discussions between the tenderer and the

Em ployer about technical matters and commercial conditions, including alternatives, options, technical aspects, etc as well as com m erciaĩ guarantees, m aintenance and operation undertakings, training, etc All these

m atters, w h en agreed, w ill be collected in a m em orandum or sim ilar w hich

will form part of the contract agreement Thus, the traditional tendering procedure ending in a letter of acceptance by the Employer o f the tender is not generally suitable for EPC and similar contracts

3.2.2 Key obligations of the Employer and the Contractor according to the FIDIC Conditions of Contract for EPC/Turnkey Projects

The obligations of the Employer and the Contractor are key contents

of any constructiun contract Because the EPC Contract is characterized by the lump-sum contract price and the Contractor has to ensure to complete the project so as to achieve the goal set by the Employer in the Employer’s Requirements, the main responsibilities of the Employer and Contractor in

an EPC Contract differ from those in a traditional construction contract

3.2.2.1 Key obligations of the Employer accordỉng to the FIDIC Conditions of Contract for EPC/Turnkey Projects

The first and íbremost obligation of the Employer in an EPC Contract is to prepare “Employer’s Requirements” This document consists

of íìgures and requirements of the employer when calling for tender as well

as the amendments and complements in coníormity with regulations deíìned

in the contract The FIDIC Guide recommends the “Em ployers Requirements” include delails such as “Ihe definition and purposé of the works; qualily and peribrmancc criteria; deíìnition and location of the sitc; spccial obligations; etc'\ 2 The “EmpIoyer’s Requirement” must speciílcally stalc “thc purpose, scopc, and/or design and/or other lechnical criteria, íor ihc works”." PIDIC suggests the Emp]oyer's Requiremcnts “should

í I DI C, "T he n H Ẻ C C o n tra cts C!iiùJư’\ L a u s a n n c , 2 0 00 pj 45.

describe the principle and basic design of the plant 011 a functional basis”.54 This document is very important to an EPC Contract because it lays the íoundation for the Contractor to conduct his coming tasks and evaluate whether he could complete the project in accordance with the goal of the Employer or not According to the Silver Book, the Employer must be in charge of preparing “Employer’s Requirements” to inform the Contractor prior to “Base date” However, because the EPC Contractor has to complete the works appropriate with the Employer’s purposes, the Employer has no responsibility for the accuracy, suffíciency or perfection of data, information that he provided in the Employer’s Requirements except for the following data: the íigures and iníòrmation recorded in the contract are deemed to remain unchanged or are decided by the Employer, the deíĩnitions of purposes, the plan of the whole project or some parts else, speciíĩc characteristics of veriíĩcation and the implementation of completed and partial works Those figured and information can not be checked by the Contractor, except for the ones regulated in the contract Thus, the Êmployer’s liabilities for his data and figures are limited This means the EPC Contractor also has to take responsibility for the ĩigured provided by the Employer “The Contractor is required to acknowledge that he has examined all aspects of the project prior to commencing the works, thus placing particular importance on the tender phase requiring the tenderer to have períòrmed any necessary site inspection and analysis as well as veriíìcation of any design provided by the Employer” 55

Next, at the beginning o f the execution stage, the Employer must

gi ve the Contractor possession of “any íbundation, structure, plant or means

of access” in the time and manner stated in the E m ployert Requirements and the Contractor may claim an extension of the time for completion as well as cost plus proĩits in the event these claims result from the Employer’s failure to provide timely access to the site or to a particular structure or item

o f the plan b The Employer also has to assist the Contractor in his

application for pemiits, licenses or approvals required of the Contractor by applicable laws and regulations as well as for customs clearance o f goods and for the re-export of the Contractor’s equipment as necessary.57

Besides, the Employer must provide his proof of the Employer’s fínancial capability to the Contractor This is a new provision of Silver Book Il allows the Contractor to insist that the Employer provide

“reasonable evidence” of ability to pay the contract price within 28 days after receiving any request from the Contractor and requires the Employer to inform the Contractor of any material change in its íinancial arrangemenís.58 The Contractor is entitled, after giving notice, to suspend or reduce the rate

of \vork where the Employer fails to provide reasonable evidence of his ĩinancia] arrangements for paying contract price Under the old Red Book (Clause 69.4), the Contractor was only cnlillcd to suspend work or reducc

the rate o f work where the Employer was not paying an amount due under any certiíĩcate.

In the process offulfilling the contract, the Employer is responsible

for managing the Contractor’s períbrmance Under traditional FIDIC Books, the Employer has an_important role in administrating the execution of contract, thus, the Employer has to employ engineer to administer the contract, monitor the construction work and certify payment However, under an EPC contract, the Employer does not wish to be involved in the day-to-day progress of the work The EPC Contractor takes all responsibilities for the design and construction of the infrastructure or other facilities, and provides the final result to meet the intended purposes defined

in the contract So the Silver Book offers the most ílexible option for a construction contract without an engineer in that the Employer may delegate

as much or as little responsibility to an Employer’s Representative as it desires The role of Employer’s Representative in EPC contract may simply

be limited to preparation of feasibility studies, preparation of contract documents and the drawing up of the Employer’s Requirements

The Employer’s Administration is maniíested by obligation to agree

or determine claims or disputes as indicated under the contract.59 This responsibility for making a determination arises most commonly in the context of events that might entitle the Contractor to claim an increase in the contract price or an extension of the time for completion.60 When an agreement or determination is required under the contract, the íirst step is for the Employer to consult with the Contractor in an attempt to reach agreement on the matter In the absence of agreement, the Employer is then entitled to make a determination of the matter This determination must be fair and in accordance with the contract The parties must give effect to each agreement or dexermination However, in the event o f a determination b> the Employer, the effect of the determination may be suspended if the Contractor gives a notice of dissatisfaction to the Employer regarđing the determination Either party may then refer the matter to the next tier of dispute resolution - the Dispute Adjudication Board - for decision in accordance with the applicable procedures contained in the contract

An important matter related to the Employer’s obligation is to define the EmpIoyer’s risks Because under the contract, once the risk is deíined as the Employer’s risk, the Employer has to accept or make decision on the extension o f time and/or all the expenses compensated for losses, damages due to that risk According to the Silver Book, Employer’s risks include:

\var, hostilities; rebellion, terrorism, revolution; riot, commotion or disorder; explosive materials, ionizing radiation or contamination by radio-aclivity; pressure \vaves caused by aircraíì.61 This provision shows that the list of thc Employer's risks in the EPC Contract is more limited than traditional contract Unlike the tradũional FIDIC Books, use or occupation of the works by the Employer, desiíín of the works by the Employer's pcrsonnel

and “uníòreseeable” operations of the íbrces of nature are not recognized as Employer’s risks in the EPC Contract, in keeping with the risk allocation philosophy o f the Silver Book, under which more risk is allocated to the Contractor.

Another imporlant obligation of the Employer under the contract is to make payment for the Contractor It is common for construction contracts to have a system of payment that uses instalments or advances on account By using interim payments based on the value of the work done during the interim payment periods or at the completion of speciíĩed stages of construction, the parties ensure the Contractor has a flow o f Capital during construction The use of stage or milestones for interim payments will also increase the Contractor’s incentive for timely or early completion of the works.62 The Silver Book uses the interim payment method The Employer will be required to make an advance payment to the Contractor for mobilization and design, as an interim-free loan if it is regulated in Particular Condition However, the Contractor must first submit a related guarantee.63 Interim payments other than the final payment must be paid to the Contractor within 56 days of receipt of the Contractor’s statement and supporting particulars The fmal amount due must be paid within 42 days after receiving the íinal statement and discharge from the Contractor.64 It is different from regulations on the traditional FIDIC Books - request payments are certified hy engineer The Silver Book also regulates that if the Contractor does not receive payment as speciíied in the contract, the Contractor is entitled to receive íinancing charges compounded monthly on the unpaid amount during the period of delay65

In general, under EPC Contract, the Employer’s obligations have dramatically been reduced in comparison with those under traditional

c o n s tru c tio n c o n tra ct ' r' t } i n p í ^ I 3eem s to ; L : i ' c 1 ' - t a n d putforward his requirements and the Contractor is entirely responsible for completing the works in accordance with the Employer’s purposes, carrying out all the tasks of Engineering, Procurement and Construction, ensuring the price, accomplishing within the required time, getting everything ready for the Employer at the time of “turning key”

3.2.2.2 Key obligations of the Contractor according to the FIDIC Conditions of Contract for EPC/Turnkey Projects

U nder the traditional design-bid-build method o f construction, the role

o f the Contractor is primarily limited to construction o f the works The Employer brings in One or more Contractors, often under the guidance o f an enginecr, to accomplish specific tasks o f construction Generally, under this mcíhod o f construction thc Contractor does not assume the overall rcsponsibilìly íor the design and co-ordination o f the project By conlrast the ẸPC Contract places ccnain, if not all, design responsibi]ities and responsibility for c o o rđ in a tio n o i'th e prọịect on the Contractor The EPC

C onlractor is no longer sim ply a construction expert but also an expert on design and project resource co-ordination Therefore, the EPC C ontracíor

w ill be responsible for co-ordination o f the interfaces betw een design and construction and the interfaces betw een the individual construction packages The EPC C ontractor may even be required to co-ordination the tasks accom plished by other contractors o f the Em ployer.66

The general obligations o f the C ontractor under the Silver B ook are very com prehensive in order to reílect his extensive role in the design and construction o f the works FIDIC Silver Book C lause 4.1 sets forth a list and description o f the C o ntracto r’s design, execution and com pletion o f the

w orks, as w ell as the obligation to rem edy defects C lause 4.1 gives the

Standard for com pletion requiring that the w orks shall be “fit for the purposes for w hich the W orks are intended as deíĩned in the C ontract” The general obligations are then supplem ented by m ore specific obligations regarding plant, C o ntractor’s D ocum ents67 and generally all “other thing s” required to achieve the general design, execution, com pletion and defect rem edies.

The íĩrst C on tracto r’s key obligation is general design obligations

U nder an E PC C ontract, the C ontractor vvill be generally responsible for

m ost, if not all o f the design o f the w orks and the design m ust be fít for the purposes intended These general design obligations are different from traditional construction contract U nder the Red Book, the C ontractor is only responsible for the design to the extent speciíled in the contract, and the “íitness for pu rpose” Standard applies only to w orks designed by the Contractor Therefore, under the R ed B ook the C ontractor is not responsible for erecting w orks fit for the purposes intended, to the extent the design is provided by the Em ployer The C ontractor generally m ust sim ply build according to the E m ployer’s specifícations, though he m ay still be under an

im plied duty in som e jurisdictio ns to inform the E m ployer o f any obvious design defects or other shortcom ings.68 Silver B ook C lause 5.1 states expressly that the C ontractor is deem ed to have scrutinized the E m p]oyer’s

R equirem ents p rior to the Base D ate It states the C on tracto r’s general responsibility for the design o f the w orks but also m akes him responsible for the accuracy o f the E m ployer’s R equirem ents, subject to certain

ex cepũ on s.69 W hen the EPC C ontract is signed, it is presum ed th at the

C ontractor already has, or has access to, the technical know !edge necessary

to undertake the design W ith only lim ited exceptions, the E m ployer w ill not

be rcsponsible for any error, inaccuracy or om ission o f any kinđ in the

E m p lo yer’s R equirem ents “Any data or inform ation received by the

C ontractor, from the E m ployer or otherw ise, shall not relieve the C ontractor

r o m his responsibility for the design and execution o f the \vorks" (C lause 5.1 - Silver Book) Therc is an author points out that “ it ju st looks too