F.I.D.I.C. – Liability on Employer’s Requirements under Design-Build Contracts

17 December 2020 - Asaad Saad

The traditional approach in construction projects implementation is to prepare the detailed design then the potential contractors (bidders) are invited to submit their offers to construct this project based on a tender documents issued by the employer. Under the usual arrangements, the tender documents cover the detailed information needed for the awarded contractor to construct the project and to be aware of the rights and obligations of each party. Among these tender documents the employer provides the bidders with the detailed design documents in the form of detailed drawings, detailed specifications, …etc. 

Since these documents are prepared ahead of the tender stage, then the employer has no other option other than to prepare these documents either by himself or to employ a consultant for such purpose. In both cases, the bidders and the successful contractor are to use these documents to price their offer and to execute the works later on. Adding to that, the construction contract is entered between the employer and the contractor, subsequently the liability on these documents is on the employer’s side. Of course, if these documents are prepared by a consultant employed by the employer, the employer can transfer this liability to this consultant under the consultancy contract between them which the contractor is not part of.

In some projects, the employer desires not to take the risk of preparing the detailed documents and transfer it to the contractor; needs to take advantage of the contractor’s expertise to manage the design activities along with the construction activities to save time to complete the project; or to gain more certainty about completion time and project cost. In such circumstances, the employer utilises alternative approach than the traditional one for project implementation. In this alternative approach, the employer employs a contractor to perform two main parts (i) design and (ii) construct the project.

It is quite clear, that this approach does not mean the contractor will start from scratch to design the project. Yet, an input from the employer is needed to enable the contractor to proceed with the design part, that is called “the Employer’s Requirements” (as per FIDIC conditions of contract). Similarly, to the traditional approach, the employer will (or employ a consultant) prepare the Employer’s Requirements in order to be part of the tender documents and then will be used by the successful contractor to proceed with the design.  However, some considerations need to be taken into account while dealing with such document “the Employer’s Requirements”.

One of these considerations is the nature of these requirements. The contractor need to have specific requirements to perform his duties. Requesting the contractor to prepare several design options will raise some questions, such as; which option should be the base of the bidder to prepare his offer? Furthermore, defining the project concept might require several trials and alternatives with including various associated studies (e.g. economic, marketing, planning and the like). Where all of these are far away from the intended scope of a design-build project, requiring careful studies and investigations between the employer and dedicated team of consultants to reach a final conclusion about the project concept.

On the other hand, the level of details presented in the Employer’s Requirements is another factor to be taken into account. Adding to much details to the Employer’s Requirements will jeopardize the benefit from transferring the design risks to the contractor and is raising questions regarding the contractor’s design scope limitations. Will the contractor be obliged to follow the Employer’s Requirements in full; what if the contractor designs will contradict with the requirements; or even what will be the case if the contractor discovers errors in these requirements. 

Generally, the conditions of contract oblige the contractor to provide works which are “fit for the purpose(s)”. Therefore, the Employer’s Requirements need to provide clear identification and definition for such purpose(s). Care must be taken that the Employer’s Requirements should only contain a reference design with illustrative or schematic drawings. Therefore, the employer need to identify the input necessary for the contractor to perform his design duties without minimizing or affecting the project’s needs. This will define the boundaries between the employer’s and the contractor’s design liabilities and ensure that design responsibility in not transferred back from the contractor to the employer.

The risks allocation between the employer and the contractor regrading design liabilities will be covered by the conditions of contract entered between the parties. The latest conditions of contract published by FIDIC (Fédération Internationale des Ingénieurs-Conseils / International Federation of Consulting Engineers) have included two standard forms of contract addressing the design-build approach (namely; the Conditions of Contract for Plant and Design-Build “Yellow Book” and Conditions of Contract for EPC/Turnkey Projects “Silver Book”). Despite both conditions of contracts are covering that the works shall be designed by the contractor based on the Employer’s Requirements, however due to the differences in risks allocation between both of them major differences exists with respect to the responsibility regarding the Employer’s Requirements. 

Under the Yellow Book, the employer takes responsibility towards the Employer’s Requirements similar to his detailed design responsibility for the traditional approach (the Conditions of Contract for Construction “Red Book”). After commencement date the contractor is allowed a period to scrutinising the Employer’s Requirements and to give notice of any error, default or defect. Contractor’s compliance with the provisions of Clause 1.9 of the General Conditions “Errors in the Employer’s Requirements”, will enable him to be compensated for the cost/time impact as a result of such error, default or defect. 

On the other hand, under Clause 5.1 of the General Conditions “General design Obligations” from the Silver Book, the contractor, before the 28 days prior to submission of the tender, shall be deemed to checked and scrutinised the Employer’s Requirements. Which means that, contrary to the Yellow Book, the employer’s risks associated with the Employer’s Requirements are being transferred to the Contractor who shall not be entitled for compensation for the cost/time impact as a result of the error, default or defect (if any). This of course will require to provide the bidders with enough time and opportunity to study the Employer’s Requirements. Maybe in this case, going with two stage tendering will be an option to provide more certainty about the Employer’s Requirements and to minimize the risks imposed on the contractor which in turn will reduce the risks premium added by the contractor.

Consequently, employer’s awareness of the key differences in risks allocation between the Yellow Book and the Silver Book will facilitate the careful selection of the appropriate conditions of contract and to prepare the Employer’s Requirements meeting the specific nature and needs of each project without altering the need to have a balanced risk allocation for the successful completion of the project. Contractors are also need to be aware and understand the above differences in risks allocation, this will enable the contractor to study carefully the Employer’s Requirements during tendering stage and to assess the risks imposed on him. That in turn will be reflected either in a form of clarifications raised at that stage or considered in the contractor’s offer as a risk premium. At the end, allocating risks to the contractor where the contractor cannot control these risks will not be beneficial for the successful completion of the project. 

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