What is FIDIC and does Uzbekistan need it?

In a recent speech at the 23rd plenary session of the Senate on February 4 this year, the Minister of Justice of Uzbekistan Ruslanbek Davletov noted that Uzbekistan needs to switch to concluding contracts according to the standards of the International Federation of Consulting Engineers FIDIC in the field of construction.

For the specialists involved in projects funded by international organizations: lawyers, employees of international banks and individual representatives of engineering and consulting companies, as well as for employees of project implementation groups, the concept of "FIDIC" is a tool for everyday work. But it is worth admitting that in a broad sense, the abbreviation "FIDIC" remains unclear.

With the help of experts, we will try to figure out what FIDIC standards can still give to the domestic engineering market.

Our invited experts:

Olga Tsoy - head of the legal department of the Republican Design Institute "UzEngineering" under the Cabinet of Ministers of the Republic of Uzbekistan, legal adviser of the Association of Consulting Engineers of Uzbekistan, FIDIC contract specialist, 1^st class lawyer of the Ministry of Justice of the Republic of Uzbekistan;

Larisa Belousova - director of BRIDGE CONSULT LLC. FIDIC contract specialist (more than 10 years of experience), independent adjudicator for pre-trial dispute resolution (Adjudicator, DAB / DAAB), independent mediator, legal consultant, ISO standards consultant;

Firuza Bobokulova - specialist in international law and arbitration, as well as FIDIC contracts. Arbitrator and legal adviser to the parties in arbitration and Dispute Board proceedings under FIDIC contracts, member of the International Arbitration Court of the International Chamber of Commerce (ICC).

So, let's figure out what is FIDIC?

Good afternoon, dear experts. Thank you for agreeing to participate in our interview. So, what can you say about FIDIC?

Firuza Bobokulova: The International Federation of Consulting Engineers or FIDIC for short (acronym of the name of the federation in French) is a global representative body of national associations of consulting engineers and represents more than a million engineering specialists and 40,000 firms in more than 100 countries around the world.

FIDIC standardizes contracts that are commonly used in the global construction and engineering industry, primarily for international construction projects that have a higher cost and are sanctioned by many multilateral development banks.

The Federation also publishes standard forms of contracts for construction works, infrastructure projects, EPC (turnkey) projects, consulting services, etc., as well as publishes agreements for clients, consultants, sub-consultants and joint ventures, together with relevant materials, such as the standard pre-qualification form, the performance guarantee form, the letter of acceptance and etc., and also take into account the relationship of the parties under contracts, the fair distribution of risks and rewards.

Over the past few years, we have seen significant growth in the construction industry around the world. Projects are now becoming versatile and inventive, and this requires more experience as the risks for the parties increase.

Therefore, engineers, contractors and constructors tend to draw up international forms of contracts for their projects, in which there will be a clear scope of work, rights and obligations, as well as the responsibility of the parties. Consequently, FIDIC contracts are standard contracts for such projects.

FIDIC standard contracts are designed for a wide range of projects. They are divided into books by the color of the cover of the document, which mentions the rules and regulations of contracts.

Impressive… By the way, why do FIDIC books have such a color scheme, and what is their difference from each other?

Firuza Bobokulova: To date, 9 basic professional forms of FIDIC contracts or books, as they are usually called, have been developed.

The most popular is the Red Book, under the terms of which the Customer is responsible for the design, and the Contractor is responsible for the construction. The Red Book is especially often used in the construction of highways. In Uzbekistan, most of the infrastructure projects are implemented according to the Red Book.

The Pink Book represents the terms of the Red Book harmonized by the International Development Bank (IDB), which have been licensed by participating banks for use in their projects. In accordance with the requirements of the IDB, the Pink Book includes additional provisions, such as mandatory audit, anti-corruption regulation, environmental management, health and labor protection.

The Yellow Book is also widely used, according to the terms of which the design and construction are carried out by the Contractor.

Similar conditions, only for subcontractors, are contained in the book "Construction Subcontracting Conditions". The terms of this book are adapted to the terms of the Red or Pink Book, however, if significant amendments are made, they can be used to conclude contracts with Contractors using Yellow, Silver and Gold Books.

The Silver Book, which is called EPC, that is, Engineering, Procurement, and Construction, provides for the construction of a turnkey facility by the Contractor.

The Golden Book is a combined contract for design, construction and long-term operation: DBO Design, Build, and Operate.

The White Book is a model contract with a consultant for the provision of services to a client, and is suitable for concluding contracts for project management, preparing a feasibility study for a project, and preparing terms of reference.

The latest innovations are the Emerald Book, released in 2019 based on the FIDIC Yellow Book for underground construction works, and the Green Book, which is an abbreviated form of the contract. The book is applicable to simple construction and engineering works with a short construction period of up to 6 months and a construction cost of up to $500,000, with no expected subcontracting.

FIDIC contract proformas or FIDIC books consist of "General Conditions" and "Special Conditions": the "General Conditions" spell out the standard contract conditions, while the "Special Conditions" allow users to adapt the "General Conditions" to the parameters and characteristics of a particular project . At the same time, the "General Conditions" are intellectual property and are not subject to change without the availability of separate acquired rights to make changes.

By the way, FIDIC proformas or books are in English. How are things going with their text in the state language? And also, are there any in Russian?

Olga Tsoy: Standard FIDIC contracts are created in English. Translation of these contracts into any other language is a very time-consuming process, requiring a huge amount of time, and most importantly, a significant translator's competence. These documents contain many terms, the meaning of which greatly depends on the meaning of a separate norm and the contract itself. The translator must himself perfectly understand the process described in the document. As we all understand, there are very few such translators, so the translation of a FIDIC contract is a team work of linguists together with lawyers, financiers and technical specialists. For this reason, the federation itself is dealing with the issue of translating FIDIC model contracts into different languages, and official translations of certain FIDIC contracts can be found on the FIDIC website. But you need to remember that FIDIC contracts and their translations are not in the public domain, and in order to get one or another contract in the original English or in another language, you need to purchase a printed or electronic version of this contract on the FIDIC website itself.

Taking into account the fact that in quantitative comparison with all contracts concluded on the territory of a separate state, the share of FIDIC contracts will be very small, and the professional understanding of the text is huge, it makes sense to translate contracts into those languages that are understood by the largest number of specialists and, not least, investors: English, French, Spanish, Chinese, Russian. In addition, a specialist who speaks only Uzbek will be extremely limited in the market and uncompetitive. If we talk about the translation of FIDIC into Uzbek, then the cost of translation will not pay off the result, because as a result, there will be very few users of the Uzbek text.

Who benefits from the use of FIDIC standards in Uzbekistan: a foreign investor, international financial institutions, international and local customer enterprises and contractors, or is it the state?

Firuza Bobokulova: I would like to note that there are infrastructure, construction and other projects that are financed by international financial institutions within the framework of loan agreements concluded between these financial institutions and states of different countries. In such projects, FIDIC standards and proforma contracts or other standard contracts are often used. And there are also investment projects that are based on foreign direct investment, which are directed for the implementation of a certain project. FIDIC proforma contracts can be used in such investment projects only if the project concerns a certain infrastructure of the host country, the construction of an object, and only if the foreign investor and the country receiving the investment choose FIDIC proforma contracts as applicable for the implementation of this project, while the relations between the investor and the host country will be regulated by separate norms of international law and the law chosen by the parties as applicable. Consequently, FIDIC proforma contracts are not always used in investment projects based on foreign direct investment.

As for international financial institutions, the application of FIDIC standards is not only beneficial for such institutions, but also one of the main conditions for financing any projects on their part. The fact that financial institutions provide their financing in cases where international standards (such as FIDIC) are applied has caused an increase in interest in the frequent application of FIDIC standards around the world.

Olga Tsoy: Standard FIDIC contracts differ in that they balance the risks and interests of the parties. They also simplify the procedure for concluding agreements, as they serve as a model for the contractor and the customer when drawing up a contract, which speeds up pre-contractual work. It should be noted that the use of standard contracts does not require large investments, which allows the parties to the contract to save money. Of course, the parties make some adjustments to the standard terms taking into account their interests, but the costs of changing the contract are lower than those of creating it from scratch. Model FIDIC contracts are understandable and familiar to many foreign investors, make the rules of interaction between the parties in the process and in business expected and understandable, which facilitates the entry of new foreign investors and international financial institutions into our market.

FIDIC contracts have been perfected for many decades taking into account world practice. Changes are being made to them: non-working or unfair norms are being removed, based on the balance of interests of the parties, existing norms are being adjusted or new norms are being introduced. A summary and analysis of the practice of applying these contracts is carried out annually.

Considering all of the above, the use of FIDIC standard contracts is beneficial to absolutely everyone: a foreign investor, local enterprises, a customer, a contractor and a subcontractor. But most of all it is beneficial to the state in which the project is being implemented, and to the end user who will use the project product. After all, FIDIC is a guarantee that all aspects were taken into account when creating and implementing the project: from finance to technology, from the rational use of natural resources to the safety standards of the product being created. In addition, the implementation procedure and FIDIC mechanisms make it possible to anticipate, prevent or minimize risks and costs, to obtain stable and high-quality production. All this is important for us as end consumers and as citizens of the state, because part of our taxes also goes to cover such projects.

Another important question: do the FIDIC standards contradict our legislation, are there any inconsistencies? And is it necessary to change or bring the national regulatory and technical base in the field of construction into line with FIDIC standards?

Olga Tsoy: The opinion that FIDIC is contrary to our legislation very often arises among specialists who have just started working with it.

Our legal system belongs to the Romano-Germanic family, while FIDIC itself grew out of the Anglo-Saxon (common law) family.

Anglo-Saxon law is not codified, so the main source of regulation of relations between the parties is the contract. For civil law countries, incl. and in Uzbekistan, the relationship between the parties is determined primarily by legislation.

This difference may lead to contradictions between the provisions of model contracts and local law. Therefore, when using FIDIC Proforma Contracts, it is necessary to adapt them to the norms of local legislation.

Contradictions between FIDIC and local law arise when errors have been made in the process of concluding the contract itself, its adaptation or its execution.

Taking into account the variety of relationships that arise in each specific project between the customer and the contractor, as well as taking into account the specifics of the legislation of each state where the project will be implemented, FIDIC initially laid down a mechanism to prevent conflicts between the pro forma contract and local legislation. This mechanism is the Special Conditions, through which changes are made to the General Conditions so that they do not contradict local laws.

Firuza Bobokulova: Despite any contradictions between the applicable law and the FIDIC contract, you should always remember that they are one. In cases where events occur to which the FIDIC contract does not contain an answer, the contract should be considered to refer to the applicable law. In addition, if it is necessary to interpret the provisions of the contract, it is necessary again to refer to the applicable law, which contains such rules. The validity or applicability of certain provisions, such as: limitation of liability provisions, statute of limitations provisions and others, are established by applicable law. The same rule applies to interest on overdue payments. Moreover, the applicable law will determine the validity and applicability of the FIDIC contract and its terms, the rights and obligations of the parties and remedies in case of violation of such contract. Also, the applicable law may contain conditions that supplement the express terms of the FIDIC contract.

Will the transition to FIDIC standards allow us to qualitatively change the main final results of the project: the timely completion of construction projects and their delivery, and within the project budget?

Larisa Belousova: Any type of construction is, by definition, a project activity - that is, the goal is a product that can be evaluated and which must be obtained within a certain time frame using certain resources. Project management theories contain the definition of the so-called "project triangle", which determines the quality of the product: it is the relationship between the amount of work, time and resources for the implementation of the project.

The imbalance of any of the sides of the triangle either affects the quality of the product, or increases the timing of the project, and, accordingly, the cost of its implementation, and vice versa.

One of the most pressing problems of construction projects is the consequences of not balancing the interests and responsibilities of the parties to construction contracts, which leads to delays in the implementation of projects, which, in turn, lead to an increase in the cost of expenses, and sometimes can lead to a complete stop of the project.

In world practice, participants in construction projects prefer to use standards and standard contractual structures based on a partnership model of relations. At the same time, FIDIC standards and pro forma contracts are the most widely used, since any FIDIC pro forma contract solves the main task of a construction project - the construction of an object of a certain quality in a certain period of time with the availability of certain resources.

Also, important features of the FIDIC proforma contracts is the presence of a separate procedure for pre-trial settlement / prevention of disputes (DAB / DAAB).

Many years of experience of the professional community has recognized that these tools are the most effective in maintaining the active progress of the project, since the experience of professionals both in project management and in dispute resolution, by the way, not only lawyers, but also engineers, allows you to resolve issues promptly and fairly.

The above conditions are laid down in the FIDIC Golden Principles (First Edition 2019), which were created in order to correctly determine the compliance of the contract with the FIDIC pro forma.

In particular, the following key aspects are stated at the heart of the Golden Principles:

“- The customer gets the best value for money…

- The terms of the contract must be comprehensive and fair for both contracting parties...

“Disputes should be prevented to the extent possible, minimized when they arise, and resolved effectively...”

Which projects, in your opinion, should be applied to the FIDIC standards? Infrastructure (for example, roads, power lines) or is it the creation of new industries, maybe housing construction, social and cultural facilities? Does it depend on the funding sources of the project? Please provide examples.

Larisa Belousova: As previously mentioned, in infrastructure construction projects, whether it is the construction of roads or power lines, the terms of procurement are dictated by the financing party, so almost all projects financed by international financial institutions use international proforma construction contracts.

FIDIC pro-forms, in my opinion, are a practical guide to the management and administration of construction projects, so I consider it possible to use them in almost any construction project. After all, the structure of FIDIC contract forms determines the system of interaction between project participants, and regulates the processes of this interaction so as to minimize risks and respond effectively to changes.

As my colleagues noted earlier, it is quite possible to adapt the proforma to the legislation of the Republic of Uzbekistan. For example, there is no definition of "Engineer" in local legislation, in the sense in which this definition is applied in FIDIC. A more understandable definition would be a project manager, whose function may well be outsourced to an engineering consulting company.

As for the pre-trial settlement of disputes, or the prevention of disputes through a third party (Adjudicator, DAB/DAAB), the application of these mechanisms needs to be worked out. Based on my personal experience, I can say that in general, the procedure is quite applicable for private projects. And for government projects, it is still possible only in the part where the decision of a third party does not concern such changes in the essential terms of the contract, such as, for example, changes in price.

Nevertheless, pre-trial dispute resolution mechanisms are already quite actively used in Uzbekistan, although in some cases the parties still formally approach this issue by appointing not fully trained consultants to this position. In 2021, when I took the FIDIC Module 3 Understanding DAB's course, held by the International Federation of Consulting Engineers to improve the skills of Adjudicators (Adjudicator), I was once again convinced that only practice combined with regular training allows you to think big, that is, not only to detect the problem and find a correct and fair solution, but also to prevent its occurrence.

Regarding the advantages of using FIDIC contracts, I would like to pay special attention to the fact that one of the most vulnerable parties to a contract in a construction project is a subcontractor. For example, it is more difficult for a subcontractor to prove the fact of acceptance of work if there is no clear wording in the subcontract on document flow and on the assessment of the quantity and quality of work. Delays in confirming the scope of work lead to a delay in financial flows, which, in turn, leads to suspension, and sometimes to a complete shutdown of work. Such a development of the situation entails the application of penalties to the Subcontractor by the Contractor.

In favor of using FIDIC proforma for subcontracting companies, let's turn to the key aspects of the "Golden Principles" of FIDIC (First Edition 2019):

" - Contractor/The subcontractor must receive adequate and timely payment in accordance with the contract to maintain its cash flow."

Therefore, the use of FIDIC proforma is beneficial to subcontractors, especially in those projects in which the "Main" contract is the FIDIC proforma, since the application of the terms of the FIDIC colorless book "Terms of the contract for Subcontracting work" ensures the integration of the subcontractor into the project processes, and most importantly, the transparency of the fact of acceptance of work and, accordingly, the timeliness of receipt of payment.

In addition, FIDIC pro-forms, as I have already said, are structural forms of project administration and management based on the accumulation of centuries-old experience of the world professional community of consulting engineers. Therefore, in relation to construction, these books can become a convenient tool for effective management of a construction project.

Which specialists need at least a general understanding of the FIDIC proforma? Is it only for lawyers, or is this knowledge also needed for design engineers or, say, constructors?

Olga Tsoy: First of all, an understanding of FIDIC standards and procedures is necessary for specialists who are engaged in project administration who see and manage the key points of its implementation. Of course, lawyers who are involved at all stages: from the preparation of tender documentation to the delivery of the finished object, representing the interests of project participants in the relevant dispute resolution process, whether it is a dispute resolution council or arbitration.

Very often the question arises about the combination of "FIDIC application" and "engineer" or "design engineer". The fact is that the "engineer" in the context of FIDIC is absolutely not the specialist that we are familiar with. "Engineer" and "designer" in our understanding are specialists who are engaged in calculations, development of design documentation, drawings and plans, estimates and schemes, find engineering solutions in a separate production. In FIDIC, the "engineer", as noted above by my colleague, is a specialist who coordinates the relationship between the customer and the contractor, ensures that the project is implemented in accordance with the approved program without failures: technical, financial and administrative. This is a figure who has knowledge and experience both in terms of project administration and its technical execution. He is a figure who ensures the proper and high-quality implementation of the project in compliance with the balance of interests of the parties, advises them on all issues of project implementation. There is no similar figure in our legislation and practice yet.

If FIDIC forms are an important tool, then what do you think: it may be worth introducing at least one course in some universities, such as law, technical or financial institutions, to familiarize students with the concepts of FIDIC.  

Larisa Belousova: The Association of Consulting Engineers of Uzbekistan is already engaged in conducting trainings with the involvement of trainers from the FIDIC presidential list. To give an assessment, I will say this: students come to these trainings not only from Uzbekistan, but also from neighboring countries.

As for the introduction of the subject into the programs of the country's universities, one of the flagmen of education in the public sector is the Tashkent State Law University, which plans to launch a course on International Law. The Master's program of the International Westminster University in Tashkent studies construction law, which also includes the study of FIDIC contract forms.

Of course, it would be very good if several lectures on FIDIC were included in the educational programs of financial and economic, as well as technical universities, this would allow future specialists to have at least a general idea of FIDIC.

What advantages will a FIDIC certificate give to a local specialist?

Larisa Belousova: As we noted above, almost all infrastructure and construction projects use standard proforma contracts, mostly FIDIC.

In those projects in which I worked in Uzbekistan, it was provided for the involvement of local staff in the amount of at least 80%. Thus, financial institutions stimulate the development of the local labor market in the construction sector.

Even 10 years ago, those who know FIDIC in Uzbekistan could be counted on the fingers of one hand. Now there are more and more qualified specialists. Even for professional certification of FIDIC directions, the main criterion is experience. And some of our specialists and companies have already reached the level of qualification that allows them to enter the international market.

Thus, the main advantage of specialists who own certain tools for working with FIDIC is an international professional qualification that allows them to enter the international market, and also, for experienced FIDIC users, project management skills that can be applied in smaller-scale construction become integral.

However, I would attribute the particular importance of knowledge of the subject of FIDIC to the public sector initiating or supervising infrastructure construction projects. Often, a professionally untrained Customer has a completely distorted idea of the FIDIC rules, and tries to assign most of the risks to the contractor, which, as a result, leads to delays, and sometimes to more serious problems in the implementation of the project.

Also, for the state Customer, the issue of timely response to changes is relevant, because it is no secret that sometimes project changes go through a fairly large number of bureaucratic procedures, which can also negatively affect the implementation of the project.

However, it should be noted that in recent years, the legislation of the republic has significantly reduced and even abolished most of the bureaucratic procedures, which undoubtedly influenced the increase in the number of projects and investments.

Therefore, we can say that the work for FIDIC specialists has noticeably increased.

Are there any professional accredited teachers of FIDIC in Uzbekistan?

Olga Tsoy: In order to conduct courses with the issuance of a certificate from FIDIC, it is necessary that the course be conducted by trainers accredited by FIDIC.

Such trainings are conducted both directly by the FIDIC Federation itself, including online, and the Association of Consulting Engineers of Uzbekistan. At the same time, it should be noted that the cost of one training of the FIDIC Federation, for example, in module 0 is 1,600 euros for one participant, in module 2 – 1,800 euros, in module 3 – 2,300 euros. Due to regional discounts and optimization of organizational costs, the cost of training in the Association is significantly lower, which makes training more accessible to specialists of Uzbekistan and the entire Central Asian region. For example, in June, the Association of Consulting Engineers of Uzbekistan plans to conduct trainings on module 2 and module 3 with the involvement of trainers, not just accredited by FIDIC, but included in the presidential list of FIDIC adjudicators. The total cost of two trainings for one participant will be approximately 500 - 600 euros.

In addition, the Association of Consulting Engineers of Uzbekistan is a single provider of FIDIC training services on the territory of Uzbekistan and is included by the Ministry of Finance of Uzbekistan in the official register of unified suppliers. This status allows all corporate and budget customers to directly conclude contracts with the Association, regardless of prices.