Introduction

In all actuality, the 2011 FIDIC Contract for Subcontractors is currently being abused and misused, leading to potential disputes among the parties involved.

In many cases, the 2011 FIDIC Contract is even used as a tool to transfer the main contractor’s responsibilities to the subcontractor. Therefore, the 2011 FIDIC Contract can be a nightmare for subcontractors participating in projects, especially when serving as a Nominated Subcontractor.

In situations involving the nomination of subcontractors, the Employer or Project Manager often tends to impose a “back-to-back” obligation on the nominated subcontractors by adjusting the provisions of the 2011 FIDIC Contract, thereby undermining the principles of risk allocation and responsibility division among the parties.

The mechanism behind the transfer of liabilities via subcontract

The excessively modified FIDIC contract conditions by users, worldwide, including the 2011 FIDIC contract, has been openly acknowledged by FIDIC when issuing the principles for modifying contracts published by FIDIC. Specifically [1]:

“……The replacements and changes introduced have lately been found to be substantial and of such extent, that the final contract no longer represents FIDIC principles, and thus are jeopardizing the “FIDIC brand”, and misleading tenderers, as well as the general public.”

Therefore, it is necessary to have a clear understanding of the provisions of the FIDIC 2011 contract for subcontractors to assist FIDIC users in Vietnam in effectively applying them accurately in practice toward a reduction in the emergence of disputes.

Introduction to the 2011 FIDIC Contract for Subcontractors

Before amending the 2011 FIDIC Contract for Subcontractors, it is essential to remember the following:

Firstly, the 2011 FIDIC Contract is a subcontractor’s contract introduced by FIDIC in October 2011 for use alongside the FIDIC Red Book 1999 and the FIDIC Pink Book 2010.

(See more of the Subcontracts issued by FIDIC here).

Therefore, the 2011 FIDIC Contract cannot be used, and should not be used, for any other contractual relationship when the main contract (between the Employer (Chủ đầu tư) and the Main Contractor) is not based on the FIDIC Red Book 1999 or the FIDIC Pink Book 2010.

Succinctly, when the main contract (between the Employer and the main contractor) is not based on the FIDIC Red Book 1999 or the FIDIC Pink Book 2010, the appropriate subcontractor contract is a different template prepared by the Parties, and NOT the FIDIC Contract for Subcontractors.

Secondly, the overall provisions of the 2011 FIDIC Contract for Subcontractors are interpreted and implemented consistently and in alignment with the FIDIC Red Book 1999 of the FIDIC Pink Book 2010 Contract [2].

In other words, the FIDIC 2011 Contract for Subcontractors is a tool, a means to convey and transfer the obligations of the Main Contractor (as stipulated in the main contract) to the Subcontractor.  Therefore, the requirement for all parties is to ensure diligent consistency and integrity within the provisions of the main contract with the FIDIC 2011 Contract for Subcontractors, and not resort to making it complex and difficult.

Thirdly, for convenience of reference and application, the structure of the 2011 FIDIC Contract for Subcontractors is similar to the structure of the FIDIC Red Book 1999 or the FIDIC Pink Book 2010. Accordingly, the FIDIC 2011 Contract for Subcontractors is organized into 20 Clauses, with many of these Clauses referring to the Main Contract [3].

Application of the 2011 FIDIC Contract for Subcontractors in practice

Unfortunately, the principles and fundamental requirements for preparing a subcontract based on the FIDIC 2011 Contract, as mentioned above, have not been appropriately applied in practice.

Firstly, FIDIC users in Vietnam often do not use, or incorrectly use, the Appendices attached to the Conditions of the Particular Applications listed below:

Annex A: Particulars of the Main Contract (excluding sensitive or confidential information)

Annex B: Scope of Subcontract Works and Schedule of Subcontract Documents.

Annex C: Incentive(s) for Early Completion, Taking-Over by the Contractor, and Subcontract Bill of Quantities.

Annex D: Equipment, Temporary Works, Facilities, and Free-Issue Materials to be provided by the Contractor.

Annex E: Insurance

Annex F: Subcontract Program

Annex G: Miscellaneous Items

Annexes of the 2011 FIDIC Contract for Subcontractors

Unfortunately, due to the habit of preparing the Main Contract based on Clause 1.5 [Order of Precedence of Contract Documents], the aforementioned Appendices are often overlooked or incorrectly used, leading to various concerns and the need for adjustments.

Secondly, FIDIC users in Vietnam often redundantly stipulate the provisions of the Main Contract without correctly applying the referencing principles in the FIDIC 2011 Contract. As a result, the content of the Subcontract are often complex, inconsistent, or entail numerous risks during the execution of the Subcontract.

Meanwhile, in the opening part of Clause 1.1 [Definitions], it is stipulated: “All words and expressions used in the Subcontract shall have the same meanings as assigned to them under the Main Contract, unless the context otherwise requires…”.

Similarly, FIDIC also clarifies the reference to the provisions of the Main Contract, stating [4]:

“If provisions of the Main Contract apply to the Subcontract, such provisions of the Main Contract must be adjusted as necessary. For example, a reference to the Employer and/or the Engineer must be deemed to be a reference to the Main Contractor, likewise, a reference to the Main Contractor must be deemed to be a reference to the Subcontractor, and any other reference under the Main Contract must be deemed to have a corresponding meaning in the Subcontract.”

However, such crucial principles have not been correctly applied by FIDIC users in Vietnam.

Thirdly, to exclude the Subcontractor’s obligations, the FIDIC 2011 Contract for Subcontractors provides a list of issues for which the Subcontractor is not responsible. Specifically, Clause 2.2 [Compliance with Main Contract] exempts many of the Subcontractor’s obligations that the Main Contract requires the Main Contractor to fulfill, especially in aspects of equipment, utilities, and management, as follows:

Permits, Licenses, Approvals (Clause 2.2)

Setting Out (Clause 4.7)

Provide fencing, lighting, guarding and observing of the Works (Clause 4.8(d))

Quality Assurance

Rights Regarding Access and Utilities

Access to Means of Access

Signage on Means of Access

Electricity, Water, and Gas

Site Safety Assurance

Assignment

Overall Coordination and Project Management

Exclusions listed in Appendix A, Attachment B. This means that the Main Contract, in addition to serving as a reference for the Subcontractor to understand the Main Contractor’s obligations as stated in Clause 2.1, is also perceived as a means to reduce, expand, extend, or adjust the Subcontractor’s obligations.

Unfortunately, the preparation of the conditions of the 2011 FIDIC Contract for Subcontractors has overlooked this important principle.

Finally, In addition to the principles mentioned above, another common issue that FIDIC users in Vietnam often encounter is the use of inconsistent terms or incorrect translation in the context required.

Legal Consequences

Failure to adhere to the principles mentioned above results in the preparation of many overwhelmingly complex subcontract agreements, causing a multitude of intricacies for both the Subcontractor and the Main Contractor in practical application.

Furthermore, many contracts impose a myriad of excessive obligations on the Subcontractor, which leads to disadvantages and potential disputes between the parties. The two most concerning issues are the “back-to-back” obligations and “payment upon receipt of payment.”

However, the application of such subcontract agreements with numerous disadvantages for the Subcontractor also means reduced trust and collaboration between the Subcontractor and the Main Contractor. Transaction costs increase as the Subcontractor has to maintain significant contingency bidding.

In most cases, the Employer may also encounter difficulties, losses, or setbacks when the Subcontractor implements temporary emergency measures, such as site lockdowns, causing delays in project completion and increased construction costs. The FIDIC 2011 Contract was created with the goal of providing an effective tool for contract relationships between the Main Contractor and the Subcontractor.

However, the poor application of the fundamental principles of the FIDIC 2011 Contract has led to the reality of many Subcontractors struggling when signing subcontract agreements based on the FIDIC 2011 Contract model for Subcontractors.

When the basic principles introduced by FIDIC are not properly applied, subcontract agreements based on the FIDIC 2011 framework potentially pose the risk of disputes, thereby diminishing the true significance of the 2011 FIDIC Contract in particular, and FIDIC subcontract contract templates in general.

Contact

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Disclaimer:

This article is prepared or used for the purpose of informing or updating clients of the information on matters and/or the development of legal perspectives in Vietnam. This article does not constitute legal advice of any kind and is subject to change without prior notice.

Note:

[1] See Section 2 – Introduction, FIDIC Golden Principles, first published in 2019 (English) here.

[2] See Clause 1.3 [Subcontract Interpretation], FIDIC Conditions of General Application 2011 for Subcontractors.

[3] See Clause 2.3 [Instructions and Determinations under Main Contract], Clause 2.5 [Main Contract Documents], Clause 4.2 [Subcontract Performance Security], Clause 4.4 [Subcontractor’s Documents], Clause 9.2 [Main Contract Tests on Completion], Clause 11.1 [Subcontractor’s Obligations after Taking-Over], Clause 11.3 [Performance Certificate], Clause 12.1 [Measurement of Subcontract Works], Clause 12.3 [Subcontract Evaluation], Clause 13.1 [Variation of Subcontract Works], Clause 13.5 [Subcontract Adjustments for Changes in Legislation], Clause 13.6 [Subcontract Daywork], Clause 14.3 [Subcontractor’s Interim Statements], Clause 14.4 [Subcontractor’s Statement at Completion], Clause 17.1 [Subcontractor’s Risks and Indemnities], Clause 19.1 [Subcontract Force Majeure]

[4] See Clause 1.3 (a), Clause 1.3 (g)