Introduction

The crucial role of The FIDIC Subcontract in the construction field has yet to receive the proper attention it deserves in Vietnam.

In reality, there are two legal issues that parties frequently encounter when using subcontract templates published by FIDIC:

• First – which FIDIC subcontract template is appropriate?
• Second – what should be considered when applying the provisions of that FIDIC subcontract in practice?

2 considerations for applying the FIDIC Subcontract

The benefits of choosing the correct FIDIC Subcontract templates are revealed in two parts:

• In project management: Choosing and correctly applying the FIDIC Subcontract template enhances the role of the Subcontractor in executing specific tasks of the project. Furthermore, it would also increase the efficiency of management works pertaining to finance and other resources.
• In construction contract management: Choosing and correctly applying the FIDIC Subcontract template helps mitigate legal risks and minimizes transaction costs.

Below, CNC clarifies the two above-mentioned issues from various angles and provides some instructions when applying FIDIC Subcontract templates for Main Contractors, Subcontractors, Employers, or Engineers. Up to the present time, FIDIC has introduced a total of three FIDIC Subcontract templates, in 1994, 2011, and most recently in 2019. To be specific:

FIDIC Conditions of Subcontract 1994

FIDIC Conditions of Subcontract 2011

and

FIDIC Conditions of Subcontract 2019

Principles and conditions for applying FIDIC Subcontract templates

For FIDIC Subcontract 1994

In the Prologue, FIDIC recommends using this edition with the Conditions of Contract for Civil Engineering Construction, Fourth Edition, 1987, reprinted in 1992 with modifications (FIDIC Red Book 1987).

Requirements to apply Conditions of Subcontract 1994

Besides the above, there are no other recommendations from FIDIC to apply the FIDIC Subcontract template to any other main contract templates.

For FIDIC Subcontract 2011

There are specific differences between the FIDIC Terms and Conditions of Subcontract 2011 for Subcontractors and those of FIDIC Subcontract 1994.

In particular, FIDIC recommends using the 2011 FIDIC Subcontract template together with (1) the Conditions of Contract for Construction for Works Designed by the Employer, First Edition, 1999 (FIDIC Red Book 1999), and (2) the Harmonized Edition of Multilateral Development Banks (Pink Book 2005/2010).

Conditions for applying FIDIC Conditions of Subcontract 2011

For FIDIC Subcontract 2019

After a long 20-year wait (20 years since the release of the FIDIC Subcontract 1999), FIDIC introduced the highly anticipated FIDIC Subcontract template in 2019, which is meant to be used in conjunction with the Conditions of Contract for Design-Build and Turnkey, 1st Edition (FIDIC Gold Book 1999).

The conditions for applying the FIDIC Subcontract 2019

The release of the 2019 FIDIC Subcontract is the combination and culmination of many years’ worth of implementing the FIDIC Subcontract 2011 template and the practical demand for the management of projects designed and implemented by Contractors.

Detailed information about the FIDIC Subcontract 2019 will be analyzed in subsequent CNC newsletter.

Considerations when choosing FIDIC Subcontract templates

From the instructions above regarding the application of FIDIC Subcontracts, it is necessary to consider some important points when choosing the FIDIC Subcontract template. Specifically:

Firstly – the prerequisite for applying the FIDIC Subcontract template is that the main contract (between the Employer and the Contractor) must be a FIDIC-published contract template.

If the main contract is not based on a FIDIC-published contract template, there is no basis for selecting any FIDIC Subcontract template.

In other words, whether it is a project or a specific package, the Employer, the Main Contractor, the Engineer, and supporting units must take into account  (consider) the following prior to commencement of the project or package: (1) What are the bidding and project management strategies; (2) Are there subcontractors involved, and (3) Which FIDIC Subcontract template will be used to manage the Main Contractors and Subcontractors?

The prerequisite for using the FIDIC Sub-contract

Secondly – not all FIDIC Main Contract templates have corresponding FIDIC Subcontract templates. Currently, only three FIDIC Subcontract templates have been introduced for practical use in comparison to the many FIDIC Main Contract templates,

Thirdly – FIDIC only recommends the use of the three FIDIC Subcontract templates together with the three FIDIC Main Contract templates and the Harmonized Edition of Multilateral Development Banks (Pink Book 2005/2010). Therefore, FIDIC Subcontract templates should not be applied arbitrarily.

For example, it is not plausible to use the FIDIC Subcontract 2011 template to apply to the FIDIC Yellow Book 1999, and vice versa, it is not plausible to use the FIDIC Subcontract 2019 template to apply to the FIDIC Red Book 1999.

Similarly, it would be very challenging to use the FIDIC Subcontract 1994 template in conjunction with the FIDIC Main Contract based on the FIDIC Red Book 1999.

Conditions for applying the FIDIC Subcontract templates

With respect to the basic structure of the FIDIC Subcontract. Although different in content and application conditions, FIDIC Subcontract templates share common structural elements.

In general, the structure of FIDIC subcontract templates typically consists of three parts, including:

Basic structure of FIDIC Subcontracts

The cohesion between the FIDIC Main Contract and the FIDIC Subcontract. Once an appropriate FIDIC Sub-contract template has been chosen, it is necessary to make adjustments to the FIDIC Sub-contract to ensure alignment with the provisions of the FIDIC Main Contract.

Failure to achieve consistency, synchronization, and coherence between the provisions of the FIDIC Main Contract and the FIDIC Sub-contract, can and most likely will, lead to serious legal ramifications. Here are some elements to consider in the application of the FIDIC Sub-contract.

Firstly, Back to back obligations

Generally, parties involved in a project assume that:

“The Subcontractor has obligations similar to those of the Main Contractor. Anything the Main Contractor is required to do, the Subcontractor is also obligated to do – simply because it’s a back-to-back arrangement.”

Therefore, many people entertain the following common belief:

Regarding the construction timeline: The Subcontractor has an obligation to complete the work within the timeline set by the Main Contractor, and in any situation, the Subcontractor’s construction time should not exceed the construction time that the Main Contractor is obliged to comply with under the Main Contract.

Regarding payment obligations: The Main Contractor is only obligated to pay the Subcontractor after receiving payment from the Employer, and

Regarding obligations for deductions: Deductions according to the Main Contract are allocated to the Subcontract (possibly based on a proportion of the contract value).

Three back-to-back obligations in the FIDIC subcontract

Second, The relationship between the Employer and the Nominated Subcontractor.

It would be a big mistake if the Nominated Subcontractor appointed by the Employer assumes and trusts that:

“The Employer has nominated us to partake in the project, surely the Employer will intervene when the Main Contractor penalizes the Subcontractor or causes a disadvantage to the Subcontractor”

Nhà thầu phụ chỉ định

Similarly, the Main Contractor could encounter legal risks due to surface-level assumptions such as:

“If the Employer has nominated a Subcontractor, the Employer must take responsibility for the capabilities of the Subcontractor. Therefore, in the event of delays in the project, the Main Contractor will be exempt from any liability or at the very least, will only have to incur penalties or compensation corresponding to the amount borne by the Nominated Subcontractor before the Main Contractor.”

These notions are not consistent with how the FIDIC Subcontract operates. Specifically, the FIDIC Subcontract 2011 template stipulates in Clause 1.10 [No separate contract with the Employer] describing the independence, no connection between the Employer and the Nominated Subcontractor.

Accordingly:

         1.10 No separate contract with the Employer

“Nothing in the Subcontract shall be understood as creating any separate contract between the Employer and the Subcontractor.”

Therefore, each party must clearly understand their position and role when participating in each contract relationship (Employer/Subcontractor) based on the specific FIDIC template.

Where may I download the FIDIC 1994 & FIDIC 2011 conditions of contract?

Download file pdf FIDIC 1994, here:

https://hopdongmau.net/san-pham/general-conditions-of-subcontract/

Download file pdf FIDIC 2011, here:

https://hopdongmau.net/san-pham/conditions-of-subcontract-fidic-subcontract-1994/

FIDIC contract management for subcontractors training information

As a pioneering law firm in Vietnam actively operating in the field of FIDIC contracts, CNC recurrently organizes training courses focused on FIDIC contract management for businesses and individuals.

Simultaneously, CNC has the capability to meet various requirements of businesses on all relative issues, such as subcontractor appointment management under the FIDIC contract, management and review of Extensions of Time (EOT), review and assessment of Variations (VO), drafting and contract management according to FIDIC standards, v.v

To date, CNC has successfully provided FIDIC contract training to companies such as Hoa Binh, Cofico, Maeda Vietnam, Kurihara, Nam Khang, Boho Décor, Eurowindow, BKAsia Pacific, AltusGroup, Fico-Corea Construction, Lecade, Sinh Nam, CentralCons, AA Corp, v.v

Hỗ trợ thêm

CNC is grateful to receive any requests from potential and existing customers in support of drafting and reviewing of construction contracts according to FIDIC contract models for subcontractors in Vietnam in an effective and efficient manner.

These requests may be made via email or phone using the following contact information:

CNC^© | A Boutique Property Law Firm

The Sun Avenue, 28 Mai Chi Tho, An Phu Ward, District 2,

Ho Chi Minh City, Vietnam

Phone: (+84-28) 6276 9900 | Hotline: (+84) 916 545 618

Websites: cnccounsel.com

Email: contact@cnccounsel.com

Phụ trách

Le The Hung | Managing Partner

Phone: (+84) 916 545 618

Email: hung.le@cnccounsel.com

or

Nguyen Thi Kim Ngan| Partner

Phone: (+84) 919 639 093

Email: ngan.nguyen@cnccounsel.com

 

 

 

Disclaimer:

The information contained in this article has been prepared, used, and provided for the purpose of introducing or inform clients on information about matters and/or the developments of legal perspectives in Vietnam. The information contained within this article does NOT constitute advice of any kind and may be subjected to changes without prior notice.