Peculiarities of FIDIC Contracts Adaptation to the Kazakh LegislationArdak Idayatova, Senior Associate Dispute Resolution Practice AEQUITAS Law Firm, Almaty
Economic globalization and increasing number of cross-border transactions bring forth the objective need for contract documents unification. In the construction domain, this is resolved through FIDIC model contracts representing standardized forms of contracts for diverse construction operations.
FIDIC model contracts are widely used in the US and Europe, having come to be used in Kazakhstan in the post-Soviet era. According to our observations, FIDIC contracts find use in Kazakhstan only for especially large construction projects financed by private investors or international financial institutions.
FIDIC model contracts were prepared by the International Federation of Consulting Engineers (Fédération Internationale des Ingénieurs-Conseils). There are 9 basic FIDIC model contracts covering a broad range of contractual relations in construction, the most popular being the Red Book (design by the employer), Yellow Book (design by the contractor), Silver Book (turnkey projects), and Pink Book (adapted to the requirements of international financial institutions). The latest novelty is the Emerald Book released in 2019 on the basis of the FIDIC Yellow Book and intended for underground construction projects. FIDIC model contracts are periodically amended to take into account the experience of contracts application in practice. The latest significant amendments were made in December 2018.
The FIDIC contracts exist in the form of unified model forms, the so-called General Conditions. The General Conditions regulate in fair detail the entire process of interaction between the employer and the contractor, from the handover of the construction site to its hand back once the construction is completed. At the same time, they are worded so universally that they can be used anywhere in the world.
The parties do not directly amend the General Conditions. In order to adapt a FIDIC contract to a particular project or a particular country's legislation, the parties prepare and sign a separate document – Particular Conditions – reflecting the specific agreements of the parties and amending the General Conditions.
In addition to the Particular Conditions, the parties must also fill out and sign the Contract Data – a document containing such project data as the names of the parties and the engineer, construction work commencement and completion dates, duration of the guarantee period, deadlines for payments under interim payment certificates, contract's governing law, amount of security (Performance Security), amount of penalty, advance payment details, composition of the Dispute Adjudication Board, place of arbitration, etc.
It should be mentioned that when using a FIDIC contract, the parties decide for themselves which edition of a book they intend to use. For example, the parties can choose the 1999 or the 2017 edition of the Red Book.
Offered below for your attention are the key issues that need to be addressed when drafting Particular Conditions in Kazakhstan. In this work we were relying on the latest 2017 edition of the FIDIC Red Book (hereinafter, the "FIDIC Contract"), due to its practical relevance.
2.1.Material Conditions of Contract Agreements
Pursuant to the Kazakh legislation, the following conditions may be generally identified in contracts:
- Material conditions (without agreement on which the contract is not concluded);
- Additional conditions (if no agreement is reached on these conditions, in a number of instances the general statutory approach may apply).
As regards contract agreements, the material terms and conditions are:
- Determination of specific work to be performed under the contract (Article 616.1 of the Civil Code );
- Time of work commencement and completion (Article 620.1 of the Civil Code).
Thus, one should keep in mind that if the parties do not agree in the FIDIC Contract on the subject of contract work, as well as the initial and final date of its implementation, then, pursuant to the Kazakh law, such contract would be deemed non-concluded, i. e., not creating the rights and obligations of the parties.
Please also note that other imperative provisions of the Kazakhstan legislation may be applicable to the FIDIC Contract, such as requirements to language, currency and choice of governing law in contracts between two residents, which cannot be disregarded.
The FIDIC Contract pays little attention to design documentation issues. Although design is not within the scope of contractor's work under the FIDIC Contract, issues relating to the design documentation may be important in the course of contract performance.
Due to this, it is recommended that the parties fill this gap themselves by setting forth in the Particular Conditions an algorithm for the parties to interact on the matters of approval, provision and amendment of design documentation.
FIDIC Contract does not use the term "design documentation", it uses the term "drawings."According to the FIDIC Contract, drawings are to be provided by the employer. Further in the text of the FIDIC Contract dedicated to drawings is only one Sub-Clause 1.9, whereunder the contractor must notify the engineer in case the necessary drawings are missing. If the requested drawings are not provided by the engineer within the established time, the contractor is entitled to claim the extension of work completion deadlines and compensation.
At the same time, the rules of the Civil Code establish that a contract agreement must determine the composition and content of the design and estimate documentation and set forth which of the parties and within which period must provide the relevant documentation (Article 654.3).
Besides, the Civil Code provides for the consequences of contractor's identifying work that has not been accounted for in the design and estimate documentation. In such circumstances, the contractor must notify the employer and may suspend work if receiving no response within 10 days or another period established by the contract. It is important to note that in case of failure to notify the employer, the contractor is deprived of the right to payment for the additional work performed and to the damages caused thereby.
Hence, Sub-Clause 1.9 of the FIDIC Contract is not sufficient to comply with the requirements of Article 654.3 of the Civil Code.
In the Particular Conditions to the FIDIC Contract, the parties need to provide for an algorithm of their interaction in the course of preparation, transfer and amendment of the design and estimate documentation, as well as the information on its composition and content. When preparing the Particular Conditions, we would also recommend following the current rules of the CN RK 1.03-00-2011  and CN RK 1.02-03-2011 , which contain detailed regulations regarding the relevant requirements.