CONSTRUCTION

The new FIDIC Contract:

Design Build Operate
By Edward Sunna, Head of Department
Construction and Engineering Department

The long awaited FIDIC Design Build Operate Contract has finally been published
by FIDIC. The purpose of this article is to
provide readers with a general overview
of the new build contract and its intended
application.
The use of FIDIC based agreements in
the Gulf formed the subject of some of
our articles in our Law Up Date published
in 2007. The growth of the public - private
partnership model in infrastructure projects in the Gulf has strongly contributed
to the introduction of a standardized yet
sophisticated contract model produced
by FIDIC to service the ever expanding
range of projects in the Gulf region.

Characteristics of the new

DBO Contract

LAW UPDATE

As the title suggests, the contract is

intended to govern the relationship between the Principal and the Contractor
involved in a multidisciplinary contract:
to design, build and operate as opposed
to individual agreements to govern the
different facets of a project. The Contractor in these arrangements is ordinarily

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CONSTRUCTION

a corporate entity specifically set up to

reflect the interests, roles, obligations
and liabilities of parties comprising the
corporate entity e.g. a consortium. Each
party will have a specific input into the
consortium such as funding, design, construction, operation and maintenance.
The extent of the parties contribution will
depend on the nature of the project and
the commercial and legal terms agreed
with the sponsor of the project i.e. the
employer.

Contract Flexibility
The new form contract takes into account
the possibility of the varying types of DBO
arrangements, the agreement itself is
designed on what is commonly known
as the green field approach which essentially follows the traditional structure
of the build operate, whereas the brown
field approach of operate, design and
build albeit not adopted by FIDIC as the
standard format can still be utilized by following the instructions in the guidelines
produced along with the agreement.

Similarities with other FIDIC

Contracts
The new agreement adopts the same
format of existing FIDIC contracts (RED,
Yellow, Silver, White Books) and further
retains the style and most of the common
definitions, paragraphs and structures
that make FIDIC unique.
The core of the new agreement and its
function is found in clause 9 entitled Design Build which specifically provides
for necessary elements to administrate
the design and build component.
The reader should note new definitions
specific to DBO projects have been included in the new form. An example is the
definition of the License Agreement to
regulate the operation component of the
agreement and corresponding authority of
the Contractor. Another noteworthy definition is that of Cost plus Profit, although
FIDIC provides for such a definition, we
suspect that in its practical application,
we would define parties amending such
definitions to account for project specific
definitions and exhaustive itemisation of
the costs component to avoid doubt or
miscommunication.

LAW UPDATE

The Operate Component

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The striking feature of the DBO agreement is the usual intention of the parties
to define the length of operation, which
in utilities or infrastructure type projects
involves a relatively more extensive duration than civil engineering projects to reap
the return on the capital investment and
ensure the project is viable to the Principal, the Contractor and investors. The
new agreement accommodates long term

operation, however it is needless to say

that each project needs to be considered
on its known requirements particularly in
addressing issues such as early termination or the transfer of the asset at the
end of the term or following early termination.

Advantages of a DBO
The combination of a number of disciplines and the reliance on a consortium
or a joint venture to deliver a project has
its obvious advantages in saving time
and simplifying contract administration.
Multiple tasks can be undertaken simultaneously without reliance on parties out
side the project team and with the operation period, it is likely that the Contractor
will be the most suited to operate and
maintain, if necessary, the facility it has
designed and built. In this respect, it is in
the interests of the contract to produce a
low maintenance quality design and operation given its long term commitment to
operate the project on completion, which
mutually serves the Employers interests
of having a quality built and designed low
cost maintenance project.

Conclusion
The new form FIDIC DBO is a welcomed
addition to the FIDIC suite of agreements
which can be credited with introducing a
structured regime for DBO projects which
are often complicated or disjointed. The
growth in popularity of DBO type projects
are expected to increase in the Gulf and
FIDIC is likely to again be the preferred
model for DBOs in the future. However
caution should always be had with draft-

ing the project specific terms and conditions of the DBO, particularly during the
operation phase and the consequences
of the Parties rights following early termination, transfer or closure of any Project
at any particular phase. In the Gulf, market it is always importance to reconcile
the contract provisions with the local
laws, particularly of government which
may often contain implied provisions
unknown at the time of execution of an
agreement.