CONSTRUCTION

The new FIDIC Contract:

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

The long awaited FIDIC Design Build Op-

erate 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 proj-
ects 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
As the title suggests, the contract is
LAW UPDATE

intended to govern the relationship be-

tween 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 Contrac-
tor 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, con-
struction, 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 es-
sentially 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 fol-
lowing 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 ‘De-
sign – Build’ which specifically provides
for necessary elements to administrate
the design and build component.
operation, however it is needless to say ing the project specific terms and condi-
that each project needs to be considered tions of the DBO, particularly during the
on its known requirements particularly in operation phase and the consequences
addressing issues such as early termina- of the Parties rights following early termi-
tion or the transfer of the asset at the nation, transfer or closure of any Project
end of the term or following early termi- at any particular phase. In the Gulf, mar-
nation. ket it is always importance to reconcile
the contract provisions with the local
Advantages of a DBO laws, particularly of government which
The combination of a number of disci- may often contain implied provisions
plines and the reliance on a consortium unknown at the time of execution of an
or a joint venture to deliver a project has agreement.
its obvious advantages in saving time
and simplifying contract administration.
Multiple tasks can be undertaken simul-
taneously without reliance on parties out
side the project team and with the opera-
tion 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 op-
eration given its long term commitment to
operate the project on completion, which
mutually serves the Employer’s 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-

The reader should note new definitions

specific to DBO projects have been in-
cluded 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 defini-
tion 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.

The Operate Component

The striking feature of the DBO agree-
ment is the usual intention of the parties
LAW UPDATE

to define the length of operation, which

in utilities or infrastructure type projects
involves a relatively more extensive dura-
tion than civil engineering projects to reap
the return on the capital investment and
ensure the project is viable to the Prin-
cipal, the Contractor and investors. The
new agreement accommodates long term

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