1. INTRODUCTION
FIDIC contracts, which are widely used in international construction projects, are standard forms of agreement designed to ensure a balanced regulation of rights and obligations between parties in the construction sector. Published by the Fédération Internationale des Ingénieurs-Conseils ("FIDIC") (The International Federation of Consulting Engineers), these contracts are particularly favoured in large-scale infrastructure and engineering projects. As the Turkish construction sector becomes increasingly active in global markets, the application of FIDIC contracts in Türkiye and their interaction with Turkish law have gained significance. This article examines the general characteristics of FIDIC contracts and evaluates their position within the Turkish legal system.
2. FIDIC CONTRACTS
FIDIC has developed standard forms of contract with the aim of promoting a common understanding and establishing uniformity in practice among parties operating in the international construction sector, particularly in terms of legal frameworks, customs, and traditions. Within this context, the known-as "FIDIC contracts" are uniform agreements that clearly regulate the rights and obligations of the parties in construction projects, thereby aiming to prevent disputes and contribute to effective project management. Over time, these contracts have undergone various revisions in response to the evolving needs of the sector, practical challenges encountered in implementation, and particularly the rapid advancements in technology. As a result, FIDIC contracts have been updated to address the complex structure and dynamic requirements of modern construction projects, thereby becoming more flexible and functional in practice.
"International Contract Users Conference" that held in London in December 2017, FIDIC introduced revised versions of its three core contract books to the public. Within this scope, the updated editions of the Red Book, Yellow Book, and Silver Book contract models were officially published.
With this update, the contract books that had been in use since 1999 were expanded and restructured in light of the experiences gained over the past 18 years and the evolving needs of the industry. The revisions aimed to establish a more comprehensible, flexible, and user-friendly format, resulting in more functional texts that address practical issues encountered in implementation.
FIDIC emphasizes the critical importance of adhering to certain fundamental principles in the implementation of its standard forms of contract. In this regard, it recommends that all contract practitioners' structure and execute their agreements in line with the following five "Golden Principles":
- Provisions concerning the duties, powers, responsibilities, and rights of the parties must be preserved as set out in the General Conditions of the contract and should not be altered.
- The Particular Conditions must be drafted in a clear and unambiguous manner, avoiding any language that may lead to differing interpretations or inconsistencies.
- Any amendments introduced through the Particular Conditions should not undermine the balanced allocation of risks between the parties or distort the fundamental structure of the contract.
- The timeframes established for the performance of obligations and the exercise of rights under the contract should be realistic, enforceable, and aligned with the reasonable expectations of the parties.
- All potential disputes must be referred to the Dispute Avoidance/Adjudication Board (DAAB) for consideration before initiating arbitration proceedings.
These principles are regarded as fundamental pillars aimed at preserving the stability and predictability of FIDIC contracts.
3. FIDIC Contract Books
FIDIC has designated specific types of contracts to be used based on the nature of international construction projects. Following the 2017 revisions, the principal standard forms of contract have been categorized as follows: (i) the Red Book, (ii) the Yellow Book, (iii) the Silver Book, (iv) the Green Book, (v) the White Book, and (vi) the Gold Book.
- FIDIC Red Book (Conditions of Contract for Construction): This contract is used in projects where the design is provided by the employer, and the contractor is responsible for carrying out the construction in accordance with that design.
- FIDIC Yellow Book (Conditions of Contract for Plant and Design-Build): This type of contract is used in projects where the contractor is responsible for both the design and construction. It is typically applied to works involving the installation of complex machinery or equipment.
- FIDIC Silver Book (Conditions of Contract for EPC/Turnkey Projects): This contract is designed for projects in which the contractor assumes full responsibility for engineering, procurement, and construction, and delivers a fully operational turnkey facility to the employer. It is recommended for turnkey projects such as power plants, factories, or treatment facilities.
- FIDIC Green Book (Conditions of Contract for Design, Build and Operate Projects): This contract is suitable for building or engineering works with a contract value of less than USD-500,000.00 and an expected completion period of six months, under the assumption that supervision services may be provided by the employer's administration. It is preferred for projects where the contractor is responsible not only for the design and construction, but also for the operation and maintenance of the project for a specified period.
- FIDIC White Book: This form is preferred for employer/consultant service agreements.
- FIDIC Gold Book: This form is preferred for investment projects that require substantial capital expenditure.
When compared to Turkish law, it is observed that FIDIC standard form contracts include, in addition to the employer and the contractor who correspond to the parties defined under Public Procurement Law No. 4734 a third party identified as the engineer, who may be regarded as a technical consultant. In these contracts, the engineer is appointed by the employer and is granted the authority to supervise, inspect, and make decisions on technical, administrative, and financial matters in his or her own name and on his or her own behalf throughout the duration of the contract. Despite these powers, the engineer is not a party to the contract between the employer and the contractor.
4. Dispute Resolution Mechanisms in FIDIC Contracts
FIDIC, based on globally recognized dispute resolution mechanisms, has incorporated a systematic and tiered approach tailored to its own contractual framework. Within this context, FIDIC contracts provide for four primary methods of dispute resolution:
ⅰ. Application o the Engineer
According to FIDIC contracts, before a dispute formally arises, the contractor may refer emerging issues directly to the engineer. The engineer is tasked with resolving technical and administrative matters between the parties. However, if these issues escalate into a formal dispute, the resolution process must proceed to more advanced stages.
ⅱ. Dispute Avoidance/Adjudication Board (DAAB)
The Dispute Avoidance/Adjudication Board (DAAB), which aims to address disputes before they escalate to litigation or arbitration, is composed of experts jointly appointed by the parties at the outset of the contract. The primary function of the DAAB is to render prompt and effective decisions on emerging disputes to avoid delays in the project's progress. The decisions of the Board are initially binding. However, if either party objects to the decision within 28 days and the matter is not resolved within the following 84 days, the parties are expected to engage in amicable settlement negotiations. If no resolution is reached at this stage, the dispute may proceed to arbitration.
ⅲ. Amicable Settlement
FIDIC requires the parties to attempt to resolve their disputes amicably before proceeding to arbitration. In this context, the parties must engage in negotiations with the aim of reaching a mutual settlement. This stage is intended to offer a more time- and cost-efficient resolution compared to formal dispute proceedings.
ⅳ. Arbitration
If the decisions of the Dispute Avoidance/Adjudication Board do not become final and the amicable settlement process fails, the parties may resort to arbitration as a last resort. Unless otherwise agreed by the parties, disputes shall be resolved under the Arbitration Rules of the International Chamber of Commerce (ICC). In addition, under FIDIC contracts, the arbitral tribunal must consist of three members, and the language to be used in the arbitration proceedings must be the language in which the contract was concluded.
Apart from referrals to the engineer, the dispute resolution mechanisms envisaged by FIDIC generally align with those recognized under Turkish law. One of the main reasons why parties to a FIDIC contract tend to prefer arbitration is that arbitral tribunals are typically composed of experts with both legal and technical knowledge. This allows for a more accurate and informed assessment of disputes, particularly in large-scale and complex projects. Moreover, compared to traditional litigation, arbitration offers a faster resolution process, which is a critical advantage in the construction sector where time is of paramount importance. In this respect, arbitration stands out as a preferred method not only for effectively resolving disputes that require technical expertise but also for ensuring economic and temporal efficiency in the dispute resolution process.
5. Turkish Law and FIDIC Contracts
FIDIC is known for its standard contracts that are applied in many projects all around the world. The Union of Turkish Consulting Engineers and Architects ("TMMMB") became a member of FIDIC in 1987 and assumed its representation in Türkiye. The main characteristic of FIDIC contracts is the equitable distribution of risk between the parties, and the allocation of risk to the party who can best undertake and control it. FIDIC contracts are used in construction works tendered by the Central Finance and Contracts Unit of the Ministry of Treasury and Finance, the Competitive Sectors Program of the Ministry of Industry and Technology, the EU Investments Department of the Ministry of Environment and Urbanization, and the Transport Operational Program of the Ministry of Transport and Infrastructure. However, if more detail is to be provided, the FIDIC Red Book is more frequently used in construction works in our country.
In terms of delivery, completion, and acceptance of the work, there are certain differences between FIDIC contracts and Turkish law, and these differences particularly show their effect in the determination of the starting date of the defect notification period and the statute of limitations period. Under Turkish law, for a construction to be considered as delivered, all works specified in the contract must be completely and fully finalized. According to the practice of the Court of Cassation, for a construction to be deemed completed, it must be in a condition that is usable in accordance with its intended purpose, based on objective criteria. If delivery has not occurred, even if the employer starts actual use, legal delivery cannot be mentioned, and in such case, the provisions regarding liability for defects set forth in Articles 474 and following of the Turkish Code of Obligations No. 6098 ("TCO") shall not apply.
Acceptance is the explicit or implicit declaration of intent by which the employer states that the work is in conformity with the contract and has been completed in full. However, acceptance does not eliminate the contractor's liability; especially in cases of hidden defects or fraudulent behaviour, the contractor remains liable.
In FIDIC contracts, when the taking-over certificate is issued, the risk of damage passes to the employer and the use of the work becomes possible. However, the time granted to the contractor for deficiencies identified at this stage should not be considered within the scope of liability for defects under Turkish law, but rather as a period granted to ensure performance in conformity with the contract. Liability for defects under the FIDIC system begins only upon the issuance of the performance certificate.
Since FIDIC contracts are based on the Anglo-Saxon legal system, the contractor's liability continues until final acceptance, whereas there is no explicit provision regarding defects after the final acceptance. The prevailing opinion accepted in Turkish doctrine is also that the main point of commencement of liability is the final acceptance.
Another difference between the application of FIDIC contracts and Turkish law arises in relation to delay damages. In FIDIC contracts, it is stipulated that if the contractor fails to complete the work on time, the contractor shall pay delay damages to the employer for this delay. However, it is not clear whether the delay damages are in the nature of liquidated damages or in the nature of a penalty clause. In Turkish law, a penalty clause is, in most cases, an obligation added to or increasing the principal obligation undertaken by the debtor. Pursuant to Article 180 of the TCO, the agreed penalty must be paid even if the creditor has not suffered any loss. In this case, the debtor's fault is not required for the penalty to be due. Whether the debtor is at fault or not, and whether the creditor has suffered damage or not, the agreed penalty is, in principle, payable. Liquidated damages, on the other hand, refer to a lump-sum amount determined in advance by the parties as compensation for a probable loss to be compensated. If delay damages are considered as a penalty clause, in accordance with TCO Article 179/II, specific performance may also be claimed in addition to the penalty. If the creditor accepts performance without reservation, they lose the right to claim the agreed penalty. Therefore, in order for the creditor to preserve the right to claim the penalty, they must either reject performance, or claim the penalty simultaneously with performance, or explicitly declare that they reserve this right. However, if the said compensation is arranged as liquidated damages, even if the employer accepts performance without reservation, they retain the right to claim the compensation within the limitation period.
Another important difference between a penalty clause and liquidated damages relates to the burden of proof. In the case of a penalty clause, it is not required for the employer to have suffered damage; the agreed penalty is payable regardless of any damage. In contrast, in the case of liquidated damages, the existence of the employer's loss is required, and the burden of proving this loss lies with the contractor.
6. Conclusion
FIDIC contracts are contract texts with strong technical content and widespread use in practice, aiming at a balanced distribution of risks between the parties in international construction projects and at managing the project process in a foreseeable and transparent manner. As the integration of the Turkish construction sector into global projects increases, FIDIC contracts have gained greater importance in terms of the Turkish legal system as well. However, during the application of these contracts, it is observed that certain disputes and differences in interpretation arise with Turkish law, especially on issues such as delivery, acceptance, liability for defects, and delay damages. The meaning carried by the concepts of completion and legal delivery of the work under Turkish law, and the distinction between taking-over and final acceptance in the FIDIC system directly affect the commencement of the liability period for defects. Likewise, uncertainties regarding whether delay damages constitute a penalty clause or liquidated damages may affect the rights and obligations of the parties in different ways. Therefore, during the process of adapting FIDIC contracts to Turkish law, a careful legal analysis should be conducted; in order to prevent loss of rights by the parties, contract provisions, the intentions of the parties, and domestic legal rules should be evaluated together.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
