Rate Contracts Vs EPC Contracts - Differences

 

Rate Contracts Vs EPC Contracts

FIDIC conditions of contract

 

FIDIC

MCQ in AFA 2025 70% Exam

What is an integral part of FIDIC conditions ?

 

A. Risk Allocation 

B. Dispute Resolution 

C. Rights and obligations of parties 

D. all of these

The correct answer is: D. all of these*

Explanation:

Each of the listed elements is an integral part of FIDIC Conditions of Contract:

* Risk Allocation – FIDIC contracts are known for their clear and balanced allocation of risks between the Employer and the Contractor, tailored according to the contract type (Red Book, Yellow Book, etc.).

* Dispute Resolution – A structured mechanism for resolving disputes (including Dispute Adjudication Boards and arbitration) is embedded in all FIDIC contracts to maintain project continuity.

* Rights and Obligations of Parties – FIDIC clearly defines the roles, responsibilities, rights, and duties of the Employer, Contractor, and Engineer (if applicable) to avoid ambiguities.

Hence, *all of these elements* form the foundation of FIDIC Conditions.

FIDIC Conditions of Contract

• What is FIDIC?

FIDIC stands for the Fédération Internationale Des Ingénieurs-Conseils (International Federation of Consulting Engineers). It is a globally recognized organization known for publishing standard forms of contract widely used in the construction and engineering industry, especially in international projects.

• Purpose of FIDIC Contracts:

FIDIC Conditions of Contract are designed to provide a balanced and fair framework for contract administration and dispute resolution. They define the roles, responsibilities, and liabilities of parties involved in construction and engineering projects.

• Popular FIDIC Books:  FIDIC contracts are color-coded for different types of projects:
  
  

• Red Book – For Building and Engineering Works (Employer-Design)
  
  

• Yellow Book – For Plant and Design-Build (Contractor-Design)
  
  

• Silver Book – For EPC/Turnkey Projects
  
  

• Green Book – For Short Form Contracts
  
  

• Gold Book – For Design-Build-Operate projects
  
  

• Key Parties in FIDIC Contracts:  Typically, FIDIC contracts involve three main parties:
  
  

• The Employer (client/owner)
  
  

• The Contractor (executing the work)
  
  

• The Engineer (acts as the contract supervisor on behalf of the employer) 

• Role of the Engineer:

Under the Red and Yellow Books, the Engineer plays a central role in overseeing the project, certifying payments, resolving claims, and ensuring compliance with contract terms. However, in the Silver Book, the Engineer’s role is significantly reduced or eliminated.

• Risk Allocation:

FIDIC contracts are structured to fairly distribute risks between the Employer and the Contractor, depending on the type of contract used. For example, the Red Book places design risk on the Employer, whereas the Yellow and Silver Books shift this risk to the Contractor.

• Payment Terms:

FIDIC contracts include detailed provisions regarding interim payments, advance payments, final payments, and the procedure for payment certification by the Engineer or Employer’s Representative.

• Time for Completion & Extensions:

These contracts define a specific time for project completion, including provisions for Extensions of Time (EOT) if delays occur due to reasons not attributable to the Contractor (e.g., force majeure, late instructions by the Employer, etc.).

• Claims and Dispute Resolution:

FIDIC contracts lay out a formal procedure for submitting claims and resolving disputes. This includes the use of a Dispute Adjudication/Avoidance Board (DAB/DAB), followed by arbitration under international rules if necessary.

• Variations and Changes:

The contracts allow for changes in the work (variations), which may affect time and cost. The Engineer or Employer has the authority to initiate variations and adjust the contract price accordingly.

• Governing Law and Language: 

FIDIC contracts allow for the selection of governing law and official contract language to ensure enforceability in different jurisdictions.

• Suitability for International Projects:

Due to their neutrality, adaptability, and clarity, FIDIC contracts are often the preferred choice for international projects funded by multilateral banks such as the World Bank, ADB, and others.

• Recent Updates:

FIDIC released a new edition in 2017 for the Red, Yellow, and Silver Books, aiming to improve clarity, dispute avoidance, and contract management practices.

                                                                             *******

Completion Reports - Works Contracts

 

Completion Reports

•  Source: 17th Chapter of Engineering Code   

• At the time of closing of Construction works, any items which were in progress should be completed and the accounts of the Project should be closed as soon as possible.  

• The Project Engineer should therefore take prompt action as follows:

1. To bring into account all charges and credits pertaining to the Project. 

2. Take steps to liquidate all outstanding liabilities.

3. Clear Suspense balances.

4. Pay up outstanding Contractor’s claims

5. Dispose of all surplus stores and tools and plants returned from work. 

6. After all charges and credits relating to the Project have been booked in the accounts of the Project, a CR - Completion report of the Project should be prepared. 

 

Objects:  

1. To compare the cost of work actually constructed with those provided in the last sanctioned estimate. 

2.  To close the accounts of the work. 

3.  To serve as a lesson to prepare the estimates for similar future works more realistically.

4.  To regularise the excess over-sanctioned estimate

5.  To transfer the expenditure reported in CR to Open Line through TWFA

• Details: It should state the expenditure in the same details as the abstract estimate sanctioned by the Railway Board and should indicate any material modifications thereto. 

• Verification: By Accounts Officer

• Submitted to:  Railway Board

• Target: Within 18 months from the end of the financial year in which the completion estimate is submitted. 

• Example:  Suppose the Completion estimate is sanctioned in June 2018.  The end of the Financial year is March, 2019. Hence the due date for submission of Completion Report is 18 Months from March, 2019 i.e., September, 2020. 

 

•  Addl information in CR:  Any other information as would in the opinion of the Railway administration be of interest to the Railway Board. 

 

• Form E. 1706

COMPLETION REPORT FOR THE WORK................

Particular Heads of Account and Description of works	Amount of Estimate with reference to authority for sanction	Actual Expenditure	Difference		Remarks & Explanations
			Excess	Saving

• Explanations: 

1. Excesses:  Not less than 10 % or Rs. 25000 whichever is less over the Estimate  - Sub work wise. 

 

2. Savings: Not less than 20 % or Rs. one Lakh whichever is less over the Estimate  - Sub work wise. 

• If variations are within 5 % of the Sanctioned Estimate, the respective Engineer is authorised to approve CR behalf of GM.  

 

• CR of New Railway Lines:   Accompanied by a Comparative statement showing the literal prospects of the line as anticipated and updated with ref to the Completion Cost. While working out, the changes that happened for the estimate of Earnings up to the date should have been taken into account while working out the financial prospects. 

 

• CR of Works costing less than Rs. One Crore

1.  Should be considered as completed when it funds the purpose for which it when sanctioned, was intended,

2. and when there has been no expenditure thereon for 3 months thereafter. 

3. All outstanding debits and credits - as a rule adjusted in the account of work within 3 months of the date of completion. 

4. The account of a completed - should be closed 6 months after the date of completion and CR should be drawn.

5. CR should be prepared in the same work as that for works costing over Rs. One Crore. 

6. Explanations:  Excesses and Savings - 5% or Rs.10000 whichever is less.  

7. Should be submitted within 6 months of the Completion of the Work.  

8. No expenditure is recorded for 3 consecutive months - Accounts officers should call for the CR. 

9. Uncompleted Works - The executive officer should advise the Accounts Officer of the probable dates of completion and submission of the completion reports.

10. Abnormal delay in the submission of reports by the executive officers should be brought to the notice of the Head of the Railway Administration by the accounts Officer.

• Sanctioning of CR: 

1. The authority who accorded the Administrative approval to the work for information or regularisation. 

 

2. Structural & Track Renewal works or Works costing over Rs.2.5 Crores included in the Budget with prior approval of Railway Board or Out of Turn works sanctioned with the administrative approval of Railway Board being beyond the GM’s powers         -   GMs  

 

3. Where Material modification involved or beyond the GMs powers  - Railway Board.  

Accounts verification: 

1. Check that the CRS have been prepared in the proper form

2. Check the entries with the particulars of sanction and  booked outlay. 

3.  Correctness of postings of all final bills in the CR

4. Test checking the correctness of a percentage of other items. 

5. Satisfactory explanations for excesses and savings. 

6. Unused materials are returned to Stores or  transferred elsewhere and the account of work credited with their value. 

7. CRRM - Credits for the Railway Released Materials provided in the estimate - adjusted against the work or not

8. Verification Certificate should state the authority competent to sanction the outlay in the Report. 

Completion Statements: 

• In case of works - Expenditure on such works is within the competence of the Head of Railway to sanction.  Formal CR on the prescribed form need not be prepared. 

• All information required in CR, the Accounts officer certificate and the sanction of the competent executive authority may be recorded in the Works Registers under the relevant columns. 

• E1744 - Completion Statement

1. Reference to estimate.

2. Amount of sanctioned estimate.

3. Actual expenditure as finally booked.

4. Brief explanation of excess or saving. 

Problems facing drawal of CRs

1. Works Registers not being up to date

2. Old works –no Records

3. Final Bills yet to be passed

4. Adjustments pending

5. No Funds

6. Arbitrations and Disputes

7.  Lethargy and Slackness

8.  No adequate  monitoring at higher levels

9.  Frequent changes in staff/Jurisdictions 

10.  Lack of interest & guidance

11.  Large variations in Cost and Sanctions

12.  Non-realisation of Credits 

13.  Vigilance Cases/Audit Objections

14.   Mobilisation Advance remaining unrecovered 

15.  Compensation for land acquisition not finalised in courts

Suggestions: 

1. Reconciliation of Works Registers with the records available in the Accounts Office. 

2.  Draw up provisional CR in case any Arbitration case is pending or balances lying under MAS or MAC (Risk & Cost) 

3. Submission of Part CRs to the coordinating Dept for inclusion in the General CR. 

4. Finally, after the sanction of Competent Authority is obtained, action is to be taken to write to Sr.EDPM to close the work code, for stopping further printing of Works Register.

• accounting and financial principles envisage that the accounts of the completed works should be closed as expeditiously as possible so that the housekeeping in both the Accounts and Executive Departments will be in order.

####