The FIDIC Design Build and Operate Contract – Gold Book

In 2008 FIDIC has published a standard form of Contract which expands the single responsibility of the Contractor to a 20 years´ operation service. It is known as the FIDIC Gold Book for Design Build and Operate. The concept is to require the Contractor to take in consideration in its design the requirements for operation which include maintenance and replacements. However the Contract does not address financing and funding issues. The Contractor will not be involved in financing the Project nor will he have the benefit of the operation output. He merely provides the service to design, build and operate the Works.

The FIDIC Gold Book assumes a green field scenario, meaning that the Contractor is supposed to design and build a new plant or facility on a green field. TG 11 is preparing conditions of contract for the purposes of the enhancement, refurbishment or rehabilitation of existing facilities (brown field scenario) to be operated thereafter which involves an Initial Operation period during which the contractor must acquaint itself with the operation of the facility before commencing and completing the design. This new book will be published under the name of the FIDIC Bronze Book (Operate, Design & Build). The core feature of the Bronze Book will be the Asset Inventory which classifies the existing facilities in Class A and Class B Assets.

The FIDIC Gold Book implies a long term commitment of the Contractor and offers a new and unique procurement route. Two-stage-two-envelope bidding seems to be the appropriate procurement approach. The Employer´s Requirements freeze the goals and achievables and the Contractor submits a proposal including an Operation and Maintenance Plan and an Asset Replacement Schedule which outlines how he /she intends to maintain the Works and to keep them operational.

Worldbank and Asian Development Bank have both launched special bidding documents incorporating the FIDIC Gold Book. Reference is made to the ADB USERS´ GUIDE to  DESIGN–BUILD–OPERATE CONTRACTS FOR WATER AND WASTEWATER GREENFIELD INFRASTRUCTURE PROJECTS [June 2018 – December 2021] and the WORLDBANK GUIDANCE NOTES For Standard Bidding Document (SPD) for Works and Operation Services [July 2017].

With regard to the Gold Book, FIDIC assumes that the design must be fairly well advanced at tender stage in order for the Contractor to price his offer in the first place (i.e. it is equivalent to a YB design/build situation at the time of tender), though the Employer´s Requirements can be confined to a conceptual design and a prescription of function and purpose. This means that the Contratcor is expected to develop its preliminary design prior submission of tender or Contractor´s Proposal based on the description of function and purpose in the Employer´s Requirements (forming part of the tender dossier. Even if it hasn’t finalized the detail (which it will presumably do when and if it is awarded the Contract), it will have identified the main elements and should be in a position to know what assets which it has – or will – include in its design, will have a working life of less than 20 years and thus will need replacing at some time during the Operation Period. It thus can produce an ” asset replacement schedule” which he can price and arrive at the Asset Replacement Fund, and this becomes part of his tender price to be accepted as teh Accepted Contract Amount. The Employer needs to know this so that he can arrange for full project funding prior to award.

When it comes to the Bronze Book where the Contractor takes over an existing facility of possible doubtful condition, it is difficult for the Contractor to know what will, or will not, need replacing. Therefore the Contractor is required to examine the “existing facility” as best he can so he can make his assessment of design and replacement requirements prior to submitting his tender. However it is recognized that there will be parts of the facility which he cannot inspect for various reasons, and to keep everything on a ‘level playing field’, the Bronze Book allows for the Employer to list out the Class B assets (which the Contractor cannot be expected to inspect) and thus will not have been taken into account in his design. In this way, all tenderers are starting out on a common base line. If after contract award the design has to be changed due to the condition of a Class B asset (including the possible need to provide asset replacements), then this will be a Variation entitling the Contractor to additional payment. Crucial steps include the scurtiny of the Initial Asset Inventory and the preparation of a Inventory Report which forms part of the Contractor´s Proposal, subject to the determination of the Final Asset Inventory by the Employer´s Representative.

Under the FIDIC Gold Book and the future Bronze Book the Contractor assumes the responsibility to design, build and operate the Works. When completed the Works shall be fit for the intended purposes. After commissioning and when the Commissioning Certificate was issued (see above) the Contratcor commences to perform the Operation Service and the Operation Service Period commences. It ends after the expiry of the agreed operation service period. The Employer´s Representative shall then issue the Contract Completion Certificate (see above). During the whole (Main) Operation Service Period the Contractor will be responsible that the Works will be kept fit for purpose. In respect of the design and build services the FIDIC Gold Book follows the same policies like the FIDIC Yellow Book. For the Operation Service Period a number of new feature shave been introduced.

For the purposes of the Operation Service Period FIDIC has established some new features:

• Operation Management Requirements: This document is subject to a definition in Sub-Clause 1.1.55 and means the set of procedures and requirements, provided by the Employer, included in the Employer’s Requirements for the proper implementation of the Contract. This document is supposed to be prepared by the Employer in forms part of the tender pack.
• Operation and Maintenance Plan: This document is subject to a definition in Sub-Clause 1.1.56 and means the plan for operating and maintaining the facility, submitted by the Contractor, and agreed and included in the Contract. It forms part of the Contractor´s Proposal and shall therefore be prepared by the Contractor at tender stage.

FIDIC assumes that the Contractor will be able to identify – from the Operation Management Requirements (which according to Sub-Clause 1.1.55 is part of the Employer’s Requirements) – what the Employer requires for the “proper implementation of the Operation Service”  and develop his O&M Plan accordingly. The Contractor should, from his tender design and his planned procedure, (O&M Plan) be able to prepare his Asset Replacement Schedule and submit it with his Tender so that the amount of the Asset Replacement Fund can be calculated and included as a part of the tender Price.

• Operation and Maintenance Manuals: These documents shall be prepared by the Contractor in accordance with the Employer´s Requirements. The documents shall be submitted to the Employer’s Representative prior to the commencement of the Commissioning Period as provided for in Sub-Clause 5.6. Thus the development of this document forms part of the Contractor´s services under the Contract.
• The Asset Replacement Fund: This document is subject to a definition in Sub-Clause 1.1.2 and means the fund provided for under Sub-Clause 14.18. It forms part of the Accepted Contract Amount which means that the Contractor shall calculate the needs for replacements at tender stage which requires a sound design approach.
• The Asset Replacement Schedule is subject to a definition ins Sub-Clause 1.1.3 and means the schedule referred to in Sub-Clause 14.5 prepared by the Contractor covering the identification and timing of asset replacements. Since this document presupposes a full design it cannot become established prior Contract.
• Operation Service Operating Licence: This document is subject to a definition in Sub-Clause 1.1.54 and means the licence referred to in Sub-Clause 1.7. It is intended to grant the legal authorization enabling the Contractor to operate and maintain the Works.
• Handback Requirements: The “handback requirements” are referred to in Sub-Clause 8.7 and form part of the Employer’s Requirements. They include residual life requirements and may define the condition in which the Works shall be handed over at the end of the Operation Service Period. It is worth to note that the FIDIC Gold Book assumes that the Works shall not be operated after the expiry of the Operation Service Period. The “handback requirements” may extend the planned use of the Works which will obviously increase the Contract Price.

Sub-Clause 10.1 stipulates the Contractor’s obligation to comply with the Operation Management Requirements and to follow the Operation and Maintenance Plan as submitted and agreed. The Operating Licence (see Sub-Clause 1.7) shall be issued together with the Letter of Acceptance and come in force upon the issue of the Commissioning Certificate.

FIDIC has put the main focus on the maintenance and replacement obligation of the Contractor rather than to specify any particular operation details because specific operation requirements are difficult to predict in general terms. Thus details of the operation and maintenance service must be specified in the Operation Management Requirements and then subsequently developed in the Operation and Maintenance Plan and the according Operation and Maintenance Manuals. The Operating Licence will only constitute the authorisation to enable the Contractor to run the Works.

The FIDIC Gold Book has been commented various times. Reference is made to the available papers and articles[1]. The FIDIC Bronze Book is still under construction. A friendly review of the draft was done and the project has been finalized for review by the Contracts Committee. The Bronze Book will be fully harmonized with the FIDIC Yellow Book, 2 Edition (2017) and related errata. Due to its innovative character it was decided to publish it as a test edition.

The FIDIC Gold Book and the future FIDIC Bronze Book provide for a standing Design and Build DAB/DAAB and an Operation Service DAB/DAAB. While the terms of the D&B DAB and the Operation Service DAB are different the goals remain the same. Both are aimed at dispute avoidance and dispute resolution. The upcoming Bronze Book DAAB is widely harmonized with the FIDIC 2017 suite of contracts including the 2022 amendments.

Since roughly 5 years the  FIDIC Gold Book is used in pratice, mainly for water projects, but also in the health care sector. Some funding institutions (Worldbank, ADB and AFD) have published standard bidding documents for the procurement of FIDIC Gold Book contracts. Also a first court decision has been published concerning in a way the term of the Main Operation Service under the FIDIC Gold Book (see Universal Coal Development (Pty) Ltd v. Mineral Resources Development (Pty) Ltd (33182/2021) [2021] ZAGPPHC 839 (10 December 2021)). The contract was for the Design, Construction, Commissioning, Operation and Maintenance of an 18.8 MJ/Kg CV OMS Washing, Crushing and Screening Plant at the Kangala Coal Mine. The applicant´s case was that this contract, either on a proper interpretation thereof or on the basis of a tacit term to be read therein, should be read and interpreted in conjunction with or in the context of another agreement, as being a back-to-back agreement. The consequence, the applicant averred, was that the contract period would be fix or until the Kangala coal reserves were depleted, whichever came first. The Court concurred with this view.

It should be emphasized that in the instant case the parties did not use the FIDIC Gold Book as envisaged by FIDIC and that it shows how important a purpose of a contract and the context in whihc it is used can be.

Regarding dispute resolution the FIDIC Gold Book adopts a split approach. During design & build the parties shall appoint a full term design & build DAB which expires on the commissioning date while during the operation service an operation DAB shall be appointed for a five years´ term.

Rechtsanwalt Dr. Götz-Sebastian Hök

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