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C ONS  T R UC T I  ON

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UP DA T E 

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The long awaited FIDIC Design Build Op-

erate Contract has nally 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 ContractAs the title suggests, the contract is

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

By Edward Sunna, Head of Department

Construction and Engineering Department

The new FIDIC Contract:

Design Build Operate

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CONSTRUCTION

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a corporate entity specically set up to

reect the interests, roles, obligations

and liabilities of parties comprising the

corporate entity e.g. a consortium. Each

party will have a specic 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 agreedwith the sponsor of the project i.e. the

employer.

Contract FlexibilityThe 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 eld approach’ which es-

sentially follows the traditional structure

of the build operate, whereas the ‘brown

eld 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

ContractsThe 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

denitions, paragraphs and structures

that make FIDIC unique.

The core of the new agreement and itsfunction is found in clause 9 entitled ‘De-

sign – Build’ which specically provides

for necessary elements to administrate

the design and build component.

The reader should note new denitions

specic to DBO projects have been in-

cluded in the new form. An example is the

denition of the ‘License Agreement’ to

regulate the operation component of the

agreement and corresponding authority of 

the Contractor. Another noteworthy deni-

tion is that of ‘Cost plus Prot’, although

FIDIC provides for such a denition, wesuspect that in its practical application,

we would dene parties amending such

denitions to account for project specic

denitions and exhaustive itemisation of 

the costs component to avoid doubt or

miscommunication.

The Operate ComponentThe striking feature of the DBO agree-

ment is the usual intention of the parties

to dene 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

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 termina-

tion or the transfer of the asset at the

end of the term or following early termi-

nation.

Advantages of a DBO

The combination of a number of disci-plines 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 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 tooperate the project on completion, which

mutually serves the Employer’s interests

of having a quality built and designed low

cost maintenance project.

 

ConclusionThe 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 andFIDIC is likely to again be the preferred

model for DBOs in the future. However

caution should always be had with draft-

ing the project specic terms and condi-

tions of the DBO, particularly during the

operation phase and the consequences

of the Parties rights following early termi-

nation, transfer or closure of any Project

at any particular phase. In the Gulf, mar-

ket it is always importance to reconcile

the contract provisions with the local

laws, particularly of government which

may often contain implied provisionsunknown at the time of execution of an

agreement.