Interpreting and Applying the Delay Damages Provisions of the FIDIC Red Book Standard Form Contract in accordance with Vietnamese Law

July 15, 2023

Introduction

FIDIC (original name in French: “Fédération Internationale des Ingénieurs – Conseils”) stands for International Federation of Consulting Engineers, a global professional association of consulting engineers founded in 1913. FIDIC is best known for its standard forms of construction contracts. Among the FIDIC form contracts, the three most popular and widely used in construction projects are the Red Book (Conditions of Contract for Construction), the Yellow Book (Plant and Design-Build Contract), and the Silver Book (EPC/Turnkey Contract), commonly referred to as the Rainbow Suite.

The standard Rainbow Suite was first published in 1999 based on updates and modifications of the previous FIDIC standard form contracts. In 2017, FIDIC published the second edition of the Rainbow Suite with numerous amendments and supplements to the first edition in 1999. In 2022, FIDIC reprinted the 2017 Rainbow Suite with some updates but retained the name of this edition as the second edition. In this article, the authors will mostly focus on the 1999 Red Book (“RB/99”) and the 2017 Red Book (“RB/17”).

In general, FIDIC standard form contracts are widely used in construction works and projects in Vietnam. They are mandatory for projects funded by Official Developing Assistance (ODA). For this reason, FIDIC standard form contracts play a very important role in Vietnamese construction projects, and therefore, properly interpreting and applying the provisions of FIDIC standard form contracts under Vietnamese law, often the governing law of such contracts, is a critical task.

In this article, the authors introduce and analyze the concept of delay damages (“DD”) as used in the relevant clauses of RB/99 and RB/17 to conclude that the concept of DD, under the FIDIC standard form contracts, may not be compatible with the Vietnamese law damages regime. Therefore, the interpretation and application of these concepts in contracts governed by Vietnamese law will be difficult and complicated. Based on the experience of other civil law countries, the authors take the view that the amendment of FIDIC contracts governed by Vietnamese law using the approach taken by civil law systems is necessary, appropriate and correct because the structure and provisions of Vietnamese law are already compatible with the approach taken by civil law systems to address the DD issues. On that basis, if the parties to a contract wish to amend the DD provision to be more consistent with Vietnamese law, they should consider switching this provision into a delay penalty provision by replacing the term/concept “delay damages” by the term/concept “delay penalty.”

This article consists of the following sections: (ii) the popularity of FIDIC standard form contracts in Vietnam, (iii) overview of the FIDIC Red Book standard form contracts, (iv) DD provisions in the 1999 Red Book (RB/99) and 2017 Red Book (RB/17), (v) interpreting and applying DD provisions in accordance with Vietnamese law, and (vi) a proposal to switch the DD provisions into delay penalty provisions.

Read the full article here.

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