The FIDIC Design Build and Operate Contract - Gold Book
By Rechtsanwalt Dr. Götz-Sebastian Hök
In 2008 FIDIC has published a standard form of Contract which extends the single responsibility of the Contractor to the 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. TG 11 is currently 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 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.
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). Even if he hasn’t finalized the detail (which he will presumably do when and if he is awarded the Contract), he will have identified the main elements and should be in a position to know what assets which he has – or will – include in his design, will have a working life of less than 20 years and thus will need replacing at some time during the Operation Period. He thus can produce a "replacement schedule" which he can price and arrive at the Asset Replacement Fund, and this becomes part of his tender price. 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.
Under the FIDIC Gold Book and the possible 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 Operation Service Period commences and ends after the expiry of the agreed operation service. The Employer´s Representative shall then issue the Contract Completion Certificate (see above). During the 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. The FIDIC Bronze Book is under construction.
 A. V. Jaeger and G.S. Hök, FIDIC Conditions for Design, Build and Operate Projects – A New Approach  ICLR 36 et seq.; Wade, FIDIC Introduces the DBO Form of Contract  ICLR 14 et seq.; H. Broman and F. Kehlenbach, EIC Contractor´s Guide to the FIDIC Conditions of Contract for Design, Build and Operate Projects (the FIDIC Gold Book),  ICLR 77 et seq.; Hök, FIDIC Design, Build and Operate Form, the Gold Book, ZfBR 2009, 213 et seq.
Dr. Hök has been involved in EPC turnkey Projects worldwide as an advisor, expert witness or Dispute resolver, in particular in the power section and in respect of process plants. He has been a friendly reviewer of the FIDIC Gold Book and he is the legal advisor of TG 11 (Operate Design and Build also referred to as the "FIDIC Bronce Book"). He has operated as a member of DABs for design and build contracts in the offshore windmill industry, harbor projects, wastewater and irrigation projects.
LAW OFFICE Dr. Hök, Stieglmeier & Kollegen
Contact: Advocate Dr.Götz-Sebastian Hök
Eschenallee 22, 14050 Berlin
Tel.: 00 49 (0) 30 3000 760-0
Fax: 00 49 (0) 30 3000 760 33
WARNING: the material contained in these notes is a simplified guide to some of the major topics in international and German construction law. It is not intended as a substitute for legal advice on individual transactions, and does not necessarily stand on its own. Whilst the contents are believed to be correct, the authors cannot accept any responsibility for errors or omissions.