Central Banks and commercial banks around the world initiate international tenders for the design and implementation of their cash centers and vaults/ warehouses. The specialized consulting and engineering companies participate in such tenders worldwide with their internationally valued expertise in cash center engineering by providing optimized workflows and their control, automation, cash handling equipment, IT and security systems. In such international projects, both parties are confronted with different forms of contract design and the legal systems in the respective countries.
In order to facilitate international projects in plant engineering and construction, the standard terms and conditions of the FIDIC contract models were created. These contact standards are enjoying increasing acceptance worldwide and are ideally suited for international cash center construction projects. Today, FIDIC contract templates are already used in all public and World Bank-supported construction and plant engineering projects in Central and Eastern Europe, as well as in the Middle East, India and Africa.
Cash center projects are assigned to plant engineering and construction
When designing and implementing cash centers and vaults, the technical components are combined to form an overall "fit for purpose" system with defined objectives relating to the receiving of cash shipments, cash processing and destruction, storage and retrieval, order picking, and consignment to customers.
The technical components of cash handling systems, automation of vault storage and robotics, IT software, and security systems must be interconnected for an optimized process flow; coordinated in conjunction with the architecture and the corresponding building services as well as the control and monitoring concept, this results in a complete cash factory concept.
Systems for cash centers and vaults with various cash throughput rates and inventory volumes are typically not catalog products. They are customized and manufactured individually for a cash center according to specific customer needs. In this respect, the design and implementation of automated cash centers are plant engineering projects and thus a typical project business.
As plant construction projects are generally associated with higher risk, the contract should also be suitable for international cash center set-up and reflect their technical and organizational project conditions and risks. In addition, it must adequately and meaningfully adress the challenge in a "cross-border project" when project participants from different legal systems come together.
The FIDIC contract models offer a legal basis that has emerged from many years of international practice in plant engineering and construction projects. Corresponding experience has been turned into a legal concept that focuses on a frictionless, in-time and overall successful project execution. In relation to typical legal contracts, FIDIC contracts are understood by all parties and not only by lawyers, but also by technical specialists and commercial responsible, and can therefore be implemented in a practical and legally compliant manner.
FIDIC contract models
FIDIC contract models are prepared by the international association of consulting engineers "Fédération Internationale des Ingenieurs - Conseils" in Geneva. Germany as the nation of engineers and machinery is represented in this international association by the Association of Consulting Engineers (VBI). Providing a platform for collaboration of FIDIC member associations are” FIDIC Europe/ EFCA including countries in EU, Eastern Europe, and Balkan, “FIDIC Africa” including Botswana, Egypt, Ethiopia, Ghana, Kenia, Nigeria, Morocco, South Africa; CEAI of India; or Latin America/ FEPAC.
In 1999, four different contract models were initially published: the Red Book, the Yellow Book, the Silver Book and the Green Book. In the meantime, the Blue Book, the Golden Book and the White Book have been added. The designation of the books is traditionally derived from the color of the cover.
The different contract models including its ongoing updates are assigned to the contract types occurring in construction and plant engineering practice. It is therefore important for the user of the FIDIC contract models to select the FIDIC contract model that applies to his case of application.
The Red Book focuses on the core business of plant engineering and construction. The client prepares the design of the cash center, the contractors built the building and/or install the cash center equipment.
The White Book regulates the contractual relationship between the client and the general planner/ architect and cash center engineer office who is assigned for cash center design and functional specification plus the supervision of project implementation. It is therefore aimed at internationally active cash center engineers and architects.
The Yellow Book governs the terms and conditions into a lump-sum price contract for a functionally tendered project to construct a cash center and implement the technical equipment. It is the contractor's task to adapt the functional specifications of the client/ general planner by means of his own detail planning.
In today's practice, a combination between White Book for the general planner/ consulting engineer and Yellow Book for building contractor and equipment supplier is often used in “Separated Procurement System” contracts means different contracts for general planner/ engineer and contractors for building, technique and automation.
The Silver Book governs a lump sum price contract for a turnkey project. Accordingly, the contractor is responsible for the complete planning and implementation of the cash center project.
Risk Management in international cash center projects
Although a standard FIDIC contract alone is not a guarantee of a successful project, the contract is important for managing project risks that affect all project-involved parties. FIDIC contracts are not created for legal professionals. We should step back from the idea that the legal aspects of a plant engineering and construction project can be separated and handled in isolation by the legal department or an external lawyer. This would ignore the importance that legal issues take in plant engineering. In plant engineering, legal issues do not only apply to extraordinary situations, but also to the regular execution of the project.
Risk management includes dealing with the contract and its risks. In this respect, the legal aspects are part of the Project Management and are in responsibility of the project manager. The project manager must know and understand the content and significance of the legal provisions and include them in his actions, just as he does with costs, payment schedule, deadlines, and quality requirements. The legal department and lawyers must support the project manager in legal matters. Legal professionals can neither take away the mental involvement with legal issues nor the responsibility from project managers. On the other hand, the legal professionals cannot avoid dealing with the specific technical, commercial, and organizational requirements in plant engineering. Then, project managers can benefit from legal support.
The risk distribution in FIDIC contracts is specified according to the needs in plant engineering and construction projects depending on the book which is used. The risk distribution is handled in such a way that neither all the risks of the action are given to one side, nor one side is completely relieved of any risk of failure. FIDIC contracts are accordingly fair and balanced between all parties.
Contract management and the special position of the consulting engineer
In FIDIC contracts (Yellow Book), the “Engineer” is integrated into the relationship between the client and the contractor as a third person. The basic idea behind the mandatory appointment of the Engineer is, that the Engineer performs his tasks in a fair, balanced, but above all in a factually and technically correct manner.
Although the Engineer is on the side of the client, he has the function of a dispute mediator. He is authorized to make certain decisions with binding effect for both parties, since he is responsible for quality control in addition to contract management. The Engineer is authorized to make findings and assessments, issue acceptance test certificates and permits, he can define services variations and determine the additional remuneration to be paid by the client for them.
The client and the contractor delegate tasks to the Engineer by mutual agreement, and both contracting parties assume that these tasks will be performed in accordance with the contract. Whether and to what extent the Engineer is then directly committed to the client to perform these tasks and to what extent he is paid for this, must then be contractually agreed separately and exclusively between the client and the Engineer. The FIDIC White Book is suitable as a sample contract for this purpose.
Time management system
Time management is an essential part of project execution and ensures compliance with agreed time schedules. Claims for compensation result from exceeding the implementation timelines. However, the FIDIC contracts not only regulate the claims, but also the procedure by which they must be asserted. The procedural rules include deadline regulations, documentation requirements and more.
Work acceptance concept
The acceptance procedure runs in individual steps over a longer period of time. It begins with tests and assessments prior to completion. This is followed by the issue of the "taking-over certificate". This marks the beginning of the period for the elimination of defects identified during preliminary acceptance or which occur during this period. After this period has expired the so-called site acceptance test with "performance certificate" will be issued. Since the statutory warranty for defects is not regulated in FIDIC contracts either in terms of content or with regard to the warranty period, the parties are free to define this in the FIDIC’s "Particular Conditions".
Conclusions to cash center engineering and construction contracts
National Central Banks often insist on formulating their own contracts for their projects. These are then often announced in the relevant tender documents. In this respect, they should consider FIDIC as a balanced and fair standard contract which regulates the relationship between all involved discipline experts involved, from architects and cash center specialists to contractors for building construction and to suppliers for cash handling and automation equipment.
On the other hand, when no contract is provided by the client, the cash center engineer and constructor should propose a FIDIC contract itself and present it already with his proposal.
All parties should be made aware from the very beginning that the legal framework is not something abstract, separable for the cash center build and supply of technique. The contractual provisions should be part of the tender and offer and a prerequisite of the price offered. In terms of a risk calculation related to the international project, this means that the price, the technical and the legal are negotiated together.
Do you want to know more about professional project set-up and contact design of international cash center engineering with well-balanced conditions, please contact us.
Source:
Dr. G.S. Hök, FIDIC Contract Management, 2008, www.vbi.de; Florian Haupt, Praktikerkommentar zu FIDIC, VDMA Verlag 2012; Maschinenbau-Institut GmbH, Nationale und Internationale Vertragspraxis, Seminarreihe 2023; FIDIC Standard Form of Contracts, www.fidic.org.
