Typical Sequence of Principal Events during Contracts for EPC/Turnkey Projects (Silver Book)

A Comprehensive Look at FIDIC’s Silver Book Approach

1. Introduction

Among the suite of standardized construction contracts published by the International Federation of Consulting Engineers (FIDIC), the Silver Book—officially titled Conditions of Contract for EPC/Turnkey Projects—occupies a special niche. In EPC (Engineering, Procurement, and Construction) or turnkey arrangements, the Contractor assumes a significantly higher share of project risk, taking responsibility for not only building the works but often designing, procuring, and delivering a fully operational project. This all-inclusive responsibility typically affords greater certainty of cost and time to the Employer, but in exchange, the Contractor assumes a heavier burden of risk.

While the Silver Book shares many conceptual similarities with other FIDIC forms (such as the Yellow Book for design-build), it is distinguished by its intense focus on single-point responsibility and risk transfer. In this blog post, we examine the typical sequence of principal events for Silver Book projects, offering a formal and detailed perspective on how these events unfold, why they matter, and how they reflect the mentality and aim of the FIDIC Silver Book. We also highlight notable differences between the 1999 and 2017 (and subsequent) versions, providing clarity for stakeholders who may be adopting or migrating between these editions.

2. Mentality: The FIDIC Silver Book Approach

2.1 High Risk on the Contractor

The Silver Book’s hallmark is its heavy emphasis on contractor-driven outcomes. The Contractor is expected to deliver a complete and functioning project to the Employer for a lump sum price (or similarly fixed arrangement). With limited grounds for adjusting cost or schedule, the risk of unforeseen issues—be they design discrepancies, site conditions, or supply chain hindrances—largely rests with the Contractor.

2.2 Certainty of Cost and Time

The Employer often adopts the Silver Book when seeking maximum cost and time certainty. Such certainty can be critical in projects financed through tight budgets, strict completion deadlines, or where the Employer lacks capacity or desire to manage the intricacies of design and procurement.

2.3 Aims and Targets

Like all FIDIC contracts, the Silver Book champions fairness but with a strong tilt toward Contractor accountability. Its overarching aims include:

Offering a robust lump-sum approach, minimizing post-contract price fluctuations.
Fostering dispute avoidance by clarifying that the Contractor’s acceptance of risk is part of the commercial bargain.
Providing a consistent, internationally recognized framework that aligns with turnkey project realities.

3. Typical Sequence of Principal Events in a Silver Book Project

Below is an outline of the principal events typically encountered from inception to completion of an EPC/Turnkey (Silver Book) contract:

Tendering and Negotiation
Award of Contract and Signing
Commencement Date and Provision of Performance Security
Contractor’s Detailed Design and Engineering
Procurement and Manufacturing of Equipment
Site Mobilization and Construction
Interim Payment Certainties (If Applicable)
Variations (Strictly Limited) and Claims
Testing, Commissioning, and Performance Tests
Taking-Over by the Employer
Defects Notification Period
Final Completion and Payment
Dispute Avoidance/Resolution
Contract Close-Out

Each of these steps embodies the unique mentality behind the Silver Book: high responsibility on the Contractor, streamlined processes, and a focus on delivering a fully operational project with minimal Employer intervention.

4. Detailed Stages Under the Silver Book

4.1 Tendering and Negotiation

What Happens?

The Employer issues tender documents emphasizing functional and performance requirements, with minimal scope for Employer-led design.
Contractors submit commercial offers that include design concepts, ensuring they fully understand the risks.
Rigorous negotiation often occurs because the Contractor must factor potential uncertainties into the lump-sum price.

Mentality:

Reflects that the Contractor must assess and price in the possibility of unforeseen challenges—due diligence is paramount.

Differences (1999 vs. 2017):

1999 version is less explicit in prescribing how risk data is to be provided to prospective Contractors.
2017 version might add clarity that encourages disclosure by the Employer of critical site information, while still reiterating that final risk rests with the Contractor.

Aim/Target:

Ensures clarity of scope and performance criteria from the outset, minimizing post-award disputes over unknown conditions.

4.2 Award of Contract and Signing

What Happens?

Once tender evaluations conclude, the Employer issues a Letter of Acceptance or similar document confirming the Contractor’s successful bid.
The formal contract is signed, locking in price, schedule, and scope as per “turnkey” principles.

Mentality:

Formalizes the Contractor’s single-point responsibility for design, procurement, and construction.

Differences (1999 vs. 2017):

2017 version may place stronger emphasis on notice requirements and initial communications upon contract formation.

Aim/Target:

Establishes a binding agreement, typically with minimal grounds for subsequent re-pricing (barring exceptional events).

4.3 Commencement Date and Provision of Performance Security

What Happens?

The Employer or the Engineer specifies the Commencement Date, triggering the Contractor’s obligations to start design and preparatory works.
The Contractor provides Performance Security (bank guarantee or similar), covering potential default or subpar performance.

Mentality:

Security is crucial in a turnkey environment because the Employer relies heavily on the Contractor’s financial and technical capability.

Differences (1999 vs. 2017):

Both editions mandate performance guarantees. The 2017 version may define stricter timelines or formal notice for submission, reinforcing that failure to provide security can justify termination.

Aim/Target:

Ensures the Employer has a fallback if the Contractor cannot fulfill turnkey obligations.

4.4 Contractor’s Detailed Design and Engineering

What Happens?

The Contractor undertakes detailed design in line with the Employer’s functional requirements, typically with minimal oversight.
Submissions might be sent to the Engineer for review, but final responsibility for design adequacy remains firmly with the Contractor.

Mentality:

A key difference from the Red Book or other forms: the Employer does not carry the design risk. The Contractor must manage it comprehensively.

Differences (1999 vs. 2017):

The 2017 edition clarifies the Engineer’s review process. However, any Engineer “approval” does not shift design risk from the Contractor—a principle consistent in both versions but spelled out more explicitly in 2017.

Aim/Target:

Supports a turnkey outcome where the Contractor’s integrated design fosters efficiency and performance, with fewer Employer-driven modifications.

4.5 Procurement and Manufacturing of Equipment

What Happens?

The Contractor sources or manufactures the necessary equipment (e.g., turbines, generators) and materials, ensuring timely availability to meet the project schedule.
The Contractor arranges shipping, import, and customs clearance if items are sourced internationally.

Mentality:

Risk of supply chain delays or cost escalations lies with the Contractor, consistent with the Silver Book’s high-risk, fixed-price ethos.

Differences (1999 vs. 2017):

Both editions treat procurement similarly. The 2017 text might expand on early warning mechanisms if delays loom in the manufacturing process, prompting more proactive communication.

Aim/Target:

Maintain streamlined execution, ensuring the turnkey project does not stall due to supply disruptions.

4.6 Site Mobilization and Construction

What Happens?

The Contractor mobilizes personnel, plant, and equipment to the site, erecting temporary facilities and initiating civil works or assembly.
The Contractor manages on-site activities, including health and safety, quality control, and coordination with subcontractors.

Mentality:

The Employer seldom interferes with daily site management, consistent with the Silver Book’s hands-off approach.
The Contractor is accountable for all site operations and compliance with local regulations.

Differences (1999 vs. 2017):

Core obligations are similar. The 2017 edition accentuates the requirement for timely notices if unforeseen site conditions threaten completion, but relief for the Contractor is more limited than in forms like the Red or Yellow Book.

Aim/Target:

Supports a consistent, uninterrupted path to completion, relying on Contractor expertise with minimal Employer intervention.

4.7 Interim Payment Certainties (If Applicable)

What Happens?

Under a turnkey setup, payments may often be milestone-based rather than purely monthly. The Contractor invoices upon achieving specific progress or deliverables.
The Engineer certifies these payments, verifying the achievement of contractual milestones.

Mentality:

Reinforces the lump-sum nature: the Contractor invests upfront in design/procurement, recouping costs upon demonstrable progress or performance.

Differences (1999 vs. 2017):

The 2017 edition can be more precise about the timeline for certification, ensuring the Engineer processes claims or milestone verifications quickly.

Aim/Target:

Ensures the project is financed proportionate to tangible progress while maintaining the Contractor’s accountability for delivering fully to spec.

4.8 Variations (Strictly Limited) and Claims

What Happens?

The Employer (through the Engineer) may request limited Variations, but the Silver Book typically restricts changes more than the Red or Yellow Book.
The Contractor can raise Claims if encountering exceptional events outside the contract’s assumption (though such events are fewer under the Silver Book).

Mentality:

Minimizes scope creep: The turnkey concept enforces that the Contractor must handle known and foreseeable risks, with few avenues for cost/time adjustments.

Differences (1999 vs. 2017):

1999 edition: Variation and claims processes exist but often emphasize that the Contractor is bound by a fixed price.
2017 edition: More robust notice procedures and stricter time bars for raising claims, but the principle of minimal risk relief remains.

Aim/Target:

Preserves the project’s cost and schedule certainty, discouraging excessive changes that undermine the turnkey premise.

4.9 Testing, Commissioning, and Performance Tests

What Happens?

The Contractor conducts commissioning to ensure the constructed facility meets required functionality or performance thresholds (e.g., output capacity, efficiency).
The Employer or Engineer witnesses these tests, verifying compliance with the contract’s performance guarantees.

Mentality:

Emphasizes a complete and “ready for operation” facility. The Contractor must rectify any shortfalls in performance.

Differences (1999 vs. 2017):

Both versions focus on robust performance testing. The 2017 text might detail a more structured approach if initial tests fail, ensuring retesting occurs under clear timelines.

Aim/Target:

Guarantees that the turnkey solution is operational, meeting the Employer’s functional needs at or before the agreed completion date.

4.10 Taking-Over by the Employer

What Happens?

Once performance tests indicate satisfactory operation, the Contractor requests Taking-Over.
The Engineer issues a certificate confirming the Works can be used for their intended purpose, signaling substantial completion.

Mentality:

Shifts care and custody of the facility from the Contractor to the Employer, although minor defects might still be addressed.

Differences (1999 vs. 2017):

The 2017 version formalizes timescales for issuing or refusing a taking-over certificate, consistent with FIDIC’s push for clarity and dispute avoidance.
Any partial taking-over (sectional completion) is also addressed with more explicit triggers.

Aim/Target:

Allows the Employer to initiate commercial or functional use, transitioning from Contractor-led control to an operational phase.

4.11 Defects Notification Period

What Happens?

The Contractor remains responsible for correcting any defects discovered during the Defects Notification Period (DNP)—commonly 12 months, though this can vary.

Mentality:

Ensures that the turnkey solution is truly delivered to specification, with no hidden flaws left unresolved.
Under the Silver Book, design defects are also the Contractor’s responsibility unless explicitly excluded.

Differences (1999 vs. 2017):

The older term “Defects Liability Period” in 1999 often transitions to “Defects Notification Period” in 2017, but the concept remains similar.
The 2017 edition includes more explicit notice requirements for any newly discovered design or workmanship defects.

Aim/Target:

Ensures the Employer ultimately receives a functional, defect-free facility.
Maintains the principle that minimal risk returns to the Employer in a turnkey setup.

4.12 Final Completion and Payment

What Happens?

After all notified defects are rectified, the Contractor requests a Performance Certificate.
Issuance of this certificate signals final completion, releasing any remaining retention or security.

Mentality:

Achieves contract closure, confirming the Contractor delivered the project to the full standard required.

Differences (1999 vs. 2017):

Similar structure in both. The 2017 forms can impose more structured deadlines for issuing the Final Payment Certificate, seeking to avoid undue delay.

Aim/Target:

Offers a definitive end to the Contractor’s obligations, ensuring the Employer is satisfied with a fully completed, operational facility.

4.13 Dispute Avoidance/Resolution

What Happens?

If disputes arise, the Silver Book sets forth a multi-tier resolution path—initially through the Engineer’s determination, then the Dispute Adjudication Board (DAB) in 1999 or the Dispute Avoidance/Adjudication Board (DAAB) in 2017, and finally arbitration if necessary.

Mentality:

Emphasizes that robust initial contract negotiations and the high-risk acceptance by the Contractor should minimize unexpected claims or protracted disputes, but a formal path exists if conflicts surface.

Differences (1999 vs. 2017):

2017 introduced the DAAB concept, aiming for earlier and more proactive dispute avoidance.
1999 references the DAB more reactively post-dispute.

Aim/Target:

Minimizes project disruptions from disagreements. Encourages resolution consistent with the lump-sum, turnkey character of the contract.

4.14 Contract Close-Out

What Happens?

Final administrative tasks: handing over operation manuals, as-built drawings, warranties, etc.
Release of all securities, final retention payment, and the official recognition that no further obligations remain (apart from possible latent defect liabilities per local law).

Mentality:

Completes the life cycle of a turnkey arrangement, providing a functional, tested, and accepted project to the Employer.

Differences (1999 vs. 2017):

Both versions foresee close-out. The 2017 text may detail final notice requirements, ensuring no hidden claims surface after the performance certificate is issued.

Aim/Target:

Closes the contract seamlessly with minimal leftover administrative or technical loose ends.

5. Concluding Observations

The FIDIC Silver Book stands as a distinct and robust approach within FIDIC’s family of contracts, tailored for EPC or turnkey endeavors where the Contractor shoulders extensive risk. By detailing a typical sequence of principal events, we see how each stage—from tendering and commencement to testing, taking-over, and final completion—reinforces the contract’s underlying philosophy:

Risk Concentration: The Contractor accepts accountability for design, procurement, construction, and potential unforeseen factors, offering the Employer near-fixed cost and time certainty.
Limited Variations: Changes are tightly controlled to preserve the fundamental lumpsum arrangement.
Focus on Final Performance: Testing and commissioning confirm that the delivered project meets functional benchmarks, aligning with the turnkey concept.
Dispute Avoidance: Building on notice-based procedures and clarity in risk allocation, the Silver Book reduces the chance for the Employer to push design or site issues back onto the Contractor—and vice versa.

Comparing 1999 and 2017 versions reveals an ongoing refinement: 2017 codifies earlier dispute avoidance (through the DAAB) and imposes more rigid notice/time-bar protocols to ensure that any deviation from the contracted cost/time is rigorously documented and justified. Yet the essence remains unchanged: under the Silver Book, the Employer gains simplicity in project oversight, whereas the Contractor must diligently control design, quality, and performance risks to achieve a successful, fully operational handover on time and on budget.

Ultimately, the Silver Book is best suited for clients who desire comprehensive responsibility placed on a single Contractor, seek minimal day-to-day involvement in design or site management, and are ready to pay a premium that incorporates the Contractor’s risk. For the Contractor, success in Silver Book projects lies in thorough due diligence, meticulous planning, and robust management of procurement and construction activities. Mastering the sequence of principal events is thus key for both parties to meet the aims and targets of a well-executed EPC/turnkey contract: certainty, completeness, and a functioning facility delivered with minimal disputes.