dispute resolution mechanisums in fidic conditions of contracts

DISPUTE RESOLUTION MECHANISUMS IN FIDIC CONDITIONS OF CONTRACTS

Dilan De Silva.


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Contents

Introduction .................................................................................................................................................................. 3

FIDIC 1987 (4th Edition) ............................................................................................................................................. 4

Generally ............................................................................................................................................................... 4

First step – Engineer’s decision ............................................................................................................................. 4

Second step – Amicable settlement ..................................................................................................................... 5

Third step – Arbitration ......................................................................................................................................... 5

FIDIC 1999 (Red Book) .................................................................................................................................................. 7

Generally ................................................................................................................................................................... 7

First step – Dispute Adjudication Board (DAB) ..................................................................................................... 7

Second step – Amicable settlement ..................................................................................................................... 8

Third step – Arbitration ......................................................................................................................................... 8

FIDIC 1987 V 1999 (Red Book) .................................................................................................................................... 10

References: ................................................................................................................................................................. 11


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Introduction

According to the Koffman, L. and Macdonald, E. (2007, pp.1) a contract is a legally enforceable agreement giving rise to obligations for the parties involved.

Conditions of contract are terms and conditions that set the rights and obligations of the contracting parties, when a contract is awarded or entered in to.

When parties enter in to a construction contract, right and obligations of each party must be in their agreement. The rights and obligations may be in two forms, as general conditions of contract and particular conditions of contract. A general condition of contract is a standard one published by an institution, and it has mentioned set of rights and obligations of parties common to all contracts. In particular conditions of contract, parties have mentioned their particular rights and obligations to the project.

In construction industry there are so many standard conditions of contracts have been published by various institutions. Every condition of contract has a provision for dispute resolution, because the construction industry is with more chances to occur disputes than other industries. Generally dispute resolution clauses are referring any dispute between parties to Alternative dispute resolution methods like arbitration and Adjudication. Purpose of providing a dispute resolution clause in a contract is to waive the party’s right to sue the court, which is more expensive and costly.

FIDIC:

FIDIC is well established conditions of contract, published by Fédération Internationale Des Ingénieurs-Conseils (International Federation of Consulting Engineers). First edition of FIDIC conditions of contract for works of Civil engineering construction (Red Book) was published in 1952 and later second, third and forth editions were issued in 1963, 1977 and 1987.

In 1999 FIDIC was issued a new set of conditions of contracts for Construction to suit for 21st century. Those are;

• FIDIC Conditions of Contract for Construction, the (New Red Book) • FIDIC Conditions of Contract for Plant and Design/Build, the (New Yellow Book) • FIDIC Conditions of Contract for EPC Turnkey Projects, the (Silver Book) • FIDIC Short Form of Contract, the (Green Book) • FIDIC Conditions of Contract for Consultant (White Book) in 1998

In 1999 there are separate conditions of contracts were issued for various procurement methods. As we have mentioned above, conditions of contracts are set the rights and obligations of contracting parties. Rights and obligations are varying by procurement method; hence there should be separate conditions of contracts for various procurement methods. This article explains dispute resolution mechanisms in the FIDIC red book, in briefly.


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FIDIC 1987 (4th Edition)

Generally Dispute resolution mechanism in FIDIC 1987 is with three major steps, those are Engineers decision, amicable settlement and arbitration.

First the dispute should refer to the Engineer, if parties not satisfy with the engineer’s decision or the engineer fails to give his decision within such period, parties can refer the dispute to arbitration. Also the arbitration cannot be start either the party has first attempt to settle the dispute at amicable settlement or exceeds the 56days after the day on which notice of intension to commence arbitration has given to other party. Amicable settlement was not included in FIDIC third edition.

First step – Engineer’s decision 1) According to the sub clause 67.1, if a dispute arises between Employer and Contractor, the matter

should be referred in written to the Engineer, with a copy to the other party. 2) Engineer should give his decision to Employer and Contractor within 84 days after he has received

such reference. 3) Each party shall give effect to every such decision of the Engineer, until the same revised by an

amicable settlement or and arbitral award.

There may be situations where the Engineer hasn’t given his decision within 84days or parties may dissatisfy with the Engineers decision. In such cases;

• Before the 70th days after the day on which he received the decision or • Before the 70th days after the day on which the said period of 84days expired

A party can give a notice of intention to other by stating his intention to commence arbitration with a copy to the Engineer. The duration for give notice of intention has changed to 70th days from 90th days when FIDIC revising from 3rd edition to 4th edition.

If there is no notice of intention to commence arbitration within 70th days after the day on which he received the decision.

• Engineer’s decision shall become final and binding upon both parties.

There may be situations where a party fail to comply with Engineers decision. In such cases;

• According to the sub clause 67.4, other party can refer the failure to arbitration. Purpose of this sub clause is to obtain an arbitral award that may be enforced internationally. This clause also a fresh clause to FIDIC 4th edition.


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Second step – Amicable settlement After either party send notice of intension to commence arbitration within such 70 days, parties can commence the arbitration subjected to following conditions.

• After an attempt to settle the dispute amicably or/and • 56 day after the day on which notice of intention to commence arbitration

To get an amicable settlement, parties can use negotiation, mediation, Mini trial or conciliation as dispute resolution methods. Amicable settlement is having more advantages over going to arbitration. It’s not only from time and cost wise, also from business relationship wise.

Third step – Arbitration Sub Clause 67.3:

“(a) the decision, if any, of the Engineer has not become final and binding pursuant to Sub-Clause 67.1, and

(b) Amicable settlement has not been reached within the period stated in Sub-Clause 67.2

Shall be finally settled, unless otherwise specified in the Contract, under the rules of conciliation and Arbitration of the international Chamber of Commerce....”

According to the Sub-Clause 67.3, parties can refer the unsettled disputes to arbitration. According to this Sub-Clause procedural rule for arbitration is international Chamber of Commerce (ICC) rules. But parties can alter the procedural rule as they wish, under particular conditions of contract.

Arbitration award is binding and enforceable, but it may set aside or challenge the enforcement of award based on limited grounds.

Also an arbitration award made in one state can enforce in other state when the both are convention states

for the New York Convention.


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`

No Yes (67.1)

(Parties shall comply with decision until the same revised by an amicable settlement or

an arbitral award.)

Dispute

Engineer (67.1)

(Deliver the decision within 84 days)

No No

Intention to commence arbitration (67.1)

(Within 70 days) No

Yes

Dispute

Engineer (67.1)


Attempt to settle in amicably or/and 56

days after notice (67.2)

Final and Binding Decision

Notice the intention to commence arbitration

(Within 70 days)

Arbitration (67.3)

(ICC rules)

Fails to comply with the decision (67.4)

Comply with the decision (67.4)

Yes (67.1)


an arbitral award.)

No


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FIDIC 1999 (Red Book)

Generally

Dispute resolution mechanism in FIDIC 1999 is with three major steps, and those are dispute adjudication board, amicable settlement and arbitration.

Under the clause 20, Claim, Disputes and Arbitration have not provided a sub clause to refer a dispute to the engineer because under sub clause 3.5 the engineer has already granted authority to take determination. Actually refer a dispute to engineer like in FIDIC 1987, means ask him to review his determination again. Because, generally the subject matter for the dispute could be engineer’s determination. Because engineer is the client’s representative, who taking decisions behalf of employer. Because of that engineer has been replaced with dispute adjudication board in FIDIC 1999.

If there are any disputes between parties, regarding engineer’s determination under sub clause 3.5 or any other instructions, opinion by him, then the parties can refer the dispute to dispute adjudication board (DAB) under sub clause 20.4.

If DAB fails to give the decision within given time period or either party is dissatisfy with the DAB decision, then either party should give notice of dissatisfaction to other party. Then either party can refer the dispute to arbitration under sub clause 20.6.

Also the arbitration cannot be start either the parties has first attempt to settle the dispute at amicable settlement or exceeds the 56days after the day on which notice of dissatisfaction has given to other party.

First step – Dispute Adjudication Board (DAB) Sub clause 20.4;

“If a dispute (of any kind whatsoever) arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works, including any dispute as to any certificate, determination, instruction, opinion or valuation of the Engineer, either Party may refer the dispute in writing to the DAB for its decision, with copies to the other Party and the Engineer”

According to the sub clause, if a dispute arises between parties, the matter should be referred in written to the DAB, with a copy to the other party and engineer.

• DAB should give his decision which has been reasoned, to Employer and Contractor within 84 days after he has received such reference.

• Each party shall give effect to every such decision of the DAB, until the same revised by an amicable settlement or and arbitral award.

There may be situations where the DAB hasn’t given his decision within 84days or parties may dissatisfy with the Engineers decision. In such cases;


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• Before the 28th days after the day on which he received the decision or • Before the 28th days after the day on which the said period of 84days expired

Either party can give a notice of dissatisfaction to other.

If there is no notice of dissatisfaction within 28th days after the day on which he received the decision.

• DAB’s decision shall become final and binding upon both parties.

There may be situations where a party fail to comply with DAB decision. In such cases;

• According to the sub clause 20.7, other party can refer the failure to arbitration. Purpose of this sub clause is to obtain an arbitral award that may be enforced internationally.

Further FIDIC 1999 have provided sub clause 20.2 for Appointment of the dispute adjudication board and sub clause 20.3 for Failure to agree dispute adjudication board. In addition that it has “General Conditions of Dispute Adjudication Agreement” and “Procedural rules” as a guide.

Second step – Amicable settlement After either party send notice of dissatisfaction within such 28 days, parties can commence the arbitration subjected to following conditions.

• After an attempt to settle the dispute amicably or/and • 56 days after the day on which notice of dissatisfaction was given.

Third step – Arbitration Sub clause 20.6;

“Unless settled amicably, any dispute in respect of which the DAB’s decision (if any) has not become final and binding shall be finally settled by international arbitration.”

According to the sub clause, any dispute has not final and binding shall be settled by arbitration under the rules of Arbitration of the International Chamber of Commerce (ICC).

Also the arbitration may commence before or after the completion of the works. In FIDIC hasn’t given any time frame to refer a dispute to arbitration. But it should be without undue delay.


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Notice of Dissatisfaction (20.4)

(Within 28 days) No

Yes

Dispute

Dispute Adjudication Board (20.4)


Attempt to settle in amicably or/and 56

days after notice (20.5)

Final and Binding Decision

Notice of Dissatisfaction (20.4)

(Within 28 days)

Arbitration (20.6)

(ICC rules)

Fails to comply with the decision (20.7)

Comply with the decision (20.7)

Yes (20.4)


an arbitral award.)

No


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FIDIC 1987 V 1999 (Red Book)

In FIDIC 1987, sub-clause 2.6 has mentioned when the engineer requires to take decision, approval, determination or any action which may affect the right and obligations of parties, he shall act impartially.

According to the David Bateson (2000), engineer act as an adjudicator or quasi-arbitrator. But I think the engineer is more close to adjudicator than quasi-arbitrator.

In FIDIC 1999, sub-clause 3.5 has mentioned when engineer require to agree or determine any matter he shall make a fair determination in accordance with the Contract.

If any dispute occur between parties and have referred to the engineer, then the engineer can take a fair determination in accordance with the sub-clause 3.5.

One of main difference between FIDIC 1987 and FIDIC 1999 is the introduction of Dispute Adjudication Board (DAB). It has introduced to fill the gap between impartial engineer in FIDIC 1987 and the fair engineer (not impartial) in FIDIC 1999.

According to the sub-clause 1.1(iv) in FIDIC 1987, ““Engineer” means the person appointed by the employer...”as per the same, a person appointed and paid by employer should act as impartially. It has been contented by commentators; they have argued that a person paid by employer should not undertake a quasi-arbitrators role.

Also the dispute may be between engineer and contractor, and then it’s not a fair process to refer the dispute to engineer for settle the dispute. There is a saying among Sri Lankan Sinhalese as “cleromancy from the theft’s mother” (“ෙහොරාෙග් අම්මෙගන් ෙප්න අහනවා වෙග්.”). That process is like a cleromancy from the theft or theft’s agent (“ෙහොරාෙගන්/ෙහොරාෙග් නිෙයෝජිතයාෙගන් ෙප්න අහනවා වෙග්”).

According to the sub clause 3.1 in FIDIC 1999 and sub clause 2.1 in FIDIC 1987, engineer have to obtain approval of the employer before executing some specific authorities, and the authorities shall be as stated in the particular conditions of contract. By using this clause employer can specify to obtain approval from him before take a decision under sub clause 67.1 in FIDIC 1987. If so, again the saying “cleromancy from the theft” will be apply.

Finally impartial engineer in FIDIC 1987 has converted in to a fair engineer in FIDIC 1999 with DAB sub-clause to fill the gap between two engineers.


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References:

• Koffman, L. and Macdonald, E., 2007.The Law of Contract.6th ed. New York: Oxford University press.

• ?. 2010. FIDIC Conditions of Contract. Available: http://constructionenglish.net/fidic‐conditions‐contract/. Last accessed 04th December 2010.

• FEDERATION INTERNATIONALE DES INGENIEURS CONSEILS, 1999. FIDIC Conditions of

Contract. Switzerland.

• FEDERATION INTERNATIONALE DES INGENIEURS CONSEILS, 1987. FIDIC Conditions of

Contract. 4th ed: Switzerland.

• ?. 2010. Conditions of Contract. Available: http://www.businessdictionary.com/definition/conditions‐of‐contract.html. Last accessed 24th November 2010.

• David Bateso. 2010. FIDIC. Available: http://www1.fidic.org/resources/contracts/bateson_aug00.asp. Last accessed 12th December 2010.

dispute resolution mechanisums in fidic conditions of contracts

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