Most of the times disputes are inevitable in construction contracts, especially in large scale construction projects. There may be numerous reasons for disputes like slow progress by the contractor, delay in decisions taken by the employer, delay in payments, site conditions, etc. Whatever may be the reason for delay, a procedure to resolve or settle the disputes should be in place in the contracts. FIDIC 2017 stipulates the procedure for Employer’s and Contractor’s claims under clause no. 20 and procedure for disputes and arbitration under clause 21 of general conditions of contract.
As per FIDIC Red Book 2017, the claims and disputes are not the same. A claim which is not settled amicably eventually converts into dispute. A claim is a request made by either party for entitlement under the contract, while a dispute arise if the claim is rejected or ignored.
The dispute resolution procedure under FIDIC Red Book 2017 has been stipulated under three parts which are described below:
Index
Procedure for Claim Submission (Clause 20)
A claim must be made before a dispute can arise. The claim is made as per the clause no. 20 of general conditions of contract. The claim may either be made by the contractor or client.
Clause 20.1 is regarding the definition of claim. As per this clause, a claim may arise if either the contractor or employer consider that they are entitled to any additional payment due to some reason.
Clause 20.2 is regarding procedure to claim for payment and/or EOT. Sub- clause 20.2.1 sets a time limit of 28 days for giving a notice by either party to the Engineer after the claiming party became aware of the claim.
The fully detailed claim may be submitted by the parties within 84 days after the claiming party became aware, of the event or circumstances giving rise to the claim. This provision is stipulated in sub- clause 20.2.4 of the General Conditions of Contract.
Clause 20 also includes a requirement for the engineer to notify the claiming party within 14 days after receiving the notice if the engineer finds the notice time barred. This provision is given in the sub clause 20.2.2, ‘Engineer’s Initial Response’.
If the claiming Party receives a Notice from the Engineer under this Sub-Clause and disagrees with the Engineer or considers there are circumstances which justify late submission of the Notice of Claim, the claiming Party shall include in its fully detailed Claim under Sub-Clause 20.2.4 [Fully detailed claim] details of such disagreement or why such late submission is justified (as the case may be).
Engineer’s Determination (Clause 3.7)
As per the FIDIC Red Book 2017, the Engineer is involved in claim resolution. Sub Clause 3.7, Agreement or Determination sets out the detailed procedure for the Engineer to determine claims. This clause stipulates that the Engineer shall act neutrally between the Parties and shall not be deemed to act for the Employer. As per the sub clause 3.2, the employer may not require the engineer to obtain prior consent before issuing determinations.
According to the sub clause 3.7.1, The engineer is required to “encourage discussions between the Parties in an endeavor to reach agreement” (Sub-Clause 3.7.1). If no agreement is reached, the engineer proceeds to issue a determination.
If the engineer does not issue a determination within the time limit (i.e., 42 days or another period agreed between the parties), or if either party is dissatisfied with the engineer’s determination, the parties may proceed to the dispute resolution procedure under Clause 21, described below (Please refer Sub-Clauses 3.7.3, 3.7.5(d), 21.4.1).
Dispute Resolution Procedure (Clause 21)
Constitution of the DAAB (Dispute Avoidance/Adjudication Board (Sub- Clause 21.1)
The dispute resolution procedure is detailed in clause 21, ‘Disputes and Arbitration’. As per the sub- clause 21.1, ‘Constitution of the DAAB’, there is a provision to appoint members of DAAB, Dispute Avoidance/Adjudication Board’, which will try to settle the dispute without going through lengthy and costly arbitration process.
The Parties shall jointly appoint the member(s) of the DAAB within the time stated in the Contract Data (if not stated, 28 days) after the date the Contractor receives the Letter of Acceptance.
For other conditions and the term of DAAB, please refer to sub- clause 21.1 of the FIDIC Red Book.
As per the sub- clause 21.3, ‘Avoidance of Disputes’, If the Parties so agree, they may jointly request (in writing, with a copy to the Engineer) the DAAB to provide assistance and/or informally discuss and attempt to resolve any issue or disagreement that may have arisen between them during the performance of the Contract. If the DAAB becomes aware of an issue or disagreement, it may invite the Parties to make such a joint request.
If the DAAB has been constituted, it is mandatory to obtain the DAAB’s decision before going to the arbitration process.
According to sub- clause 21.4, ‘Obtaining DAAB’s Decision’, either Party may refer the dispute to the DAAB for its decision. The DAAB shall complete and give its decision within 84 days after receiving the reference or such period as may be proposed by the DAAB and agreed by both Parties.
The DAAB’s decision is binding on the parties in the sense that the parties (and the Engineer) must promptly comply with the DAAB’s decision whether or not a party gives a NOD with respect to such decision. This is often referred to as the DAAB’s “binding, but not final” decision.
If a party does not agree with the DAAB’s decision, then it can prevent it becoming the final decision by giving a NOD ‘Notice of Dissatisfaction’, within 28 days. If no party gives NOD to the decision of DAAB, then the decision of DAAB becomes final and binding on both the parties.
If either party gives NOD to the decision of DAAB, then the dispute is finally referred to arbitration for settlement.
Arbitration (Sub- Clause 21.6)
There is a provision of amicable settlement in by the parties before going to arbitration. This provision is stipulated in sub- clause 21.5, ‘Amicable Settlement’. If the amicable settlement is not made, then the arbitration may be commenced on or after the 28th day after the day on which NOD is given.
The detailed procedure for arbitration is stipulated in sub- clause 21.6, ‘Arbitration’.
If the parties have not agreed otherwise in ‘Particular Conditions of Contract (PCC), the arbitration is settled in accordance with the Rules of Arbitration of the International Chamber of Commerce (ICC). The parties should therefore carefully decide before entering into the contract, if any deviation from this the above is needed.
Arbitration may be commenced before or after completion of the Works. The obligations of the Parties, the Engineer and the DAAB shall not be altered by reason of any arbitration being conducted during the progress of the Works.
The award of the arbitration tribunal is final and binding for the parties.
Conclusion
As per the FIDIC 2017, Conditions of Contract, the claim submission procedure is separate from the dispute resolution process. After submission of claim the dispute resolution process is divided into three parts, i.e., (i) Engineer’s determination, (ii) Dispute avoidance/ adjudication by DAAB, (iii) Arbitration. FIDIC 2017 also provides an opportunity for the parties for the amicable settlement before approaching to arbitration. FIDIC 2017 provides the parties an excellent platform to resolve their disputes timely and cost-efficient manner, with different tiers of determination before actual arbitration. The parties should therefore should take full advantage of all the provisions stipulated in the FIDIC 2017 document and try to settle the dispute either amicably or with the help of DAAB so that the time taking and costly process can be avoided.
Only the brief provisions regarding sub- clauses are given in the article for the purpose of the basic understanding of the clause. For full provisions under the sub- clauses, FIDIC Red Book (Conditions of Contract for Construction) 2017 may be referred.
References:
- FIDIC Conditions of Contract for Construction, Second Edition, 2017 (FIDIC Red Book)
- https://fidic.org/
Disclaimer
- The description of sub- clauses given in this article is only a part of the whole clause which is relevant to the Dispute Resolution. For whole provision under the sub clauses refer to FIDIC Conditions of Contract for Construction, Second Edition, 2017
- The content of this article is only for education purpose and it cannot be used as a legal advice. For any legal issue a suitable professional may be consulted
