FIDIC

CONTENTS
• Introduction
• FIDIC (What and Why?)
• FIDIC Publications
• FIDIC Conditions of Contracts for Works Contracts
• FIDIC Contracts Comparison Matrix
• Discussion on topics like;-
Limitation of Liability
Third Party Liability
Indemnity
Delay Damages
Defects Liability
Termination of Contract
• Claims
Introduction
• FIDIC is the International Federation of Consulting Engineers
• Its members are national associations of consulting engineers.
• Was founded in 1913 by Belgium, France and Switzerland HQs is in Genève,
FIDIC membership covers 94 Countries as of today.
• FIDIC publishes international standard forms of contracts for works and for clients,
consultants, sub-consultants, joint ventures and representatives, together with
related materials such as standard pre-qualification forms.
• FIDIC also publishes business practice documents such as policy statements,
position papers, guidelines, training manuals and training resource kits in the areas
of management systems and business processes.
• Organises workshops and training programmes
Introduction…Contn..
• The first edition of FIDIC was published in 1957- subsequent edition in 1969
• Third edition in 1977
• Yellow book for mechanical and electrical works -1963- second edition in 1980
• 4th Edition (1987) Red Book required the Engineer to act impartially when taking
action or decisions ” previous editions assumed implicitly.
• 1996 a Supplement was published ” option of DAB ” payment by lumpsum basis
than by reference to BOQ
• 1995 Orange Book ” Conditions of Contract for Design Build and Turnkey
Orange Book dispensed with the role of Engineer ” provided for Employer
Representative
• The express requirement for being impartial was relinquished- Employer
representative had to ‚determine the matter fairly, reasonably and in accordance
with the contract.
• Archaic rule submission to Engineer for ‚Decision‛ was eliminated and DAB was
introduced.
• 1994 FIDIC established a task group to update the Red and Yellow Book in light
of development in International Construction Industry.

Role of Engineer -
Use of common definitions in Red and Yellow Book
Balance the interest of familiarity with pre-existing terminology ” update.

• In 1999 FIDIC introduced the new Red book, the new Yellow Book, Silver Book (
EPC/Turnkey Projects) and the Green Book (short form of Contract)
Why FIDIC
 covers almost all the major issues that needs to be addressed under a contract

 have a consistent and easy to follow structure

 distribute the risks fairly amongst parties

 designed by a third party (Consultant) but not an Employer; therefore

conditions are more objective and fair

 can be adopted easily for many type of investments projects

Why FIDIC
 FIDIC has committees formed of international members to improve
its publications.

 Committees do continuous monitoring to improve and/or revise the

existing publications (contract types, guidelines, etc.) and to introduce
new books.

 Very well known by international Contractors and Consultants,

therefore creates confidence and encourages tenderers.
Some of the International Institutions using
FIDIC
 World Bank (WB)

 European Bank of Restructuring and Development (EBRD)

 European Investment Bank (EIB)

 European Commission (EC)

 KfW Bankengruppe (KfW)

 Islamic Development Bank (IDB)

 African Development Bankası (ADB)

 Asian Development Bank (ADB)
Composition of FIDIC Contracts
• FIDIC contracts consists mainly from:

• Contract Agreement;

• Letter of Tender;

• Letter of Acceptance;

• Conditions of Contract;

• Specifications;

• Drawings;

• Schedules;

• Dispute Adjudication Agreement.

FIDIC – Conditions of Contract
• General Conditions of Contract and

• Particular Conditions of Contract .

– The general conditions are intended remain unchanged for every project

– particular conditions of contract are the result of negotiation between the

parties and are designed to modify or delete some of the general conditions
FIDIC Publications
 Conditions of Contract for Construction for Building and Engineering Works
Designed by the Employer; 1999 Edition ” RED BOOK

 Conditions of Contract for Plant and Design-Build for Electrical and Mechanical
Plant, and for Building and Engineering, Designed by the Contractor; 1999 Edition
” YELLOW BOOK

 Conditions of Contract for EPC Turn-key Projects (First Edition, 1999) - SILVER
BOOK EPC Turn-key : Engineering ” Procurement ” Construction

 Short Form of Contract 1st Ed (1999 Green Book) ” GREEN BOOK

FIDIC Publications

 Conditions of Contract for Construction (Multilateral Development Bank

Harmonised Ed. Version 3: June 2010). For Building and Engineering
Works designed by the Employer. Harmonised RED BOOK

 Conditions of Contract for Design, Build and Operate Projects (1st Ed,
2008) - GOLD BOOK
FIDIC Other Publications
 Business Integrity

 Risk Management

 Quality Management

 Environment Management

 Sustainability Guide

 FIDIC Contracts Guide to the Construction, Plant and Design-Build and

EPC/Turnkey Contracts
FIDIC Publications –
Conditions of contract for works
RED BOOK

 Design and Engineering (incl. BoQs) is done by Employer or Employer’s

Representative.

 Tenderers fill in their unit prices into the existing BoQs.

 Final amount is not fixed, payments are done based on the real amounts
executed. (Exceptions are available eg: lump-sum conracts)
FIDIC Publications –
Conditions of contract for works
RED BOOK

 Employer carries the risk for contract amount increases.

 The better the design, the flawless the project implementation.

 Tender evaluations are relatively simpler.

FIDIC Publications –
Conditions of contract for works
• YELLOW BOOK

 Employer prepares only the «Employer’s Requirements».

 Employer Requirements includes only; Draft layout, Operational Parameters,

Technical Specifications and Financial Proposal Format (Schedule of Prices).

 Tenderers submit their technical proposals together with their financial

proposals. Technical proposals cover at minimum methodology, basic design
and drawings, bill of and similar supporting documents.
FIDIC Publications –
Conditions of contract for works
• YELLOW BOOK

 Generally lump-sum price contracts are used.

 Price increase and other risks are distributed amongst both parties.

 Tender evaluation process is more complicated and requires technical

expertise.
• SILVER BOOK - 1

 Two-party contracts (No Engineer)

 Employer defines design parameters, quality measures and functional

requirements.

 Tenderers submit comprehensive technical proposals supported with designs.

 Lump-sum contracts are used and all risk lies with the Contractor.
• SILVER BOOK - 2

 More suitable for projects like; refinery, petrochemical facilities,

power plants.

 Implemented if the employer foresees high risk for the supply and
assembly of mechanical and electrical components.

 Tender evaluations are very complicated and requires continuous

negotiations.
• GREEN BOOK

 For low contract values (< 500,000 USD)

 Simple but repetitive works

 Short term assignments

 Usually Employer takes over the design responsibility.

Comparison Matrix -1
Parameters RED YELLOW SILVER GREEN

Employer or
Design Employer Contractor Employer Contractor

Engineer approves or
Only Contractor’s rejects before Only Contractor’s
Design Approval Design (If any) executions N.a. Design (If any

Unit Price / Lump-sum

Financial Proposal Unit Price Lump-sum Price Lump-sum Price Price

Payment Calendar / Measured quantities

Payment Schedules Measured quantities Payment percentages Payment percentages or Percentages

No. Employer
representative21may
Engineer Yes Yes Generally No assign if needed.
Comparison Matrix-2
Parameters RED YELLOW SILVER GREEN

Significant number of Relatively less and

Tests during Construction tests simpler Generally no tests Limited or no tests

Very detailed and Very detailed and

Relatively less and complicated complicated
Tests at completion simpler performance tests performance tests. Limited or no tests

Employer carries the 12-14 April 2011 Contractor carries the 22

Risk Distribution design risks Distributed risks Varies
FIDIC Sub- Contracts
• The contractor is responsible for all the acts and defaults of the
subcontractors
– Unless otherwise agreed the contractor cannot subcontract the whole of the Works;
– The contractor remains wholly responsible to the employer for the acts of that
subcontractor as if those acts had been carried out by him;
– The prior consent of the engineer is required1 for all subcontractors apart from
suppliers and subcontractors named in the contract;
– The contractor must give the engineer 28-days notice of both the intended and actual
commencement date of any subcontractor’s work; and
– The subcontract must contain suitable provisions entitling the employer to require the
subcontract to be assigned to him in the event of termination. (………..Red Book)
FIDIC Sub- Contracts
• Silver Book-the contractor only has to notify the employer of the
appointment of a subcontractor giving details of that parties’ experience
and when they are to start
• Red and Pink Book - contains assignment provision
• Gold Book -if the subcontractor is entitled to any relief from risk on
broader terms than those specified between contractor and employer,
then those additional circumstances shall not serve as an excuse for non-
performance by the contractor.
• Conditions of Subcontract for Construction (First Edition, 2011). For
building and engineering works designed by the Employer.
Exercise-1
Contract Clauses
Limitation of Liability
Clause 17.6 of FIDIC ” Limitation of Liability
‚"Neither Party shall be liable to the other Party for loss of use of any Works, loss of
profit, loss of any contract or for any indirect or consequential loss or damage which may
be suffered by the other Party in connection with the Contract...‚
Loss that can be recovered by Contractors under FIDIC
• direct loss and expense: if these fall within FIDIC's definition of 'cost' - "all expenditure
reasonably incurred (or to be incurred) by the Contractor whether on or off the Site,
including overhead and similar charges but [not including] profit" - and are directly
linked to the clause giving rise to the claim, they can be claimed;
• preliminaries: as above, these are also recoverable;
• overheads: also recoverable ” the cost of running the business as distinct from general site
costs is expressly allowed for in the definition of Cost;
• loss of productivity/disruption: in principle this is recoverable, but in practice proving this
loss is difficult. The 'measured mile' approach compares work in disrupted and
undisrupted conditions, with the difference between the two being the disruption factor;
• profit: this is not recoverable, unless expressly allowed for in the Contract. Profit is
excluded, from both the definition of Cost and by Clause 17.6;
• interest: recoverable; the Contractor has an express right to interest on any unpaid
sums under the standard FIDIC forms;
• finance charges: recoverable - under English law, it is possible to claim finance
charges as part of a claim for direct loss and expense;
• inflation/exchange rate fluctuation: not recoverable - increased costs resulting from
inflation/exchange rate fluctuation are classed as 'consequential loss' and are
therefore excluded by Clause 17.6;
• claims preparation costs: may be recoverable ” under English law, these can be
recovered in principle but such claims are hard to establish;
• lost commercial opportunity and business interruption: generally not recoverable.
Care to be taken while Drafting Exclusion
Clause
• FIDIC exclusion clause expressly excludes "loss of profit". In addition, it excludes
indirect and consequential loss
The McCain Case
– In McCain, the purchaser had bought a system ("System") for removing
hydrogen sulphide from the biogas produced by its waste water system, so that
the biogas could be used to generate heat and electricity in a combined heat
and power plant. In addition to using the electricity for its own purposes, the
purchaser intended to generate revenue by selling Certificates of Renewable
Energy Production to third parties.
– the System was found to be defective and McCain claimed damages from the
supplier
McCain Case……………Cont…
• The damages claim included:
– the cost of buying a replacement system;
– loss of revenue from the System (from selling Certificates of Renewable Energy
Production);
– the extra cost of buying electricity (since the purchaser could not generate its
own);
– the cost of contractors and other personnel;
– the cost of mitigation efforts; and
– various other smaller claims, including the cost of staff time to resolve the
issues.
Limitation of Liability ………Contn….
• The total liability of the Contractor to the Employer under or in
connection with the contract is limited to Contract Price (
which is the FIDIC Default position.

• Define gross negligence and willful misconduct ‚an act or

omission done with reckless disregard, whether consciously or
not, for the consequences of the act or omission‛
Third Party Liability
• Ensure appropriate clause is drafted to take care of third party liability ”

Is difficult to cap

Seek indemnity from Client

WesternGeco Ltd v. ATP Oil & Gas (UK) Ltd

Indemnity
• FIDIC '99 provides for a right of objection under Clause 5.2 that is conditional upon
the contractor's receipt of an indemnity from the proposed nominated entity.
• ‚indemnify the contractor against and from any negligence or misuse of goods...‛
• Silent on Salient Points;-
– What the key provisions of an indemnity requirement are?
– How it is called or triggered?
– Is there any limit on liability?
– For how long does it last?
– What about contributory negligence?
– Does the Engineer administer the process? (clearly not in the absence of clauses saying so)
therefore;
– Who decides on the allocation of monies?
– Is the contractor effectively 'self insuring' and if so, is the company financially sound enough
to do that?
Delay Damages – 8.7
• Delay damages are pre-quantified damages which the parties to a contract agree
shall be payable in case of a breach of such contract.

• DD shall be the sum stated in Appendix to the Tender ” shall be paid every day
until such default continues ” subject to a cap.

• The DD does not relieve the contractor from performing his obligations to
complete the Works
• Excusable ” non Excusable
• Compensable versus uncompensable
• Penalty
Defects Liability
• The Defects Notification period as ruled in clause 11 of FIDIC is an additional
period of time during which the duty to perform continues to exist.
• Clause 11.1 and 11.2 Contractor is under obligation to carry out any work which
becomes instructed by the Engineer or Employer, to the extent that a defect occurs
which is or is not attributable to the Contractor
• Legal Defect Liability only starts after acceptance of Works ” when the Engineer
issues Performance Certificate. Eg. French Decennial Liability Clause
• The duration of the Defects Notification Period is stated in the Appendix to the
Tender or Particular Conditions as the case may be.
• Ends automatically after the expiry of the fixed period of time ” even if
Performance Certificate is not issued.
Defects Liability
Commencement Taking Over Performance
Date Certificate Certificate

Defects Notification Defects Liability

(Design, if any) & Build
Period Period

Additional Contractual Legal Remedy subject

Remedies to time bars
Defects Liability
• The limitation period for remedies concerning defective works is
Germany 2yrs (5yrs for Buildings or similar
construction)
Poland 2yrs

France 1yrs warranty of Performance

Decennial Liability 10 yrs

Romania Decennial Liability cover the whole life

cycle of the Building
Termination of Contract
• Clause 15 deals with Termination by Employer

• Termination for convenience

• Termination for Cause

• Contractor not entitled to terminate a Contract for convenience,

Termination
• Sub-clause 9.4(b): failure to pass tests on completion.

• Sub-clause 11.4(c): failure to remedy defects.

• Sub-clause 19.6: optional termination payment and release (force

majeure or exceptional events).

• Sub-clause 19.7: release from performance under the law.

Termination for Cause
a) The Employer shall be entitled to terminate the Contract if the Contractor: (a)
fails to comply with Sub-clause 4.2 [Performance Security] or with a notice under
Sub-clause 15.1 [Notice to Correct].‛
b) abandons the Works or otherwise plainly demonstrates the intention not to
continue performance of his obligations under the Contract
c) without reasonable excuse fails:
a) (i) to proceed with the Works in accordance with Clause 8 [Commencement, Delays and
Suspension], or
b) (ii) to comply with a notice issued under Sub-clause 7.5 [Rejection] or Sub-Clause 7.6
[Remedial Work], within 28 days after receiving it‛.
d) subcontracts the whole of the Works or assigns the Contract without the required
agreement
Termination
e) becomes bankrupt or insolvent, goes into liquidation, has a receiving or
administration order made against him
f) gives or offers to give (directly or indirectly) to any person any bribe, gift, gratuity,
commission or other thing of value, as an inducement or reward:
• In any of these events or circumstances, the Employer may, upon giving 14 days’
notice to the Contractor, terminate the Contract and expel the Contractor from the
Site. However, in the case of sub-paragraph (e) or (f ), the Employer may by notice
terminate the Contractimmediately.‛
Termination for convenience ( without cause)

• The Employer shall be entitled to terminate the Contract, at any time for the
Employer’s convenience, by giving 28 days notice termination to the Contract -
Employer to return the Performance Security.

• After this termination, the Contractor shall proceed in accordance with Sub-clause
16.3[Cessation of Work and Removal of Contractor’s Equipment] and shall be paid
in accordance with Sub-clause 19.6 [Optional Termination, Payment and Release].‛
Suspension by Contractor
• 16.1 deals with Suspension
– If the Engineer fails to certify ( issue of interim payment), fails to comply with
employers financial arrangement or payment ” give notice of 21 days suspend
work or reduce rate of work
– Where the Contractor suffers delay and/or costs ” contractor entitled to EOT
and payment of cost plus reasonable profit.

• After receiving notice Engineer shall proceed in accordance with clause

3.5 [Determinations]
Termination by Contractor
• 16.2
a) Contractor does not receive the reasonable evidence within 42 days after giving
notice under sub-clause 16.1 and 2.4
b) Engineer fails, within 56 days after receiving Statement and supporting
documents, to issue the relevant Payment Certificates.
c) Contractor does not receive Interim Payment with 42 days after the expiry of the
time stated in 14.2 [payments]
d) Employer substantially fails to perform his obligations under the contract
e) Employer fails to with sub clause 1.6 [contract agreement] or 1.7 [assignment]
f) A prolonged suspension 8.11
g) Employer becomes bankrupt or goes into liquidation
Exercise-2
Claims
Claim
• FIDIC contracts are aimed at the early resolution of any queries at the
time when the claim arises.

• Procedure involved is;-

– to give notice (in time)
– to give particulars of the claim (in time)
– to wait for Engineer´s approval or disapproval
– to negotiate and settle the claim
– to wait for Engineer´s determination (in case of failure to reach settlement)
– to refer a dispute to the DAB (in case of dissatisfaction)
Claim
• FIDIC forms of Contract Provide for

 Cost claims

 Cost and profit claims and

 extension of Time for Completion (EOT) claims

• Cost is a defined term meaning all expenditure reasonably incurred (Sub-

Clause 1.1.4.3) including overheads and similar charges but no profit.

• There is no express definition of ‚a claim‛ in FIDIC forms of Contract

• a claim in practice is generally taken to be an assertion for (additional)

payment due to a party or for extension of the Time for Completion

• ‚an assertion of a right or a remedy‛.

Claim
• The Contractor must provide to Employer's Engineer written notice of the
claim for additional payment and time extension within 28 days after
becoming aware of the occurrence of the event giving rise to claim (Sub-
Clause 20.1). If the Contractor fails to comply with this notice requirement,
his entitlement to the claim shall lapse

• The Notice is Important because;-

– everyone involved becomes aware that there is an event or circumstance where extra
time or payment may be owed to the Contractor
– proper contemporary records must then be kept and agreed, to avoid future argument
– alternative measures may also be possible to reduce the effects
– the matter may possibly be resolved at an early date
– if the event or circumstance turns out to be of insignificant effect, then it is not
necessary to follow up the notice with a formal claim.
Claim
• If the contractor fails to give notice of claim within such period of 28 days, the
time for completion shall not be extended, the Contractor shall not be entitled
additional payment, and the Employer shall be discharged from all liability in
connection with claim
• English Courts have confirmed their approval of the condition precedent.

• In the case of Multiplex construction v/s Honeywell Control Systems the Judge
held that ‚Contractual terms requiring a contractor to give prompt notice of delays
serve a valuable purpose; such notice enables matters to be investigated while they
are still current. Furthermore, such notice sometimes gives the employer the
opportunity to withdraw instructions when the financial consequences become
apparent‛.
Claim
• Is there a possibility that a DAB or Arbitral Tribunal might decline to
construe the time bar as a condition precedent
– The Answer is ……..
• Applicable law- Civil Law Countries
• For instance, the time bars can be challenged under German Law,
German courts will interpret the Contractors duty to give notice not as
condition precedent but an obligation of the Contractor
• Art 246 (1) of the UAE civil code says that
– ‚The contract must be performed in accordance with its contents, and in a
manner consistent with the requirement of good faith‛.
Claims
• The claim notice must indicate basic details, in order to inform the
Engineer about the scope of the claim and to enable him to give
instructions, if necessary. The notice shall therefore meet the following
requirements:
– describe the event or circumstance

– the notice need not state time or amount claimed or contractual basis of claim

– notice shall comply with Cl 1.3, i.e. in writing and properly delivered

– progress reports - Cl 4.21(f) - must list notices given

Claims
• Engineer will approve or disapprove a claim to determine it ” facts to be
considered;-
– reported in the monthly reports
– reported in contemporary records
– reported in labour reports
– stated in the claim notification
– obtained at site visits and inspections
– reported in early warning notifications concerning probable future events which
may effect progress of the works and the contract price
– reported in the Programme
– reported in its own records
Claims Procedure
• The meaning and definition of ‚a claim‛;

• The legal basis of claims, and for that matter counterclaims;

• The process by which claims & counterclaims should be formulated and

managed;

• The parties’ rights and obligations under the Contract or in relation thereto;
and

• The manner in which these rights and obligations might be protected or

exercised under the Contract or in relation thereto.
Claims Procedure
• give a notice of intention to claim within 28 days of the event giving rise to the claim
• keep contemporary records (by the contractor);
• inspect the records (by the engineer);
• provide authority to instruct the contractor to keep further contemporary records (by
the engineer);
• within 28 days of the notice or an agreed period, submit particulars of the claim in
respect of amount and grounds upon which it is based (by the contractor);
• interim and accumulated accounts to be submitted for continuing effects (by the
contractor);
• final accounts to be submitted at end (by the contractor);
• a copy of accounts to be sent to the employer, by the contractor, if so required by the
engineer .
Steps involved Employer Claim 2.5
1. Step 1: An event or circumstance occurs with the potential of a claim by the Employer
against the Contractor under any clause of the Contract Conditions or otherwise in
connection with the Contract.
2. Step 2: The Employer or the Engineer should give notice and particulars of the claim
to the Contractor. This notice should be given with the following in mind:
2.1 It should be given as soon as practicable after the Employer became aware of the
event or circumstance.
2.2 A notice relating to an extension of the Defects Notification Period should be
given before the expiry of such period.
2.3 Notice is not required for payments due under Sub-Clauses 4.19, 4.20, or for other
services requested by the Contractor.
2.4 Supporting substantiating particulars should also be submitted with the notice
specifying the basis of the claim.
Steps involved Employer Claim 2.5
• 3. Step 3: The Engineer should then proceed in accordance with Sub-Clause
3.5 to agree or determine (i) the amount (if any) which the Employer is
entitled to be paid by the Contractor, and/or (ii) the extension (if any) of the
DNP in accordance with Sub-Clause 11.3.

• 4. Step 4: The Engineer should consult with each Party in an endeavour to

reach agreement, failing which he is required to make a fair determination in
accordance with the Contract.

• 5. Step 5: If agreement between the parties is achieved, the Engineer is

required to give a notice with supporting particulars. Otherwise, he is
required to give a notice of his determination with supporting particulars.
Steps involved Employer Claim 2.5
• 6. Step 6: The amount determined may be included as a deduction in
the Contract Price and Payment Certificates. The Employer shall only be
entitled to set off against or make any deduction from an amount
certified in a Payment Certificate, or to otherwise claim against the
Contractor.

• 7. Step 7: If the Engineer’s determination is not acceptable to any of the

Parties, the dispute arising should be resolved in accordance with Sub-
Clauses 20.2 to 20.8.
Steps - Contractors Claim- 20.1
1. Step 1: An event or circumstance occurs with the potential of a claim under
any clause of the Contract Conditions or otherwise in connection with the
Contract.
2. Step 2: The Contractor should give notice of the claim to the Engineer
describing the event or circumstance giving rise to the claim. This notice
should be given with the following in mind:
2.1 It should be given as soon as practicable; and not later than 28
days after the Contractor became aware, or should have become aware,
of the event or circumstance. Failure to do so is fatal to the claim.
2.2 All supporting particulars for the claim, as relevant to such event
or circumstance, should also be submitted.
2.3 Any other notices required by the Contract should also be
submitted.
Steps - Contractors Claim- 20.1
3. Step 3: The Contractor should keep substantiating contemporary records, which the
Engineer may monitor and/or instruct the Contractor to keep further contemporary
records.

4. Step 4: Within 42 days of the event, the Contractor should submit a fully detailed
claim which includes full supporting particulars of the claim. The period may be
varied if approved by the Engineer. If the event or circumstance giving rise to the
claim has a continuing effect:
(a) this fully detailed claim shall be considered as interim;
(b) the Contractor should submit further interim claims and any further particulars at
monthly intervals, giving the accumulated effect; and
(c) the Contractor should submit a final claim within 28 days after the end of the
effects resulting from the event, or within such other period approved by the Engineer.
Steps - Contractors Claim- 20.1
5. Step 5: Within 42 days after receiving a claim or any further particulars supporting a
previous claim, the Engineer should respond with approval or disapproval and
detailed comments. He may also request any necessary further particulars, but shall
nevertheless give his response on the principles of the claim within such time. This
period may be varied if approved by the Contractor.

6. Step 6: Substantiated amounts for any claim should be included in each Payment
Certificate. It is to be noted that the requirements of Sub-Clause 20.1 are in addition
to those of any other Sub-Clause which may apply to the claim and failure to comply
preventing or prejudicing proper investigation should be taken into account by the
Engineer.

7. Step 7: The Engineer should then proceed in accordance with Sub-Clause 3.5 to
agree or determine (i) the extension of time (if any) and/or (ii) the additional
payment (if any) to which the Contractor is entitled under the Contract.
Steps - Contractors Claim- 20.1
8. Step 8: The Engineer should consult with each Party in an endeavour to
reach agreement, failing which he is required to make a fair determination in
accordance with the Contract.
9. Step 9: If agreement between the parties is achieved, the Engineer is required
to give a notice with supporting particulars. Otherwise, he is required to give
a notice of his determination with supporting particulars.
10. Step 10: Each Payment Certificate shall include such amounts for any claim
as have been reasonably substantiated as due under the relevant provision of
the Contract.
11. Step 11: If the Engineer’s determination is not acceptable to any of the
Parties, the dispute arising should be resolved in accordance with Sub-Clauses
20.2 to 20.8.
Counter Claim
• Generally accepted definition

– ‚an assertion made by a party, which can conveniently be examined and

disposed of in an action originally initiated by the other party‛.

• a good example of a counterclaim is where a delay event causes the

contractor to claim that he has been wrongfully denied an extension of
time by the engineer and the same delay event gives rise to the
employer’s counterclaim for liquidated damages
Types of Claim
• A Claim under the Contract

• A claim arising out of or in connection with the contract

• A claim under the principles of Applicable law

• A claim arising out of the principle of quantum merit

• A claim for ex-gratia payment

FIDIC Procedure for Contractor’s Claims
New Red/Yellow
Books
Silver Book

28 day Notice of Claim to Engineer 28 day Notice of Claim to Employer

Clause 20.1
Contractor’s Claims
42 day “Fully Detailed Claim” 42 day “Fully Detailed Claim”
to Engineer to Employer

“Final Claim” 28 days after end of effects “Final Claim” 28 days after end of effects

42 days after receipt of claim 42 days after receipt of claim

Engineer’s Response Employer’s Response

Clause 3.5 Clause 3.5 Engineer to“ Agree or Determine” Clause 3.5 Employer to “Agree or Determine”
Determinations

Given effect unless

Agreement/Determination
Contractor’s Notice of Dissatisfaction
given effect unless revised under Clause 20
14 days of receipt 66
Introduction to FIDIC and its Dispute Resolution
Provisions
FIDIC Procedure for Employer’s Claims
New Red/Yellow Silver Book
Books
Clause 2.5 Employer or Engineer gives Employer gives
Employer’s Claims notice and particulars to Contractor notice and particulars to Contractor

Clause 3.5 Clause 3.5 Engineer to Clause 3.5 Employer to

Determinations “Agree or Determine” “Agree or Determine”

Agreement/Determination given Given effect unless

effect unless revised Contractor’s Notice of Dissatisfaction
under Clause 20 14 days of receipt

Clauses 20.2 and 20.4 Reference to Dispute Adjudication Board (DAB)

(See previous diagram for (1 or 3 people)
full Clause 20.4 procedure)
Clause 20.5 “Amicable Settlement” stage

Clause 20.6 ICC Arbitration

within 56 days after Notice of Dissatisfaction
67
FIDIC Procedure for Contractor’s Claims
Reference to Dispute Adjudication Board (DAB)
Clause 20.2 (1 or 3 people)

DAB Decision No DAB Decision

Clause 20.4
within 84 days of reference within 84 days of reference

No Notice of Dissatisfaction Notice of Dissatisfaction Notice of Dissatisfaction

within 28 days of Decision within 28 days of Decision within 28 days after 84 days of reference

DAB Decision
final and binding
Clause 20.5 “Amicable Settlement” stage

Clause 20.6 ICC Arbitration

within 56 days after Notice of Dissatisfaction
68
THREE BASIC RULES
• Risk sharing

• Variation

• Dispute Resolution
Most Frequent Clauses - Claims
• Clause 4.12 Unforeseeable physical conditions

• Clause 2.1. Right of Access to the Site

• Clause 1.9. Delayed Drawings or Instructions.

• Clause 13.7 Adjustment for changes in legislation

• Clause 8.1. Commencement of the Works

Unforeseeable Physical Conditions
Site Data – 4.10
Clause 4.10
“The Employer shall have available to the Contractor for his information, prior to the Base
Date, all relevant data in the Employer‟s possession on sub-surface and hydrological
conditions at the Site, including environmental aspects. The Employer shall similarly make
available to the Contractor all such data which come into the Employer‟s possession after the
Base Date. The Contractor shall be responsible for interpreting all such data.

 Employer is required to make available to the contractor all relevant data in his
possession on sub-surface conditions before and after the ‘Base Date’
 Employer’s obligation to provide information does not end after the tender
submission
Site Data – 4.10
“……To the extent which was practicable (taking into account of cost and time), the
Contractor shall be deemed to have obtained all necessary information as to risks,
contingencies and other circumstances which may influence or affect the Tender of Works.
To the same extent, the Contractor shall be deemed to have inspected and examined the
Site, its surroundings, the above data and other available information…..

…….the form and nature of the Site, including sub-surface conditions,

……the hydrological and climatic conditions,”

 Contractor is deemed to have inspected and examined the site only to the extent as
far as practicable, with cost and time considerations
Sufficiency of the Accepted Contract Amount– 4.11

Clause 4.11:
“The Contractor shall be deemed to:

(a) have satisfied himself as to the correctness and sufficiency of the

Accepted Contract Amount,

(b) have based the Accepted Contract Amount on the data, interpretations, necessary
information, inspections, examinations and satisfaction as to all relevant matters referred to
in Sub-Clause 4.10”

 Contractor is only responsible for interpreting the data provided to him

Unforeseeable Physical Conditions 4.12

Clause 4.12:
“„Physical conditions‟ means natural physical conditions and man-made and other physical
obstructions and pollutants, which the Contractor encounters at the Site when executing the
Works, including sub-surface and hydro-logical conditions but excluding climatic
conditions…If the Contractor encounters adverse physical conditions which he considers
to have been unforeseeable, the Contractor shall give notice to the Engineer as soon as
practicable.”

 Employer carries the risk of physical conditions that could have been unforeseeable
by an experienced contractor at the date of tender
Foreseeable, Unforeseen and Unforeseeable
Events
Foreseeable Unforeseen Unforeseeable

capable of being what an experienced contractor a more ‘risk-taking’ process

anticipated or predictable. can reasonably foresee with the than ‘unforeseen’
aid of
‘reasonably foreseeable’ investigative measures (desk relates to something that is
means ‘whether a studies, site inspections and technically beyond the
reasonable person foresee ground investigations). contractor’s control
the results of an act’.

ground conditions are often Cannot be completely

‘unforeseen’ because of eliminated (regardless of how
incomplete experienced the contractor is
assessment due to limited and/or how much investigations
investigation, insufficient data they carried out)
available and limited resources.
Ground Investigation Reports
• Ground investigations can never fully disclose all the details of the
underground conditions. (Risks of unknown ground conditions can
never be 100% eliminated)
• Site data contained in GI reports is often of a significant contractual
importance in disputes related to unforeseen ground conditions
• Many disputes related to the information provided and/or
representation made by the Employer.

Whether the GI information forms partof the contract documents?

Whether information provided by the employer constitute a representation as

to the true ground conditions?
Cooperative Insurance Society Limited v Henry Boot
Scotland Limited and Others [2002] EWHC 1270 (TCC)

• The TCC was requested to rule on whether the site investigation (SI)
reports formed part of the contract document.
• The contract defined ‘Contract Document’ as:
– ‘…the Contract Drawings, the Contract Bills, the Employer’s Requirements,
the Contractor’s Proposals, the CDP Analysis, the Articles of Agreement and
the Conditions, the Appendix and the
Supplementary Appendix’
• No reference to SI reports in theContract.
Judge Richard Seymour Q.C. held: Such reports could not be incorporated into the contract by
way of an implied term since it was not expressly incorporated as part of the contract
document.
No Entitlement
Bacal Construction v Northamption Development Corp.
(1975) 8 BLR 88
• Bacal’s foundation design was based on subsurface conditions /
assumptions indicated in borehole data provided by the Employer
• Bacal submitted the foundation design as part of its tender and formed part of the
contract documentation under an express provision in the contract
• Sand & Clay turns out to be rock (different soil type) which caused part of the
foundations to be re-designed where additional works were required.

Contractors may recover loss incurred by incorrect subsoil information if such information was a
condition or warranty in the contract.
Learning

Any SI documents must be expressly incorporated as part of

the contract document in order for the Contractor to
exercise his rights under the contract (implied term or
warranty).
Right of Access to Site 2.1
• The Employer shall give the Contractor right of access to, and possession of, all
parts of the Site within the time (or times) stated in the Appendix to Tender.
• If no time is stated in the Appendix to Tender…..such time as may be required to
enable the Contractor to proceed in accordance with the programme submitted
under Sub-clause 8.3 [Programme]
• If the Contractor suffers delay/or incurs Cost- Contractor to give notice to
Engineer- Contractor shall subject to clause 20.1 [Contractor Claims] be entitled to
EOT and Cost and reasonable Profit
• After receiving notice Engineer shall proceed to determine these matters [3.5
Determinations]
Right of Access -Note to Remember
• Right to Access refers to the right to enter the site and must not be confused with
‚access routes‛
• Possession refers to the Contractor taking control and responsibility of the Site
• The Appendix to the Tender will state the number of days from the Employer will
access to the Site from the Commencement Date.
• When the Employer issues Letter of Acceptance he is fixing the latest calendar date
for providing the possession of the site.
• Contractor takes Possession of the Site ” Contractor assumes responsibility for
matters such as safety, security and insurance
• If access or possession is to be restricted different parts of the site at different times
• Shared Possession ( Possession is not exclusive)
Delayed Drawings or Instructions 1.9

• The Contractor shall give notice to the Engineer whenever the Works are likely to be
delayed or disrupted if any necessary drawing or instruction is not issued to the
Contractor within a particular time, which shall be reasonable.

If the Engineer fails to issue the Drawings within a particular time according to the
Contractor’s schedule, the Employer should be responsible to give compensation to the
Contractor, providing that the Contractor has followed the procedure and fulfilled the
requirements by giving notice to the Engineer and within the time frame stipulated in
the Contract. This Sub-Clause only mentions ‚within a time which is reasonable‛.
Both parties should pay attention to this sentence as this might cause different
interpretation lead to dispute.
Contractor – typically make the following
Mistakes
• They discover too late that a drawing or instruction is needed to complete the
works. The contractor has to take into account lead times to procure certain
items, the details of which may only be apparent in the drawing or
instruction;
• They then do not draft a notice which sets out the details of the drawing or
instruction, nor do they include details why and by when it should be issued;
“ They generally do not allow the engineer a reasonable time to issue the
drawing or instruction. This is a classic example where the contractor tries to
make urgency on his part the engineer’s problem. Of course, the term
‘reasonable’ denotes a more factual enquiry to establish whether the
contractor is the author of its own misfortune or whether he was proactively
managing the contract to avoid this risk.
Adjustment for changes in legislation
• The Contract Price shall be adjusted to take account of
any increase or decrease in Cost resulting from a change
in the Laws of the Country (including the introduction
of new Laws and the repeal or modification of existing
Laws) or in the judicial or official governmental
interpretation of such Laws, made after the Base Date,
which affect the Contractor in the performance of
obligations under the Contract.
1.13 Compliance with Laws
• The Contractor shall, in performing the Contract, comply with applicable Laws. Unless otherwise stated in the
Particular Conditions:

The parties should have the same interpretation on the ‚applicable laws‛ i.e. all
regulations established by the law itself instead of the parties obligation under the
contract. Parties should not only comply with the laws and regulations issued before
the base date, but also to all laws and regulations issued during the course of the
project. The FIDIC Contract allocate the risk of change of law to the Employer as far
as such law and regulation affect the Contractor in performing their obligation, but the
contractor should follow such law and regulation, and submit the notice on the
incident (Sub-Clause 1.13 clearly specify that each party is responsible to comply with
the applicable Laws‛).
•
Commencement of Work
Except otherwise specified in the Particular Conditions of Contract, the Commencement Date
shall be the date at which the following precedent conditions have all been fulfilled and the
Engineer’s instruction recording the agreement of both Parties on such fulfilment and instructing
to commence the Work is received by the Contractor:
• (a) signature of the Contract Agreement by both Parties, and if required, approval of the
Contract by relevant authorities of the Country;
• (b) delivery to the Contractor of reasonable evidence of the Employer’s Financial arrangements
(under Sub-Clause 2.4 [ Employer’s Financial Arrangement ]);
• (c) except if otherwise specified in the Contract Data, and possession of the Site given to the
Contractor together with such permission(s) under (a) of Sub-Clause 1.13 [Compliance with
Laws ] as required for the commencement of the Works;
• (d) receipt by the Contractor of the Advance Payment under Sub-Clause 14.2 [ Advance Payment
] provided that the corresponding bank guarantee has been delivered by the Contractor.
• If the said Engineer’s instruction is not received by the Contractor within 180 days from his
receipt of the Letter of Acceptance, the Contractor shall be entitled to terminate the Contract
under Sub-Clause 16.2 [ Termination by Contractor ].
The Employer shall give the Contractor right of
access to, and possession of, all parts of the Site
within the time (or times) stated in the Contract
Data.
Sub-Clause 2.1

If no such time is stated in the Contract Data, the

Employer shall give the Contractor right of access
to, and possession of, the Site within such times as
required to enable the Contractor to proceed
without disruption in accordance with the
programme submitted under Sub-Clause 8.3
[Programme].

Possession Except otherwise specified in the Particular

Sub-Clause 8.1
of Conditions of Contract, the Commencement Date
Site
shall be the date at which the following precedent
conditions have all been fulfilled ................

(c) except if otherwise specified in the Contract

Data, and possession of the Site given to the
Contractor together with such permission(s)
under (a) of Sub-Clause 1.13 [Compliance with
Laws ] as required for the commencement of
the Works;
Sub-Clause 8.3
The Contractor shall submit a detailed time
programme to the Engineer within 28 days after
receiving the notice under Sub-Clause 8.1
[Commencement of Works].
Exercise-3
Parties to Contract
Parties of Contract- Employer
 Defines the requirements and specifications

 Provides the construction site

 Provides the financial resources (usually)

 Provides the necessary conditions to the Contractor for the execution

of works
91
Parties of a Contract- Contractor

 Responsible from executing the works

 Provides the necessary securities and guarantees

 Held responsible from his and/or his sub contractors actions

 Responsible from the quality of the executed works as well as the security of
the construction site

 Prepares the interim payment reports

 May use sub contractors as allowed in the conditions of the contract

92
Parties of a Contract – Engineer
 Assigned by the Employer to represent the Employer

 Name, contact information and authorities of an Engineer are stated in

relevant parts of the Works Contract

 After consulting with the Employer and the Contractor, should propose
fair and objective solutions for claims.

 Checks the quality of the appropriateness of the workmanship and the

materials used

93
 Approves the payment certificates of the Contractor
Engineer …………Cont.
• The parties must carefully note the limitations of the powers delegated by
making cross-reference to other parts of the contract conditions
• The Term Fair Determination is Debatable
• Employer ” Engineer relationship is that of an Agent where the Agent has no
discretion. This was discussed in JF Finnegan Ltd vs Ford Seller Morris
Developments Ltd (No 1, 1991) 53 BLR 38, where the judge held that there
was a difference between a certificate issued by an architect which has a
binding effect unless and until it is overturned by arbitration or litigation, and
the giving of a notice of failure to complete works given by the employer's
agent which does not have a binding effect particularly when there is a bona
fide dispute as to the validity of the notice.
Particular Conditions-Clauses which must be revised / added
during the preparation of a PCs

 Clause 1.3 Communication

– Should be revised in line with all the communication tools allowed for the specific
project.
– It is important that all parties are aware of correct address to which
communication needs to be sent.
– There is little point in using formal registered address ” if the registered office
address is not used regularly.
– Care must be taken to ensure that proper procedures are in place to monitor fax
machines and communication
Communications …. Contn…
• Construction Partnership UK Ltd Vs. Leek Development Ltd

– ‚Judge held that delivery of contractual notice by fax constituted

actual delivery for the purpose of contract‛. That notice had been
served by fax on morning of December, 23 2005 and the office was
shut that afternoon and owing to Christmas break the fax was not
seen until January 3, 2006.
Communications …. Contn.
• Bermuth Lines V. High Seas Shipping

– Arbitration proceedings were served at an email address which appeared in the

Lloyds Maritime Directory and on the Company website.

– The email was received and then ignored by the clerical staff.

– The Judge held that the service was valid and failings of internal administration
were the responsibility of the company concerned
Particular Conditions-Clauses which must be revised / added
during the preparation of a PCs

 Clause 1.4 Law and Language

– If different languages will be used under certain circumstances this should
be defined here
– Key features of 1.4
• The Appendix to Tender shall set out the law of the Contract
• The Appendix to Tender shall set out the language of the Contract
• Law and Language governs the Contract and Performance of Works
Law and Language…..Contn.
• Governing law dictates the law which is applicable when resolving a
dispute
• Problem arises when the Parties to Dispute are from different countries
and the performance of works is in different country- which law will
govern the Contract.

• For this very reason Sub- clause 1.8 of the FIDIC Sub-contract 2011
makes it very clear that the Law of the Country which governs the Main
Contract shall apply.
Particular Conditions-Clauses which must be revised /
added during the preparation of a PCs
 Clause 1.5 Priority of Documents
– Amendments and additions can be made here. Please be extremely careful, and do
not change unless you have to.

– The document forming the Contract are to be taken as mutually explanatory of

one another. For the purpose of interpretation the priority of the document shall
be in accordance with the following Sequence

– If any ambiguity or discrepancy is found in the documents, the Engineer shall

issue any necessary clarification or instruction.
Clause 1.5 Priority of Documents
a) Contract Agreement (if any)
b) Letter of Acceptance;
c) Letter of Tender
d) Particular Conditions of Contract;
e) General Conditions of Contract
f) Specifications;
g) Drawings and
h) Schedules and any other document forming a part of the Contract Agreement
The priority of documents unless stated otherwise is listed as items (a) to (h)
The Engineer shall be responsible for resolving any discrepancy
Priority of Documents……..Contn.
• The order of Priority documents forming the contract can be significant
where complex questions of interpretation arise
• When there is a conflict in meaning between various contract documents
• General Conditions low in priority over Particular Conditions
( Common law position)

– In Robertson V. French and Glynn Vs Margetson the Courts held that ‚ the
contract-specific written word chosen by the parties ought to have priority, on
questions of interpretation, over the printed words (or standard wording) used
by the parties‛.
Particular Conditions-Clauses which must be revised /
added during the preparation of a PCs
 Clause 1.6 Contract Agreement
• Contract Agreement will also be referred as «Letter of Acceptance»
• Key features of 1.6
– The Parties are to enter into Contract Agreement with 28 days of the receipt by the
Contractor of Letter of Acceptance
– The form of the Contract shall be that annexed to the Particular Conditions.
– The Employer will be responsible for any stamp duties or other charges.

• The general rule of offer and acceptance parties could find themselves under a
binding contract without having entered into any of the formalities set out in
1.6.
Particular Conditions-Clauses which must be
revised / added during the preparation of a
PCs
 1.7 Assignment
 Neither Party can assign its interest in the Contract without the prior
agreement of the Other

 This Sub-clause includes a prohibition on assignment, save where (at its

absolute discretion) the other party gives its consent, or where the Party
interest under the Contract is offered to secure finance ( no consent required)

 Typically there is a prohibition is on the Contractor and Sub-contractor

Particular Conditions- Contn…………
 Clause 2.1 Right of Access to Site
– If there are conditions (time constraints or other) related to this issue, this clause
should be drafted accordingly.
 Clause 3.1 Engineer’s Duty and Authority
– The limits of Engineer’s authority should be clearly defined here.. This article
should be in line with the ToR for the Engineer’s service contract.
 Clause 4.1 Contractor’s General Obligations
– If the Contractor has additional obligations, these should be clearly defined here.
Particular Conditions- Contn…………
 Clause 4.8 Safety Procedures
– If there are any additional procedures to be implemented because of local laws
they should be defined here
 Clause 4.19 Electricity, Water and Gas
– This articled defines where and how the Contractor will obtain the necessary
infrastructure.
 Clause 4.21 Progress Reports
– If additional reports other than the ones defined in General Conditions are
requested, these should be defined here.
 Clause 7 / Sub Clause 7.9 «Rules of Origin».
– This sub clause should be added in few projects. Please remember this is only for
permanent works.
Particular Conditions- Contn…………

 Clause 8.2 ” Time for Completion

– If there are different milestones for completion and/or taking over parts of the
works these should be defined here.

 Clause 12.1 ” Works to be Measured

– Only RED BOOK
– If measurements are to be done by records and/or reports, the details should be
defined here.
–
Exercise-1
Contents of a Works TD-1
A Works tender dossier comprises of 5 Volumes;

–
Volume 1: Instructions to Tenderers . Terminology should be adopted in line
with FIDIC.

 Volume 2: Conditions of Contract ” FIDIC

 Volume 3: Technical Specifications / Employer’s Requirements

 Volume 4: Financial Offer Format, Schedule of Prices

 Volume 5: Drawings
Contents of Works TD-2
 Volume 1:
–

 Instructions to Tenderers (ITT)

 Tender Form and Annexes (Appendix to Tender)

 Tender Guarantee Format

 Forms

 Glossary of Terms

 Evaluation Grid
Contents of Works TD-3
 Volume 2:
–

 Draft Contract

 General Conditions of Contract (RED / YELLOW BOOK))

Based on the nature and design responsibility.

 Particular Conditions of Contract

 Security Samples (Pre-finance, Performance & Retention)

Contents of Works TD-4
Particular Conditions ” 1
–

FIDIC General Conditions of Contracts (RED or YELLOW) for any type of project
anywhere in the world.

Contract will be customized by using the particular conditions of contract.

 Particular conditions prevail the General Conditions.

 Particular Conditions changes / replaces / revises / deletes the Clauses of the

General Conditions.
Contents of Works TD-5
Particular Conditions ” 2

–
Clauses in Particular Conditions should not be conflicting with the clauses of
the General Conditions.

 FIDIC Guidelines may be used while drafting Particular Conditions.

 Particular Conditions should be in line with the local law and law of the
contract.

 Any revisions / additions / omissions done by the Particular Conditions should

be based on rational reasoning.
Contents of Works TD-6
Particular Conditions ” 3
–

 Very complex PCs may harm the completeness and structure of a works Contract.

 PCs should be drafted by a team of experts who have relevant works and contract
management experience.

 PCs should be assessed / evaluated by local lawyers.

 Appendix to Tender may be used as control tool.

 Clause 1.5 of PCs; «Priority of Documents» is important and should be re-

addressed for every project.
Contents of Works TD-7
Priority of Documents
–

 the contract,
 the Tender Form with its appendix,
 the Particular Conditions,
 the General Conditions,
 the Technical Specifications,
 the design documentation (drawings),
 the bill of quantities (after arithmetical corrections)/breakdown,
 any other documents forming part of the contract
Appendix to Tender– 1
 Appendix to Tender is prepared as a summary table.

 Includes Financial and Administrative / Contractual Information

 Administrative / Contractual Information

 Contact Details of Parties

 Contract Duration

 Law and Language of the Contract

 Disputes and Arbitration

FIDIC Training 12-14 April 2011 116
Appendix to Tender– 2
• Financial Information:

 Security Amounts
 Delay Penalties
 Pre-Finance Payments
 Retention Deductions
 Minimum Interim Payments
 Insurance Amounts

FIDIC Training 12-14 April 2011 117

Appendix to Tender– 3
 It includes summary of the information originating from the Particular and General
Conditions of Contract.

 A different AtT should be prepared for each tender. May be used as a tool to check
the completeness and consistency of the particular and general conditions.

 Numeric values or specific information should be indicated in Appendix to Tender

to avoid confusion and mistakes between different values.

 Appendix to tender should be used to complement the Particular and General

Conditions, not to amend or revise them.
Exercise-2
Dispute Adjudication Board (DAB)
Dispute Resolution Scheme
History of DAB
The first DB was called a Dispute Review Board (‚DRB‛) and it made recommendations
rather than decisions. Major developments regarding DRBs were as follows:

1975 First Domestic DRB in U.S. (Eisenhower Tunnel).

1981 First international DRB (EL Cajon Dam, Honduras)
1995 World Bank makes DRBs mandatory for all IBRD-financed projects over
US$50m.
1997 Asian Development Bank and EBRD adopt DRB approach.

122
History of DAB
Subsequently, the Dispute Adjudication Board (‚DAB‛), which made decisions rather than
recommendations, developed internationally, as follows:

1995 FIDIC introduces DAB in its Orange Book

1998 England introduces mandatory statutory adjudication; subsequently,
parts of Australia, New Zealand and Singapore do the same
1999 FIDIC adopts DAB in all contracts for major works
2000 World Bank adopts DB recommendations as binding and requires parties
to give effect to them unless and until revised by an arbitral award

123
Dispute Boards
• Timing of appointment of DB members
– Ad hoc v. standing
• Appointed when dispute arises (ad hoc)
• Appointed at start of project, for the duration (standing)

• Nature of output of DB
– Decision v. Recommendation
• Dispute Review Boards (DRB)
• Dispute Adjudication Boards (DAB)
Dispute Boards
• Dispute Boards
– DRB provides recommendations
• Art 4.2 , ICC Rules for DB:
‚Upon receipt of a Recommendation, the Parties may comply
with it voluntarily but are not not required to do so.
• DAB renders contractually enforceable decisions
Introduction, ICC DB Rules (2004)
‚Determinations of Dispute Boards are not enforceable at law as such,
although they may become contractually binding on the Parties as described
below. Hence, Dispute Board Members do not act as arbitrators
Dispute Boards under FIDIC Conditions of
Contract
• DAB method adopted by FIDIC
– Red, Yellow, Silver and Green
– Gold and Blue Standing v. Ad-hoc

• Standing DAB
– Red and Gold

• Ad-hoc
– Yellow, Silver, Green and Blue
Dispute Boards under FIDIC Conditions of
Contract
• Sub-Clause 20.2
– Disputes shall be adjudicated by a DAB in accordance with Sub--
Clause 20.4………..‛

• Sub-Clause 20.4
– ‚ .......... Within 84 days ........the DAB shall give its decision , which
shall be reasoned ................The decision shall be binding on both
Parties, who shall promptly give effect to it unless and until it shall
be revised in amicable settlement or an arbitral award.
Referral to a Dispute Adjudication Board

-Under the Red and Gold Books the DAB will already exist. Must be
appointed by date stated in Appendix to Tender or Contract Data.
Default is 28 days after Commencement Date (i.e. commencement
of execution of the works)

–Under Yellow and Silver Books DAB appointed within 28 days of

notice of intention to refer a dispute. Particular Conditions replace
Appendix to Tender in Silver Book

–In Gold Book, notice of dissatisfaction with determination of

Employer’s Representative within 28 days of determination. If no
notice, determination deemed accepted. Referral within further 28
days
128
Composition of DAB
One or three members as stated in Appendix to Tender (or
equivalent in other forms)

–Default is three members

–Each party nominates one member for approval of other

–Parties consult these members and agree on third, who acts

as chairman

–If Contract contains a list, member selected from that list,

unless unwilling/unable to act 129
Agreement with DAB Member

–Mustincorporate General Conditions of Dispute Adjudication

Agreement

–These conditions contained in an Appendix to General

Conditions

–However, may be amended by the Parties

–Remuneration must be agreed by both parties

–Each party pays half 130

Termination of Appointment of Member

By mutual agreement of Parties, but not by either acting alone

Unless otherwise agreed, under Red Book all appointments

terminate when Clause 14 discharge effective (discharge is
submitted with Final Statement confirming total of Final Statements
represents full and final settlement of all monies due to Contractor)

–Under Yellow and Silver books, appointments expire when DAB has
given its decisions unless other disputes have meantime been
referred.
–Under Gold Book, later of 28 days after decision or upon issue of
Commissioning Certificate
131
Failure to Agree DAB
If
–Parties fail to agree sole member DAB within time period
–Either Party fails to nominate a member (for approval by the other
Party)
within time period
–The Parties fail to agree a Chairman within time period
–The Parties fail to agree a replacement within 42 days of refusal to act,
death etc.

Appointment made by entity or person named in Appendix to Tender or

equivalent in other forms in consultation with Parties –who pay half of
appointing fee each

132
General Conditions of Dispute Adjudication Agreement(1)

–Tripartite Agreement –each Party and Member

–Effective when last member signs an agreement
–Personal appointment
–Warranty of impartiality and independence, except as disclosed
–Warranty of suitable construction experience, experience of
contractual interpretation and fluency in contract language
–Confidentiality obligation

133
General Conditions of Dispute Adjudication
Agreement(2)

• Mutual obligations not to request or give advice on the Contract

• except in normal course of DAB activity (unless agreed)

• Member cannot be appointed arbitrator

• Member cannot be called as witness

• Be liable for his actions as Member, unless bad faith. Indemnified.

134
Procedure of DAB
“ Annex contains Procedural Rules which are not detailed.

DAB shall

(a) act fairly and impartially as between the Employer and the Contractor, giving each
of them a reasonable opportunity of putting his case and responding to the other’s
case, and

(b) adopt procedures suitable to the dispute, avoiding unnecessary delay or expense.

135
Procedure of DAB
“ DAB may conduct a hearing. May request written documents and

arguments prior to or at hearing.

“ DAB may adopt inquisitorial procedure

“ DAB may proceed in absence of party, provided notified

“ DAB may grant provisional relief

“ DAB may open up, review, revise, any certificate, determination, instruction etc.
of Engineer.
136
Decisions of the DAB
“ DAB must not express opinions on merits of argument during hearing

“ Convenes meetings after a hearing, to have discussions and prepare

Decision

“ If not unanimous, majority may require minority Member to prepare a report for
Employers and Contractor

“ Two members may normally proceed in absence of third, unless a party does not
agree, or absent chairman instructions other Members not to make decision.

137
Decision Time, etc
“ DAB makes decision within 84 days of Reference unless otherwise agreed. [Gold
Book 84 days from Response or 105 from Reference if no Response]

“ Decision is reasoned
“ Decision is binding and must be given effect to
“ But ‚unless and until it shall be revised in an amicable settlement or an arbitral
award‛. [This wording excluded from Gold Book]
“ If no decision within 84 days (or other agreed period) either party may give notice
of dissatisfaction within 28 days
“ Decisions made outside 84 days will probably not bind the parties
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Dissatisfaction with DRB Decision

“ Within 28 days of receiving decision, Party gives notice to other Party of its
dissatisfaction. Gold Book requires copy to Chairman of DAB
“ Notices of dissatisfaction must set out matter in dispute and reason for
dissatisfaction (but not binding in arbitration)
“ Valid notice of dissatisfaction normally condition precedent to arbitration
“ Gold Book only: if decision of DAB requires a payment, DAB may require payee
to provide an appropriate security.
“ Decision becomes final and binding upon both parties if no notice of dissatisfaction given within 28 days

139
Amicable Settlement (Clause 20.5)

• Where notice of dissatisfaction has been given, both parties attempt to settle the

dispute amicably before commencement of arbitration. However, unless both Parties

agree otherwise, arbitration may be commenced on or after the 56thday after the day

on which notice of dissatisfaction was given, even if no attempt at amicable settlement

has been made.

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Replacement of Member

– Parties may appoint a replacement member at any time

– Unless otherwise agreed, appointment effective if a

member
 Declines to act
 Dies
 Is disabled from acting in some way
 Resigns
 Appointment is terminated

– Appointment of replacement chairman again requires

consultation with other members 141
COST & COST BENEFIT
• Each party is responsible for paying one half of the remuneration of the DAB
members.

• Both the Employer and the Contractor are jointly and severally liable to pay the DAB
members their fees and expenses

• Historic data indicates that DAB cost is not more than 1% of the total contract value

• DAB success stories in Europe- Channel Tunnel

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Disputes to DAB
A dispute may be said to have arisen when :

“ A final determination has been rejected

“ Discussions have been terminated without agreement

“ When a party declines to participate in discussions to reach agreement

“ When so little progress is being achieved during protracted discussions that it has
become clear that agreement is unlikely to be achieved

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Dispute Adjudication Board (DAB)
“ Procedural Rules for DAB are set out in Annex to Dispute Adjudication
Agreement
“ DAB shall visit site at intervals of not more than 140 days but not less than 70
days at request of either Employer or Contractor
“ DAB to use site visits to become and remain acquainted with progress of the
Works and actual/potential problems or claims
“ DAB to produce a report after each site visit
“ DAB may conduct hearings and request exchange of statements
“ DAB can adopt an inquisitorial procedure and refuse admission to hearings or
grant audience to any persons other than parties’ representatives
“ DAB can open up, review and revise any certificate, decision, determination,
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instruction, opinion or valuation of the Engineer
Dispute Boards Distinguished from Arbitration
Referral to a Dispute Board is similar to arbitration, but can be distinguished from
arbitration in two principal ways:

“ While an arbitrator is chosen to exercise a judicial function and to resolve a

dispute based upon submissions by the parties, a Dispute Board is chosen for its
expertise in a certain subject matter and often does its own investigation or
appreciation of the issue, with or without submissions by the parties.

“ While arbitral awards can be judicially enforced, a Dispute Board determination,

unless re-qualified as an arbitration, is in some jurisdictions not enforceable in
court. The enforceability issue is governed by local law, and is unresolved in
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many jurisdictions.
DAB – Lessons Learnt Summary
• Choose correctly
– DRB v. DAB
– Standing v. ad-hoc
– Composition of DB
• Ensure understanding of process
• Ensure compliance with applicable legal system
• Jointly define procedures
– Rules
– Establishing common culture
Arbitration Basis (Clause 20.6)

“ May be commenced prior to or after completion of the Works

“ ICC Rules of Arbitration apply
“ Three Arbitrators
“ Language is that of language of contract communications (as stated in Appendix to
Tender)
“ Full power to open up, review, revise, any certificate, determination, instruction etc. of
Engineer and decision of DAB
“ Engineer may be witness
“ Parties not limited to arguments and evidence before DAB
“ DAB decision admissible in evidence

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Failure to comply with DAB Decision (Clause
20.7)
“ Where a DAB decision has become final and binding and a Party fails
to comply with the decision, then the other Party may refer the failure itself to
arbitration. (No attempt at amicable settlement is necessary)

“ But a lacuna in Red, Yellow, Silver books as to enforcement where

decision not final and binding can probably be enforced by arbitration.

“ Specifically dealt with in Gold Book. ‚In the event that a party fails to comply with
any decision of the DAB, whether binding or final and binding, then the other
party may…refer the failure itself to arbitration…for summary or other expedited
relief…‛ 148
Direct referral to Arbitration
• If a dispute arises between the Parties in connection with, or arising out of, the
Contract or the execution of the Works and there is no DAB in place, whether by
reason of the expiry of the DAB’s appointment or otherwise:

• (a)Sub-clause 20.4 [obtaining Dispute Adjudication Board’s Decision]

• (b)The dispute may be referred directly to arbitration

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Exercise-3

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