fidic final

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 LiabilityThird Party LiabilityIndemnityDelay DamagesDefects LiabilityTermination 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)


RED BOOK

Employer carries the risk for contract amount increases.

The better the design, the flawless the project implementation.

Tender evaluations are relatively simpler.


• 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.


• 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

21

Parameters RED YELLOW SILVER GREEN

Design Employer Contractor EmployerEmployer or Contractor

Design ApprovalOnly Contractor’s Design (If any)

Engineer approves or rejects before executions N.a.

Only Contractor’s Design (If any

Financial Proposal Unit Price Lump-sum Price Lump-sum PriceUnit Price / Lump-sum Price

Payment Schedules Measured quantities Payment percentagesPayment Calendar / Payment percentages

Measured quantities or Percentages

Engineer Yes Yes Generally No

No. Employer representative may assign if needed.

Comparison Matrix-2

12-14 April 2011 22

Parameters RED YELLOW SILVER GREEN

Tests during ConstructionSignificant number of tests

Relatively less and simpler Generally no tests Limited or no tests

Tests at completionRelatively less and simpler

Very detailed and complicated performance tests

Very detailed and complicated performance tests. Limited or no tests

Risk DistributionEmployer carries the design risks Distributed

Contractor carries the 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 lossThe 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 Date

(Design, if any) & Build Defects Notification Period

Additional Contractual Remedies

Defects Liability Period

Legal Remedy subject to time bars

Taking Over Certificate

Performance Certificate

Defects Liability • The limitation period for remedies

concerning defective works is Germany 2yrs (5yrs for Buildings or similar construction)

Poland 2yrs

France

Decennial Liability

1yrs warranty of Performance

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 Causea) 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], orb) (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 8.11g) 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 2.51. 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.


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.


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.


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

66

28 day Notice of Claim to Engineer

42 day “Fully Detailed Claim”to Engineer

“Final Claim” 28 days after end of effects

42 days after receipt of claim Engineer’s Response

Clause 3.5 Engineer to“ Agree or Determine”

Clause 20.1Contractor’s Claims

Clause 3.5Determinations

28 day Notice of Claim to Employer

42 day “Fully Detailed Claim”to Employer

“Final Claim” 28 days after end of effects

42 days after receipt of claim Employer’s Response

Clause 3.5 Employer to “Agree or Determine”

Given effect unlessContractor’s Notice of Dissatisfaction

14 days of receipt

New Red/Yellow Books Silver Book

Agreement/Determination given effect unless revised under Clause 20

67

FIDIC Procedure for Employer’s Claims New Red/Yellow Books

Silver Book

Employer or Engineer gives notice and particulars to Contractor

Employer gives notice and particulars to Contractor

Clause 3.5 Engineer to “Agree or Determine”

Clause 3.5 Employer to “Agree or Determine”

Clause 2.5Employer’s Claims

Clause 3.5Determinations

Reference to Dispute Adjudication Board (DAB) (1 or 3 people)

“Amicable Settlement” stage

ICC Arbitration within 56 days after Notice of Dissatisfaction

Clause 20.5

Clause 20.6

Clauses 20.2 and 20.4 (See previous diagram for full Clause 20.4 procedure)

Agreement/Determination given effect unless revised

under Clause 20

Given effect unlessContractor’s Notice of Dissatisfaction

14 days of receipt

Introduction to FIDIC and its Dispute Resolution Provisions

FIDIC Procedure for Contractor’s Claims

68

Reference to Dispute Adjudication Board (DAB) (1 or 3 people)

DAB Decision within 84 days of reference

“Amicable Settlement” stage

ICC Arbitration within 56 days after Notice of Dissatisfaction

Clause 20.2

Clause 20.4

Clause 20.5

Clause 20.6

No Notice of Dissatisfaction within 28 days of Decision

Notice of Dissatisfactionwithin 28 days after 84 days of reference

No DAB Decision within 84 days of reference

Notice of Dissatisfaction within 28 days of Decision

DAB Decision final and binding

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

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

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.

Site Data – 4.10

Contractor is deemed to have inspected and examined the site only to the extent as far as practicable, with cost and time considerations

“……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,”

Sufficiency of the Accepted Contract Amount– 4.11

Contractor is only responsible for interpreting the data provided to him

Clause 4.11:“The Contractor shall be deemed to:

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

Unforeseeable Physical Conditions 4.12

Employer carries the risk of physical conditions that could have been unforeseeable by an experienced contractor at the date of tender

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 considersto have been unforeseeable, the Contractor shall give notice to the Engineer as soon as practicable.”

Foreseeable, Unforeseen and UnforeseeableEvents

Foreseeable Unforeseen Unforeseeable

capable of beinganticipated or predictable.

‘reasonably foreseeable’means ‘whether areasonable person foreseethe results of an act’.

what an experienced contractor can reasonably foresee with the aid ofinvestigative measures (deskstudies, site inspections and ground investigations).

ground conditions are often‘unforeseen’ because of incompleteassessment due to limitedinvestigation, insufficient dataavailable and limited resources.

a more ‘risk-taking’ process than ‘unforeseen’

relates to something that is technically beyond the contractor’s control

Cannot be completely eliminated (regardless of how experienced the contractor is and/or how much investigations they carried out)

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 asto 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.

Entitlement

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 ].

Sub-Clause 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 Contract Data.

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].

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].

Sub-Clause 8.1 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 ................

(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;

Possession of Site

Exercise-3

Parties to Contract

Parties of Contract- Employer

91

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

.

Parties of a Contract- Contractor

92

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

Parties of a Contract – Engineer

93

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

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


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…..Cont

n.• 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.


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.


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.


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


– 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)


– 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.


– 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.


–

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.


– 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

FIDIC Training 12-14 April 2011 116

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

• 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– 2

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

DAB

International

Arbitration

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

128

-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

Composition of DAB

129

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

Agreement with DAB Member

130

–Must incorporate 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

Termination of Appointment of Member

131

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

Failure to Agree DAB

132

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

General Conditions of Dispute Adjudication Agreement(1)

133

–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

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.

Contd….

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

138

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.

140

Replacement of Member

141

– 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

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

142

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

143

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, instruction, opinion or valuation of the Engineer

144

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 many jurisdictions.

145

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

147

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

149

Exercise-3 &4