Jordan ... the striking change is the requirement to jointly appoint a DAAB.
Fidic revamps disputes provisions
A lengthy Fidic resolution process can put off disputing parties. This has been amended in the 2017 contracts, but it remains to be seen how well it is accepted, writes STUART JORDAN*.
01 March 2018
Our industry in the Gulf region has never much liked the Fidic (International Federation of Consulting Engineers) approach to disputes resolution. With a few exceptions, the lengthy contract provisions on this are routinely deleted, at least up to the last part which takes us to arbitration. The Fidic approach, as set out in the 1999 First Edition main contracts, is seen as complicated, slow and expensive to operate.
Under the 1999 Red Book, the journey starts with (for instance) a contractor claim for disruption costs. The engineer can take six weeks to decide its response. Then if the contractor wants to challenge that decision, it is to be referred to a Dispute Adjudication Board (DAB) which can take a further 12 weeks to make a decision. If either party is unhappy with that decision, they have 28 days to give a “notice of dissatisfaction” and must then attempt amicable settlement of the dispute. The parties may as well have a go at settling because, for many weeks, that is all they can do: the dispute cannot be referred to arbitration until the expiry of 56 days following the notice of dissatisfaction.
The quickest route from the original claim to the arbitration start line is therefore six months. What’s worse (according to the Gulf’s construction industry) is that the DAB decision may not be summarily enforceable (that is, without an arbitrator or a court looking again at the substantive dispute) and, under the 1999 Yellow and Silver books, the DAB needs to be set up anew once each dispute arises. Why would anyone go through all of that when they can delete it and go straight to arbitration?
One answer is that adjudication has real advantages – if it is set up correctly. Adjudication is the examination of a dispute by independent third parties, leading to a binding, but not final, decision. It can offer relatively quick, cheap and high-quality decisions which parties tend to accept on merit and not challenge them through arbitration or the courts.
Now that Fidic has just revamped its disputes resolution provisions in all of the Second Edition 2017 contracts, it will be interesting to see whether the changes will convince Gulf users not to take the red pen to them.
Firstly, the new contracts define “dispute” – and in a convoluted way – as claims made by one party, which are rejected (either by the other party or the engineer – if there is an engineer) and the first party not acquiescing to that rejection. OK so far? The definition then provides that failure of the second party or the engineer to oppose or even respond to the claim, might or might not be judged later on to be a rejection. The intention, I think, is to avoid satellite disputes about whether a substantive “dispute” has actually crystallised for referral purposes. We’ll see whether this definition achieves that aim or has the opposite effect.
The most striking change is the requirement that the parties shall jointly appoint a one- or three-person Dispute Avoidance/Adjudication Board (DAAB). This is to be a standing body, set up for the duration of contract operation. The member(s) would be chosen for their relevant expertise in (say) engineering, project management, legal, etc. The DAAB has a dual function:
• To give informal assistance and advice and/or informally discuss and attempt to resolve any issue or disagreement that may have arisen, on the parties’ joint request. This is the “Dispute Avoidance” part.
• To give a binding, but not necessarily final, decision on any dispute, on referral by either party. This is the “Dispute Adjudication” part, similar to the old DAB.
The informal process is very practical and refreshingly uncomplicated. It does not require a formal dispute to have formed, as defined above. Any “issue or disagreement” can be brought to the DAAB at any time, apart from when the issue is being considered by the engineer for a determination. The real benefit is in the parties getting a “reality check” from experienced and independent third parties at an early stage before positions become entrenched. I would have preferred to see this available on the request of either party, not just on a joint request, but overall this is a positive step.
This “non-binding advice” approach is not new: it is usually known as a “Dispute Review Board” and it has benefited many complex projects. Interestingly, the Fidic DAAB can also “attempt to resolve” the issue, which is more proactive than the traditional role of giving a view on the questions asked.
The new DAAB is modern but it will still be seen as expensive and unnecessary, other than in the biggest and most complex projects.
* Stuart Jordan is a partner in the Global Projects group of Baker Botts, a leading international law firm. Jordan’s practice focuses on the oil, gas, power, transport, petrochemical, nuclear and construction industries. He has extensive experience in the Middle East, Russia and the UK.
