Prevention is better than Cure – Dispute Avoidance under FIDIC 2017

FIDIC has explained that the underlying philosophy and core purpose behind the updates to the Second Editions of the Rainbow Suite (Red, Yellow and Silver Books) is to achieve increased clarity, transparency, and certainty which should lead to fewer disputes, lower administrative costs and more successful projects. Subsequently, an important theme of the Second Edition is the increased emphasis on dispute avoidance.

FIDIC suggests a variety of dispute avoidance mechanisms, as demonstrated by the following changes.

The Splitting of Clause 20

The Change

  • Clause 20 has been split in two, resulting in the claims provisions being separated from the dispute provisions
  • Clause 20 is now entitled “Employers and Contractor’s Claims” and Clause 21 is entitled “Disputes and Arbitration”

The Reason / The Effect

  • To help make clear that making a claim is not the same as a dispute –
    • A claim is a request for an entitlement
    • A dispute arises if the claim is rejected or ignored
  • To help an unnecessary escalation of issues into disputes
  • Claims should not be assumed to flow into disputes, but rather have the potential to be resolved amicably and quickly
Changes to the Role of the Engineer/Employers Representative

The Change

  • The Engineer (Red and Yellow Books) / Employers Representative (Silver Book) role has been expanded to include:
    • A requirement that the Engineer is to encourage discussions between the Parties in an endeavour to reach agreement
    • Prescribing a detailed procedure for the Engineer to determine a Claim and should the Engineer fail to make a Determination within the stated
      time frame, the Engineer will be deemed to have rejected the claim
    • Imposing an obligation on the Engineer to act neutrally between the Parties when acting to seek to reach Agreement or to make a Determination
    • Providing that the Engineer is not deemed to act for the Employer when issuing determinations

The Reason / The Effect

  • The expanded role has been designed to emphasise the Engineer/Employers Representative neutrality when dealing with claims and is intended to indicate that a degree of rigidity will be applied by the Engineer/Employers Representative when dealing with a claim, such that both parties can have confidence in the process being followed
  • The neutrality requirement is a vague criterion – the guidance notes state that ‘when acting under this Sub-Clause the Engineer treats both Parties even-handedly, in a fair and unbiased manner
  • The Employer may want to consider leaving out this requirement of neutrality if the Employer intends to appoint an engineer from the employer’s own organisation
Disputes and the Dispute Avoidance and Adjudication Board (“DAAB”)

The Change

  • A Dispute is now defined. Failure by the respondent party or the Engineer to oppose or respond to a claim in whole or in part may constitute a rejection
    of claim (thereby crystallising a “Dispute”) if in the circumstances the DAAB or an arbitrator deem it reasonable to do so
  • The DAAB is now appointed as a standing board and has a new dispute avoidance role (hence the change of name from Dispute Adjudication Board) to provide informal assistance to the parties
  • The DAAB Procedural Rules have been expanded and contain a requirement for the DAAB to regularly meet with the Parties and visit the Site outside the context of formal proceedings

The Reason / The Effect

  • The definition of Dispute is not straightforward and may lead to disputes about what constitutes a Dispute
  • To promote good contract management and to ensure disputes do not roll on indefinitely
  • To assist the Parties in the avoidance of disputes and in the real-time resolution of disputes
  • Likely increased costs of appointing a standing DAAB who are required to have regular site meetings
Advanced Warnings

The Change

  • Advance warning provisions have been introduced requiring each Party to advise the other of any known or probable future events which may adversely affect the performance of the Works, increase the Contract Price or delay the execution of the Works
  • FIDIC has not included any express sanction in any failure to comply with the provision in any assessment of the Contractor’s entitlement to an extension of time and additional payment
  • The provision is coupled with the Engineers entitlement to require the Contractor to submit estimates of the anticipated effect of future events or proposals for mitigating their effect

The Reason / The Effect

  • To ensure that issues are tackled early on and resolved before they escalate
  • An enhanced project management procedure to promote effective communication and reduce disputes
  • Contractors should expect Employers to address the lack of a sanction in failing to issue an advanced warning with amendments reducing the Contractor’s entitlement to relief where they fail to issue an advance warning
  • The provision looks a lot like the introduction of an overarching duty to mitigate loss or delay
  • The preparation of additional estimates and proposals may be time consuming and costly

In conclusion, the significant shift towards an early recognition of potential issues and subsequent dispute avoidance constitutes a massive cultural change on the part of public, the employer, and contractor. The benefits of dispute avoidance, or at least a fair and timely resolution of any disputes are measurable from a cost perspective and can be a competitive advantage in a highly-contested market. A good reason for everyone in the industry to take a closer look at the new updated Red, Yellow and Silver Books.

 

This article is the first one in a series of seven articles highlighting the main changes, the reasoning behind the changes and the effects thereof of the updated Red, Yellow and Silver Books.

The article does not constitute legal advice and has been drafted for information purposes only.

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