consrtuction disputes – nature, causation...

CONSRTUCTION DISPUTES –NATURE, CAUSATION AND

RESOLUTION METHODS UNDER FIDIC TERMS

BY DR. KHALID YAQOOB AL AMER, F R I C S

C E R T I F I E D A R B I T R ATO R AT G C C C O M M E R C I A L A R B I T R AT I O N C E N T R E

A N D E X P E R T AT B A H R A I N C O U R T S

OUTLINE OF PRESENTATION

1 Nature and Causation of Disputes in Construction Contracts

2 Common Mechanisms for Resolving Construction Disputes

3 Introduction to FIDIC and its Dispute Resolution Provisions

4 Dispute Resolution Mechanism under the new Second Edition of FIDIC Yellow Book

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1Nature and Causation of Disputes in Construction Contracts (1) Construction Disputes are fairly common.

They vary in their nature, size, and complexity.

Construction projects require a control of numerous interdependent components, including information, materials, tools, equipment, etc..

Construction disputes when not be resolved in a timely manner, become very expensive – in term of:

Finances, personnel, time and opportunity cost.

There are Three types of expenses: Visible, less visible and intangible costs.


1Nature and Causation of Disputes in Construction Contracts (2) Due to Nature of the Construction Industry, it is very expected that reposition

a stance or a change in the contract lead into a field of disputes.

When disputes rise they are often costly and time consuming.

In order to prevent disputes we have to find out the reasons and areas of these disputes

Construction Industry is huge, adversarial and continually fragmented and under pressure of a controversial circumstances as a result of the new technology, tender costs, and legislative regulations on safety, health and newer methods of procurement.


2Nature and Causation of Disputes in Construction Contracts (3) Categories of reasons of disputes:

1. Vague conditions and not signed contracts are tools for disputes.

2. Claiming for possibilities and trying to come-up with contradictions in the contract.

3. Reduction of prices in order to win the tender and the many parties involved in one project all requiring a range of demands are products of probable upcoming disputes.

4. Climate change design error and legislative enforcement.


2Nature and Causation of Disputes in Construction Contracts (4) Alleged interference by or deficiencies of Owner, such as:

− Lack of site possession

− Late approvals or instructions

− Changes in design/materials/specification

− Non payment

Alleged deficiencies of Contractor, such as:

− Contractor design omissions and deficiencies

− Defective manufacture and construction

− Delayed performance (various causes attributable to contractor)

− Excessive cost, when contract price not fixed


2Nature and Causation of Disputes in Construction Contracts (5) Third party events, such as:

− Adverse site conditions

− Adverse weather

− Material escalation

− Hostilities/strikes

− Changes in law


2Nature and Causation of Disputes in Construction Contracts (6)

Contractor usually claims one or more of the following:

− Compensation for extra work performed

− Compensation and/or schedule relief for acceleration, delay and/or disruption

− Payment and interest

− Blocking draw of performance bond

Owner usually claims one or more of the following:

− Damages (usually liquidated) for delay, or for poor performance (plant not atspecification)

− Correction or compensation for defective work (under warranties)

− Draw on performance bond


3Common Mechanisms for Resolving Construction Disputes (1) Non Binding Dispute Resolution Mechanisms

• Mediation

• Early Neutral Evaluation

Temporarily Binding Dispute Resolution Mechanisms

• Dispute Boards (FIDIC)

Binding Dispute Resolution Forms

• Arbitration

• Court Litigation


4Introduction to FIDIC and its Dispute Resolution Provisions (1) FIDIC Dispute Resolution provision is set out in Clause 20 of the Red, Yellow and Silver Books

Approach used by FIDIC is the Dispute Adjudication Board (DAB) which issues a decision, asopposed to Dispute Review Board which issues a recommendation

The FIDIC DAB provisions apply whenever a FIDIC contract is used unless parties delete theprovision

FIDIC DAB decisions are immediately binding and parties are obliged to comply with thedecision pending other stages of the dispute resolution procedure, e.g. revised by amicablesettlement or arbitral award

Red (Construction Contract) and Yellow (Plant and Design-Build Contract) Books provide forEngineer to act as adjudicator and DAB. Silver Book (EPC Contract) has no Engineer, sodisputes under Silver Book must be handled by DAB.


4Introduction to FIDIC and its Dispute Resolution Provisions (3)

FIDIC Procedure for Contractor’s Claims

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28 days Notice of Claim to Engineer

42 days “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 20.1

Contractor’s Claims

Clause 3.5

Determinations

28 days Notice of Claim to Employer

42 days “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 unless

Contractor’s Notice of Dissatisfaction

14 days of receipt

Red/Yellow Books Silver Book

Agreement/Determination

given effect unless revised under Clause 20


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Reference to Dispute Adjudication Board (DAB)

(1 or 3 people)

DAB Decision

within 84 days of reference

“Amicable Settlement” stage

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 Dissatisfaction

within 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

FIDIC Procedure for Contractor’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 2.5

Employer’s Claims

Clause 3.5

Determinations

Reference to Dispute Adjudication Board (DAB)

(1 or 3 people)

“Amicable Settlement” stage

Arbitration

within 56 days after Notice of Dissatisfaction

Clause 20.5

Clause 20.6

Agreement/Determination given

effect unless revised

under Clause 20

Given effect unless

Contractor’s Notice of Dissatisfaction

14 days of receipt

FIDIC Procedure for Employer’s Claims

5Dispute Resolution Mechanism under the new (2017) Second Edition of FIDIC Yellow Book (1) Pre-release version of its second edition in end of 2016 of Conditions of

Contracts for Plant and “the New Yellow Book” was published in 2017.

FIDIC has addressed the provisions relating to “binding but not-final” “DAB” decisions which have been the cause of persistent dispute since the 1999 Yellow Book was released.

The new 2017 Yellow Book therefore retains the same core structure of the DAB as a mandatory pre-condition to arbitration.

It has expanded this concept through the inclusion of a similar mandatory procedure of binding but not-final Engineer determinations.


5Dispute Resolution Mechanism under the new (2017) Second Edition of FIDIC Yellow Book (2)The new 2017 Yellow Book dispute resolution mechanism

Like the 2008 Gold Book, the DAB is defined as a “Dispute Avoidance / Adjudication Board”, and it is empowered to provide informal assistance.

In addition, the role of the Engineer has been increased to play a facilitative role and to issue binding determinations that will become final unless an (NOD) is issued.


5Dispute Resolution Mechanism under the new (2017) Second Edition of FIDIC Yellow Book (3)

The New 2017 Yellow Book follows the same core structure as the 1999 Yellow Book as follows:

Making a claim;

The role of the Engineer;

Avoidance of disputes (new);

The DAB;

Amicable settlement; and

Arbitration.


5Dispute Resolution Mechanism under the new (2017) Second Edition of FIDIC Yellow Book (4)Avoidance of Disputes

This provision has been added which permits the parties to jointly ask the DAB to informally discuss and/or provide assistance with any issue or disagreement.

The parties will not be bound to act on any advice given in this process.


5Dispute Resolution Mechanism under the new (2017) Second Edition of FIDIC Yellow Book (5)The Dispute Avoidance/Adjudication Board

the new provision includes a number of revisions designed to clarify and assist in enforcing these obligations, including:

DAB decisions are now expressly binding on the Engineer;

The Parties and Engineer must comply with the DAB’s decision “whether or not a Party gives an NOD with respect to such decision under this Sub-clause”; and

If the DAB awards payment of a sum of money, that amount shall be immediately due and payable, without any requirement for certification or notice. In addition, the DAB may require an appropriate security to be issued for payment of the sum awarded to any of the disputed parties.


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