FIDIC contracts Claims and disputes under international construction contracts. Claims and dispute resolution procedures under FIDIC contracts
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1 FIDIC contracts Claims and disputes under international construction contracts Istanbul 29 th March 2016 Claims and dispute resolution procedures under FIDIC contracts 1. Introduction I am very pleased to be able to present to you today. As you may have seen from the brochure, my experience extends over quite a few years and numerous international projects as well as using different forms of Contract In addition, I have been fortunate enough to be chosen as a Dispute Board Adjudicator under sundry FIDIC Contracts and also appointed as one of the FIDIC President s List of Dispute Adjudicators My presentation this afternoon will deal only with FIDIC forms of contract and procedures. There are presentations later by others covering ICC Dispute Board Rules, and I very much look forward to listening to those presenters. 2. What is a claim? 2.1 Under FIDIC and most other construction contracts, a Claim is a contractual right. It applies equally to the Contractor and to the Employer. Not as I had recently, the Engineer trying to claim against the Contractor on behalf of the Employer. 2.2 Sub-Clause 20.1 sets out the procedure to be followed by the Contractor and the Engineer and begins by saying: If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment under any Clause off these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Engineer describing the event or circumstance giving rise to the claim. The notice shall 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 2.3 Thus, it seems evident that the Contractor may claim for an extension to the Time for Completion; he may claim for additional Costs, all of which I m sure you are familiar with. Of course, when making an application for an Interim Payment Certificate, he is also making a claim, but the procedure under Sub-Clause 20.1 does not apply, unless the application is, in the view of the Contractor, wrongfully certified by the Engineer. 2.4 He, the Contractor, might also claim for other issues such as the Engineer mal-administered the Contract; the Commencement Date set by the Engineer is totally different from that imparted at Tender Stage;
2 The Engineer has been told by the Employer not to do something (like issue a fair determination under Sub-Clause 3.5). 2.5 However, just because there is a claim made does not mean the claim is valid. The Engineer has to play his part in assessing the fully detailed particulars of the claim and respond with approval or disapproval and detailed comments on the principle of the claim. 2.6 The Employer, may also make a claim. The procedure to be followed is set out in Sub- Clause 2.5 and states: If the Employer consider himself to be entitled to any payment under any Clause of these Conditions or otherwise in connection with the Contract, and/or to any extension of the Defects Notification Period, the Employer or the Engineer shall give notice and particulars to the Contractor. However,... The notice shall be given as soon as practicable after the Employer became aware of the event or circumstances giving rise to the claim. The Engineer shall then proceed in accordance with Sub-Clause 3.5 to agree or determine 2.7 What about in connection with the Contract. Would such a matter as removal of the Contractor s Representative constitute such a claim? 3. Notices 3.1 Of course, as you will no doubt know, there are notice provisions scattered throughout the various sub-clauses and particularly in respect of notices to be given by the Contractor under Sub Clause 20.1 the infamous Time-Bar. 3.2 So, does Sub-Clause 20.1 really mean, that if a notice is later than 28 days, even by one day, that the Contractor is not entitled to an extension to the Time for Completion or to additional payment? 3.3 Many arguments of course as to what is the aware date. 3.4 What if any other notices are not given as required by Sub Clause 20.1? What if the fully detailed particulars are not provided within the prescribed time given in Sub-Clause No such Time Bar if the Employer fails to give Notice, even though in FIDIC MDB it says within 28 days of the aware date. However, it seems that as long as a notice to extend the Defects Notification Period is given before the expiry of the period at that time then there is no other default provision. 4. Particulars 4.1 So, what particulars are required under FIDIC?
3 4.2 Firstly, the Contractor s claim must be fully detailed and must be accompanied by full supporting particulars of the basis of the claim and of the extension and/or additional payment claimed. 4.3 Secondly, the claim should be supported by contemporaneous records. Contemporaneous means records made at, or very close, to the time of the event or circumstance giving rise to the claim. 4.4 Provision of further (and better) particulars. Should the Claimant be assisted by the Engineer or the DAB(DB) by asking for better particulars? 4.5 The Employer in making a claim only has to give particulars. Although the MDB Version does say they should give the Clause or other basis of the claim and include substantiation of the amount and/or extension to which the Employer considers himself entitled. In the instance of removal of the Contractor s Representative, what if there is no monetary or time compensation? 4.6 In the latter instance it seems to me the Engineer might need to be a brave man/woman to reject his/her Employer s claim if such details are missing. 5. What is a Dispute? 5.1 There are many descriptions and definitions of a Dispute. 5.2 FIDIC (in the Gold Book) states in Sub Clause Dispute means any situation where (a) one Party makes a claim against the other Party and (b) the other Party rejects the claim in whole or in part; and (c) the first Party does not acquiesce, provided however that a failure by the other Party to oppose or respond to the claim, in whole or in part, may constitute a rejection if, in the circumstances the DAB or arbitrator as the case may be, deem it reasonable for it to do so. A Dictionary definition: Any statement, complaint, request, allegation or claim, which has been rejected and the rejection is not acceptable to the person who made the original statement, complaint, request, allegation or claim. 5.3 How do Disputes arise? Poor/wrong strategy Poor Communications structure Oral/verbal instructions Misunderstanding of the terms and conditions
4 Parties become entrenched Parties do not speak to each other Contract avoidance Inability to pay Unrealistic time-scales Broken promises Poor Contract administration Non-resolution of claims And so on. 6. What is the FIDIC process for resolution? 6.1 Essentially, 5 stages of resolution available to the parties. 1) Agreement 2) Determination by the Engineer/Employer s Representative Sub Clause 3.5. It is very often forgotten (conveniently) that the parties MUST give effect to the Engineer s decision. 3) Decision by a Dispute Adjudication Board A binding decision to be complied with whether a notice of dissatisfaction is given or not. 4) Amicable Settlement 5) Arbitration Award Final and Binding. The Ultimate Step or is it? 7. The Appointment Process 7.1 I will refer only to the Standing Board situation such as in CONS (Red) or MDB (Pink) but am perfectly willing to answer questions on the P & DB (Yellow) and other Ad-Hoc types. 7.2 The Dispute (Adjudication) Board [Board] appointment process is set out in Sub-Clause 20.2, and is intended to be a consensual process. The Employer in the Tender documents sets out the composition of the Board of suitably qualified persons either one or three. The default number is three. 7.3 The Sub-Clause goes on to say that: If the Board is to comprise three persons then each Party shall nominate one member for the approval of the other Party. The Parties shall consult both these members and shall agree upon a third member, who shall be appointed to act as chairman. However, if a list of potential members is included in the Contract, the members shall be selected from those on the list
5 7.4 The appointment of a sole member is not dealt with explicitly, but it must be implied that the Parties must agree on who that one person is to be. Maybe, this is where a list of potential members willing and able to act as a sole Board, could be advantageous. However, it needs consideration prior to going to tender. 8. Do Dispute Boards work? Statistics 8.1 Although some ten years ago now, the DRBF conducted some research and reported in 2006 that: 98% of disputes referred to dispute boards concluded the matter Of the remaining 2% which were referred to arbitration/courts, at least half upheld the DB decision. Therefore, only 1% of disputes referred to a DB were overturned. 8.2 At a conference, about 4 years ago, in Australia it was confirmed that: No cases in Australia referred to a DB had been passed on to arbitration/litigation. 8.3 My own opinion is that: provided the Board (1 or 3 person) is properly considered and formed early enough, then it has a good prospect of success; if the parties want it to work it will work; success breeds success 8.4 To answer my own question - Do they work? I believe that, in the main, they do. 9. Advantages DB become part of the Team Provide Real Time value Provide a form of insurance Knowledge gained from experts Standing Boards have knowledge of the project from their regular site visits Prevent claims becoming disputes Decision on dispute given within 84 days Cheaper than arbitration/litigation They can provide opinions if requested by both parties Less formal proceedings Impartial and independent A dispute avoidance ethos. The decision is binding upon the parties for the time being and becomes final and binding if no Notice of Dissatisfaction within 28 days after receiving the decision
6 10. Disadvantages Generally, one of perception Why have another tier of dispute resolution we have the CA? Another project cost but can you afford not to have a Dispute Board? A poorly formed DB. 11. Suggestions 11.1 Provision for Succession Planning by inviting the parties to include graduates and the like to attend site visits and hearings should they arise 11.2 Maybe some means of removing the uncertainty of fees for example inserting in the Particular Conditions Maybe as a set percentage related to the Contract Amount DO YOU HAVE ANY SUGGESTIONS? THANK YOU Malcolm Kelly mkresolve@gmail.com or malcolm_k100@hotmail.com
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