A guide to dispute resolution under FIDIC

International construction and infrastructure projects are, by nature, often highly complex and technical, involving multi-tiered stakeholders and are usually long in duration. These features frequently give rise to claims for time and additional money. Without a mechanism in place to resolve these disputes in real time, costs tend to increase, relationships may well sour and there will be an adverse effect on the project as a whole. It is therefore of great importance to have a suitably robust dispute resolution mechanism in place.

In response to this need, FIDIC introduced Dispute Adjudication Boards ("DABs") in 1995. DABs were a central feature of the dispute resolution provisions in the 1999 editions of the FIDIC Contract. FIDIC later introduced the concept of Dispute Avoidance and Adjudication Boards ("DAABs") in its 2017 suite of contracts and which it maintained in its 2022 Reprints.

On 27 November 2023, FIDIC published a Practice Note on Dispute Avoidance, with a focus on dispute standing boards under the 2017 FIDIC Contracts. The Practice Note is intended to raise awareness of the dispute board's avoidance role and explores the benefits to dispute avoidance for FIDIC users. In this article, we outline the process for resolving disputes more generally under the FIDIC Red Book 1999 and 2017 editions.

Resolving disputes under FIDIC Red Book 1999 / 2017

FIDIC's procedure for resolving disputes under the 1999 / 2017 editions is multi-tiered. Under the 1999 editions, the DAB process occurs after the Engineer's decision and takes place before the dispute, if so required, is finally resolved by arbitration. We set out below each stage as it relates to the 1999 / 2017 Red Book editions in further detail below.

Engineer's determination

• If either Party considers that it is entitled to any additional payment and / or an extension of time, it should notify the Engineer of its claim with details as soon as possible and not later than 28 days after the event or circumstance giving rise to the claim.^[1]
• The Engineer either agrees or renders a determination of the claim following the procedure in Sub-Clause 3.5 Red Book 1999 and Sub-Clause 3.7 Red Book 2017.
• In the 2017 FIDIC forms and pursuant to Sub-Clause 3.7.4, the Engineer's decision is binding but subject to a Notice of Dissatisfaction.

DAB / DAAB Decision

• If there is a dispute as to the Engineer's determination, the dispute may be referred to a DAB or DAAB.
• The DAB / DAAB is obliged to give a reasoned decision within 84 days of the dispute being referred to it, pursuant to Sub-Clause 20.4 Red Book 1999 and Sub-Clause 21.4.3 Red Book 2017. If payment of a sum of money is awarded, the paying party must 'pay now, argue later.' In other words, the decision is binding, but not final.
• Under the 2017 FIDIC Forms, a Dispute (as defined)^[2] is referred to a DAAB for a decision. The DAAB is appointed as a standing board with dispute avoidance playing a key part of its role. The Red Book 2017 imposes a 42-day time bar to the reference of disputes to the DAAB following the issue of a Notice of Dissatisfaction in relation to the Engineer's determination.

Notice of Dissatisfaction

• If either party is dissatisfied with the DAB / DAAB decision, it is entitled to issue a Notice of Dissatisfaction within 28 days of the decision. This has the effect of rendering the DAB's decision as binding but not final, reserving the parties' right to refer the underlying dispute to be finally determined in arbitration.
• Where a Notice of Dissatisfaction has not been issued, the decision becomes final and binding on the parties and the decision itself will be enforceable in arbitration without the merits of the underlying dispute being considered.

Amicable settlement

• If a Notice of Dissatisfaction is issued, the parties are obliged to attempt to settle the dispute before commencing arbitration.
• Should the parties fail to reach a settlement within 56 days of the Notice of Dissatisfaction, arbitration may be commenced.
• Under the Red Book 2017 edition, Sub-Clause 21.5 mirrors Sub-Clause 20.5 of the Red Book 1999, save that the time period for amicable settlement is reduced from 56 days to 28 days.

Arbitration

• If a dispute has not been resolved by the DAB / DAAB and has not settled amicably, it is to be decided by arbitration in accordance with the ICC Rules of Arbitration.
• If either party fails to comply with a DAB / DAAB decision, the other party may refer the failure directly to arbitration pursuant to Sub-Clause 20.7 Red Book 1999 / Sub-Clause 21.7 Red Book 2017.
• Under the Red Book 1999, parties are generally not entitled (save for limited circumstances) to skip the DAB / DAAB process in favour of arbitration.^[3] However, under the Red Book 2017, there are four direct routes to arbitration as set out below:
  1. Where a Notice of Dissatisfaction has been issued in accordance with Sub-Clause 3.7.5;
  2. Where the other party has failed to comply with a final and binding Engineer's Determination;
  3. Where the other party has failed to comply with a decision of the DAAB; or
  4. Where there is no DAAB in place.

Whilst noting that the FIDIC forms do not provide any guidance as to a direct route to arbitration, some commentators recommend amending the Particular Conditions of Red Book 2017 such that in the first three instances noted at points 1 – 3 above, the Expedited Rules in Appendix VI of the ICC Arbitration Rules 2021 apply regardless of the amount in dispute.^[4] These expedited rules provide for a fast-track arbitration procedure, with the appointment of a sole arbitrator rendering a final award within 6 months. This could prove a particularly helpful recommendation where the DAB / DAAB process is often, in practice, a mini arbitration with a decision rendered that is binding but not final.

Golden Principle 5 ("GP5")

FIDIC's commitment to dispute avoidance is affirmed in the fifth of FIDIC's Golden Principles, five principles which FIDIC considers inviolable and sacrosanct. GP 5 states:

"Unless there is a conflict with the governing law of the Contract, all formal disputes must be referred to a Dispute Avoidance/Adjudication Board (or a Dispute Adjudication Board, if applicable) for a provisionally binding decision as a condition precedent to arbitration."

FIDIC strongly recommends that FIDIC users abide by the Five Golden Principles, and considers the following non-compliant with GP5:

• Deleting all the clauses that refer to the DAB / DAAB; and
• Preventing the Engineer's determinations from being referred to a DAB / DAAB.

The Golden Principles are not incorporated in the contracts and are merely statements of intent. They do not affect the validity of the contract but operate in such a way that, if not violated, the contract will be recognisable as a FIDIC contract.

Dispute avoidance under the 2017 FIDIC Contracts

As noted above, the 2017 Forms provide an 'avoidance of dispute' procedure pursuant to Sub-Clause 21.3. Parties may jointly request that the DAAB provides assistance and / or informally discusses and attempts to resolve any issue or disagreement between the parties with the parties present. The process is voluntary, and the parties must agree to request assistance from the DAAB. The DAAB's recommendation or advice is not binding, and the parties are at liberty to proceed with referring the matter formally to dispute resolution, notwithstanding any advice or recommendation given by the DAAB.

Concluding remarks

Dispute resolution provisions under the FIDIC Forms can be complex and the requirements are extensive with strict time limits for submitting a claim and a decision being rendered. However, parties can take comfort in the multi-tiered approach to dispute resolution under the FIDIC forms, in particular the interim binding nature of DAB / DAAB's decisions. The paying party must 'pay now, argue later'.

Nevertheless, parties should carefully consider the dispute resolution clauses from the start of a project at the tender stage. Parties invariably proceed in the belief that disputes will not arise and, if they do arise, they will resolve them as and when necessary. However, considering the requirements for submitting a claim for determination by the Engineer and the various time bars, parties ought to give due regard to the dispute resolution provisions. Deficiencies or a lack of understanding about these provisions can lead to delays in the resolution of disputes or increased costs for the parties.

If you have any questions about this article, please contact Mike Stewart, Mary Lindsay, or Adain Bailey.

Footnotes:

[1] Sub-Clause 20.1 Red Book 1999 envisages the Contractor issuing notice of its claim. By contrast, Sub-Clause 20.2.1 Red Book 2017 refers to 'the claiming Party' denoting the ability for either the Employer / Contractor giving notice of its claim for payment (Contractor) / reduction in the Contract Sum (Employer) or an extension of time (Contractor) / extension of the Defects Notification Period (Employer).
[2] A Dispute under Red Book 2017 is a situation where one party has made a Claim or there is a matter to be agreed / determined, the Engineer's determination under Sub-Clause 3.7.2 Red Book 2017 was a rejection of the Claim or a party's assertions and either party has given a Notice of Dissatisfaction under Sub-Clause 3.7.5.
[3] Under the Red Book 1999, where a party fails to comply with a tier in the FIDIC dispute resolution process, the innocent party may refer that failure directly to arbitration without the need to satisfy any pre-arbitral conditions. Further, parties are allowed to skip the DAB procedure if the DAB is not in place when the dispute arises.
[4] See Seppälä, C R. "Proposal for Enforcement of Agreements of the Parties, Final and Binding Determinations of the Engineer and Decisions of the DAAB under FIDIC's 2017 Rainbow Suite (as amended in 2022)" [2024] ICLR 107.