Dispute avoidance and adjudication board under the new FIDIC contract conditions (2017)
The new FIDIC contract conditions place greater emphasis on alternative dispute resolution. This approach is reflected in the increased role of dispute avoidance and adjudication boards.
The clauses of the FIDIC terms on both claims and dispute adjudication boards have been expanded and amended so extensively that in the new edition (2017) it was decided to create a new Clause 21 [Disputes and Arbitration], separate from the previous Clause 20 [Claims, Disputes, and Arbitration]. Clause 20 now only covers contractor and employer claims.
What does this change mean? Above all, the difference is that a standing committee has been provided for in all contract conditions (the Red, Yellow, and Silver books) as a basic rule. Under Sub-clause 21.1, the board should be appointed within 28 days of the contractor receiving approval, and conclude its activities as of the date of release from obligations under Sub-clause 14.12 or 28 days from the date when the board gives its decision on all disputes (whichever occurs later).
The other important change is the emphasis on the board not only resolving disputes, but also alleviating them and bringing them to conclusion as soon as possible. To this end, the name of the board has been changed. Instead of the old “Dispute Adjudication Board,” the new FIDIC contract conditions use the term “Dispute Avoidance and Adjudication Board.”
In light of the change of the nature of this board, it has been given additional powers. Under Sub-clause 21.3, the board can “provide assistance and/or informally discuss and attempt to resolve any issue or disagreement that may have arisen … during the performance of the Contract.” Under the contract conditions, this assistance will probably resemble mediation, and be informal. For this reason, resorting to Sub-clause 21.3 will not be a prerequisite for raising a claim or referring a dispute to the board. Any agreement reached between the parties with the assistance of the board will not be binding.
The additional powers granted to the board and the fact that it is now a standing body means that the former General Conditions of Dispute Adjudication Agreement and the Procedural Rules, which were appendices to the contract conditions, have now been expanded. Among other things, a requirement has been added for regular visits to be made to the construction site by the DAAB—no more than every 70 days and no less than every 140 days (rule 3.3 of the new Procedural Rules). This requirement will probably affect the cost of maintaining the board, but nevertheless the regular presence of members of the board at the project site and regular contact with the parties to the contract could alleviate any disputes that may arise and reduce the costs of the parties to the contract in the long run.
As regards the other major changes, Sub-clause 21.4.1 of the contract conditions [Reference of a Dispute to the DAAB] provides for a time limit of 42 days from submission of the Notice of Dissatisfaction with the determination by the contract engineer, for commencement of proceedings before the board. Previously, a dispute could be referred to the board at any time following submission of the Notice of Dissatisfaction (for example 100 days later).
Another amendment to Sub-clause 21.4.1 is that it now states that “the reference of a Dispute to the DAAB under this Sub-Clause shall, unless prohibited by law, be deemed to interrupt the running of any applicable statute of limitation or prescription period.” This interesting solution will probably not be applicable under Polish law because the catalogue of actions interrupting the running of the limitations period in Civil Code Art. 123 §1 is closed. It does seem possible, however, for this part of Sub-clause 21.4.1 to cause the interruption of recommended time limits or time limits stipulated expressly in the contract.
The new contract conditions also regulate or deal more precisely with issues relating to enforceability of the DAAB’s decisions. In the case of a dispute over payment, Sub-clause 21.4.3 states that payment awarded by the DAAB must be made to the other party promptly regardless of whether the decision is final or whether arbitration is ongoing (or could still be brought). Nevertheless, to protect the unsuccessful party, the board will be able to order at the same time that the beneficiary of the decision establish security in case the arbitration award overturns the board’s decision. This solution is envisaged for “justified cases,” such as situations where the successful party is facing insolvency and in the event of defeat in arbitration it is unlikely that it will be able to return the money received earlier.
In Sub-clause 21.4.3 [Board Decision], the FIDIC contract conditions also state (which might previously have been cause for doubt on the part of the parties to a contract) that even a non-final decision by the board is binding: “the decision shall be binding on both Parties, who shall promptly comply with it whether or not a Party gives a Notice of Dissatisfaction with respect to such decision under this Sub-Clause.” Under the new contract conditions, failure to comply with a binding decision or a binding and final decision given by the DAAB can be referred to arbitration to force compliance with the decision (under Sub-clause 21.7).
These changes to the FIDIC contract conditions involving dispute resolution are far-reaching and could bring about more efficient dispute management (provided the parties are willing). In view of the number of changes, it will be interesting to observe how dispute resolution practice evolves in light of the new FIDIC contract conditions—and to participate in developing that practice.
Natalia Rutkowska, legal adviser, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners
