Dispute Avoidance Under FIDIC Standards

For a long time, the International Federation of Consulting Engineers (FIDIC ) has been at the center of encouraging best practices in the construction and engineering project management lifecycle. One of the guiding proverbs within FIDIC is that disputes must be avoided as much as possible, and issues should be settled early in order to foster engagements for further in the project lifecycle. This not only facilitates project execution but also ensures formal disputes, which require extensive periods of time and costs, are avoided.

Introduction

Disputes in any form are bound to happen during the lifecycle of any construction project. This is, however, not the case with FIDIC due to the fact that there is a multi-level conflict identification and a systematic approach to conflict resolve process within a given baseline set of procedures. One of the aspects of this approach is setting up Dispute Avoidance and Adjudication Boards (DAABs). With a proactive stance to conflict engagement within construction, DAABs enable FIDIC to ensure that the momentum of a project is sustained through solving problems swiftly.

Types of Disputes in Construction Projects

In order to foster efficient dispute avoidance plans, understanding where the source of conflict stems from is crucial. Below are the main types of disputes that are usually encountered in projects that are executed under FIDIC contracts:

Quality of Work

Definition: Conflicts related to materials in use or the achieved quality and standard of workmanship.

Common Causes:

• Use of materials whether substandard or unauthorised.
• Unapproved deviations from the specifications.
• Skill-based errors due to insufficient supervision or training.

Example:

The employer rejects executed concrete works after quality testing fails. The contractor argues that the works comply with the approved method statement. This may result in rework, delays, or claims.

Avoidance Tip: Establish effective quality assurance/ quality control (QA/QC) procedures and employ independent auditors as needed.

Payment Disputes

Definition: Conflicts related to the value, timing, and legitimacy of the payments claimed.

Common Causes:

• Value of payment applications not assessed correctly for interim payments. Delay in employer’s Engineer’s endorsement.
• Contested claims for variations or retention of contested funds.

Example:

A contractor submits an interim payment application including variations. The Engineer certifies only part of the amount. The contractor contest for the difference which puts the project in liquidity concers and risks mobilization at the site.

Avoidance Tip: Ensure timely and effective measurement and agreeing on values and use available technology to capture adjustments in real time.

Health and Safety breaches

Definition: Disputes related to health and safety issues causing an incident while working on site.

Common Causes:

• Lack of adherence to national or internal company policies concerning safety measures.
• Inadequate site safety procedures or dangerous working conditions.
• Post-incident disputes over who bears the blame.

Fictional Case:

An injury occurs in the course of the work on account of inadequate measures to prevent workers from falling from a height. Investigative reporting show discrepancies in terms of safety measures – the principal contractor and the subcontractor both seem to have obligations to provide safety measures that cut across one another. The outcome from the legal battle which comes with reputation risk will not only be costly.

Avoidance Tip: Allocating safety risks entails measures which, if neglected, will force monitoring of workers so as to enable surveillance, routine checks encourage compliance.

 

Board for Dispute Avoidance and Adjudication (DAAB)

 

The Red, Yellow, and Silver books of the FIDIC 2017 editions, which mandate the appointment of a DAAB to offer advisory services and arbitrate disputes claiming both preventative and curative approaches to resolving issues, are now required with the start of the work.

The goal of DAAB

The main purpose of the DAAB is to:

1. Avoidance of Conflict

Proactive Monitoring: Through site visits, document reviews, and stakeholder meetings, DAAB members routinely assess the status of the project and any problems that may arise.

Open Dialogue: To prevent misunderstandings or possible claims, they encourage communication between the engineer, contractor, and employer.

Early Warnings: They promote remedial action prior to escalation by spotting conflict warning indicators early on (such as inconsistent interpretations, delays, and variations).

For instance, the DAAB observed recurring delays in design approvals for a major infrastructure project. The DAAB mediated talks prior to the contractor submitting an official claim, leading to a design submission protocol that was agreed upon and avoided a formal dispute.

2. Resolution of Disputes

Binding Decisions: The DAAB makes decisions that are legally binding (unless and until they are changed in arbitration) in accordance with Subclause 21.4 of the 2017 FIDIC contracts.

Condition Precedent: The DAAB is a gatekeeper for formal dispute escalation, as required by Subclause 21.6, which requires parties to submit disputes to the DAAB prior to arbitration.

For instance, a contractor challenged the engineer’s decision to deny an extension of time (EOT). The DAAB heard the case and found in favor of the contractor. The project was able to proceed uninterrupted by this legally binding decision.

The role and function of DAAB

Beyond formal dispute resolution, the duties of the DAAB include the following:

1. Early Intervention

DAAB members visit the site on a regular basis, usually every three to six months.

In order to comprehend progress, recognize risks, and support early-stage solutions, they interact with the project team.

2. Professional Advice

The majority of DAAB members are seasoned professionals with the ability to interpret both technical and legal issues, such as engineers, quantity surveyors, and attorneys.

Their non-binding opinions can lessen controversial issues and help to clear up ambiguities.

3. Making Decisions Without Prejudice

The DAAB ensures a prompt and equitable resolution by rendering a decision within 84 days (or another contractually agreed period) of a formal dispute being referred.

Both parties’ submissions, rebuttals, and occasionally hearings are all part of the process.

📌 Actual Case Example (from the FIDIC and Kozarda archives): The contractor filed several variation claims for a desalination plant project in the Middle East. Eighty percent of the claims were settled without formal adjudication thanks to an informal workshop that the DAAB facilitated to align on valuation principles.

The significance of DAAB

FIDIC-governed projects benefit greatly from the DAAB in a number of ways:

1. Economy of Cost

Early dispute resolution lowers administrative and legal expenses.

On big projects, avoiding arbitration or litigation can save hundreds of thousands, if not millions.

📌 For instance, Aceris Law claims that using DAAB procedures to avoid arbitration can result in cost savings of more than 70%.

2. Saving Time

In contrast to months or years in arbitration, a DAAB decision normally takes 84 days.

This prevents expensive delays or work suspensions and keeps the project on schedule.

3. Maintenance of Relationships

Relationships between parties are kept from deteriorating through collaborative problem solving.

The DAAB’s impartial stance promotes cooperation and respect for one another.

📌 As an illustration, the DAAB’s intervention on a European rail project preserved a joint venture that later won bids by preventing a legal dispute between the contractor and the national rail authority.

Important Takeaways:

Enforceability of DAAB Decisions: Each jurisdiction has different rules regarding the enforceability of DAAB decisions. While some nations enforce these rulings, others might encounter difficulties because their legal systems only acknowledge final awards.

Independent Appointment: The credibility of the dispute resolution process depends on the independence of engineers and dispute board members. The efficacy of DAABs may be compromised by imposing preferred individuals.

Proactive Dispute Avoidance: To stop disputes from getting worse, early intervention and proactive dispute avoidance techniques—like frequent site visits and open communication—are crucial.

Sector-Wide Adoption: The growing awareness of DAABs’ effectiveness in resolving disputes is demonstrated by their increasing use in a variety of sectors, as demonstrated in India.

Examples from the Real World

 

1. PT Perusahaan Gas Negara (PGN) v. CRW Joint Operation in Indonesia

Background: After a Dispute Board (DB) ruling, CRW Joint Operation (CRW JO) filed a claim against PT Perusahaan Gas Negara (PGN) in a landmark case in Indonesia, demanding immediate payment. The enforcement of a binding but non-final DB decision was at the center of the dispute.

Result: After over five years, the case was resolved, underscoring the difficulties in implementing legally binding but non-final DB decisions. In order to provide clarification on the enforcement of such rulings in future contracts, FIDIC issued a guidance memorandum as a result of this case.

2. Infrastructure Projects in Pakistan Under the FIDIC Regime

Background: About 85% of infrastructure development projects in Pakistan follow the FIDIC regime, which is supported by the Constructors Association of Pakistan. Arbitration is the last step in the FIDIC dispute resolution process, which is usually used to settle disputes in these projects.

Challenges: Despite the formal framework, disagreements frequently turn to arbitration because of things like:

Lack of independence results from government departments imposing preferred engineers and dispute board members.

failure to establish dispute boards in accordance with FIDIC guidelines, thereby compromising the process’s legitimacy.

Implication: In order to guarantee successful dispute avoidance and resolution, these difficulties highlight how crucial it is to follow FIDIC’s rules.

3. Tubular Holdings v. DBT Technologies, South Africa

Background: Tubular Holdings (Pty) Ltd contested a Dispute Board ruling in a case before South African courts (DBT Technologies). The court upheld the DB decision, focusing on the contract’s intent and stressing the parties’ duty to promptly implement DB decisions.

Result: As long as the parties haven’t sent a notice of dissatisfaction within the allotted time, the court’s decision upheld the enforceability of DB decisions, even if they are binding but not final.

FIDIC’s Multi-Tier Dispute Resolution Process

A structured multi-tier dispute resolution mechanism is outlined in FIDIC contracts, particularly the 2017 editions, and is intended to settle disputes quickly and logically through a series of escalating steps. Before proceeding to the following, more formal step, each tier provides chances for resolution.

Tier 1: Casual Conversations

Before starting any official procedures, parties are encouraged to settle disagreements directly through discussion or negotiation. This is in line with Clause 20.2 (in the 2017 edition) or Subclause 3.5 (in the 1999 edition), which allow the parties or the engineer to attempt to come to a mutually agreeable conclusion.

Goal:

Reduce the level of hostility.

Collaborative problem-solving can save money and time.

Example: Unexpected ground conditions that impact foundation work are encountered by a contractor. The contractor meets with the engineer and the employer’s representative rather than filing a formal claim. They decide to modify the construction schedule and divide expenses equitably. The problem has been fixed without getting worse.

✅ Outcome: No official claim was filed, and construction continues unhindered.

Tier 2: The Will of the Engineer

In the event that informal discussions are unsuccessful, the matter is referred to the Engineer, who has 42 days to provide a fair determination. This must be done before proceeding with the dispute chain.

Subclauses 3.5 (1999) and 20.2.5 (2017) are important clauses.

The engineer’s duties include:

Examine the stances of both sides.

Be impartial and self-sufficient.

Make a well-reasoned decision.

For instance, a disagreement emerges over who is entitled to a time extension because of exceptionally high rainfall. After examining site documentation, rainfall data, and the terms of the contract, the engineer concludes that the contractor is eligible for a 15-day extension.

✅ Outcome: Without DAAB intervention, the EOT is granted after the parties accept the decision.

DAAB (Dispute Avoidance and Adjudication Board) is Tier 3. Making a decision

The disagreement may be formally referred to the DAAB if either party is unhappy with the Engineer’s decision. Unless otherwise agreed, the DAAB renders a binding (but not final) decision within 84 days.

Subclause 21.4 (2017 FIDIC) is a crucial clause.

Range:

There may be hearings.

All arguments and supporting documentation may be submitted in writing by the parties.

Until arbitration overturns it, the decision is final.

For instance, a contractor contests a variation valuation. The contractor refers the case to the DAAB after the Engineer makes an inadequate decision. The DAAB renders a decision granting additional payment and instructing the employer to make payment within 28 days following the review of evidence and hearing of arguments.

✅ Outcome: The employer conforms. Arbitration is not required; the dispute has been settled.

Level 4: Arbitration

The dispute may be submitted to international arbitration under the ICC or UNCITRAL rules if either party files a Notice of Dissatisfaction (NoD) with the DAAB ruling and it is still not settled amicably after 28 days.

Subclause 21.6 (2017 FIDIC) is a crucial clause.

Qualities:

final result that is legally binding.

usually only employed when earlier systems are ineffective.

Expensive and time-consuming — final option.

For instance, the contractor filed a NoD after receiving an unfavorable DAAB decision in a highway project in the Balkans. An attempt at a peaceful resolution was unsuccessful. In Geneva, arbitration was conducted in accordance with ICC regulations. The arbitral tribunal changed the DAAB’s ruling in favor of the contractor in its final award, which was issued after 14 months.

Result: The disagreement has been settled. But it was expensive and time-consuming for both sides.

The Golden Principles of FIDIC

In order to guarantee that contracts based on its forms maintain the spirit, fairness, and balance intended in their standard versions, FIDIC (Fédération Internationale Des Ingénieurs-Conseils) introduced the Golden Principles in 2019. These five principles serve as non-negotiable contractual values that direct equitable and efficient project delivery; they are not merely best practices.

1. Fairness and Good Faith

Definition: In all of their interactions, parties must act honestly, fairly, and in good faith; they cannot try to take advantage of any gaps or weaknesses.

Why It Is Important

fosters confidence between the contractor and the employer.

stops opportunistic behavior.

guarantees the fair and moral fulfillment of commitments.

Example: Early in the building process, a contractor finds a design flaw. The contractor alerts the engineer right away rather than moving forward with construction on the basis of a defective design and then claiming extra expenses. In addition to protecting the employer from expensive rework, this promotes goodwill.

2. Openness

Definition: All pertinent stakeholders should have clear documentation and open access to project information, decisions, valuations, and claims.

Why It Is Important

lessens mistrust or disagreements over information and choices.

enables precise tracking of problems and progress.

increases trust in the impartiality of decisions.

For instance, a contractor files a claim for variation. In order to prevent the claim from getting worse, the employer openly shares their internal cost assessments, and the engineer’s evaluation is given with complete justification.

3. Fairness

Definition: All contract administrators, particularly the DAAB and the Engineer, are required to act impartially, serving the contract rather than any particular party.

Why It Is Important

maintains equity in evaluations.

ensures that in conflicts, all parties are treated equally.

keeps faith in the process of resolving disputes.

For instance, despite being an employer employee, the engineer exhibits professional independence by siding with the contractor in an EOT dispute based on factual records.

4. Responsibility

Definition: Under the terms of the contract, each party is accountable for their choices, actions, and non-performance.

Why It Is Important

lessens the culture of blame.

encourages communication that is solution-focused.

promotes proactive risk control.

Example: A milestone is delayed due to subcontractors’ subpar work. Instead of shifting responsibility, the principal contractor admits the delay, informs the engineer, and suggests an updated timeline.

5. Avoiding Conflict

Definition: Before considering arbitration or litigation, contracts should give priority to the early resolution of issues through a standing DAAB.

Why It Is Important

lowers adversarial costs and maintains projects on schedule.

respects the FIDIC contracts’ procedural framework.

promotes continuous communication even in the midst of disagreements.

For instance, on a dam project, the DAAB saves time and money by resolving seven out of ten payment disputes before any claims proceed to arbitration.

Benefits and Drawbacks of FIDIC’s Dispute Avoidance Method

Benefits

1. Proactive Issue Resolution

Benefit: Problems are found and fixed before they get out of hand.

Example: Communication breakdowns between site teams are identified early on during routine DAAB site visits. A process modification that prevents further claims is mediated by the DAAB.

2. Efficiency in Time and Cost

Benefit: Resolving disputes without litigation or arbitration saves money and prevents protracted delays.

For instance, projects that used DAABs saw up to 60% lower legal costs than those that went to arbitration, according to Kesikli Law Firm (Turkey).

3. Improved Cooperation

Benefit: Transparency and teamwork are enhanced by organized communication and issue tracking.

A cooperative DAAB workshop, for instance, assists in amicably resolving performance bond disputes in a North African renewable energy project, preserving the contractor’s commitment to subsequent stages.

Drawbacks:

1. Expenses at first

Challenge: Depending on travel, expert fees, and administration, setting up a standing DAAB can cost tens of thousands of dollars (USD) annually.

For instance, a small public works project may decide that the expense of a DAAB is excessive given its scope and instead choose ad hoc solutions, potentially forfeiting the advantages of early dispute resolution.

2. Reliance on Collaboration

Problem: The system depends on participants’ willingness to participate. The process may fail if one party is combative or disobedient.

Example: The contractor is forced into arbitration when the employer disregards the DAAB’s interim ruling. This raises tension and compromises the DAAB’s efficacy.

3. Possible Decision-Making Delays

Challenge: If DAAB decisions are not handled rigorously, they may be delayed, especially for large, multi-jurisdictional projects.

Example: A dispute involving several national laws and stakeholders in a cross-border highway PPP project results in lengthy hearings and a delay in the delivery of the DAAB decision.

Future Directions for FIDIC Contract Dispute Avoidance

FIDIC’s dispute avoidance strategy is evolving to address new issues as international infrastructure and construction projects change. The following patterns show where dispute avoidance in international contracts is likely to go in the future:

1. Integration of Digital

Trend: Using digital platforms to handle conflicts more effectively.

Important Developments:

Virtual DAAB hearings: Made possible by video conferencing platforms such as Zoom or Microsoft Teams, these hearings are especially pertinent in the wake of COVID-19.

Document management systems are safe web-based platforms for exchanging agreements, lawsuits, letters, and supporting documentation.

Building Information Modeling (BIM) and Digital Twins: Using BIM to reduce conflicts through collaborative planning and real-time visualization.

Example: Due to travel restrictions, DAAB meetings and hearings for a cross-border solar park project during the pandemic were conducted entirely online, enabling prompt resolution of variation disputes.

Benefit: Reduces expenses, delays, and enhances accessibility for international teams.

2. Adjudicators’ Education and Certification

Trend: There is an increasing need for qualified, accredited DAAB members.

Important Developments:

Programs for FIDIC Certified Adjudicators: Offer thorough instruction in the legal and technical facets of FIDIC contracts.

CPD Requirements: Adjudicators are expected to engage in ongoing professional development.

National Registers: A number of nations, including the UK and India, are creating national databases of qualified dispute board members.

Benefit: Increases decision consistency and credibility, fostering greater faith in the dispute avoidance procedure.

3. Internationalization of Dispute Avoidance Techniques

Trend: A move toward globally standardized DAAB process standards.

Important Developments:

To develop model clauses, FIDIC works with regional development banks (such as the World Bank and ADB).

growing usage of the FIDIC Green Book 2021 (for short-form contracts) and FIDIC Emerald Book (for underground works) with integrated DAAB mechanisms.

For instance, standard DAAB clauses are now frequently included as a funding requirement in infrastructure projects in Sub-Saharan Africa that are funded by the World Bank.

Benefit: Assures predictability and equity across cultures and jurisdictions.

The Economic Argument for Avoiding Disputes: The Cost of Risks

Although there is an initial cost associated with putting dispute avoidance systems like DAABs into place, there is a significant long-term return on investment (ROI):

1. The initial expenses consist of:

Fees for DAAB members (per-meeting fees plus monthly retainer).

administrative assistance (logistics, document management).

Sessions of onboarding and training for all parties involved.

Typical Range: Depending on the project’s size and complexity, between £25,000 and £150,000 annually.

2. Costs Avoided:

Legal Fees: For medium-sized disputes, arbitration can cost more than £500,000.

Project Delays: Penalty payments or lost productivity can amount to thousands of dollars for each day of delay.

Reputational Damage: Stakeholder confidence and future bids may be impacted by ongoing legal or public disputes.

For instance, DAAB intervention prevented arbitration on four significant claims (totaling €3.6M) in a PPP highway project in Eastern Europe; the estimated legal savings alone were over €800,000.

3. Final Thoughts:

Proactive dispute resolution is expensive, but the risk of doing nothing is much greater. The benefits of FIDIC’s strategy include cost savings, reputational protection, and continuity.

Limitations and Difficulties of FIDIC Dispute Avoidance

FIDIC’s dispute avoidance procedures have drawbacks despite their benefits:

Disparities in Culture

Problem: Different regions have different approaches to early dispute resolution.

For instance:

Even in formal DAAB forums, direct confrontation is culturally discouraged in some Middle Eastern or Asian contexts.

Instead of being cooperative, parties might see DAAB as invasive.

Solution: Localized dispute resolution procedures and cultural awareness training can help.

 Allocation of Resources

Problem: Skilled personnel and administrative assistance are necessary for effective dispute avoidance.

For instance:

Setting up DAABs may be avoided by small or underfunded projects, which could result in expensive escalations and delayed resolutions.

Effectiveness may be lowered by a lack of internal knowledge in handling claims or analyzing DAAB results.

Solution: This gap can be closed by using digital support tools, hiring outside experts, and increasing capacity.

Dispute Adjudication Boards’ (DABs’) function in early dispute resolution

DABs are set up to make prompt decisions on disputes with the goal of resolving problems before they get out of hand.

Live Example: The contractor in the Lonerock Construction v. SANRAL case was involved in disagreements regarding payments and penalties for delays. Prolonged legal disputes resulted from the lack of a functional DAB. Journals of CICES

Solution: Make sure the DAB is established at the beginning of the project and runs efficiently all the way through.

Impact: By proactively utilizing DABs, disputes can be considerably shorter in duration and less expensive, promoting a cooperative project environment.

DAB Decision Enforcement in Jurisdictions Without Statutory Frameworks

Description: DAB rulings might not be immediately enforceable in some nations, necessitating further legal action.

Real-World Example: DAB rulings in Nigeria do not take effect on their own. In order to enforce these rulings, contractors must start arbitration.

Solution: To make it easier to enforce DAB rulings, parties should include explicit arbitration clauses in their contracts.

Impact: Even in jurisdictions without specific regulations, effective and timely dispute resolution is ensured by clear enforcement mechanisms.

The Significance of Condition Precedent Clauses

Condition precedent clauses, which require parties to fulfill specific obligations before pursuing claims, are frequently included in FIDIC contracts.

Live Example: Nigerian courts have emphasized the significance of compliance by upholding the enforceability of condition precedent clauses.

Solution: In order to protect their rights, contractors must closely follow notification and procedural requirements.

Impact: Strict adherence to these provisions can guarantee more efficient dispute resolution procedures and stop claims from being forfeited.

Artificial Intelligence (AI) Integrated into Dispute Avoidance

Project data can be analyzed by AI to forecast possible conflicts and recommend mitigation strategies.

Real-World Example: In an effort to improve dispute avoidance tactics, FIDIC and EY have partnered to investigate AI applications in construction projects.

Solution: Use AI-powered technologies to monitor and analyze project data in real time.

Impact: By enabling prompt interventions, early detection of possible problems lowers the possibility of conflicts.

The Function of Collaborative Contracting in Dispute Resolution

Using a collaborative approach encourages open communication and cooperative problem-solving between project participants.

Real-World Example: The collaborative contract framework established by FIDIC promotes cooperation between parties with the goal of averting conflicts by means of mutual comprehension.

Solution: To encourage cooperation and openness, include collaborative contracting principles in project agreements.

Impact: Improved cooperation reduces the likelihood of conflict and creates a more peaceful workplace.

Electronic Resources for Claims Administration

Digital platforms have the potential to improve accuracy and efficiency by streamlining the claims management process.

Real-World Example: Automating construction payments and claims procedures has shown promise when smart contract-based systems are implemented.

Solution: Use digital tools that make it easier to track and manage payments and claims in real time.

Impact: Automation speeds up and improves the accuracy of dispute resolution by lowering administrative workloads and error-proneness.

Project Team Training and Capacity Building

Project teams are better able to handle and steer clear of conflicts when they are familiar with the terms of the FIDIC contract.

Real-World Example: Project teams’ comprehension and compliance have improved as a result of the implementation of FIDIC contract training programs in different regions.

The answer is to fund frequent workshops and training sessions for all project participants.

Impact: Proactive dispute avoidance results from well-trained teams’ increased ability to spot possible problems early.

Proper Record-Keeping and Documentation

Keeping thorough records guarantees that all decisions and actions are adequately documented, which facilitates the settlement of disputes.

Real-World Example: Thorough documentation was essential to successfully resolving conflicts in the Tarbela 5 Hydropower Project.

Solution: Put in place reliable documentation systems and make sure they are updated frequently.

Impact: Precise documentation can be used as proof in court cases and offers a strong basis for settling conflicts.

The FIDIC dispute avoidance framework is a thorough, proactive approach that combines explicit procedural structures intended to settle disputes quickly and fairly with proactive tools like Dispute Avoidance and Adjudication Boards. The cost, time, and disruption usually connected with formal disputes are decreased by FIDIC’s multi-tier dispute resolution process, which includes informal discussions, an engineer’s determination, DAAB adjudication, and arbitration as a last resort. Good faith, transparency, impartiality, accountability, and dispute avoidance are the Five Golden Rules of this approach, which guarantee moral conduct and fair decision-making. Despite the system’s many advantages, which include greater collaboration, cost savings, and quicker resolutions, some drawbacks include cultural resistance, enforceability problems, and the requirement for ongoing funding. recent developments in global standardization, adjudicator certification, and digital integration.

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