– Informal translation –

Mr. I.A.F. Hendriksen & ir. P.G.A. de Bruijn1 Articles

FIDIC 2017: the revised dispute resolution procedure
BR 2018/48 “The claiming Party shall give a Notice to the Engineer,
describing the event or circumstance giving rise to the
1. Introduction cost, loss, delay or extension of [Defects Notification
Period] for which the Claim is made as soon as
The FIDIC model contracts contain a fast-track dispute practicable, and no later than 28 days after the
resolution procedure in which the parties may ask one or claiming Party became aware, or should have become
three independent experts, the Dispute Adjudication aware, of the event or circumstance (the “Notice of
Board (DAB), for a binding decision. If a party disagrees Claim” in these Conditions).”
with the DAB’s decision, arbitration proceedings can then
commence. If the Notice of Claim is not sent within said period of 28
An important advantage of a DAB is that disputes days, in principle the claiming party’s right to lodge the
between the Employer and the Contractor can be Claim will lapse and the other party will be discharged
adjudicated quickly by the DAB. This is in the interest of from liability in respect of the event or circumstance
both the Employer and the Contractor. giving rise to the Claim.
In December 2017, the Fédération Internationale des In YB 1999, this 28-day expiration term only applied to
Ingénieurs-Conseils (FIDIC) issued new versions of its claims by the Contractor for additional payment or an
most commonly used model contracts, namely FIDIC extension of time for completion. This expiration term
Yellow Book (Plant and Design-Build), Red Book was made reciprocal in YB 2017: under YB 2017,
2
(Construction) and Silver Book (EPC/Turnkey). Employers are also required to send a Notice of Claim for
One of the striking changes in the new model contracts is Claims for additional payment or an extension of the
the dispute resolution procedure. This clause discusses Defects Notification Period and should now be aware
the revised dispute resolution procedure as included in that they may lose their rights if they fail to submit such
the 2017 FIDIC Yellow Book (“YB 2017”) compared to the Claims in time.
1999 FIDIC Yellow Book (“YB 1999”). For example, this Following the Notice of Claim, the claiming party must
5
clause discusses the dispute resolution procedure, the submit a fully detailed Claim. In any event, this fully
Engineer’s changing role, the updated function of the detailed Claim must contain a statement of the
DAB and the binding force of the DAB’s decisions. contractual and/or legal basis of the Claim (the
“Statement”). If this Statement is not submitted within
2. Deadlines and expiration terms in the dispute 84 days after the claiming party became aware or should
resolution procedure have been aware of the event or circumstance giving rise
to the Claim, the Notice of Claim will be deemed to have
The first striking change to the dispute resolution lapsed. In principle, this period of 84 days is thus also an
procedure in YB 2017 is the distinction between Claims expiration term.
6
3
and Disputes ; this distinction was not expressly made in However, YB 2017 contains a possibility for the claiming
YB 1999. party to submit reasons that could justify a submission of
If a party believes it has a Claim, that party must send a the Notice of Claim after the deadline. For example: the
Notice of Claim to the other party within 28 days after it other party is not prejudiced by the tardy submission of
became aware or should have been aware of the event the Notice of Claim or Statement, or the other party was
4
or circumstance that resulted in the Claim: already aware of the event or circumstance that led to
the Claim or Statement. This provision opens the door to
exceptions to the foregoing expiration terms, but also
1
Iris Hendriksen is a lawyer at Stibbe N.V. in Amsterdam and Pieter de leads to uncertainty for the parties. After all, it is unclear
Bruijn is contract manager at Ballast Nedam International Projects in whether and on the basis of what reasons the Engineer
Nieuwegein and Ballast Nedam Industriebouw in Rotterdam Botlek.
2
Based on the FIDIC Yellow Book, the Contractor is responsible for the
design and the execution of the work. Conversely, in the FIDIC Red Claims by the Employer). Other Claims by the parties are subject to the
Book the Contractor is responsible for the execution of the work and firm deadlines in Clause 20.2 YN 2017.
5
the Employer is responsible for the design. In the FIDIC Silver Book, the If the event or circumstance giving to the Claim persists, the claiming
Contractor bears full responsibility for the design and execution of the party must submit fully detailed Claims each month until the event or
project. At the end of the project, the Contractor hands over the work circumstance giving to the Claim has ended (Clause 20.2 YB 2017).
6
“turnkey” to the Employer. See Clause 20.2.4 YB 2017. In respect of both the Notice of Claim and
3
The definitions of Claim and Dispute are included in Clauses 1.1.5 and the Statement, the Engineer must indicate within 14 days of receipt
1.1.29, respectively, in YB 2017. thereof whether it was submitted tardily, absent which the Notice of
4
See Clause 20.2.1 YB 2017. This obligation applies to Claims related to Claim or the Statement will be deemed to have been submitted in time.
additional payments, an extension of time for completion (for Claims by If the other party believes that this is not the case, that party must
the Contractor) or an extension of the defects notification period (for inform the Engineer accordingly (Clauses 20.2.2 and 20.2.4 YB 2017).

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Articles FIDIC 2017: THE REVISED DISPUTE RESOLUTION PROCEDURE

will agree to a tardy submission of the Notice of Claim or the Statement.

YB 2017 prescribes that after the claiming party has for example regarding whether or not an oral hearing will
9
issued the fully detailed Claim, the Engineer must first be held or whether a site visit will be conducted. If a
consult with the parties jointly or separately in order to party disagrees with the DAAB’s decision, an expiration
reach an amicable settlement (Notice of Agreement). If term must again be observed: this party must send a
the parties do not reach an amicable settlement, the NOD within 28 days. As evidenced by the foregoing, the
Engineer will prepare a fair assessment of the Claim, new dispute resolution procedure contains a highly
taking the relevant circumstances into account, and then detailed description of the procedure that the parties
7
notify the parties (Notice of Determination). must follow in the event of a Claim or Dispute. As a
If a party does not agree with the Engineer’s assessment, result, the revised procedure has become more complex,
this party may send a Notice of Dissatisfaction (“NOD”). longer and less flexible, not only because of the many
The NOD must be sent within 28 days after receipt of the deadlines or expiration terms, but also the various steps
Notice of determination, which is again an expiration the parties must take before they are allowed to submit
term. For this situation, however, YB 2017 does not a Dispute to the DAAB. The entire procedure will have to
contain a possibility to submit reasons that could justify a be completed for every Claim and the parties must duly
tardy submission. YB 2017 provides that, if a NOD is not observe all time limits in order to not lose their rights. In
submitted in time, the Engineer’s assessment will be particular in the case of complex projects in which,
deemed to have been accepted by the parties and this where appropriate, many changes to the specifications
will be final and binding between the parties. After are implemented, this revised procedure will lead to a lot
receipt of a NOD, there is a Dispute between the parties of paperwork. In addition, in the case of small/smaller
and the parties may submit the Dispute to the Dispute projects, the question is whether the parties can even
Avoidance/Adjudication Board (“DAAB”). The DAAB was afford to deploy additional (administrative) personnel in
introduced in the FIDIC in 2017. Not only can the parties order to be able to comply with these contractual
submit a Dispute to the DAAB, they may also request obligations.
informal advice regarding other issues (see paragraph 4 In addition, there is the question of whether the revised
below). Pursuant to YB 2017, a Dispute must be dispute resolution procedure still offers the parties
submitted to the DAAB within 42 days after the dispatch sufficient possibilities for quickly settling a dispute.
or receipt of the NOD, absent which the Engineer’s Whereas in YB 1999, in principle the parties could have a
assessment will be final and binding between the parties. DAB decision after 126 days, in YB 2017 this period
Again, this is an expiration term. The DAAB will assess would take a maximum of 322 days. In our opinion, there
8
the Dispute and give a decision. is no longer a fast-track resolution of disputes. See
In that respect, the DAAB has broad authority to figures 1 and 2 for the deadlines and expiration terms
determine the structure of the procedure, that apply in principle under YB 1999 and YB 2017,

respectively.

7
See Clauses 3.7.1 and 3.7.2 YB 2017.
8
In principle, the DAAB will give its decision within a period of 84 days
9
after the Dispute has been submitted to the DAAB (Clause 21.4.3 YB See rule 5.1 of the Annex (Procedural Rules) to the General Conditions
2017). of Dispute Avoidance/Adjudication Agreement) in YB 2017.
FIDIC 2017: THE REVISED DISPUTE RESOLUTION PROCEDURE Articles

14
with due observance of the relevant circumstances.
3. The Engineer’s changing role This provision may conflict with the Engineer’s role as the
Employer’s representative. After all, the Engineer must
The Engineer was originally intended to act as an give a fair assessment, but a fair assessment may, under
10
independent party with decision-making authority. The certain circumstances, be at odds with the interests of
Engineer’s impartiality was first expressly included in the the Employer that the Engineer represents. In addition,
11
FIDIC model contracts in 1987. Although the Engineer the Engineer has a dependent role, as he was appointed
worked on the instructions of the Employer and was also and is paid by the Employer.
paid by the Employer, the Engineer had to act as an In order to satisfy the need for a fast and independent
independent party with the authority to take decisions adjudication of disputes, the DAB was introduced in the
regarding parties’ claims. FIDIC in 1999. Upon the commencement of the project,
After the appearance of the model contracts in 1987, the DAB is jointly appointed by the Employer and the
there was a growing discussion regarding whether Contractor and comprises one or three members. The
Engineers are able to act impartially when assessing DAB is also paid by both parties. If a party disagrees with
parties’ claims if they are appointed on the instructions the Engineer’s assessment, a Dispute may be submitted
of the Employer, are paid by the Employer and are thus to the DAB. It will hand down a decision regarding the
12
in a dependent position. dispute in a relatively short period (see figure 1 above).
In YB 1999, the provision that the Engineer must be The impartial nature of the Engineer was once again
impartial has been removed and it has been made clear expressly included in YB 2017. The Engineer is still
that the Engineer is acting as a representative of the deemed to act for the Employer (“the Engineer (...) shall
Employer: 15
be deemed to act for the Employer“) , but it was
“(…) whenever carrying out duties or exercising included in respect of the assessment by the Engineer
authority, specified in or implied by the Contract, the that he “shall act neutrally between the Parties and shall
16
Engineer shall be deemed to act for the Employer”.
13 not be deemed to act for the Employer”. The Engineer
is thus deemed to act on behalf of the Employer, for
However, in his assessment, the Engineer must make a example in the case of an inspection of the Work, giving
fair determination in accordance with the contract and instructions to the Contractor that are necessary for the
performance of the Work or the assessment of
documents provided by the Contractor. Conversely,
10
when assessing Claims, the Engineer is required to act
The initial FIDIC model contracts were largely based on the ICE
(Institution of Civil Engineering) that was frequently used in England
neutrally. As a result, the Engineer actually has a dualistic
starting in 1945 for the reconstruction of the country. position. As the Engineer is also appointed and paid by
11
Clause 2.6 Red Book 1987 reads as follows: “Whenever (…) the the Employer in YB 2017, the Engineer has a dependent
Engineer is required to exercise his discretion by: (a) giving his decision, role, which creates the semblance of partiality.
opinion or consent, (b) expressing his satisfaction or approval, (c)
Expectations are that there will again be a discussion
determining value, or (d) otherwise taking action which may affect the
rights and obligations of the Employer or the Contractor he shall regarding the Engineer’s role.
exercise such discretion impartially within the terms of the Contract.”
12
See Will Hughes, ‘EIC/FIDIC Questionnaire Survey: The use of the
FIDIC Red Book’, 5 June 1996, page 9. In 1995, the World Bank took the
FIDIC as the starting point for its standard documents for the tendering
of works with a value of more than USD 10 million, but replaced the
14
Engineer as the adjudicator of disputes with an independent dispute Clause 3.5 YB 1999.
15
review board (“DRB”). Clause 3.2 YB 2017.
13 16
Clause 3.1(a) YB 1999. Clause 3.7 YB 2017.

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Articles FIDIC 2017: THE REVISED DISPUTE RESOLUTION PROCEDURE

The question arises as to whether the Engineer’s role as In practice, however, Employers often “delete” the role
impartial assessor of Claims has added value in the of the DAB/DAAB from the FIDIC’s dispute resolution
contract. After all, the DAB already acts as the procedure. In that event, if they disagree with the
independent adjudicator of disputes. This is even more Engineer’s assessment, the parties may immediately
so the case, as the DAB was also given a new function in commence arbitration proceedings for the adjudication
YB 2017, namely giving informal advice before there is a of the Dispute. The disadvantage of this is that
Dispute between the parties. The DAB was therefore arbitration proceedings, just like court proceedings, take
given the name Dispute Avoidance/Adjudication Board a lot of time (generally more than a year). And this, while
(DAAB) in YB 2017. Moreover, if the parties do not in principle, a DAB/DAAB appointed upon the
include the Engineer’s “independent” role in the commencement of a project must give a decision within
assessment of Claims in the contract, this will save 154 84 days after the Dispute is submitted to it.
17
days. The parties also sometimes choose to not appoint the
DAB/DAAB until a Dispute has arisen (instead of upon the
4. The revamped Dispute Avoidance / commencement of a project). This results in a delay,
Adjudication Board among other things because the parties must as yet
The primary object of the DAAB is giving fast decisions in reach consensus on the appointment of the members of
the event of a Dispute between the parties. The DAAB is the DAB/DAAB and the DAB/DAAB must then familiarise
appointed for the duration of the contract upon the itself with the file. Because of this delay, the most
commencement of the project, as a result of which important advantage of the DAB/DAAB proceedings
parties may submit a Dispute to the DAAB in the short compared to arbitration, a fast-track settlement of
term. After all, the parties do not have to first reach disputes, lapses.
consensus regarding the members of the DAAB in the 5. Binding force of a DAAB decision
event of a Dispute. In addition, the DAAB is involved in
the project during the project. For example, the DAAB YB 1999 states that the DAB decision is binding between
will, on a regular basis and at the request of a party, be the parties and that they must immediately execute it
present during consultations between the parties or visit unless and until the DAB’s decision is revised by an
18
the site. The DAAB is therefore able to give a decision amical settlement between the parties or an arbitral
20
on a Dispute in the short term. award. If one of the parties sends a NOD, the DAB is
21
Such a fast adjudication of disputes is beneficial for both provisionally binding between the parties. If neither of
parties. Contractors have an interest in a positive cash the parties sent a NOD in response to the DAB decision in
flow. In the event of a dispute regarding the time, the decision will become final and binding.
compensation of additional costs of the Contractor, for The interpretation of this provision was recently the
example as a result of changes to the specifications, the subject of a dispute before the Preliminary Relief Judge
Contractor may continue its work on the basis of a of the Court of First Instance of Curaçao and
favourable decision by the DAAB without having to subsequently also in proceedings on the merits before
finance it itself. It is in the Employer’s interest that the the Court of First Instance of Curaçao between the same
22
construction process is disrupted as little as possible parties. The reason for the dispute was a decision by
because of the fast adjudication of disputes, and any the DAB with which the employer did not comply. The
delay and additional costs as a result of said disputes are employer took the position that it was not required to
limited. As explained above, based on YB 2017, the DAAB comply with the DAB decision because it had sent a NOD
may not only be engaged for a binding recommendation and proceedings had meanwhile been instituted before
if there is a Dispute between the parties. The parties may the competent court. In preliminary relief proceedings
also jointly request informal advice from the DAAB and later also in the proceedings on the merits, the
regarding issues prior to a Dispute (including a Claim contractor sought compliance with the DAB decision until
submitted by one of the parties) in order to prevent a
Dispute between the parties. For example, if the parties
20
have a different interpretation of a provision, the parties See Clause 20.4 YB 1999: “The decision shall be binding on both
may jointly ask the DAAB to discuss this with the parties Parties, who shall promptly give effect to it unless and until it shall be
19 revised in an amicable settlement or an arbitral award (…).”
and to lend assistance. 21
Also see: FIDIC Guidance Memorandum to Users of the 1999
Conditions of Contract, 1 April 2013: “This Guidance Memorandum is
designed to make explicit the intentions of FIDIC in relation to the
enforcement of the DAB decisions that are binding and not yet final,
17
See figure 2 in this clause. which is that in the case of failure to comply with these decisions, the
18 failure itself should be capable of being referred to arbitration under
Unless agreed otherwise between the parties and the DAAB, there
are at least 70 and a maximum of 140 days between every consultation Sub-Clause 20.6 (…).”
22
with the DAAB. See rule 3 of the Annex (Procedural Rules) to the Court of First Instance of Curaçao 30 November 2017,
General Conditions of Dispute Avoidance/Adjudication Agreement. ECLI:NL:OGEAC:2017:182, legal finding 4.7 and Court of First Instance of
19
See Clause 21.3 YB 2017. Curaçao 7 May 2018, ECLI:NL:OGEAC:2018:79, legal finding 4.4.

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FIDIC 2017: THE REVISED DISPUTE RESOLUTION PROCEDURE Articles
and in so far as the ordinary court gave a different other party does not comply with a DAAB decision was
decision. It was ruled in both the preliminary relief included. In addition, the Contractor has the possibility of
proceedings and the proceedings on the merits that the suspending its work if the Employer fails to comply with
contractual provision cannot be construed any way other the DAAB decision. These possibilities also apply if the
than that the decision of the DAB had to be complied DAAB decision is provisionally binding.
with immediately as long as the judgment would not be
6. Conclusion
revised by means of an amicable settlement or by means
of a judgment by the ordinary court. According to the YB 2017 contains various clarifications in the dispute
court in the aforementioned proceedings on the merits, resolution procedure compared to the provisions in YB
the fact that the contract provides that the decision 1999. Firstly, the dispute resolution procedure has been
becomes final and binding if neither of the parties send a formalised: a precise description is given of what steps
NOD in time, does not detract from the foregoing (in must be taken in the event of a Claim or a Dispute
other words, that the decision of the DAB must be between the parties and within which
complied with immediately). Moreover, according to the deadlines/expiration terms. In addition, the deadline for
court in the aforementioned proceedings on the merits, submitting a Claim has been made reciprocal in YB 2017,
this interpretation is in line with the purpose of the as a result of which the Employer is also bound by this.
dispute resolution procedure, namely that a relatively However, there is also a downside to these new
fast decision can be obtained on the dispute between the deadlines/expiration terms. The procedure has become
employer and the contractor, so that the progress of the significantly longer and less flexible compared to the
project would not be impeded, following which each of dispute resolution procedure in YB 1999. The question is
the parties has the possibility of having the dispute on to what extent the revised dispute resolution procedure
the merits assessed by the ordinary court as yet. still accommodates the need for quick dispute resolution
The aforementioned judgments of the Court of First as a result, which is the main object of the DAB/DAAB
Instance of Curaçao concur with other judgments in and the main distinction compared to arbitration. The
which it was also held that if a NOD has been sent and parties may not submit a dispute to the DAAB before all
proceedings have meanwhile been instituted, in principle the steps of the dispute resolution procedure have been
the DAB decision must be complied with by the parties taken. A long dispute resolution procedure may be
immediately.
23 problematic for the Contractor’s cash flow, especially in
relatively small projects with a short completion time.
In this respect, a number of clarifications were included Another disadvantage is that the dispute resolution
in YB 2017. For example, it was specifically agreed that procedure has become more complex as a result of the
the parties must immediately comply with a DAAB formalisation. After all, the entire procedure must be
decision, even if a party has sent a NOD with regard to followed for every Claim (including all specification
24
said decision: changes and contract variations). If a party does not send
“The decision shall be binding on both Parties, who a particular notification or certain document in time, in
shall promptly comply with it whether or not a Party principle the rights of that party lapse. The procedure
gives a NOD with respect to such decision under this entails additional administrative costs which the parties
Sub-Clause.” may not always be able to afford.
In addition, more so than the 1999 version, YB 2017
After a NOD has been sent, the DAAB decision is seems to contain a double counting, as both the Engineer
provisionally binding between the parties. If a NOD is not and the DAAB are deemed to comment neutrally and as
sent in a timely fashion, the DAAB decision is final and independent experts on Claims and Disputes. As the role
binding. If a party fails to comply with the DAAB’s of independent expert has shifted over the years from
decision (both decisions that are binding and final and the Engineer to the DAB/DAAB, the question is whether
binding), then the other party may immediately an independent Engineer still has added value. One may
25
commence arbitration proceedings. Incidentally, this also wonder whether the Engineer can act as a neutral
does not diminish the other rights of that party. Also, the party, as the Engineer (i) is in a dependent position
possibility that the contract may be terminated if the because he is appointed and paid by the Employer and
(ii) is deemed to act for the Employer and thus promotes
23
Also see: ICC Case No. 10619, 2001 (Italian contractor/African the interests of the Employer when performing various
employer); and South Gauteng High Court, Johannesburg 3 May 2013, tasks.
Tubular Holdings (Pty) Ltd/DBT Technologies (Pty) Ltd (06757/2013)
In our opinion, it would be an improvement if there is a
[2013] ZAGPJHC 155; 2014 (1) SA 244 (GSJ).
24
See Clause 21.4.3 YB 2017. These changes are in line with Clauses clear distinction between the role of the Engineer and
20.6 and 20.9 of FIDIC Gold Book 2008, based on which a DAB decision the role of the DAB/DAAB: the Engineer acts as
is binding and the parties must immediately comply “notwithstanding representative of the Employer and the DAB/DAAB
that a Party gives a notice of Dissatisfaction with such a decision”, and assesses Claims by and Disputes between the parties.
that a party may institute arbitration proceedings if the other party fails
to comply with “any decision of the DAB, whether binding or final and Not only does this clarify the Engineer’s role, it could also
binding”. considerably reduce the duration of the dispute
25
If the decision is not yet final and binding, then the claiming party resolution procedure.
may request preliminary relief in arbitral preliminary relief proceedings
(Clause 21.7 YB 2017).
300 Afl. 7 – juli 2018 BR 2018/48