Dispute resolution under FIDIC contracts

One of the reasons that FIDIC terms are so popular for construction contracts is the well-developed set of dispute resolution procedures.

Implementing infrastructure projects is by its nature a complicated undertaking in both technical and legal terms, involving a significant commitment of time and money. Disputes over contract performance often arise between the investor and the contractor during the course of project implementation. If a dispute arises between the investor and the contractor while carrying out a project using the terms from FIDIC (the International Federation of Consulting Engineers)—whether the Conditions of Contract for Construction (known as the “Red Book”) or for Plant and Design-Build (the “Yellow Book”)—standard dispute resolution procedures will be available.

Provisions concerning “Claims, disputes and arbitration” are set forth in section 20 of the Red Book and the Yellow Book. Under this section, the parties to a dispute may seek a resolution from the Contract Engineer, the Dispute Adjudication Board, or, as a last resort, arbitration under international rules. Ultimately, the dispute resolution procedure is always under the control of the parties, who may adapt the procedure to suit their needs under the Particular Conditions of the contract.

Under clause 20.1 of the General Conditions, claims are submitted first to the Contract Engineer, as a sort of “first instance,” and he has 42 days to uphold or reject the claim, providing a detailed justification for the decision. In practice, when the Contract Engineer is experienced and trusted by the parties, a dispute may be often be resolved immediately, on-site.

If the dispute cannot be resolved by the Contract Engineer, it will then pass to the Dispute Adjudication Board, which is appointed jointly by the investor and the contractor and contains one or three members. If the parties decide on a three-member panel, each party appoints one member, who must be accepted by the other party. Then, in consultation with the first two members, the parties jointly appoint a third member, who chairs the Dispute Adjudication Board. It is possible to limit the panel to persons included in a list of potential members drawn up as an appendix to the contract at the time it is signed. The investor and the contractor also decide whether Dispute Adjudication Board should act as a standing panel for the duration of the contract, or ad hoc.

The Dispute Adjudication Board, which provides a sort of appellate review of decisions by the Contract Engineer, may also serve as a panel to which the parties may submit disputes directly, bypassing the Contract Engineer. Under clause 20.4, the board generally has 84 days to rule on a dispute, but it may propose a different deadline for the parties’ approval.

The decision of the Dispute Adjudication Board is binding, and the parties are required to comply with it promptly, unless it is modified through a conciliation procedure or by an arbitration award. A party has 28 days to reject the decision by notifying the other party. If the decision is accepted, it becomes final.

If a party is unsatisfied with the decision, the parties should attempt to resolve the issue amicably. If that fails, the dispute should then be resolved by arbitration, which, under clause 20.6, is conducted under the Rules of Arbitration of the International Chamber of Commerce by a panel of three arbitrators, in the language determined by the parties. Nonetheless, the parties are free to provide, in the Particular Conditions, that disputes should be decided by the state court instead of arbitration.

Infrastructure, Transport & Public Procurement (PPP) practice, Wardyński & Partners