ADB

FIDIC Training

8-10 June 2004

Manila
 FIDIC
Contracts for Construction Works

and
Dispute Resolution Mechanisms
in Project Administration

Gwyn Owen
BSc MSc CEng FICE FConsE FCIArb
Chartered Arbitrator, Adjudicator, Mediator
www.gwynowen.com
 Contents
 Introduction  Plant & Materials
 FIDIC Documents  Commencement
 Risk  Delays
 Procurement  Taking Over
 Strategy  Measurement
 First 100 days  Guarantees
 Responsibilities  Claims
 Nominated s/c  Short Form
 Staff & labour  Disputes
 FIDIC
AN INTRODUCTION
 Founded in 1913
 Expanded in 1945 to include 40 national
associations
 Published first Conditions of Contract in
1957
 In 2004 has 64 member associations
 Headquarters in Switzerland
 Web Site : www.fidic.org
 FIDIC
AN INTRODUCTION

 Pre 1957 – no internationally

recognised contract conditions
 First “red book” based on UK ICE
conditions
 FIDIC has international committees
to improve contracts
 FIDIC Documents
 Old “rainbow books” needed revision
 Changes within International Projects &
Contracting
 Standardisation
 Clauses to meet current practice
 Update “Engineer”
 Introduce “Disputes Adjudication Board”
 Contract Documents 1999
 Conditions of Contract for
Construction (Red Book)
 Conditions of Contract for Plant &
Design Build (Yellow Book)
 Conditions of Contract for EPC
Turnkey Projects (Silver Book)
 Short Form of Contracts (Green
Book)
 FIDIC Contracts
What’s Changed?
 Simple Language
• 20 Clauses & 163 Sub Clauses
 Engineer instead of Employer’s
Representative Cl.1.1.2.4
 Employer's Claims Cl.2.5
 Contractor’s Claims Cl.20.1
 Value Engineering Cl.13.2
 QUALITY & PROCEDURES:
• Cl.4.9, 4.18, 6.7, 8.3, 13.2 & 13.3
 FIDIC Document Format

 Acknowledgements
 Foreword & Charts
 General Conditions
 DAB Conditions
 Guidance Notes
 Forms of Agreement
 Appendix to Tender
 FIDIC Document Usage
Conditions of Contract for
Construction
 Works designed by Employer or
Engineer
 Contractor Constructs in accordance
with designs provided
 May include some design elements
 FIDIC Document Usage
Conditions of Contract for
Plant & Design Build

 Electrical & Mechanical Plant

 May include building and engineering
 Design & Execution of works
 Contractor designs and constructs in
accordance with Employer’s Requirements
 Engineer Administers
 Plant & Design Build

 General Comments:
• Contractor will economise
• Employer will supervise
• No good for Employer Variations
• Good for Lump Sum
• Design Savings
• Employer responsible for ER errors
• Risk Shared
 FIDIC Document Usage
Conditions of Contract for
EPC/Turnkey Projects

 Process or Power Plant

 Infrastructure Projects
 High Degree of Certainty
 Contractor has total responsibility for
Design & Execution
 Administered by Employer
 EPC/Turnkey

 General Comments
• Not suitable when:
 No time to tender
 Much underground works
 If Employer wishes to supervise
 If payments need to be administered
 FIDIC Document Usage
Short Form of Contract

 Small capital value projects

 Simple content
 Contractor constructs to Employer’s
designs
 No “Particular Conditions”
 No “Impartial” Engineer
 FIDIC Document Usage
COMMUNICATIONS

 Cl.1.3:
• Approvals, Certificates, Consents,
Determinations, Notices, Requests
 In Writing
 Delivered
 Not be unreasonably withheld or
delayed
 Copies
RISK
ALLOCATION OF RISK
Scope / Cost of Change
 CONTRACTUAL RISKS

 All contracts contain risks

 FIDIC allocates responsibilities
 Key Requirement:
o Understand General Conditions
o Understand Particular Conditions
o Set out responsibilities
 RISK OVERVIEW
 Contractual Risk Overview:
o Strategy
o Identify
o Evaluate
o Mitigate
o Plan Response
o Report
o Management
o Close out review
CLAIMS RISKS LOCAL LAWS

 Incorporate provisions of local laws

into Particular Conditions
 FIDIC Guidance Notes give general
advice
 Complex task
 CONTRACTUAL RISKS
 Cl.1.5 Priority of Documents
 Employer’s Documents have priority
 Care in Prequalification PDB & EPCT – note that
Financial Risk for design with Contractor but
resolution will be in favour of Employer
 “Contract Agreement” is high priority –
Commencement Date binding under Cl.1.1.3.2 &
8.1
 Cl.3.3 PDB & Cons empower Engineer to make
Decisions – EPC no such authority
FIDIC RELATIONSHIPS
 CONTRACTUAL RISKS

 Cl.1.9 Drawings  Cl.8.4 Adverse

 Cl.2.1 Site Climatic Conditions
 Cl.4.7 Setting Out  Cl.13.7 Legislation
 Cl.4.12  Cl.13.8 Changes in
Unforeseeable Cost
 Cl.4.24 Fossils  Cl.14.8 Delayed
 Cl.7.4 Testing payments
 Cl.19.4 Force
 Cl.8.4 EoT
Majeure
 Contract Selection
Basic Principles – Red Book

 Design by Employer
 Works to be Re-Measured
 Employer appoints Engineer
 Engineer can vary the works – but
not change the Contract
 Engineer’s “Determinations” Cl.3.5
 DAB appointed within 28 days
 Contract Selection
Basic Principles – Red Book

 Additional Documents – Cl.1.5

Priority
 Importance of Particular Conditions
• PCC priority over GC
• PCC provides all relevant conditions and
Law
• Contradictions between documents
 BoQ – re-measured works
 Contract Selection
Basic Principles – Yellow Book

 Employers Requirements
 Contractor Designs & Builds
 ER errors – Employer’s risk
 Fixed sum contract
 Administered by Engineer
 Variations by Engineer
 Cl.5 & 12 differ from Red Book
PROCUREMENT
 PROCUREMENT PROCEDURE

 Establish Strategy
 Procurement method
 Form of Tender
 Time Schedules
 Prequalify
 Invitation
 Documents
 Analysis
 Selection
 Notify
 PROCUREMENT PROCEDURE
 Prepare tender Documents
 Issue
 Site Visit
 Questions
 Submission & Opening
 Adjudication
 PROCUREMENT PROCEDURE

 Award Contract
 Issue Letter of Acceptance
 Performance Security
 Contract Agreement
 Notify unsuccessful tenderers
 PROJECT STRATEGY
Definitions
 General Provisions Cl.1
• Definitions of words
• Persons include corporations & other
legal entities
• Letter of Acceptance
• Employer’s Requirements (YB)
• Goods – Contractor
 Cl.1.3
 PROJECT STRATEGY
Definitions

 Cl.1.4 Law & Language

• Compatibility
 Cl.1.9
• Delays to drawings (RB)
• Errors to ER (YB)
• Confidentiality (SB)
 PROJECT STRATEGY
Project Control Issues

 Cl.1.9 Delay to details

 Cl.2.4 Finance Details
 Cl.2.5 Employers Claims
 Cl.3.3 Instructions by Engineer
 Cl.4.1 Method Statement
 Cl.4.21 Reporting
 Cl.8.3 Programme
 PROJECT STRATEGY
Project Control Issues

 Cl.12.1 Measurement
 Cl.13 Variations & Value Engineering
 Cl.14 Payments
• Planning
• Funding & Budget
• Disbursement approval
 Cl.18 Insurances
 Cl.20 Contractor’s Claims / Records
 FIDIC -
THE FIRST 100 DAYS

AN INTRODUCTION
The First Hundred Days of a New
FIDIC contract

 Pre Award Phase

 Award to Commencement Date
 Commencement Date to CD + 28
Days
THE FIRST 100 DAYS
 Pre Award Check List
General

 Document negotiated changes

 Prioritise and sign changes – Cl 1.5
 Agree terms of insurances – Cl 18.2
 Agree DAB membership
 Confirm communication and
addresses – Cl 1.3
 Pre Award Checklist
Engineer’s Duties & Authority

 Employer names Engineer

 Employer’s constraints on Engineer’s
Authority – Cl 3.1
 Delegation of Engineer’s Authority to
Resident Engineer – Cl 3.2
 Engineer’s Determination – Cl 3.5
 Pre Award Checklist
Employer’s Risks

 Right of Access - Cl 2.1

 Provision of Specifications – Cl 1.8
 Supply of Drawings – Cl 1.9
 Award to Commencement Date
 Formal Letter of Acceptance signed –
Cl 1.1.1.3
 Contract Agreement - Cl 1.1.1.2, 1.6
 Date on which the Contract becomes
legally binding
 Instruction of Commencement Date
– Engineer Cl 8.1 – 7 days notice
 Time for Completion – Cl 1.1.3.3
 Award to Commencement Date
Check List
Contractor’s obligations

 Performance Security – Cl 4.2

 Consent for sub-contractors
 Commencement of sub-contract wks
 Compliance with applicable laws, etc
prior to Commencement
 Award to Commencement Date
Check List
Employer’s obligations

 Obtaining planning, zoning etc

permits for the Permanent Works –
Cl 1.13
 Ensuring that the Contractor will
have right of access to and
possession of all parts of the Site
 Commencement Date to + 28
Employer’s Actions

 Right of access & possession – Cl 2.1

 Ensuring Employer’s personnel are
aware of responsibilities – Cl 2.3
 Preparing evidence of Employer’s
financial arrangements – Cl 2.4
 Provision of copies of the Contract
and Drawings Cl 1.8 & 1.9
 Commencement Date to + 28
Engineer’s Responsibilities

 Advising Contractor of Engineer’s

Authority and Delegations – Cl 3.2
 Ensuring assistants are suitably
qualified
 Providing reference survey points,
lines and necessary data – Cl 4.7
 Commencement Date to + 28
Contractor’s Responsibilities

 General obligations – adequacy,

stability & safety – Cl 4.1
 Provide Performance Security prior to
access to Site – Cl 4.2
 Submit name of Contractor’s
Representative for consent – Cl 4.3
 Commencement Date to + 28
Contractor’s Responsibilities

 Give notice of any delegation of CR’s

responsibilities
 Obtain consent for sub-contractors
not named in Contract – Cl 4.4
 Give notice of commencement of
sub-contract work
 Commencement Date to + 28
Contractor’s Responsibilities

 Provide details of suppliers not

named in Contract (see Cl 4.16)
 Make objections to any Nominated
Sub-contractors who the Contractor
does not wish to employ
 Submit detailed time programme
within 28 days of receipt of the
notice to commence – Cl 8.3
 Commencement Date to + 28
Contractor’s Responsibilities

 Give notice of probable future events

or circumstances which may increase
price or delay completion
 Confirm working hours – Cl 6.5
 Site health & safety facilities – Cl 6.7
 Appoint Accident Prevention Officer
RESPONSIBILITIES
 Responsibilities
Employer
 Cl.2
• Provides Access to the Site
 (not access & other areas – Cl.14.15 & 14.23)
• Assists Contractor with Permits
• Financial Arrangements
 See Variations & Cl.16.1 Suspension (strike out??)
• Notice of Claims
 Appoints the Engineer Cl.3.1
 Responsibilities
Employer
 Cl.14.7 make Payments !!
 Cl.20.2 appointment of DAB
members
 Responsibilities
Engineer
 Exercises stated authority
 Employer’s Approval – PC
 When he exercises specific authority
deemed to have Employer’s approval
 Acts for Employer
• Cl.3.5 – “Fair Determination”
 Responsibilities
Engineer
 Cl.3
• Employer undertakes not to impose
further constraints (Breach of Contract)
• No authority to amend contract
• Acts for Employer
• No authority to relieve the parties of
duties or obligations etc.
 Responsibilities
Engineer
 Cl.3
• Delegation – except Cl.3.5
• Instructions in writing
 Oral – confirmation by contractor – written
• Employer instructions to Engineer
• Determination
 Consult – agreement – fair determination
 Give notice
 Give effect unless Cl.20
 Responsibilities
Engineer
 Cl.4.1 Method Statements
 Cl.8.1 Give Commencement Notice
 Cl.8.6 Rate of Progress
 Cl.12.1 Measurement
 Cl.13.1 Variations
 Cl.14.6 Interim Payment Certificates
 Cl.20.1 Records / Determination
 Responsibilities
Contractor
 Cl.4
• Execute & Complete the Works
 Cl.8.1 due expedition & without delay
 Adequacy & safety
 Method Statement
 Fit for purpose
• Performance Bond
• Engineer’s Approval of Representative
• May delegate
• Fluent in language
• Sub Contractor approval
 Responsibilities
Contractor
 Setting Out to lines & levels of
Engineer
 Quality Assurance
• Details in Specification
• Procedures
• Compliance documents
 Responsibilities
Contractor
 Site data
• Costs included
• Risk
• Inspections
• All relevant data – obligation
• Care in Tender – failure to provide
 Sufficiency of Contract Amount
 Responsibilities
Contractor
 Unforeseeable Physical Conditions
• Excludes climatic conditions
 Cl.8.4 & 17.3h
• Extension of time
• Payment of cost
 (see Cl.1.1.4.3 includes off site)
• No profit
 (as a general rule not included where risk is
not the fault of either party)
 Responsibilities
Contractor
 Transport to site
 Protection of the Environment
• Emissions
• Surface discharges
• Effluent
• Local Law
 Responsibilities
Contractor
 Progress Report
 Monthly – 6 copies
• See also (Cl.4.9 procedures) and:
• Cl. 6.7 Accident Records
• Cl. 6.10 Personnel
• Cl.14.3 Application for payment
• Cl.20.1 Contemporary records
 Responsibilities
Contractor
 Progress Report:
• Charts
• Photographs
• Manufacturing report
• Personnel
• QA documents
• Claims Cl.2.5 & 20.1
• Safety statistics
• Progress
 Responsibilities
Contractor
 Security
 Staff & Labour
• Facilities / Health & Safety
 Tests on Completion Cl.9.1
 Value Engineering Cl.13.3
 Application for Payment Cl.14.3
 Contemporary records Cl.20.1
 Nominated
Subcontractors
 Clause 5
 Applies to Subcontractors and
suppliers nominated by Employer or
as instructed by the Engineer under
Cl.13
 Payment Cl.5.3
 Nominated
Subcontractors
 Grounds to object Cl.5.2
• Reasonable Objection
• Supporting details
• Lack of competence, recourses, financial
strength
• Lack of indemnity
• Lack of obligations and liability
 Staff & Labour
 Clause 6
 Engagement of Staff & Labour
• Payment, housing feeding & transport
• Cl.8.4d & 13.7
 Rates of pay & conditions
 NO Poaching !! (Cl.6.3)
 Staff & Labour
 Labour Laws (including immigration)
 Working Hours (days of rest)
 Facilities (including Employer’s
Personnel)
 Health & Safety
• Medical staff & facilities
• Accident prevention officer
• Records
 Staff & Labour
 Cl.4.3 – Contractor’s Representative
 Cl.6.8 – Superintendence (Language)
 Personnel – qualified, skilled,
experienced
 Records monthly (cl.4.9 procedures)
 PLANT
& MATERIALS
 Plant Materials
& Workmanship
 Cl.7
 Execution of works as specified
• Recognised good practice
• Proper facilities
• Non hazardous materials
 Samples
• For consent
• Labelled origin / intended use
 Plant Materials
& Workmanship
 Inspection:
• Access to locations of natural materials
• Place of manufacture
• Provide access, facilities, permissions, safety
equipment
• Give notice and provide opportunity
• Testing – may proceed after notice
• Delay claim
• Test Reports & Certificates
 Plant Materials
& Workmanship
 Rejection – Retest – costs Cl.2.5
 Remedial works
 Ownership of Plant & Materials
• Local law
• When delivered
• When contractor entitled to payment
under Cl.8.10 (suspension)
 Royalties
COMMENCEMENT
& DELAYS
Commencement, Delays
& Suspension
 Contract becomes effective when
Letter of Acceptance has been
received by Contractor
 Cl.8.1 Commencement Date
• Engineer SHALL
• Contractor SHALL
 Engineer determines the date or 42
days after the LA
 Completion

 Cl.8.2 Fundamental obligation to

complete within Time for Completion
• Includes all of Works
• Includes all tests
• See Cl.10.1
 Programme
 Programme of Works Cl.8.3
• Within 28 days
• Specific requirements of programme
• Methods of execution
• Details of personnel & equipment
 Engineer does not approve (21 days)
 Employer may rely on programme
 Programme
 Specific, Probable, Future events
 Revisions to programme
 Monthly progress charts
 Engineer may request a revised
programme
 Extension of Time
 Contractor SHALL be entitled
• Not dependant upon further decision
• If no extension then “time at large”
• Variation
• Sub Clause giving delay
• Exceptionally adverse climatic conditions
• Unforeseeable shortages personnel & goods
• Employer’s delay
 Cl.20.1
 Cl.3.5 Engineer’s Determination
 Extension of Time
 Cl.20.1 & 3.5 give time limits to
Engineer to Determine – or Cl.13
shall not be unreasonably withheld or
delayed
 Delays by authorities
 Rate of Progress
 Engineer may instruct submission of
revised programme
 Contractor to proceed with due expedition
and without delay
 Delay Damages
• Failure to complete by due date
• Delay damages
• Limit of damages
 Suspension – Engineer may instruct
TESTS, DEFECTS
& TAKING OVER
 Tests on Completion
 Cl.9
• Contractor shall give 21 days notice
• Tests carried out within 14 days of notice
• Certified report
 Delayed tests
• Employer Cl.7.4 or 10.3 apply
• Contractor to complete 21 days after notice
 Failure
• Retest
• Cl.11.4
 Taking Over Responsibilities

 Responsibilities under Financing

Agreement
• Proper use of funds
• Proper management of construction
• Final payment
 Responsibilities under the Contract:
• Before Taking Over
• After Taking Over
 Taking Over Responsibilities

 Before Taking Over:

• Take over on Completion
• Tests on Completion
• Contractor’s request for TO Certificate
 Cl.10.1 The Employer SHALL take over
when:
• Works completed
• Tests completed
• TO certificate issued
Employer’s Taking Over
 Cl.10
• TO Certificate issued when works completed and ready for
intended purpose
• Minor outstanding work may be completed after issue of
TOC
 Contractor may apply for TOC within 14 days of
Works being complete
 Sectional Completion
 Engineer may
• Issue TOC Reject application giving reasons
 Failure of Engineer to issue TOC or reject
• Within 28 days
• TOC deemed to be issued
Employer’s Taking Over

 Sectional Taking Over

• Tests
• Cost due to STO
• Delay Damages reduced after STO
Certificate issued
• Reduction in ratio of value of STO Works
• No difference to maximum damages
 Reinstatement of ground or surface
Employer’s Taking Over

 Taking Over Certificate

• Appendix listing all minor defects
• Listing all works yet to be carried out
 Contractor responsible to carry out
repairs before end of Defects
Notification Period
 Defects Liability
 Cl.11
• Provides procedures and responsibilities
under the Defects Notification Period
• Works are accepted by Engineer on the
issuance of Performance Certificate
 Defects Liability
 Works & Documents completed
• Fair wear & tear accepted
• Complete all o/s work in TOC
• Remedy defects & damage notified by the end
of the DNP
 Remedy works at Contractor’s cost
 Extension to DNP
• Max 2 years, or
• Suspension Cl.8.8 or 16.1
 Defects Liability
 Failure to Remedy
• Reasonable notice
• Carry out work himself or by others
• Contractor has no responsibility
• Reduction in Contract Price
• Recover all sums paid & costs
 Removal
• Further Tests
• Right of access
• Contractor to search
 Performance Certificate
 Performance Certificate
• Contractor’s obligations complete
• Engineer to issue
• Date
• Issue within 28 days of DNP expiry
• After submission of all documentation
• All tests complete
• All remedying works complete
 Constitutes Acceptance of Works
• Liability for fulfilment of obligations
• Removal of equipment, rubbish etc…
• Contractor may be liable for latent defects
 Measurement, Evaluation
& Variations
 This clause only applies to Red Book
 Yellow Book Cl.12 deals with tests
after completion
 Measurement by Engineer
 Standard method of measurement as
specified in schedules
 Measurement, Evaluation
& Variations
 Cl.12.3 Basis of evaluation
• Rates in contract will apply
• New rates may be determined
 Qty changed more than 10%
 Variation
 Not specified
 No appropriate rate
• Reasonable Cost & Profit
 Cl.12.4 Compensation
 Measurement, Evaluation
& Variations
 Under Yellow Book no such clauses
 Cl.13.3 Determinations
 Means of measurement may be
necessary
 Payment schedule linked to
“milestones” Cl.14.4
 Variations

 Cl.13.1 Engineer has the right to

vary
• Prior to issue of TO certificate
• List of variation inclusions
 Value Engineering Cl.13.2
• Development risk with Contractor
• Savings 50/50
 Variation Procedure

 Engineer requests proposal from

Contractor
• Contractor responds with:
 Description
 Programme
 Evaluation
• Work proceeds without delay
Variation due to Legislation

 Local law at Base Date

 Cl.20.1 claim
• Extension of time
• Payment of cost
 Contract Price
& Payment
 Considerations:
• Payment schedules
• Disbursement approval
• Particular Conditions
• Budgeting
 Funding availability
 Additional Costs / Variations
 Contract Price
& Payment
 Advance payment
• Design
• Mobilisation
• Funding facilitation
 Interim payments
• 56 days
 Final Payment
• 84 days
 Contract Price
& Payment
 Aid funding requires:
• Authority approval
• Timing
• Variations
• Routine audit checks
• Time to transfer funds
• Advance notice of change
 Contract Price
& Payment
 Cl.14 requires prompt action within
time constraints
 Finance costs will lead to claims
 Alter Cl.14 by Particular Conditions
to suit funding authority
 Contract Price
& Payment
 Financial planning:
• Check estimates & budgets
• Prepare draft payment schedules
• Update estimates & programme
• Check funding
• Cl.14.4 estimates each 90 days
 Budget Forecast

 Engineer prepares for Employer

• Regular intervals
• Updated budget
• Report of changes
 Data for report:
• Cl.2.4, 2.5, 3.5, 4.21, 8.3, 13.1, 13.3,
14.3, 13.8, 14.3, 14.6, 20.1, 20.4
 Contract Price
& Payment

 Cl.14 Contract Price

• Measured and will vary – Red Book
• Fixed Lump Sum – Yellow Book
• Fixed Lump Sum – Silver Book
• Lump Sum or Remeasure – Green Book
 Advance Payment

 Cl.14.2 Advance payment

• Interest free loan for mobilisation
 Guarantee
 Application Cl.14.3
 Performance Security – approved by
Employer
• Repayment
 Commence after when certificates >10%
 Deductions 25% of each Certificate
 Interim Payment

 Cl.14.3 Application
• 6 copies
• In a form approved (Cl.4.9)
• Cl.4.21
• List of items (a) – (g)
• Note : Cl.20 items included
 Interim Payment

 Cl.14.4 Schedule of payments:

• Payment dates not recommended
• Engineer determination Cl.3.5
• Cross guarantees
• Milestones preferred
 Interim Payment

 Cl.14.6 Issue of IPC

• Engineer determines FAIRLY
• IPC SHALL not be withheld
 Cl.14.7 Payment
• IPC paid within 56 days after Engineer
receives Statement
 Cl.14.8 Interest on late payments
 Non Payment

 Cl.16.1 Suspension
• Engineer fails to certify
• Employer does not provide Cl.2.4 details
• Non payment
• 21 days notice
 Cl.16.2 Termination
 Guarantees & Bonds

 Cl.4.2 Performance Security

 Contractor finance
• Guarantee by Employer
• No Cl.8.1 notice before Guarantee
 Cl.14.2 Advance Payment Guarantee
 Risk & Responsibility

 Cl.17.1 Basis for Indemnity

 Cl.17.2 Full responsibility for Works
& Goods until TO Certificate
 Cl.17.3 Employer’s Risks
 Cl.17.4 Compensation & Claims
 Insurance
 Cl.18
• Employer to approve insurers
• Agreed terms
• Currency
• Payments to be used to rectify loss
• Cl.18.3 – Appendix minimum amount
 Force Majeure

 Basic Principles:
• Exceptional event
• Not reasonably provided against
• Not reasonable to overcome / avoid
• Not attributable to either party
• Beyond control of affected party
 Force Majeure

 Cl.19.1 Definitions
• (i) – (iv) man made
 Cl.19.4 Consequences
• EoT
• Man made – cost
• Man made in country – cost
• Cl.19.6 Termination
 CLAIMS &
CONTRACTUAL
PROCEDURES
 CAUSES OF CLAIMS FOR
CONTRACTORS
 Unforeseeable ground conditions
 Delayed drawings
 Delayed payment
 Lack of possession of site
 Consequence of risk
 Suspension
 Force Majeure
 CONTRACTOR’S CLAIM
PROCEDURE

 Clause 20.1
o Sets out Contractor procedure
o Condition Precedent
o Not later than 28 days
o Sets out Engineer procedure
 CONTRACTOR’S CLAIM
PROCEDURE
 Contractor gives notice
o Within 28 days
 Contractor keeps contemporary records
o Engineer may monitor
o Engineer may instruct further records
 Fully detailed claim
o Supporting documents
o Within 42 days of event
 CAUSES OF CLAIMS FOR
EMPLOYERS

 Quality below Specification

 Delay in Completion Date
 Slow Rate of Progress
 Defective Materials
 Failures of Tests
 EMPLOYER’S CLAIM
PROCEDURE

 Employer gives notice

o As soon as practicable
 Contractor Receives Notice
o No obligation to respond
 Engineer proceeds with Cl.3.5
 Contractor can dispute if dissatisfied
 Engineer’s determination applied to
Certificate of Payment
 CONTEMPORARY RECORDS

 Crucial for determination of claim

 Records for any future dispute
 Contractor obliged to keep records
 Procedure for this work
 Employer & Engineer to agree
Engineer’s actions
 CONTRACTOR’S CLAIM
PROCEDURE
 Cl.20.1 continuing procedure
 After 42 days:
o Claim submission is considered interim
o Further monthly claims
o Final claim with 28 days of end of
effects
 CONTRACTOR’S CLAIM
PROCEDURE

 Engineer’s Response:
o Within 42 days of receiving claim
o Approval / Disapproval
o Detailed comments
 May ask for further details
 Proceed with Cl.3.5
 May certify interim sums
 CLAUSE 3.5 DETERMINATIONS

 Engineer makes a Determination

 Makes his own evaluation
 Shall NOT delegate Cl.3.5 authority
 CLAUSE 3.5 DETERMINATION
PROCEDURE

 Engineer shall consult both Parties

 Try to reach agreement
 Give notice with supporting
particulars
 Where no agreement then Engineer
makes a FAIR determination
 DISSATISFACTION WITH
Cl.3.5 DETERMINATION
 Dispute : Refer to Dispute
Adjudication Board
 No definition of “Dispute”
o Rejection of Determination
o No agreement with continued discussion
o One party declines to discuss
o No progress in protracted discussion
 Subsequent procedure - Clause 20.4
 FIDIC Short Form

 Recommended for projects without

problems
 Small Capital Value <$0.5M
 Simple or repetitive works
 No specialist subcontractors
 Short duration
 No Impartial Engineer
 Named Adjudicator
 FIDIC Short Form

 Increased responsibility on Employer

• Define project
• Undertake design
• Scope of works
• Supervision
• Avoid letters of intent / acceptance
• Offer & Acceptance in Appendix
 FIDIC Short Form

 Priority of documents – undefined

 No “ruling language”
 Cl.2.4 to avoid argument
• “approval” only used for Cl.4.4 & 14.2
 Cl.4.4 Performance Bond - no model
 FIDIC Short Form

 Risk & Claims

• Cl.6.1 lists all Employers Liabilities
• No bad weather claim
• EoT Cl.7.3 to avoid “time at large”
• Cl.10.3 Early Warning
 FIDIC Short Form

 Taking Over – no sectional handover

 No defined Defects period – 12mths
 Employer may vary - Cl.10
• Lump sum
• Rates
• Daywork
 FIDIC Short Form

 Contract price Cl.11

• Lump Sum
• LS with schedule of rates
• LS with BoQ
• Remeasurement with BoQ
• Cost reimbursable
 Consider valuation methods
 FIDIC Short Form

 Dispute resolution
• Amicable settlement
• Adjudication
• Dissatisfaction – 28 days
• Arbitration
Alternative Dispute
Resolution
ADR - Overview
 Alternative Dispute Resolution
ADR - Overview

 Confrontational
 Litigation
 Win – Win methods
 ADR Methods:
• Mediation
• Conciliation
• Adjudication
• Arbitration
 DISPUTE RESOLUTION
under FIDIC
 “Dispute” not defined by FIDIC
o Where 2 parties can not agree
o Where something needs to be decided
 Certificates, Determinations,
Instructions, Variations
 FIDIC encourages resolution by
agreement – Cl.3.5
 No agreement - Dispute
 Amicable Settlement
 Cl.20.5 – no definition
• 56 days
• Direct negotiation
• Conciliation
• Mediation
• Do not involve the DAB
• Consensual
• No obligation – costs ??
 Mediation
 No facility in FIDIC contracts
 Consensual procedure
 Confidential
 Very successful
 Short time frame
 Low cost
 Involve decision makers
 ENGINEERS DECISION

 Red & Yellow Books provide for an

alternative to the DAB
 Engineer’s Decision
 Delete Cl.20.2 & 20.3 make
substitute wording
 Impartiality, Independence ??
 ADJUDICATION
 Encourage the resolution of disputes
 Statutory / non statutory
 Provides a decision in a short time
 Binding
• Give effect
• May be changed by amicable settlement
• May be changed by arbitration
 Contractually enforceable
 ARBITRATION
 Clause 20.6
 Final settlement – ICC
 3 arbitrators
 Language
 Open up & review
 No limits to evidence
 DAB Decision shall be admitted
 ICC ARBITRATION
 Place to be agreed in Particular
Conditions
 Each party nominates 1 arbitrator
and chairman selected or agreed
 ICC court will formally appoint
 ICC fee scales & administration costs
 ICC rules govern initial referral then
arbitrators set the procedure
 ARBITRATOR’S AWARD

 Final & Binding

 1958 New York Convention for
enforcement of awards
 Dispute Adjudication Board

 Rules set out in Red and Yellow

books
 Ad hoc – rules apply to the resolution
of a referred dispute only
 1 or 3 person board
 Independent & Impartial
 Decisions or advice & opinion
 ADVANTAGES OF THE DAB
 Resolves disputes in 84 days
 Lower costs than Arbitration or Litigation
 Impartiality
 Real time assessment
 Improves standards
 Provides clarity
 Diffuses problems (win – win)
 Encourages competitiveness in tenders
 DISPUTE ADJUDICATION
BOARD
 Functions:
o Become Familiar
o Visit the site
o Keep up to date
o Encourage resolution of issues
o When a dispute is referred:
o Act Fairly & Impartially
o Convene a hearing
o Deliberate
o Prepare a Decision
o Avoid unnecessary delay or expense
FORMATION OF DAB
 FORMATION OF DAB
RELEVANT DOCUMENTATION

 Cl. 20.2 & 20.3

 General Conditions of DAA
o Red Book - full term
o Yellow Book – ad-hoc
o Interchangeable
 Dispute Adjudication Agreement
 Tripartite Agreement
 General Conditions of DAA

 Employer decides (at tender stage)

o What type of DAB
o How many members
o Period to agree selection
o Third party nominator
 List of candidates in tender ??
 Employer to be ready to nominate
 Formation of DAB
 Cl.20.2 Formation
• 1 or 3 members
• Each party nominates one member
• Parties consult members and agree a
chairman
• List of potential members in tender
 No Agreement
• FIDIC President will nominate
• Due consultation with parties
 DAB OBLIGATIONS
 Act Fairly
 Act Impartially
 Give parties a reasonable
opportunity to pout their case &
respond
 Adopt procedures:
o Avoid unnecessary delay
o Avoid unnecessary expense
 DAB MEMBERS’

QUALITIES
o Experience o Qualifications
o Contract Knowledge o Availability
o Language o Impartiality
o DR Experience o Independence
o Procedural Knowledge o Lawyers
 WARRANTIES & OBLIGATIONS
 General Conditions Cl.3 & 4
 Warranties:
o Experienced in Work
o Experienced in Documentation
o Fluent in Language of communications
 Obligations:
o Independent
o Confidential
o Available
 PAYMENT OF MEMBERS
 General Conditions Cl.6
 Retainer per calendar month
 Daily Fee
 Reasonable expenses
 Taxes in country of contract
 Retainer reduced by 50% after
taking over
 Ad hoc DAB – no retainer
 PAYMENT OF MEMBERS

 Payment method:
o Retainer & airfares - quarterly in
advance
o Other fees after site visits / hearing
 Contractor pays in full within 56 days
 Employer reimburses Contractor
 ANNEX : PROCEDURAL RULES
 Monitor progress reports against project
documents
 Site visits
o Timing
o Agenda / scheduling / travel arrangements
o Keep up to date
o Progress
o Problems
o Claims
 ANNEX : PROCEDURAL RULES

 Site visits with Parties : co-ordinated

by Employer
 DAB shall prepare a report
 Contract & Project documents
 Monthly report
 DISPUTE REFERRAL
 Clause 20.4 – read together with
Procedural Rules
 Referred in writing stating Clause
 Sent to chairman
 84 days to Decide
 Reasoned Decision
 Unanimous
 DAB DECISION PROCEDURES
 Referral of Dispute
 Preliminary Issues
 Claimant’s position paper
 Respondent’s Response
 Claimant’s Reply to Response
 Copies to the other party
 DAB to set time table
 DAB DECISION PROCEDURES
 Parties empower the DAB to:
o Establish procedure
o Decide jurisdiction
o Conduct a hearing
o Take initiative facts & other matters
o Specialist knowledge
o Decide payment of finance charges
o Decide Relief
 DAB OBLIGATIONS IN MAKING
A DECISION
 Act Fairly
 Act Impartially
 Give parties a reasonable
opportunity to pout their case &
respond
 Adopt procedures:
o Avoid unnecessary delay
o Avoid unnecessary expense
 DAB HEARING

 Adopt inquisitorial procedure

 Refuse admission to hearings
 Proceed in absence of any party
 Not formal (no oaths)
 Evidence
 Written summaries
 DAB HEARING
 Typical hearing:
o Procedural issues
o Preliminary issues
o Jurisdictional issues
o Oral presentation by Claimant
o Witness submissions
o Respondent questions
o Oral presentation by Respondent
o Witness submissions
o Respondent questions
o Respondent’s summing up
o Claimant’s summing up
 Chairman does not end meeting until parties
have confirmed they have nothing further to add
 DAB DECISION

 DAB meets in private

 Endeavour to reach a unanimous
decision
 Failure of a member to attend
 Decision issued in writing and signed
with reasons
 FORMAT OF DAB DECISION
 Preambles
 State given under clause 20.4
 Confidential document – state circulation
 Short document
 Details of parties and contract
 Summary of dispute
 Procedure
 Reasoning : contract clauses
 Decision
 Signed & dated
 POST DECISION
 Shall be binding … promptly give
effect
 May be reversed by amicable
settlement or arbitration
 Dissatisfaction – 28 days
 Otherwise after 28 days - binding
 Failure to comply – arbitration
 Compliance is a contractual obligation
 ENFORCEMENT
(non statutory)
 Contractual obligation
 Cl.20.4 Notice of dissatisfaction
 Breach of contract
• Cl.14.3 – application for IPC
• Cl.14.6 – Issue of IPC
• Cl.14.7 – Payment
• Cl.16.1 – Suspension
• Cl.16.2 - Termination