An Overview of Dispute Resolution Procedures in Road Projects With Reference to the Fidic

101
Form of Contract and Suggestions for Improvements
Paper No. 559

AN OVERVIEW OF DISPUTE RESOLUTION PROCEDURES IN ROAD

PROJECTS WITH REFERENCE TO THE FIDIC FORM OF CONTRACT
AND SUGGESTIONS FOR IMPROVEMENTS
Prabin Chandra Gupta* and Krishnan Venkataraman**
ABSTRACT
Modern road construction contracts involve a complex interplay of contractual obligations and rights. The FIDIC form of the
works contract is a commonly used standard form contract for the implementation of road contracts. Events of dispute over the
interpretation of contractual conditions or otherwise are unavoidable. This paper looks into some of the principle dispute events
that are commonly experienced during the execution of road contracts. The FIDIC standard form for works contracts provides for
a variety of dispute resolution entities. The Engineer is the first level balancer of the rights and liabilities of the parties. Certain
contracts provide for the presence of an intermediate Dispute Review/ Resolution Board whose role and effectiveness has been
the subject matter of contention. There might be an intervening period necessitated by the contract to explore the possibility of
amicable settlement of disputes. Final resolution of disputes is achieved through the statute backed arbitration process. This paper
brings forth the salient features of the entities involved in the dispute resolution process and analyses their status and functioning.
The paper concludes with certain suggestions for improvement.

Introduction

1.1 It is a fact that road projects are considered to be

among the most essential among infrastructural works
in the country. Indias road network is used to transport
the bulk of inland goods and passenger traffic. The
road network is crucial to Indias economic sustenance
and growth. Whether it be apples from Kashmir, slag
transported in specially designed trucks or oversize
components of rockets, the demands on the road network
have been on the increase. With growing international
exposure, people of India have begun to expect and
demand the best quality roads that will enable high
level of mobility across the length and breadth of the
country. Quality of roads has become an important
political issue of late with development being measured
against quality and coverage of road networks. It is not
surprising that among the various infrastructure sectors,
after electricity, the Planning Commission has envisaged
highest capital inflow into the development of the road
sector in the country.
1.2 The government has clearly declared its intention and
commitment to develop a world class road infrastructure

in the country and the Central government and numerous

State governments have begun identifying key stretches
for prioritising the construction, strengthening and
widening of new roads. It is necessary to effect
implementation of this intent by the awarding of large
specialized contracts. With the standards of work
and expectation of users becoming more exacting,
contracts have become increasingly specialized and
complicated with the rights and obligations of parties
spelt out explicitly. It has been realized that to expect
the participation of competent contractors from around
the world, it is necessary to induce a balance between
contracting parties so that the incentive for participation
is appropriate and the resolution of consequences is
effected in a fair and equitable manner. Howsoever
detailed or carefully prepared a written contract may
be, it is inevitable that circumstances will arise where
the parties may be in dispute as to the interpretation
of contractual conditions and obligations and rights of
parties to the contract. It thus becomes necessary for a
neutral body to examine the contentions of parties and
resolve the disputes effectively. It is necessary to have
a modus of dispute resolution which is acceptable to all

*Manager (Technical), Bihar State Development Corp. Ltd. Patna, e-mail:prabchan3@rediffmail.com

**Advocate, Contract Management Consultant, Visiting Faculty, IIM Ahmedabad, e-mail: krishnan.v78@gmail.com
Written comments on this paper are invited and will be received upto 30 June 2010 .

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Gupta & Venkataraman on

102

parties including the employer, financer and contractor.

The process should instill confidence in the stake-holder
parties so that the desired result of the creation of an
infrastructure asset takes place in an efficient manner.
1.3 In the recent past, one very popular standard form
for the execution of works contracts has been the
FIDIC (Federation Internationale Des IngenieursConseils) Conditions of Contract for works of Civil
Engineering Construction. This document forms the
core of many modern road contracts and understanding
its implications has become key to the successful
management of such contracts. The technical aspects of
the work are usually governed by the Specifications for
Road and Bridge Works (Fourth Revision) published by
the IRC on behalf of the Ministry of Road Transport and
Highways, Government of India. Each contract would
effect amendments to these standard documents based
on the specific attributes of the project.
1.4 This paper examines the modes of dispute resolution
prevalent in modern road contracts in India based on
the FIDIC standard form for works contracts. Common
causes leading to disputes in road contracts are first listed
and discussed in brief to give an idea of the nature of
disputes requiring resolution. The next portion of this
paper presents the common dispute resolution modalities
provided for by FIDIC works contracts. Arbitration as
a mechanism for dispute resolution is then discussed.
A discussion of the different variations in the dispute
resolution procedure adopted by various FIDIC formats
is analysed. The paper then brings out suggestions for
systemic improvement.
2

Dispute events in Road

Construction Contracts

2.1 Modern road construction projects involve

significant mobilization of men, machinery, material and
other resources. For the construction of new road and
the widening of existing roads to multi-lane highways,
it is necessary to acquire large contiguous stretches of
land and relocation of public utilities on a large scale.
During the execution of such projects, it is inevitable
that disputes arise in the interpretation of the rights and
liabilities of the contracting parties. Road construction
contracts have a multiplicity of reciprocal promises that
unfold as the work progresses. At different stages of the
progress of the works, each party has a responsibility to
undertake specific actions. Failure to take a certain action
would entitle the opposite party to raise claims and take

action to realize the compensation. Such compensation

could be in the form of money or could require relaxation
of some other contractual stipulation like time. In certain
cases like situations of force majeure, either party may be
freed from certain obligations. In certain cases, external
events can also imply compensation as the risks for
events like catastrophic natural calamities or unforeseen
physical circumstances could be borne by either one
party. Certain claims could arise on considerations
that not grounded on the exact terms of the contract
but on reliefs offered by statutory law or customs of
the trade. The exact nature of the relationship between
the parties would depend on the nature of the project.
Not all contracts manage to capture the relationship
accurately.
2.2 It has been observed that certain typical disputes
arise during the execution of works contracts in the road
construction sector. The disputes can be described to fall
into the following broad categories:
a)

Obligations of Employer and Engineer like

handover of land and timely communication of
drawings and approvals not being met leading to
claims for time extension and cost compensation.

b) Events defined as an Employers risk could lead

to a cause of action for cost compensation by
the Contractor. In the case of the FIDIC form of
the Contract, this would correspond to what is
commonly referred to as Force Majeure events.
c)

Variations to the terms of the contract and

dissatisfaction with respect to the definition and
valuation of variations is a common cause of
disputes.

d) External Events (not always directly in reference

to contractual clauses) like an abnormal rise in
certain input costs could form the subject matter
of a dispute.
e)

Ambiguity in contract conditions and the inability

of parties to agree on the intent of the Contract
could lead to disputes.

f)

Subsequent Legislation where it is not uncommon

to find that both the fact of existence of a subsequent
legislation and also the contractual intent for
compensation on that account is the subject matter
of dispute resolution.

g) Unjustified termination of Contract and its

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An Overview of Dispute Resolution Procedures in Road Projects With Reference to the Fidic
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Form of Contract and Suggestions for Improvements
consequences including the encashment of bank
guarantees can be brought up for resolution as a
dispute.
h) Cost claims on account of delay due to faults not
attributable to the Contractor which could also
include disputes with regard to the right of the
Employer to impose liquidated damages.
It is observed generally that most disputes that require
resolution are raised by the Contractor. This should not
be taken to mean that it is mostly the Employer who is
in default of contract. Given the fact that the Employer
has a discretionary power in the contract not available
to the Contractor, the Employer usually has the option
of exercising that discretion in the approval of payments
or extension of time. The Contractor typically reacts to
certain actions of the Employer which the Contractor
considers unjust. It is left to the dispute resolution
procedure to determine which party is on the right side
of the contract.
3

Alternate Dispute Resolution

modalities adopted in FIDIC based
contracts

3.1 Context
3.1.1 Disputes between parties are instances of
differences in opinion in the way a contract ought to be
interpreted. In most cases, it is the existence of financial
implications that causes parties to take rigid stances to
their respective positions. When a dispute develops,
it is expected that parties would begin taking steps
to communicate their positions by correspondence. It
is common to find many overlapping and successive
mechanisms for the resolution of disputes.
3.2 Role of the Engineer in Dispute Resolution
3.2.1 In the FIDIC form of the contract, importance is
given to the role of an intermediary, neutral Engineer
to administer the contract on a day to day basis. The
Engineer who is appointed by the Employer is expected
to determine, certify, approve actions and decide issues
in accordance with the provisions of the contract. In a
way, the presence of an Engineer is expected to be an
important balancer in the manner in which a contract
is administered. However, it is not uncommon that
discretionary powers over the Engineers determinations
are reserved by the Employer thus restricting the powers
of the Engineer to independently manage the contract.
These powers could include decisions on variations,

determinations of extra cost and extension of time which

would have a crucial bearing on the final contract price
besides progress of the works. This would imply that the
role of the Consulting Engineer in acting as a balancer
of rights is somewhat diminished. Cases are not lacking
where the Engineer makes mistakes leading to situations
when either party may feel aggrieved by actions of the
Engineer. Since neither party is bound by the decisions
of the Engineer. the dispute resolution mechanism is
resorted to when parties disagree with or dispute the
decisions of the Engineer.
3.2.2 The Engineer continues to be an important resource
to make recommendations, based on intimate knowledge
of day to day functioning of the Contract, to aid the
discretion of the Employer. The presence of the Engineer
also ensures that important contemporary documentation
is maintained. The Engineers correspondence with
the parties helps in throwing light into the facts and
circumstances surrounding the disputes and helps
tribunals and the court in understanding the genesis
of contentious issues. When the presence and actions
of the Engineer fails to avoid disputes, it is necessary
to refer the dispute to a neutral body of individuals for
resolution.
3.3 Dispute Review/ Resolution Boards
3.3.1 The law of the land provides for the formation of
Arbitration Tribunals in accordance with the Arbitration
and Concilliation Act, 1996 for the final resolution of
disputes of parties contractually agreeing to such a
procedure. Some contracts provide for a quasi legal
body variously named as Disputes Resolution Board,
Disputes Adjudication Board or Dispute Board. Such
bodies are intended to provide a site based, less formal
and optionally binding solution to disputes prior to
the process of arbitration. Such Boards are intended
to be constituted at the time of commencement of
contract. Senior professionals with experience in road
construction and knowledge of contact conditions are
nominated to the Board with the consent of both parties.
Boards meet at certain regular intervals to assess the
progress of the works. Parties refer matters to the Board
for dispute resolution and in most cases, hearings are
held similar to arbitral hearings with a limited procedural
formality including provision for written pleadings and
adherence to the principles of natural justice. There is a
strict time limit (which is frequently extended by parties
with mutual consent) to give recommendations on
disputes and parties have the option of either accepting

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Gupta & Venkataraman on

the recommendations (in which case they become final

and binding) or else referring the dispute onward to
arbitration.
3.3.2 Opinions however remain divided with regard
to the functional necessity and efficacy of such
intermediary bodies. It is true that prior to a more
formal and adversarial environment of an Arbitral
Tribunal, parties have an opportunity to test the quality
of their respective positions in an open forum. It is
not uncommon to find certain cases withdrawn on the
basis of discussions effected during the proceedings
of a Dispute Review Board. On the other hand a large
majority of disputes, though deliberated upon at length
before these intermediary bodies, do not reach settlement
and ultimately get referred to arbitral tribunals. One
reason suggested for the lack of acceptance of DRB
recommendations is the fact that the general culture
and practice of the construction sector has been skewed
towards powerful Employers who had a final say on
contractual matters. With the practice of excepting
matters from litigation on the basis of Employers
decision, it is difficult for parties (especially the
Employer) to accept the findings of the DRB if it goes
against their stand. It is felt that the time and resources
devoted to effecting DRB proceedings could rather
have been spent on arbitral proceedings where matters
are resolved with greater finality and backed by statute.
Whatever be the case, it is eventually the wisdom of the
parties at the time of entering into the Contract that lead
to the adoption of particular modes of dispute resolution
as allowed by the law.
3.4 Arbitration
3.4.1 Arbitration is provided for by statutory law as an
alternative to submitting disputes to the jurisdiction of
civil courts. In the Indian context, the overburdened
court system would mean that an unduly long period
elapses before disputes reach final settlement. This can
be detrimental to the influx of finance and capital into
projects. Court procedures and legal intricacies can also
seem unfamiliar to foreign contractors and investors who
would prefer arbitration with its simplified procedures
largely governed by the mutual agreement of parties.
There is also the opportunity of involving technical and
subject experts for the resolution of specific disputes.
Certain parties prefer the relative privacy offered by
arbitral proceedings. It has become standard practice
in all large infrastructure projects to refer disputes to a
duly constituted arbitral tribunal.

3.4.2 The process of Arbitration is governed in Indian

law by the Arbitration and Conciliation Act, 1996. The
Act provides wide latitude to contracting parties to
choose the mode of Arbitration and composition of the
Arbitral Tribunal. The procedure to be followed by the
Tribunal is also open to determination either by mutual
agreement of the parties or by the Tribunal itself. The
high degree of autonomy provided to the process of
Arbitration is evident by the fact that even in cases when
a party decides to challenge an arbitrator or question
the jurisdiction of a tribunal, the Act provides that the
Arbitral Tribunal is competent to decide such challenges
or questions of jurisdiction. This is quite remarkable
in itself and demonstrates the diligent faith of the law
that solutions to disputes arising out of contracts can be
found within the four walls of the contract. When parties
to a contract, by their free will, are ready to submit all
or some of their contractual disputes to arbitration,
they are expected to do so with open eyes aware of all
consequences (beneficial or otherwise). At the end of an
Arbitration process, the award of the Arbitral Tribunal,
if no action to set it aside is taken within the prescribed
time, becomes enforceable like a court decree. It is
pertinent to note that the courts do exercise a supervisory
role over Arbitral Proceedings vide the provisions of
Sections 34 and 37 of the Act based on actions initiated
by aggrieved parties. While Section 37 gives a limited
right to appeal against the decisions of the Arbitral
Tribunal on questions of its own jurisdiction and interim
measures of protection granted/ refused by it, Section
34 provides only the right to make an application to a
court (within 3 months of receiving the arbitral award)
to set aside the award. The application to set aside an
award can be made under certain exacting conditions.
Thus, although the court has a supervisory role to play
in ensuring that Arbitral Tribunals are functioning within
the ambit of the law, the court cannot actually go into
the merits of the dispute to judge whether the Arbitral
Award is correct or otherwise. Thus, in the case of the
actual award of an Arbitral Tribunal, the court does not
sit in appeal over the contents of the award but only
decides if the due process of law has been followed in the
conduct of the proceedings. Section 34 (2)(b)(ii) of the
Act provides the only latitude to the courts to examine
the contents of the Arbitral Award to determine whether
it is in conflict with the public policy of India. The
term public policy has a nebulous meaning and offers
opportunity to the aggrieved party to direct the courts
attention to the contents of the award. The courts have

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An Overview of Dispute Resolution Procedures in Road Projects With Reference to the Fidic
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Form of Contract and Suggestions for Improvements
been watchful in attempting to balance the intent of the
law by appropriately shaping the ambit of public policy
with reference to the Act. It should be noted that even if
the court finds that an Arbitral Award is in conflict with
the public policy of India, the court cannot correct or
otherwise finally decide the contractual dispute between
the parties. The court can merely set aside the Arbitral
Award. The matter in dispute has to be finally resolved
by parties by resort to Arbitration.
3.4.3 In case of arbitration proceedings other than an
international commercial arbitration, when the place
of arbitration is situated in India, the law expects the
Arbitral Award to be decided in accordance with:
a)

The substantive law for the time being in force in

India

b) The terms of the Contract

c)

Usages of trade applicable to the transaction

3.4.4 The courts have time and again ruled that an

Arbitral Tribunal is a creature of the contract and that its
Award must be confined to the four walls of the contract.
Any determination or award made in transgression of
a valid contract can be considered a dismeanor on the
part of the Arbitral Tribunal.
3.4.5 It is thus seen that when contracting parties decide
to refer disputes to arbitration, they are agreeing to a self
governing mechanism where resolution of contractual
disputes is to be found within the contract itself. This
is in fact a sign of a mature economy that its citizens
possess the skills and wisdom to govern their contracts
effectively without recourse to the controlling authority
of the State.
4

Different Dispute Resolution

Paths Based on the FIDIC Contract

4.1 Fourth Edition

4.1.1 The FIDIC form of the Contract (Fourth Edition
1987), is a version used in most road contracts in
India. The unamended form of the 1987 edition FIDIC
works contract gives a more formal role to the Engineer
in dispute resolution. As per Clause 67.1, either the
Employer or the Contractor have to, in the first instance,
submit all disputes of any kind to the Engineer. The
Engineer has 84 days after receipt of notice to decide
the dispute. It is pertinent that no formal procedure
of hearings, written claim/response, etc, is laid down

in the clause. It is expected that the Engineer apply

his independent judgment to the matter and decide in
accordance with contractual provisions. If either party
is dissatisfied with the decision of the Engineer or if no
decision is notified to parties within 84 days, parties have
70 days after receipt of the notice of decision or expiry
of 84 days to communicate intention to commence
arbitration with respect to the dispute in question.
However, the decision of the Engineer as a valid forum
for dispute resolution gains value when neither party
gives notice to commence arbitration within the 70
day-period provided for in the Contract. After the expiry
of the due 70 day-period, the decision of the Engineer
becomes final and binding on the parties. It is also
pertinent to note that even if the dispute has been referred
to arbitration, parties shall immediately give effect to
decisions of the Engineer till the same is to be revised
by amicable settlement or arbitration.
4.1.2 The unamended fourth edition of the FIDIC works
contract form contains an intermediate provision for
amicable settlement after a dispute has been referred to
arbitration. Arbitration proceedings involve considerable
cost and time implications. The adversarial proceedings
during Arbitration also leads to souring of relationships
between employers and contractors due to the necessary
wear that litigation requires. Thus, even after notice to
commence arbitration has been given, a final, mandatory
opportunity is provided to parties to resolve the dispute
amicably. 56 days have been provided for the process
of amicable settlement following the communication of
the notice to commence arbitration. No strict procedure
has been laid out for the amicable settlement procedure
though it is possible that the Engineer may also be
involved if the parties so desire. Sometimes, both parties
try to involve their top management in the picture to
resolve the dispute. Following the 56-day mandatory
period, even if the parties do not reach an amicable
settlement on the dispute, the aggrieved party may
choose to commence arbitration.
4.2 Amended format
4.2.1 Many contracts in India which are financed by
institutional lending agencies like the International Bank
of Reconstruction and Development (World Bank) or the
Asian Development Bank that have been awarded during
the past decade have made amendments to the FIDIC
standard form to provide for a Dispute Resolution Board.
Since 1994, all World Bank financed projects with value
greater than US Dollar 50 million have provisions for
DRB. In due course, the provision for a DRB has been

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Gupta & Venkataraman on

adopted by contracting organizations as part of their

standard procedure.
In the case of the 1999 edition of the FIDIC form of the
works contract, even without amendment, there was
provision for a Dsiputes Adjudication Board (DAB).
In the format prescribed in the 1999 FIDIC form, either
party that is aggrieved by the Engineers decision could
refer a dispute to the DAB in writing. The DAB, which
is a panel of experts, must give a written decision on the
dispute within 84 days of receipt of the written reference.
On being dissatisfied with the DABs decision, either
party may give notice of such dissatisfaction to the other
party within 28 days of the receipt of the decision failing
which the decision becomes final and binding on the
parties. On issue of such a notice of dissatisfaction, the
parties necessarily spend 56 days to attempt amicable
settlement after which, if no amicable settlement is
reached, the matter is settled by arbitration.
4.2.2 The amended dispute resolution procedure bypasses
the Engineer by providing for the constitution of a
dispute resolution/ review board. The board consists of
three members experienced with the type of construction
and conditions of contract involved. One member is
selected by each party within 28 days of the letter of
acceptance of the contract. The third member is to be
selected by the two selected members within a further
period of 14 days or some such period as stipulated
in the contract. If any of these steps do not take place
within the specified time periods, then at the request of
either or both parties, a previously named nominating
authority in the bidding document would select the DRB
member. It is seen that in many cases, the contractually
stipulated time lines are not followed and the formation
of DRB takes much longer period even upto a year.
The role of the appointing authority is rarely involved
in the formation of the DRB. It is also observed, that
in certain contracts, reference to the named appointing
authority has not been made at all. An interesting feature
of the DRB is that, unlike as required by the procedure
for arbitration, there is a further requirement that all
members of the DRB have to be approved by both
parties. This would imply that the less formal process
of the DRB enjoys a greater trust of both parties to help
evolve a mutually acceptable solution by the persuasive
efforts of the DRB to accept a settlement. However, it is
not uncommon to find that the DRB hearings also adopt
the adversarial method with very less opportunity for
conciliation or mediation to arrive at mutually acceptable
solutions to contentious issues.

4.2.3 The DRB usually has a fixed period of 56 days

for resolving a dispute. The result of the efforts of the
DRB is termed as a recommendation. This would
imply that the DRB only has a role to prescribe certain
solutions without any obligation on parties to accept
the same. However, there are provisions wherein DRB
recommendations are binding in the short term and
final and binding upon the occurrence of certain events.
Once a DRB issues a recommendation, it is binding
upon the parties who are to give effect to them promptly
until revised by an arbitral award. If the DRB issues
recommendations within 56 days and if no party, being
dissatisfied with the recommendations, gives notice to
refer the dispute to arbitration, the recommendations of
the DRB become final and binding on the parties. Only
within a 14 day period of the issue of recommendations
by a DRB (if issued within 56 days) or after the expiry
of the 56-day period (due to the inability of the DRB
to issue recommendations), can parties exercise their
right to refer a dispute to arbitration. This is a necessary
condition precedent for a dispute to become a valid
subject matter of arbitration. If the right to refer a matter
to arbitration is not exercised within the said period, no
arbitration can commence with respect to that dispute.
It has been felt by some that the 14-day period is too
short for parties to take a considered view of the DRB
recommendations. To safeguard their rights, parties
often automatically refer disputes to arbitration thus
rendering the DRB efforts somewhat futile. However,
non adherence to the time limit can be excused
by a competent court after consideration of valid
reasons as per the provisions of Section 43(3) of the
Arbitration and Conciliation Act, 1996. Thus, the DRB
procedure has some semblance of a forum empowered
to effect final and binding resolutions to disputes on
the happening of certain events. The amended FIDIC
clause also usually deletes the subclause relating to
amicable settlement before proceeding to arbitration.
This is probably due to the assumption that the DRB
proceeding, with its informal process of arriving at
a settlement incorporates elements of an amicable
settlement.
4.2.4 The Annexe to the Conditions of Particular
Applications in such amended contracts may also
provide for detailed procedures that govern the conduct
of the parties and the DRB. DRB members are expected
to meet norms of eligibility which include:
a) absence of financial interest in the Contract

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Form of Contract and Suggestions for Improvements
b) absence of previous employment with any of the
contracting parties or the Engineer
c)

disclosure of any recent or close professional

or personal interests with any director, officer
or employee of the employer, contractor or the
Engineer

d) abstinence from employment with either parties of

the contract or the Engineer without prior consent
of the parties and other board members
e)

not entering into discussions for future employment

with any parties of the contract or with the
Engineer

f)

impartiality and independence

g) fluency in English
4.2.5 Thus, it is clear that there are stringent and explicit
norms of impartiality and independence that DRB
members are expected to follow. Payments to DRB
members are to be shared equally by the employer and
the contractor thus, further ensuring impartiality. The
DRB members are required to visit the site at regular
intervals so that they are acquainted with the factual
circumstances prevalent at site. If both parties lose
confidence in the members of the DRB, the parties can
unanimously disband the DRB and reconstitute a new
DRB. The DRB procedure also lays down requirements
for providing full opportunity to both parties to a hearing.
Thus-it would appear that the DRB guidelines and
procedure have laid sound foundations for a successful
system of early resolution of disputes.
4.2.6 However, in practice, only minority of disputes
are finally resolved at the DRB stage. Inevitably, parties
continue on to the arbitration stage rendering the DRB
only a formality in a long winding process that ends
up in the higher courts for final settlement. One reason
is the perceived lack of efforts at reaching negotiated
settlements. If either party sticks to its stand till the
end, there is low probability of agreeing to a full stop
to a dispute especially when further opportunities exist
for agitating before a higher forum. It is observed that
employer organizations that have a tendency to avoid the
genesis of disputes (by reaching negotiated settlement
by mutual consensus) also have a greater chance for
accepting DRB recommendations.
4.2.7 In many cases, the DRB is unable to communicate
recommendations in time leading to automatic referrals

to arbitrations after the expiry of the 56-day period.

Reasons for such delay are many including the inability
of parties to complete written pleadings in a timely
manner. Sometimes a DRB is saddled with multiple
disputes simultaneously and is unable to complete the
proceedings for some disputes within the 56-day period.
On an average around three to four months are taken by
DRB to issue recommendations. The period of 56-day
given to DRB appears to be inadequate.
4.3 Bank Harmonised Edition of FIDIC 2005
4.3.1 In 2005, FIDIC published a separate form for use
in works funded by Multilateral Development Banks.
The General (unamended) Conditions therein have a
significantly revised clause relating to dispute resolution.
This form of the Contract has only recently seen the light
of day in Indian contracts. It is noted that the dispute
resolution clause in the bank harmonized FIDIC works
contract form is similar, if not the same as the dispute
resolution clause given in the FIDIC General Conditions
of Contract for EPC/ Turnkey Projects (first edition,
1999).
4.3.2 The clause specifies that all money claims and
applications for extension of time have to be given
as soon as is practicable and not later than 28 days
after the Contractor became aware of the event or
circumstance. Claims have to be submitted with details
and supporting particulars to the Engineer within 42day of the Contractor becoming aware of the relevant
circumstances. The clause clearly lays down that if
such notice has not been given within the 28-day period
mentioned, the Contractor shall lose all entitlement to
the claim and the Employer shall be discharged of all
liability in connection with the claim.
4.3.3 After receiving detailed particulars of a claim, the
Engineer has 42-day to process the same. The 42-day
period can be extended if proposed by the Engineer and
accepted by the Contractor. Even if the Engineer needs
more time and details to process the claim fully, the
Engineer is expected to respond within the stipulated
time indicating whether he agrees or disagrees with the
claim in principle.
4.3.4 Any dispute including dispute over the actions of
the Engineer may be referred by parties to a Dispute
Board (DB). It is interesting to note that unlike the
previous requirement of the FIDIC form, there is no
mandatory requirement that all disputes have to, in
the first place, be referred to a DRB. However, this

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Gupta & Venkataraman on

clause retains the requirement that until a notice of

dissatisfaction with respect to the DB has been given
by either party, no entitlement to commence arbitration
exists. Thus, it would appear that it is not possible to
bypass the DB and directly proceed to arbitration.
4.3.5 The DB consists of one or three members to be
appointed by a date set out in the Contract. As in the
case of the DRB, all DB members have to be approved
by both parties. As in the case of the DRB, in case there
is a stalemate or inaction by any entity to appoint DB
members, a previously named appointing authority or
official in the bidding document is requested by both
parties to appoint a member to the DB in consultation
with both parties. The DB has 84 days to decide a
dispute after receiving notice of reference. In the case
of the DB, the nomenclature of the result of its efforts
is a decision unlike a recommendation of the DRB.
As in the case of the DRBs recommendation, a DBs
decision is binding on parties who have to give effect
to the decision forthwith even during the pendency of
further efforts at dispute resolution including amicable
settlement and arbitration. If either party is dissatisfied
with the decision of a DB or if the DB is unable to give its
decision within 84 days, parties are entitled to commence
arbitration within a period of 28 days after receipt of the
decision or the passage of 84 days without a decision
being given by communicating a notice of dissatisfaction.
This notice of dissatisfaction, given within the stipulated
time period entitles a party to commence arbitration.
This is like a condition precedent.
4.3.6 Even in the case a notice of dissatisfaction is given,
there is a mandatory period of amicable settlement for
56 days before commencement of arbitration. Thus, it is
seen that the harmonized form of the FIDIC form makes
all possible attempts of averting formal litigation and
only when the long drawn period of engineers efforts
(42 days), DB decision (84 days), notice period (28 days)
and amicable settlement (56 days) elapse that arbitration
can commence. In a way, this entire process also has the
effect of dissuading parties from commencing arbitration
(which is both expensive and effort intensive). This also
has the effect of giving arbitration tribunals a much
deeper view of the dispute as it has passed through
multiple stages of formal scrutiny with reasoning of
many intervening, impartial entities available. Since
the bank harmonized form of the FIDIC contract is
still in a nascent stage of implementation, it is yet to be
seen if the changes in the format for effecting dispute

resolution have significant positive effect on the conduct

and attitude of parties.
5

Analysis and Suggestions

5.1 Disputes do not occur in vacuum. In most cases, the

genesis of disputes is in the inadequacy of the contract
to capture accurately the circumstances affecting
the contract. In many cases, it is the detailed project
report (DPR) which is the basis of most contractual
assumptions. Proper investigations on the ground,
proper topographic surveys, use of design principles and
preparation of a sound DPR would ensure that bids are
based on realistic assumptions of the tender rather than
requiring revisit during the pendency of the contract.
5.2 Much error of intent originates during the stage of
tender clarification and negotiation. Loosely worded
documents are rarely clarified explicitly despite requests
for clarification. In the case of many contractors,
those responsible for compiling bid rates do not place
sufficient stress on the actual scope of the works and the
necessary margin for error.
5.3 The Employer is often caught ill prepared when it
comes to providing possession to unencumbered site
within the time specified in the Contract. This is an
important factor that gives rise to significant claims for
extension of time, cost overruns and non imposition of
Liquidated Damages. Often, in the case of government
contracts, greater reliance is placed on external
influences like departmental policy and audit concerns
rather than a faithful interpretation of the prevailing
words of the contract. For disputes to be appreciated and
the contemporarious roles of parties to be assessed, it is
necessary for dispute resolution fora to rely on evidence.
On this front, it is common to find parties that have
acted negligently by not taking necessary action within
the time specified in the contract. The FIDIC contract
imposes duties on parties to act within certain fixed
times in order for the actions to be valid and tenable.
Failure to take the necessary actions, including, for
example communicating intention to refer a dispute to
arbitration within the specified time limit, would act as
a limitation and bar to the future invocation of a remedy.
These contractually specified limitations to remedy
have been recognized by the law as failure to meet
conditions precedent. It is thus necessary that parties
remain attentive to their respective rights and take timely
action to prevent the extinguishment of remedies. There
is thus a strong need to exercise judicious management

Journal of the Indian Roads Congress, January-March 2010

An Overview of Dispute Resolution Procedures in Road Projects With Reference to the Fidic
109
Form of Contract and Suggestions for Improvements
of the contract evidenced by timely and appropriate
communication in writing to and between parties from
the stage of its drafting and inception until the successful
achievement of contractual objectives.

and the Employer should take timely steps to complete

the process of determination and approval, and the
time gap between the execution of varied work and the
decision of rate for varied work should be minimal.

5.4 In the case of the DRB recommendations, it has been

felt that the amended FIDIC form provision of 14 days as
a time limit for giving notice to commence arbitration is
too short as parties do not have sufficient time to come to
terms with the implications of DRB recommendations.
To safeguard their interests at times, arbitral proceedings
are commenced even if not necessary. It is suggested
that keeping in mind the necessity to not burden
parties with delay in final resolution of disputes and
the necessity to be able to properly come to terms with
DRB recommendations so as to be able to attempt
settlement, a period of 42 days should be available to
both the parties after receipt of DRB recommendations
before necessarily being forced to submit the dispute to
arbitration. It is also felt that all claims within a certain
threshold (based on the contract price) should be finally
decided by the DRB and excepted from arbitration or
further litigation. This would cause parties to be more
attentive and careful during the DRB stage while also
giving meaningful relevance to the role of the DRB.
It will help if the party going to DRB submits full
supporting documents along with his notice of dispute
and request for recommendation. The period of 56 days
for the DRB could be increased to 84 days as in case of
the World Bank harmonized document.

5.6 In the final analysis, it has to be understood that

even the best worded contract will fail to generate
the desired results if the parties to the contract do not
possess the right attitude and genuineness of intent to
complete the work. Roads are public works executed by
a team of the Employer, the Engineer and the Contractor.
Each member of the team is motivated by a variety of
incentives. While it is expected that the Employer plays
a lead role in the creation of the finished road within the
contractual framework of time and cost and to the level
of quality intended, the Engineer and the Contractor
have to actively cooperate to ensure success. Regular
high level meetings by top decision making functionaries
of the Employer and Contractor would help in building
trust and eliminating avoidable disputes. It should be
reemphasized that, howsoever detailed and lengthy a
contract is, it is only a representation of the intent of
contracting parties. If there is unison of intent, success in
implementation can be achieved without the occurrence
and subsequent resolution of disputes.

For the DRB to be a more effective body for dispute

resolution, the focus should shift away from making
recommendations and towards achieving settlement of
disputes. The DRB should be empowered to meet with
high powered committees of both the Employer and
Contractor so that in the presence of the DRB attempt to
reach a mutually arrived at settlement moderated by the
DRB. If either partys stand is capricious or untenable
and the party is adamant to stick to the untenable stand,
the DRB should record so. If the parties are unable to
reach a mutually agreeable settlement, the DRB should
prepare a report of the attempts at mutual reconciliation
and the matter should be left there for the parties to take
into arbitration if required. By doing away with the need
of a decision/ recommendation, the focus will shift away
from the adversarial stance which can actually do more
harm and instead the focus would shift to trying to arrive
at a mutually agreeable consensus.
5.5 In case of valuation of variations, both the Engineer

Acknowledgement

The authors would like to gratefully acknowledge

the advice given by Shri D P Gupta, former Director
General (Road Development) and Additional Secretary
to Government of India, MORTH while reviewing the
draft and giving useful suggestions.
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Journal of the Indian Roads Congress, January-March 2010

Gupta & Venkataraman on

110 An Overview of Dispute Resolution Procedures in Road Projects With Reference to the Fidic
Form of Contract and Suggestions for Improvements

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Journal of the Indian Roads Congress, January-March 2010