Procurement difficulties in appointing the DAB

No DAB in place: how to deal?

‘TECHNICAL AUDIT’ VS FIDIC DAB/DAAB MECHANISM

Case study: a large and complex infrastructure, under FIDIC Contract,

completed within the budget without appointing the DAB

4TH GLOBAL PROCUREMENT CONFERENCE

Villa Mondragone 9 July 2019

Angelo Bianchi
Procurement Specialist, PMP®
The context

• We are all aware of the benefits of the Dispute Adjudication

Board (DAB) mechanism in large infrastructure projects

• DABs facilitate agreement and are a powerful tool for

resolving disputes before parties move with an arbitration

• While the old FIDIC suite (1999) recommended an ad-hoc

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DAB on Yellow Book contracts and a standing DAB on Red
Book contracts, the new FIDIC suite (2017) recommends a
standing DAAB (Dispute Adjudication/Avoidance Board) on
all forms of contracts
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Benefits of an early appointing of the DAB

• Most of the benefits of the DAB are possible if the DAB is

constituted at the early phase of the contract, so that its
recommendations can prevent mistakes and litigation costs

• Ideally DAB members should be selected and appointed

before works commence at site

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• Multilateral Development Banks are supporters of the DAB
mechanism and encourage the appointment of the DAB at
an early stage
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 However, in practice … there are
difficulties in appointing DABs

• According to the FIDIC contract, each Party shall pay

one-half of the remuneration

• Parties (in particular Employers) are concerned about the

costs of the DAB, and they delay the appointing process

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• In most cases, Employers believe they can manage the
disputes without the DAB and are doubtful that the DAB
can really prevent/avoid future costs of litigation

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 Further public procurement constraints

• According to the FIDIC (MDB, 2010) contract, ‘the Parties

shall appoint a DB by the date stated in the Contract Data’
(3 members in case they do not reach an agreement)

• But most of the Employers are public Contracting

Authorities and cannot appoint an expert without a public

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competitive procedure

• In particular, the EU PRAG (Practical Guide for external

contracts) does not allow the single tender procedure
(direct selection) for the appointment of an expert, even if it
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is jointly appointed by both Parties
One of the EU procurement principle: Competition

• UE- funded projects

(external actions) have to
be carried out in
compliance with the PRAG.

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The result of neglecting the procurement constraints:
no DAB is appointed

• As a consequence of the mentioned difficulties in

appointing the DAB, many large infrastructure projects
financed by the IFIs (EU in particular) are carried out
under FIDIC contracts, but with no DAB in place

PROJECTS OF CIVIL INFRASTRUCTURE UNDER FIDIC CONTRACT: WITH OR WITHOUT DAB

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Country Sector Period Project Title Funds FIDIC Form Contract With or without DAB
value
(M EUR)
Turchia Railway 2003-2017 Irmak-Karabük-Zonguldak Railway Line EU Red Book 99 220 No DAB in place
Turchia Railway 2012-2017 Köseköy–Gebze section (Ankara–Istanbul) EU Red Book 99 147 No DAB in place
FYROM Highway 2012-2018 Demir Kapija–Smokvica (Corridor X) EU-EIB-EBRD Red Book 99 210 No DAB in place
Albania Sanitation 2015-2018 Sewerage System in Vlora, phase 2 EU Yellow Book 99 13 No DAB in place
Albania Highway 2007-2018 Levan-Tepelene highway EU Red Book 99 89 No DAB in place
Serbia Railway 2013-2016 Ćuprija-Paraćin railway line EIB Red Book 99 16 No DAB in place

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 No DAB in place? Typical problems

• On average, litigation costs are much higher of the saved

DAB’s costs

• The decisional process of the Employer is slower

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Contracts are completed with
relevant delays and additional costs

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 Objective

This presentation focuses on the

general difficulties of appointing DABs in international projects
carried out under FIDIC Conditions of Contracts
and in particular on
the procurement issues of selecting Board members
in EU-funded projects.

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The purpose is
the identification of
feasible and efficient procurement procedures
to have an early appointment of the DAB 9
Case study

A large and complex infrastructure

successfully completed
within the budget (210 million euro),
with no DAB in place

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 Focus on a large transport infrastructure project
co-financed by three major IFIs

• The project is the construction of a section (28 Km long) of a

new motorway along one of the Pan-European Corridors

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Scope of the Works Contract
carried out under FIDIC RB (1999)

• new motorway, 2 lanes double carriageway

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• 28 km long
• 6 major bridges
• 2 twin-tube tunnels (1.2 km each)
• 8 million m3 of earthworks

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The crucial contractual facts

• The works included the re-design of 5 out of the 6 major

bridges, following variations proposed by the Contractor
(to move foundations out of the river beds)
• The Engineer’s Team included 20 full-time experts on site
(8 expatriates and 12 local experts), for a contract value of
5% approximately of the construction costs

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• The Engineer’s Team included a short term FIDIC expert,
who provided his opinion on each claim, before the
involvement of the Technical Audit Team
• The Employer was supported by a Board of local experts 13
The procurement procedure chosen by the IFI

• At the beginning of the 3rd of the 4 years planned for the

completion of the works, the IFIs’ coordinator realised
that the Parties had delayed the appointment of the DAB,
to the point of not having appointed him at all
• But relevant contractual issues had arisen, and they
required prompt action from a Dispute Resolution Board

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• The IFI decided to invest a small amount (0.1% of the
works contract value) in the appointment of a ‘Technical
Audit Team’, following the a public competitive procedure
called FWC (*), which is completed by 21 calendar days
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• (*) FWC is the EU standard procurement procedure used for external contracts
with value of < EUR 300,000 and duration up to 3 years
The Technical Audit Team, appointed by the IFI (grant)

It consisted of 4 Independent Senior Experts, recruited and

coordinated by an International Consulting Firm:

1. Highway Engineer (TL), expert of Works Supervision

2. Contract Engineer
3. Bridge Specialist
4. Tunnel Specialist

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The ToR of the Technical Audit Team (a de facto DAB?)

The ToR of our Technical Audit Team were very similar to the
general obligations of a DAB:

• Ensure availability for periodic visits to the site

• Become conversant with the contract and progress of the
works

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• Meet with Employer/Contractor/Engineer without giving
advise to either Party on the conduct of the contract
• Give advice and opinions on specific contractual issues, if
and when required by the IFI
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Factual results of this case study

Following the Technical Audit Team’s opinions, on issues that

had caused Contractor’s claims and delays:

• Two relevant Contractor’s claims for additional costs were

withdrawn
• The suspended payment of a relevant IPC was released, and
the works moved forward according to the Programme

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• The Engineer’s assessment of a large and complex variation
proposed by the Contractor was definitively completed,
with full agreement of the Parties
• The Works were completed within the budget and with the
desired quality 17
 Conclusions

• It should not be neglected that the appointment of the DAB

in FIDIC contracts still remains difficult because of the
Employers’ resistance and public procurement constraints
• DABs (or equivalent Dispute Resolution Teams) may be
quickly appointed by the IFI, following a competitive
selection procedure (e.g. FWC)

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• The competitive procedure may guarantee: equal
independence and competence, at reasonable costs
• The IFIs should consider to finance DAB’s costs through
grants (following a proper competition), if they are really 18
convinced of the DAB’s benefits for the implementation of
works contracts
Now, the procurement question:

… are DAB members a Priestly Class of experts

that must be selected without competition?

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 Benefits of the proposed procurement option

Current situation Future situation

• Appointment of the DAB is often • The DAB is appointed by the IFI
delayed within 21 days

• Employers are concerned about • IFIs (supporters of DABs) take

DAB’s costs over the costs of the DABs (by
grants)

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• DABs (suite 2017?) risk to be • The DAB is selected following a
considered a ‘priestly class’ standard competitive public
appointed without competition procurement procedure

• The appointment of the DAB • The appointment is fully 20

risks to be non compliant with compliant with the public
the public procurement rules procurement rules