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FIDIC Dispute
Resolution Mechanism
01/02/2022 BY ACERIS LAW LLC

In December 2017, the Fédération Internationale Des Ingénieurs-Conseils,

more commonly known as FIDIC, released a revised version of the FIDIC
Conditions of Contract (Second edition)(the “2017 FIDIC Contracts”),
[1] introducing some notable changes to the dispute resolution
mechanism in comparison to the well-worn 1999 edition.[2]

The 2017 FIDIC Contracts maintain the already well known multi-tiered
approach to dispute resolution, insisting on a variety of alternative dispute
resolution (“ADR”) tools and promoting attempts to identify and resolve
issues between the parties early on, prior to resorting to arbitration as a
remedy of last resort.

The 2017 FIDIC Contracts retain the same core structure of the Dispute
Adjudication Board (“DAB”) as a mandatory pre-condition to arbitration,
even though the name “DAB” was changed to the “Dispute Avoidance /
Adjudication Board”, more commonly known as the “DAAB”.[3]

Other notable changes included, for instance, the inclusion of the

Engineer’s determinations, which are not final but are mandatory (with
certain exceptions), and a wider scope of responsibilities for the Engineer
in general.

The 2017 FIDIC Contracts also make a clear distinction between “claims”
(as a request for an entitlement under the Contract) and “disputes” (which
arise if a claim is rejected or ignored), dividing them into two separate
clauses: Clause 20 (Employer’s and Contractor’s Claims) and Clause 21
(Disputes and Arbitration).
History of the Dispute Resolution
Mechanism under FIDIC
Contracts
The multi-tiered dispute resolution approach is a long-standing tradition
in the FIDIC Suite of Contracts. The DAB was first introduced in 1995 into
FIDIC work contracts (the 1995 FIDIC Red Book). In 1999, FIDIC then
introduced the DAB as a permanent and mandatory feature prior to
resorting to arbitration.[4] More generally, there are two types of DAB’s:
(1) the standing board, as provided, for instance, in the 1999 FIDIC Red
Book, which is appointed at the beginning of the contract and remains in
place until its end; and (2) the ad hoc DAB, which is constituted only once a
dispute has arisen (included in 1999 only in the Yellow and Silver FIDIC
Contracts).
The 2017 FIDIC Contracts maintained a similar structure and have not
changed the pre-arbitration mandatory requirements significantly,
providing three mandatory tiers prior to resorting to arbitration:

1. The Engineer’s Determination (which is, however, not included in the

2017 Silver Book);

2. The DAAB’s Decision;

3. Arbitration.

Tier No. 1: The Engineer’s

Determination
The Engineer has a dual role in FIDIC Contracts – on the one hand, the
Engineer is appointed by the Employer to carry out specific duties under
the Contract and shall be deemed to act on behalf of the Employer when
carrying out these duties. On the other hand, the Engineer is also vested
with powers regarding resolution of claims and is the first tier of dispute
avoidance between the parties.

The role of the Engineer was expanded in the 2017 FIDIC Contracts
(although this was excluded from the Silver Book). The 2017 FIDIC
Contracts provide that the Engineer shall first consult with the parties and
encourage discussions to try to reach an agreement on the raised claim. If
no such agreement has been reached within a 42-day period, or if both
parties advise the Engineer that no agreement can be achieved, the
Engineer shall make a “fair determination” of the matter or claim
considering all relevant circumstances. The Engineer’s determination has
to be made within a 42-day period, and it has to be described in detail
with reasons and detailed supporting particulars.
Under the 2017 FIDIC Contracts, the Engineer also has a duty to be
neutral, which is expressly stipulated in Sub-Clause 3.7 of the 2017 Yellow
and Red Books.[5] The Engineer’s determinations are binding on the
parties, unless they are revised by the DAAB or in subsequent arbitration.

In fact, the 2017 version of the FIDIC Contracts explicitly provides that the
Engineer’s Determination shall become final and conclusive, and
immediately enforceable in arbitration, unless a party issues a Notice of
Dissatisfaction (“NOD”) with the determination issued by the Engineer
within 28 days.[6]

In the event that a party fails to comply with an agreement of the parties
under Sub-Clause 3.7 or a final and binding determination of the Engineer,
the other party may, without prejudice to any other rights it may have,
refer the failure itself directly to arbitration under Sub-Clause 21.6, in
which case the first and the third paragraphs of Sub-Clause 21.7 (Failure
to Comply with DAAB’s Decision) shall apply to such reference in the same
manner as these paragraphs apply to a final and binding decision of the
DAAB.

Tier No. 2: The DAAB

The second tier of dispute resolution is the so-called DAAB, whose primary
purpose is for the parties to try to settle the dispute prior to resorting to
arbitration (with its typically lengthier and more costly proceedings). Sub-
Clause 21.1 of the 2017 FIDIC Contracts sets out the procedures to be
followed for the constitution of the DAAB, stipulating that the parties shall
jointly appoint the member(s) of the DAAB within the time stated in the
Contract. If no such time is provided, they shall appoint the member(s)
within 28 days after the date the Contractor received the Letter of
Acceptance.[7]
The DAAB must comprise either one member (the “sole member”) or
three suitably qualified members (the “members”), with a default number
of three, unless the parties have agreed otherwise. In case of the parties’
failure to appoint DAAB member(s), the procedure as provided in Sub-
Clause 21.2 applies.

The DAAB shall complete and give its decision within either (a) 84 days
after receiving the reference; or (b) such period as may be proposed by
the DAAB and agreed to by both parties.[8] Its decision shall be given in
writing to both parties, with a copy to the Engineer, shall be reasoned and
shall state that it is given under Sub-Clause 21.4.3.[9] The DAAB’s decision
is binding but not final since if a party disagrees with the DAAB’s decision,
it may provide a NOD, which shall be provided within 28 day after
receiving the DAAB’s decision, as provided in Sub-Clause 21.4.4.[10] If the
DAAB fails to give its decision within the period stated in Sub-Clause
21.4.3, then either party may, within 28 days after the period has expired,
give a NOD to the other party.[11]

In case of one party’s failure to comply with the DAAB’s decision, whether
binding, or final and binding, the other party may, without prejudice to
any other rights it may have, refer the failure itself directly to arbitration
under Sub-Clause 21.6 (Arbitration), in which case Sub-Clause 21.4
(Obtaining DAAB’s Decision) and Sub-Clause 21.5 (Amicable Settlement)
shall not apply.[12] In case there is no DAAB in place, either by reason of
expiry of the DAAB appointment or otherwise, equally, Sub-Clause 21.4
(Obtaining DAAB’s Decision), and Sub-Clause 21.5 (Amicable Settlement)
shall not apply, and the dispute may directly be referred to arbitration
pursuant to Sub-Clause 21.6.[13]

Dispute Avoidance and Amicable

Settlement
The 2017 FIDIC Contracts also introduced a new optional feature, the so-
called “Avoidance of disputes” provision, allowing the parties, upon mutual
agreement, to jointly request the DAAB to provide assistance and/or
informally discuss and attempt to resolve any issue or disagreement that
may have arisen during the performance of the Contract. Specifically, Sub-
Clause 21.3, reads as follows:[14]

Where a NOD has been given under Sub-Clause 21.4 (Obtaining DAAB’s
Decision), the parties shall attempt to settle the dispute amicably before
the commencement of the arbitration. Unless otherwise agreed by the
parties, arbitration may be commenced on or after 28 days after the NOD
has been given, even if no attempt to reach amicable settlement has been
made:
Tier No. 3: Arbitration
Sub-Clause 21.6 sets out detailed provisions regarding the last resort
remedy – arbitration. As stipulated, unless otherwise agreed by the
parties, and subject to Sub-Clause 3.7.5 (Dissatisfaction with Engineer’s
determination), Sub-Clause 21.4.4 (Dissatisfaction with the DAAB’s
decision), Sub-Clause 21.7 (Failure to Comply with DAAB’s Decision), and
Sub-Clause 21.8 (no DAAB in place), any dispute in respect of which the
DAAB’s decision has not become final and binding, shall be finally settled
by international arbitration.[15]

Unless otherwise agreed by the parties:

 The Dispute shall be finally settled under the Rules of Arbitration of the
International Chamber of Commerce (the “ICC Rules“);
 The Dispute shall be settled by one or three arbitrators appointed in
accordance with the ICC Rules;
 The arbitration shall be conducted in the language defined in Sub-Clause
1.4 (Law and Language).

Sub-Clause 21.6 also explicitly provides that the arbitrators shall have full
powers to open up, review and revise any certificate, determination (other
than a final and binding determination), instruction, opinion or valuation
of the Engineer, and any decision of the DAAB (other than a final and
binding decision) relevant to the Dispute.

Conclusion
The 2017 FIDIC Contracts maintained the primary feature of the previous
FIDIC Contracts – a mandatory multi-tiered dispute resolution process,
entrusting the DAAB both with dispute avoidance and dispute resolution
adjudication powers. The amended 2017 FIDIC Contracts also addressed
certain ambiguities and problems identified in the previous versions,
including a better-defined role of the Engineer. The revised version has
further expanded the mandatory procedural steps prior to resorting to
arbitration, including the additional 42-day period for the Engineer’s
determination and a further 28 days to issue a NOD.

A well-known problem, which has remained since the 2017 FIDIC

Contracts, is the enforceability of the DAAB’s decisions in different
jurisdictions, and ambiguities regarding what FIDIC’s regime for “binding
but not final” and “final and binding” DAAB decisions actually means. Sub-
Clause 21.7, for instance, now provides that any failure to comply with the
DAAB’s decision may be referred to arbitration without a duty to seek
amicable settlement. The question, however, remains what happens in
case of a non-final DAAB decision being determined in an arbitration –
would an arbitral award enforcing a non-final DAAB decision comply with
the requirements of an enforceable award?

Another issue that remains is the legal uncertainty regarding the

enforcement of DAAB decisions in different jurisdictions, which, as
previously explained in Dispute Boards and International Construction
Arbitration, is the most limiting aspect of dispute boards, making the
decisions rendered therein less valuable for the winning party than an
arbitral award or a court judgement. Issues regarding enforceability raise
doubts as to the efficiency of the DAAB’s decisions, and the dispute board
system in general.

[1] Conditions of Contract for Plant and Design Build, Second Edition
2017 (“Yellow Book 2017”), Conditions of Contract for Construction,
Second Edition 2017 (“Red Book 2017”), and Conditions of Contract for
EPC Turnkey (“Silver Book 2017”), collectively referred to as the “2017
FIDIC Contracts”.

[2] For an overview of the FIDIC Suite of

Contracts see: https://www.acerislaw.com/fidic-contracts-overview-of-
the-fidic-suite/

[3] On Dispute Boards and International Construction

Arbitration see: https://www.acerislaw.com/dispute-boards-and-
international-construction-arbitration/

[4] Aisha Nadar, “Chapter 2: The Dispute Settlement Provisions of the

2017 FIDIC Forms of Contract and Their Potential Impact on Construction
Arbitration”, in C. Baltag and C. Vasile (eds), Construction Arbitration in
Central and Eastern Europe: Contemporary Issues, (Kluwer Law International
2019) p. 24.

[5] FIDIC Yellow Book 2017; FIDIC Red Book 2017, Sub-Clause 3.7.

[6] FIDIC Yellow Book 2017; FIDIC Red Book 2017, Sub-Clause 3.7.5.

[7] FIDIC Yellow Book 2017; FIDIC Red Book 2017, Sub-Clause 21.1.
[8] FIDIC Yellow Book 2017; FIDIC Red Book 2017, Sub-Clause 21.4.3.

[9] FIDIC Yellow Book 2017; FIDIC Red Book 2017, Sub-Clause 21.4.3.

[10] FIDIC Yellow Book 2017; FIDIC Red Book 2017, Sub-Clause 21.4.4.

[11] FIDIC Yellow Book 2017; FIDIC Red Book 2017, Sub-Clause 21.4.4.

[12] FIDIC Yellow Book 2017; FIDIC Red Book 2017, Sub-Clause 21.7.

[13] FIDIC Yellow Book 2017; FIDIC Red Book 2017, Sub-Clause 21.8.

[14] FIDIC Yellow Book 2017; FIDIC Red Book 2017, Sub-Clause 21.3.

[15] FIDIC Yellow Book 2017; FIDIC Red Book 2017, Sub-Clause 21.6.

FILED UNDER: CONSTRUCTION ARBITRATION, ICC ARBITRATION

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