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Finding Your Footing in Fidic: Dispute Avoidance Through the Dispute Adjudication Board.

2023-04-25

Finding Your Footing in Fidic: Dispute Avoidance Through the Dispute Adjudication Board.

  1. Introduction 

In Commercial disputes, arbitration is arguably the most popular and widely known dispute resolution process. Historically, arbitration has been used widely in commercial disputes as a private alternative to litigation.  Like litigation, arbitration utilizes an adversarial approach that requires a neutral arbiter, known as a Tribunal, to render a decision, known as the Arbitral Award.

One key feature of Arbitral Awards is that they are final and can only be set aside, not appealed, on very stringent grounds. It therefore becomes immediately clear why it is prudent that Parties attempt to resolve the dispute by other means before referring it to arbitration. 

  1. Dispute Resolution Clauses in Contracts

Generally, dispute resolution clauses are given less attention in contract negotiations and drafting. Three reasons for this are: first, dispute resolution clauses are often seen as unimportant because at the time parties are signing the contract, many do not envisage disputes and expect that it is a happily-ever-after marriage. Second, in majority of standard form contracts, dispute resolution clauses are often the last clauses to be constructed. For instance, in FIDIC, it is clause 20, which is the last one. By the time parties get to that clause, they are exhausted and just want to sign off and pop the champagne, hence the term midnight or champagne clauses. Third, dispute resolution clauses can be complex and difficult to understand, which makes them a barrier to contract negotiation since it requires a person conversant with the dispute resolution processes and options to guide the contracting parties. 

Often, the negotiations are more on financial and technical elements of the contract and not legal. Therefore, parties rarely involve their legal advisers at this stage. Ultimately parties end up adopting the standard clause which confines them to The International Court of Arbitration (ICC) regardless of the value and what parties would have intended. Parties later learn, to their chagrin, that ICC arbitration is very expensive and that they had other options. One option is the Dispute Adjudication Board. 

  1. The Dispute Adjudication Board 

The Dispute Adjudication Board or “DAB” was introduced under the FIDIC 1999 “Rainbow Suite”, and is an impartial and independent panel of one or three people who are ideally appointed at the start of project to resolve disputed Engineer’s determinations  and to avoid the necessity to move to Arbitration as the only available ‘next step’.

There are two kinds of DABs: full term or standing permanent and ad hoc. Ad hoc DAB, as the name suggests, is appointed when a dispute arises and is disbanded once it renders its decision. 

A “standing permanent” is appointed by the parties at the outset of the contract and remains in place until the end of the contract performance. It maintains familiarity with the project, visits site periodically throughout project and decides disputes that arise by provisional binding decisions.

The “standing permanent” appointment has an edge over the ad hoc in facilitating the resolution of disputes. The former acts as a mediator through ongoing “without prejudice meetings” as the works progress thus mitigating the chances of misunderstandings developing into formal disputes, unlike the latter whose appointment takes place only after the formal dispute materialises. By then parties may have hardened their positions making it difficult to resolve.

Whether full term or Ad hoc, the DAB comprises of one or three suitably qualified persons as agreed between contracting parties in accordance with sub-clause 20.2 of the FIDIC 1999 General Conditions. The size, complexity and nature of the project is what is considered in deciding the number of members to be appointed.

Where a DAB is comprised of three members, each party appoints one member and then those members agree on the third member who becomes the Chair. Each party contributes equally to their remuneration. Where parties fail to agree on a DAB, the General Conditions provide that the appointing authority named in the Appendix to the Tender shall appoint at the request of either or both parties. 

Parties empower the DAB members to reach decisions with which they undertake to comply. Therefore, the DAB must comprise of members who have the ability and experience to wield these powers wisely and who are willing to do so. It is therefore important that the members of the DAB are experienced and are familiar with the Contract type, Jurisdiction Law, the works, and the technical and contractual issues that commonly arise during the execution of construction projects.

It is therefore advisable to have an Engineering body as the appointing authority as opposed to a legal one. This is because the disputes which may arise during the contract would be more technical than legal. 

Any dispute arising during the Contract until the contractor is discharged, is referred to the DAB by one party with a copy to the other and the Engineer. Such dispute could include a party disagreeing with a determination by the Engineer.

How Does a DAB help in dispute avoidance?

DAB promotes resolution of differences or disputes through (i) Regular visits to the site and meetings with the parties, (ii) Identification and discussion of issues before they become disputes, (iii) Providing informal opinions on issues if both parties so request, (iii) Organizing full hearings, if necessary, to hear the parties, and (iv) Making written “recommendations” or “binding decisions” on disputes referred to it by the parties, which may later be submitted in arbitration.

The DAB procedure of resolving the dispute is inquisitorial not adversarial as in arbitration. The DAB is required to make a decision within 84 days and must be reasoned. 

The decision is immediately binding and enforceable. However, a party dissatisfied with the decision can give a notice of dissatisfaction within 28 days, which is a pre-requisite to arbitration. Thereafter, the decision becomes final and forever binding on the parties. 

Conclusion

Dispute avoidance- not merely deciding disputes- is recognized as an important role for the DAB. The DAB is therefore important, and just like an insurance policy, protect parties against more costly and lengthy arbitration. DABs have proven to be a highly effective way to manage the risk of disputes, cost overruns and delays in construction projects. It is therefore important that parties broaden their technical team from the beginning so that the DAB is fully considered, costed, and made part of the tender and Contract.

Daniel Musyoka, Karen Muthee and Solomon Opole