Unpacking the Adjudication Procedure in the 1999 FIDIC Forms of Contract

Introduction

It is common to hear contractors claim that they have submitted a claim to the Engineer on a construction contract under the FIDIC forms of contract and are now proceeding to submit the same claim to the adjudicator. In response, the Employer often argues that there is no dispute and therefore adjudication is unnecessary and premature. This scenario frequently occurs in projects where the adjudication process is not well understood by the parties involved. In this article, I aim to clarify the adjudication process outlined in Subclause 20 [Claims, Disputes, and Arbitration] of the 1999 FIDIC Forms of Contract.

The Role of the Dispute Adjudication Board (DAB)

Disputes under the 1999 FIDIC Forms of Contract are initially adjudicated by a Dispute Adjudication Board (DAB), which can consist of one or three members as outlined in Subclause 20.4 [Obtaining Dispute Adjudication Board’s Decision]. The main features of the DAB include:

1.???? A decision rendered within a relatively short period, specifically 84 days from the referral of the dispute in the Red, Yellow, and Silver Books according to Subclause 20.4.

2.???? The DAB's decision is binding and final unless a notice of dissatisfaction is issued by either party within 28 days of receiving the decision.

The DAB operates in two models: a "standing DAB" in the Red Book, MDB, and an “ad hoc” DAB in the Yellow and Silver Book, as specified in Subclause 20.2 [Appointment of the Dispute Adjudication Board] and 20.3 [Failure to Agree Dispute Adjudication Board] in the Red, Yellow, and Silver Books. These provisions require additional information to be detailed in the relevant contract document, such as the Appendix to Tender in the Red and Yellow Books, the Contract Data in the MDB and Gold Books, and the Particular Conditions in the Silver Book. Notably, a standing DAB can be adopted for a Yellow Book and an ad hoc model for the Red Book, depending on the project.

Remuneration for DAB members is outlined in Subclause 20.2, with each party responsible for half of the payment, and further detailed in Clause 6 of the General Conditions of the Dispute Adjudication Agreement.

A "standing DAB" is appointed by the parties at the beginning of the contract and remains active throughout its duration. This model allows for dispute avoidance through the DAB's active involvement in the project, including site visits and discussions with the parties, which can help resolve potential disputes amicably. Conversely, an “ad hoc” DAB is appointed only when a dispute arises, and its sole role is to adjudicate the dispute referred to it, without playing a significant role in dispute avoidance.

Obtaining the Dispute Adjudication Board’s Decision

Subclause 20.4 [Obtaining the Dispute Adjudication Board’s Decision] outlines the procedure and requirements for referring a dispute to the DAB and governs the parties’ right to do so. A key principle of this referral process is the 'keep working' provision, which requires the parties to continue performing their contractual obligations while the DAB adjudicates the dispute.

The Adjudicator’s Jurisdiction: Crystallization of the Dispute

The opening words of Subclause 20.4 [Obtaining the Dispute Adjudication Board’s Decision] are:

“If a dispute (of any kind whatsoever) arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works, including any dispute as to any certificate, determination, instruction, opinion or valuation of the Engineer, then after a DAB has been appointed pursuant to Sub-Clause 20.2 [Appointment of the Dispute Adjudication Board]and 20.3 [Failure to Agree Dispute Adjudication Board], either Party may refer the dispute in writing to the DAB for its decision, with a copy to the other Party. Such reference shall state that it is given under this Sub-Clause.”

From this, it is evident that Subclause 20.4 sets preconditions which have to be met before a party can refer a dispute to adjudication. It grants a party the right to refer disputes arising from and related to the contract and the execution of the Works. Consequently, the adjudicator would lack jurisdiction initially if a dispute has not crystallized. The referral must be in writing and follow the provisions in Subclause 1.3 [Communications].

?The question then is how "dispute" is defined in the context of Subclause 20.4 [Obtaining the Dispute Adjudication Board’s Decision]. The courts have severally tried to answer this question in different cases. In Beck Peppiat Ltd v Norwest Holst Construction Ltd [1] it was held that a narrow approach to the meaning of “dispute” for adjudication purposes should be avoided and that it should instead be given its ordinary English meaning. In Fastrack Contractors Ltd v Morrison Construction Ltd[2] it was held that a dispute arises only after a notified claim has been considered, admitted, modified, or rejected by the opposing party Building on the reasoning in Fastrack[3], Judge Lloyd in the case of Sindall Ltd v Abner Solland[4], emphasized that a dispute exists when a point has emerged from discussions or negotiations that have ended, necessitating a decision. In the leading case of Amec Civil Engineering Ltd v The Secretary of State for Transport [5], Jackson J, among his seven propositions, held that the mere notification of a claim by one party does not automatically and immediately give rise to a dispute. Furthermore, there is a distinction between a dispute and a claim, as explained in the case of Edmund Nuttall Ltd v R G Carter Ltd [6].

Building from this, A dispute materializes when a contractor’s claim under Subclause 20.1 [Contractor’s Claim] is not admitted, either explicitly by the Engineer under Subclause 3.5 [Engineer’s Determination] or implicitly through discussions or silence, not simply when the claim is made. Additionally, only one dispute can be referred to adjudication at a time, though a single dispute may encompass multiple issues under various claims, as shown in Michael John v Golledge[7].

Dispute Arising under and in connection with the Contract

The right to adjudicate under the FIDIC Forms of Contract pertains to disputes arising from and related to the Contract and Execution of Works. In Ashville Investments v Elmer Contractors [8], it was established that a clause covering disputes under the contract, including the words "in connection with," should be interpreted broadly to encompass related claims such as rectification and negligent misstatement.

Disputes arising under the contract are those where the cause of action stems from the contract, such as a party failing to honor a term by non-performance or interfering with the other party’s performance. This includes issues like delayed access, claims for an extension of time, or costs for specific works.

Since the adjudicator’s power is derived from the contract, they can also determine whether a particular term has been incorporated into the agreement as seen in Edmund [9], and handle disputes related to variations made to the original terms as in the case of Ballast plc v The Burrell Company (Construction Management) Ltd [10]. The adjudicator can also decide on which of two separate sets of contract conditions applied to the parties (provided that both sets gave him jurisdiction to do so) as in Dalkia Energy and Technical Services Ltd v Bell Group UK Ltd[11], or the entitlement to an award of damages if the breach of contract is proved as in Gillies Ramsay Diamond and Gavin Ramsay and Philip Diamond v PJW Enterprises Ltd[12].

However, given the drafting of clause 20.4, it goes beyond handling claims for breach of contract but also encompasses non-contractual claims like tortious claims like professional negligence (Gillies Ramsay Diamond v PJW Enterprises Ltd)[13],or an order for rectification (Christiani & Nielsen Ltd v The Lowry Centre Development Company Ltd)[14], restitution (ISG Retail Ltd v Castletech Construction Ltd)[15] and specific performance (Multiplex Constructions (UK) Ltd v Mott MacDonald Ltd)[16].

A key question in the construction industry is whether there can be a dispute under the contract if the contract is terminated or deemed void. If terminated, disputes remain "under" the contract, allowing for adjudication, as was held in A&D Maintenance and Construction Ltd v Pagehurst Construction Services Ltd [17]. However, if the contract is void, it is considered never to have existed, eliminating the possibility of disputes under it.

Referral of the Dispute and Decision of the DAB

The Dispute Adjudication Board (DAB) becomes involved in a dispute when one party submits a written referral to the DAB, with copies to the other party, as specified in Subclause 20.4. This referral must clearly state that it is made under the relevant Sub-Clause. Typically, no formal dispute notice is required under the FIDIC forms, so the dispute is defined by the contents of the referral.

Both “standing” and “ad hoc” DABs in the Red, MDB, Yellow, and Silver Books have no general time restrictions for when a dispute can be referred. However, for standing DABs, the referral must occur before their appointment expires. The DAB generally has the authority to determine the procedure for resolving the dispute, except for certain matters agreed upon by the parties.

All communications and documents must be shared with all DAB members and the other party throughout the process, following Procedural Rule 4. The DAB can proactively request documents and written arguments before any hearing, as per Procedural Rules 4 and 6. Hearings, though not mandatory, are typically less formal than those in arbitration or litigation.

Under Sub-Clause 20.4, the DAB's decision must be issued within the specified time, in writing, reasoned, and stating that it is given under that Sub-Clause. The timing differs based on whether it is a standing or ad hoc DAB:

1.???? Red Book and MDB: within 84 days of receiving the referral.

2.???? Yellow and Silver Books: within 84 days of receiving the referral or the advance payment of estimated expenses and daily fees, whichever is later, according to Clause 6 of the General Conditions of Dispute Adjudication Agreement.

The DAB's decision is binding on the parties "unless and until it is revised in an amicable settlement or arbitral award," according to Subclause 20.4 in all books. To prevent the DAB decision from becoming final and binding, a party must issue a notice of dissatisfaction to the other party. This notice is a prerequisite for initiating arbitration under Sub-Clause 20.6 [Arbitration]. Therefore, a party that is dissatisfied must strictly adhere to the provisions in Sub-Clause 20.4 regarding the notice and the formalities outlined in Sub-Clause 1.3 [Communications].

Conclusion

The adjudication process outlined in Subclause 20 of the 1999 FIDIC Forms of Contract establishes the procedures parties must follow when referring a dispute to adjudication. It is crucial for a dispute to crystallize, as this crystallization grants the adjudicator initial jurisdiction. Given that the adjudication process can be complex, this article serves as a helpful guide to the prerequisites for adjudication, and proper conduct during and after the proceedings.

[1] [2003] EWHC 1953.

[2] [2000] BLR 168.

[3] Ibid.

[4] [2001] TCLR 712.

[5] [2005] EWCA Civ 291.

[6] [2002] EWHC 400 (TCC).

[7] [2006] EWHC 71 (TCC).

[8] [1987] 37 BLR 55.

[9] Edmund (n 6).

[10] [2001] ScotCS 159.

[11] [2009] EWHC 73 (TCC).

[12] [2003] ScotCS 354.

[13] [2002] ScotCS 340.

[14] [2000] AdjLR 06/16.

[15] [2015] EWHC 1443 (TCC).

[16] [2007] EWHC 20 (TCC).

[17] (2000) 16 Const.