Examining FIDIC Construction Contracts: Part 1 – The Dispute Adjudication Board

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It is usual for construction and infrastructure projects in the UAE to be procured under FIDIC-based construction contracts, with varying degrees of amendment. Although FIDIC- Fédération Internationale Des Ingénieurs-Conseils (International Federation of Consulting Engineers) contracts are generic and internationally recognized standard form construction contracts, they require amendment for use in the UAE market. In the below article, our Litigator, Mahmoud Ahmed talks about few terms & conditions of this most popular and widely used FIDIC contract.

Muqawala contract or construction
contract is in its general nature, governed by the general liability
rules stipulated in the Federal Civil Transactions Law No. (5) of 1985
as amended by the law No. (1) of 1987. In particular, the specific
articles regulating the relationship between the employer, the main
contractor and subcontractors are mentioned in articles (873) to (896)
of the same law.

This series will address one of the most popular and most widely used
construction contract types in the world: the FIDIC contract. FIDIC
stands for Fédération Internationale Des Ingénieurs-Conseils. The three
main parties to the FIDIC construction contract are: the owner, the
contractor and consultant appointed by the owner to oversee the
construction project implementation. Another party which may be added to
the FIDIC contract is the Nominated Sub-Contractor, in case the parties
nominate him in advance.

It is not uncommon for construction projects to have some form of
dispute, whether it is over materials, site conditions, progress, or
even the construction process itself. This article will focus on the
Dispute Adjudication Board clause. The Dispute Adjudication Board (also
referred to as the Dispute Review Board) is an independent and impartial
panel of Adjudictors that is empowered  to deliver binding
recommendations on the contracting parties in construction dispute situations
The DAB clause is an extremely important clause, since it provides for
the dispute process.  In particular, the main binding procedure and
pre-requisite conditions which the parties to the contract are required
to follow in order to reach an amicable settlement.

There are many court or arbitral proceedings regarding construction
disputes, which have been dismissed on the grounds that they have been
prematurely filed, and therefore failed to comply with the pre-requisite
conditions of the DAB clause. Poor phrasing and/or specifics of these
requirements, especially with regard to the appointments of the
Adjudicators, can cause unnecessary complication when disputes arise,
and may even be impossible to fulfil in practice. As such, the creditor –
interested in forming the DAB – will find himself in a vicious circle,
in a situation where the debtor refuses to take action as to the forming
of the Board. Furthermore, the creditor party cannot resort to the
court or arbitration prior to the setup of the DAB, and therefore is
completely denied the consideration of the Courts or Arbitration.

Having reviewed various clauses in FIDIC construction contracts in
relation to the construction disputes and the formation of DAB, we found
that many clauses provide for relatively complicated procedures that
the parties will find difficult to implement in practice. In particular,
these procedures will require the creditor to put in a great deal of
time and effort. By way of example, one contract provides for:

The DAB shall comprise three Persons. Each Party shall nominate one
Member for approval by the other Party. The Parties shall also consult
those two members and agree to appoint a third member who shall act as
chairperson. In case the panel fails to agree on a third member, the
person designated by Dubai Courts shall be the last member.

It would be impossible to carry out the procedures mentioned in the
above clause in case one party (the debtor) refuses to nominate his
member, or in case the debtor does not agree on the member nominated by
the creditor party. This goes against the requirements of logic and
justice since it is in the interest of the debtor that DAB is not to be
established, because the DAB may confirm that the debt in dispute is due
and payable by the debtor to the creditor. As this would enable the
creditor to resort to the court or arbitration.

Noteworthy, the jurisdiction of the Dubai Courts,
though provided for in the above-mentioned clause,  cannot be exercised
to establish the entire DAB. Rather, the jurisdiction is vested on the
Dubai Courts only in one case when the parties disagree on the
appointment of the third member after each party has appointed his own
member and the other party agreed on that member. At this case only, the
Dubai Court shall be competent only to designate the third member, the
chairperson of the DAB.

Our solution is to ensure that the DAB clause, or a
separate clause, shall expressly state that each party shall appoints
his member of the DAB and notify the other party of this appointment,
and to grant the other party  a time limit to appoint his own member. In
case of the other parties failure to do so, our party shall, upon the
expiry of the specified time limit, be deemed to have waived off this
procedure. Then, our party shall have the right to resort to court or
arbitration as agreed in the contract.

In summary, it is necessary to emphasize the need of carefully
reading and phrasing the DAB clause in a practical and logical manner to
clarify the procedures of setting up the DAB, as well as the
consequences resulting from the failure by one party to form the DAB.
Fichte & Co can assist with reviewing your FIDIC construction
contracts, and specifically the DAB clause, to ensure that it will
withstand close scrutiny  and wider construction disputes situations,
and therefore is an effective contract.

In subsequent articles, we will discuss further terms and conditions
of the FIDIC construction contract including; Retention, Variation,
Prolongation, etc., Such clauses include Termination, Applicable Law,
Dispute Adjudication Board (“DAB”) and Jurisdiction and/or Arbitration.
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further assistance with your construction dispute or review of your
construction contracts, please do not  hesitate to reach us at info@fichtelegal.com or call +971 4 435 7577

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