Use of Dispute Boards: one of FIDIC's five Golden Principles

International

FIDIC has recently published detailed guidance as to the five “Golden Principles” first included with the FIDIC 2017 suite of contracts. These principles seek to identify limits to the types of amendments that can be made to a FIDIC standard form contract if it is to remain recognisable as a FIDIC contract. The fifth Golden Principle concerns Dispute Boards and we consider its implications further below.

When is a FIDIC contract no longer a FIDIC contract? The “significant changes to the General Conditions [which] are made by means of replacing, changing or omitting part of the wording of the GCs through the Particular Conditions ... have lately been found to be substantial and of such extent, that the final contract no longer represents the FIDIC principles”, according to the introduction to FIDIC’s recently published “Golden Principles”. In response, the Golden Principles set out five principles that FIDIC considers to be “inviolable and sacrosanct”. In the absence of these, your FIDIC contract is no longer a FIDIC contract.

The fifth of the Golden Principles - and the only one that FIDIC says can be expressed in explicit terms - is the requirement for a FIDIC contract to allow all formal disputes to be referred to a Dispute Adjudication Board or Dispute Avoidance/Adjudication Board (the latter being introduced in the 2017 editions of the FIDIC suite) for a provisionally binding decision as a condition precedent to arbitration. The exception to this is if there is a conflict with the governing law of the contract. For example, domestic security for payment legislation may require certain proceedings to be brought directly in the local courts, or statutory adjudication schemes may be incompatible with the use of a FIDIC Dispute Board.

Modifications to the General Conditions that are permissible include:

  • Providing that the Dispute Board’s decision is final and binding for disputes with a value less than a specified amount.
  • Permitting the Dispute Board to correct its decision for an arithmetical error (the so-called “slip rule”).

Impermissible modifications (rendering them in breach of the Golden Principle) include:

  • Deleting all the clauses in the contract that refer to Dispute Boards.
  • Restricting the ambit of disputes that can be referred to the Dispute Board to exclude certain determinations of the Engineer.

In addition, the requirements of Golden Principle 1 must also be complied with. Applied here, these require that the roles and responsibilities of the Dispute Boards under the contract must be such as to enable it to carry out its functions. Golden Principle 1 generally requires that the duties, rights, obligations, roles and responsibilities of all of those involved in the contract should be as implied by the General Conditions and appropriate to the requirements of the project.

The other three Golden Principles are:

GP2 - the Particular Conditions must be drafted clearly and unambiguously.

GP3 - the Particular Conditions must not change the balance of risk/reward allocation provided for in the General Conditions.

GP4 - All time periods specified in the contract for contract participants to perform their obligations must be of reasonable duration.

The principle underlying the requirement not to dilute the use or power of Dispute Boards is FIDIC’s desire (which is generally shared by the wider construction industry) to avoid disputes to the extent achievable, to minimise when they do arise and to resolve them efficiently when they do. However, in many jurisdictions, it remains common for the Dispute Board provisions to be deleted from FIDIC-based contracts. Only time will tell whether no longer being able to have your contract recognised as a FIDIC contract if it does not contain a Dispute Board will minimise this practice. It is, though, a welcome step in the right direction.

To see FIDIC’s full explanation of the five Golden Principles, please click here. For a comprehensive guide to the new FIDIC 2017 suite, please click here.